Redefining for ab e tt er fu t ure ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2024 Contents Directors’ report 18 Finance lease receivables 101 Nature of the business 2 19 Payments made in advance 101 Overview of the year 2 20 Trade and other receivables 102 Operational performance 3 21 Investments 103 Financial performance 5 22 Cash and cash equivalents 103 Legal separation 8 23 Share capital 103 Governance and compliance 8 24 Debt securities and borrowings 104 Human resources 13 25 Payments received in advance and contract liabilities and 106 deferred income Shareholder compact performance 14 26 Employee benefit obligations 108 Reportable irregularities 17 27 Provisions 111 Events after the reporting date 17 28 Lease liabilities 113 Approval 17 29 Trade and other payables 113 Report of the audit and risk committee 18 30 Loan from shareholder 113 Statement by company secretary 23 31 Revenue 114 Independent auditor’s report to Parliament and the shareholder 24 on Eskom Holdings SOC Ltd and its subsidiaries 32 Other income 114 Statements of financial position 38 33 Primary energy 114 Income statements 39 34 Employee benefit expense 115 Statements of comprehensive income 39 35 Net impairment and write down/(reversal of write down) 115 of assets Statements of changes in equity 40 36 Other expenses 115 Statements of cash flows 41 37 Depreciation and amortisation expense 115 Notes to the financial statements: 38 Net fair value and foreign exchange gain/(loss) 116 1 General information 42 39 Finance income 116 2 Summary of material accounting policies 42 40 Finance cost 116 3 Capital management, going concern and impairment 52 41 Income tax 117 4 Critical accounting estimates and assumptions 57 42 Cash generated from operations 118 5 Financial risk management 61 43 Net debt reconciliation 119 6 Accounting classification and fair value 79 44 Financial guarantees, contingent liabilities and assets 119 7 Segment information 83 45 Commitments 120 8 Property, plant and equipment 86 46 Related-party transactions and balances 121 9 Intangible assets 89 47 Events after the reporting date 122 10 Future fuel supplies 90 48 Restatement of comparatives 123 11 Investment in equity-accounted investees 90 49 Remuneration of directors and executives 124 12 Investment in subsidiaries 90 50 New standards and interpretations 126 13 Inventories 93 51 Information required by the Public Finance Management Act 127 14 Deferred tax 93 52 Reportable irregularities 131 15 Loans receivable 95 Appendix – Abbreviations, acronyms and definitions 136 16 Embedded derivatives 95 Company information 139 17 Derivatives held for risk management 96 The annual financial statements were prepared under the supervision of the chief financial officer, C Cassim CA(SA). The financial statements have been audited in compliance with section 30 of the Companies Act of South Africa, 71 of 2008 (Companies Act), and approved by the board of directors (board) on 18 December 2024. The audited financial statements of the group and company as at and for the year ended 31 March 2024 are available for inspection at the company’s registered office and were published on 19 December 2024. The full suite of the group’s externally published reports, including the financial statements and integrated report, are available at www.eskom.co.za. 1 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Directors’ report for the year ended 31 March 2024 The directors are pleased to present their report for the year ended 31 March 2024. Nature of the business Eskom Holdings SOC Ltd (Eskom) and its subsidiaries (together the group) is South Africa’s primary electricity supplier through the vertically integrated regulated electricity business (Eskom and National Transmission Company South Africa SOC Ltd (NTCSA)) that generates, transmits and distributes electricity to local industrial, mining, commercial, agricultural, redistributor (metropolitan and other municipalities) and residential customers and to international customers in southern Africa. The group also purchases electricity from independent power producers (IPPs) and international suppliers in southern Africa. Eskom is a state-owned company, with the Minister of Electricity and Energy (previously the Minister of the Department of Public Enterprises (DPE)) as the shareholder representative. The state is the only shareholder in Eskom. The group’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 primary business focus of the other subsidiaries is to support the electricity business. Overview of the year The information in this report covers the group performance of Eskom and its major operating subsidiaries, unless otherwise stated. A high-level summary of the pertinent issues that characterised the year under review, as well as any material developments after year end, is presented in this report. Additional information, where relevant, is contained in relevant sections of the directors’ report, annual financial statements and integrated report. Dr M Nyati was appointed as chairman of the Eskom board of directors with effect from 31 October 2023 after Mr PM Makwana resigned on 30 October 2023. Cabinet approved the appointment of Mr DL Marokane as the group chief executive in December 2023. He officially joined Eskom from 1 March 2024 and Mr C Cassim then resumed his role as group chief financial officer. These changes contributed to leadership stability which is crucial for the execution of key strategic initiatives relating to financial and operational sustainability, facilitating a competitive energy industry, modernising the power system and the net zero emissions. Loadshedding was required on 329 days (2023: 280 days) during the year, partly due to the unavailability of three Kusile units resulting from the failure of the flue-gas duct and two Koeberg units on consecutive planned outage. The successful execution of the Generation Recovery Plan, combined with interventions under the President’s Energy Action Plan overseen by the National Energy Crisis Committee, have led to a significant improvement in the reliability, efficiency and availability of the coal-fired generation fleet resulting in loadshedding last being implemented on 26 March 2024. Despite the recent stability of the power system, it remains unpredictable and unreliable with the risk of loadshedding expected to remain until the capacity shortfall of 4 000MW to 6 000MW is addressed. Earnings before interest, tax, depreciation and amortisation (EBITDA) was R43.4 billion (2023: R34.6 billion restated) and the EBITDA margin improved to 14.7% (2023: 13.3% restated) mainly due to the growth in revenue because of the regulatory standard tariff increase of 18.7% for Eskom’s direct customers from 1 April 2023 despite a 2.7% decline in sales volume because of loadshedding, load curtailment and a general decline in the economy. This was partially offset by additional expenditure on primary energy related expenses mainly because of operational challenges. The group recorded a net loss after tax of R55 billion for the year (2023: R26.1 billion restated) representing an increase of R28.9 billion that mainly resulted from the derecognition of R36.6 billion deferred tax assets. Refer to note 14. Liquidity in the long term after the debt relief period remains at risk due to financial sustainability challenges arising from an inadequate tariff path, high debt service costs, escalating arrear debt as well as poor generating plant performance that would require reliance on expensive Eskom and IPP open cycle gas turbines (OCGT) to supplement the electricity supply should the current improved generating plant performance and reliability deteriorate. A key focus area to improve liquidity and ultimately financial sustainability is to drive savings on the group’s annual cost base. The group aims to achieve savings by limiting cost growth and, where possible, reducing costs or identifying income opportunities. Savings and income opportunities of R9.9 billion were recorded for the year against the shareholder compact target of R22.4 billion. The combat of crime, fraud and corruption remains a priority, including addressing the risks relating to the discovery of the creation of a large number of illicit prepaid electricity tokens in Eskom’s online vending environment. Eskom received R76 billion through the debt relief arrangement during the current year, of which R44 billion was approved for conversion to equity by 31 March 2024 and the remaining R32 billion was approved for conversion to equity on 29 July 2024. One of the debt relief conditions requires that all net cash proceeds from the sale of non-core assets, including Eskom Finance Company SOC Ltd (EFC), may only be used to settle debt and interest payments. The debt relief support was reduced by R2 billion in both 2024 and 2025 to R76 billion and R64 billion respectively after agreement with National Treasury. Progress has been made to dispose of EFC with the Eskom board accepting an offer from African Bank Limited in October 2024, subject to Public Finance Management Act, 1 of 1999 (PFMA) and other relevant regulatory approvals. There has been a low level of compliance with the municipal debt relief programme as 46 municipalities out of a total of 71 municipalities that received approval or conditional approval from National Treasury by 31 March 2024 did not comply and failed to fully settle their current accounts. National Treasury is engaging with these municipalities highlighting the risk of their participation in the program being terminated due to non-compliance after which Eskom will be allowed to resume its credit control and debt management policies and any legal proceedings. The programme continues to deliver disappointing results with 61 municipalities not complying with the conditions by 30 November 2024 resulting in these municipalities moving into default. One municipality has met the compliance cycle for 12 consecutive months resulting in a write-off of R0.3 billion in November 2024. National Treasury issued instruction letters to Eskom on 16 December 2024 to write off one-third of the ringfenced debt for five municipalities to the value of R3.0 billion, even though these municipalities have not fully complied with the conditions of the municipal debt relief programme at the close of their first cycle. National Treasury also confirmed that where these municipalities were not maintaining their current accounts, the shortfall of R3.5 billion should be settled in four instalments from January 2025 to April 2025, failing which National Treasury will consider the removal of the municipality’s participation in the municipal debt relief programme. Breach notices have been issued and engagements between all parties, including National Treasury, is underway. Impending termination letters as a warning to non-compliant municipalities were issued by National Treasury in December 2024. Eskom continued with its credit management processes for municipalities that breached their debt relief conditions. The corporate strategy is being reviewed and improved to ensure the focus remains on addressing significant changes as the dynamic and evolving environment in which the group operates requires a resilient and adaptable strategy. Following workshops between the executive committee (Exco) and the board, three areas of elevated priority were identified for the organisation which include recovering generation operational performance to end loadshedding, driving the unbundling of Eskom by ensuring operationalisation and commencement of trade by NTCSA in 2025 and preparing for the next phase of the legal separation by revising the business models in line with the liberalisation and decarbonisation of the electricity supply industry. 2 All the suspensive conditions were met and/or waived between Eskom and NTCSA on 31 March 2024 to effect the merger agreement and operationalise NTCSA resulting in the accounting of the disposal of the transmission division to NTCSA on 31 March 2024 as described in note 12. NTCSA commenced trading on 1 July 2024 as a wholly owned subsidiary of Eskom. This signifies a key development in executing the government’s policy of creating a restructured, competitive and dynamic electricity market as well as in Eskom’s turnaround plan. The board considered that there are uncertainties and dependencies relating to the going-concern assessment of the group and company that exist both from a timing of intervention perspective as well as whether the plans will materialise as anticipated. The events, conditions and assumptions described in note 3.2 inherently include material uncertainties that may cast significant doubt on the going concern of the group and company. The board has a reasonable expectation that the risks relating to the going concern 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 they materialise as envisaged. The board assessed the current cash flow projections considering that future capital costs during the debt relief period will be funded from cash from operations. The board concluded after carefully considering the progress of the initiatives included in note 3.2 and the continued financial support from the government through the debt relief arrangement that there is a reasonable expectation that the group and company have access to adequate resources and facilities to be able to continue its operations and fund the capital programme for the foreseeable future as a going concern. The consolidated and separate financial statements have therefore been prepared on a going-concern basis. Operational performance Outage performance and recovery plans have been hampered in recent years by the late release of funds because of the group’s constrained liquidity position. The release of funding for planned maintenance was possible because of the debt relief which improved the situation and allowed for key outage readiness activities such as the ordering of spares and other long-lead materials, issuing of task orders, finalising the integrated schedule and the aggressive planned maintenance programme which is part of the Generation Recovery Plan. Performance of the outage readiness indicator at T-3 for the year remained below the shareholder compact target of 80% despite the improved release of funding during the year. Eskom and IPP-owned OCGTs continues to be used extensively during the year due to the poor performance of the coal-fired generation fleet as well as lower production by renewable energy IPPs. The OCGT load factor for the year increased to 17.0% (2023: 14.3%) against a target of 12.0%. The additional OCGT costs were offset against under expenditure in other primary energy cost categories. The most significant deterioration in operational performance is evident in the increased number of loadshedding days that were required during the year mainly because of increased planned maintenance and less than expected production by IPPs. Loadshedding and load curtailment were as a result implemented for 6 367 hours (2023: 5 557 hours), reducing supply by an estimated 13 215GWh (2023: 13 476GWh). Technical performance Generation performance The continued operation of four older power stations (Camden, Hendrina, Grootvlei and Arnot) up to 2030 has been approved to retain their dispatchable capacity due to prioritisation of energy security. The Just Energy Transition strategy has been decoupled from the planned power station shutdown which means that the repurposing and repowering projects at the power stations are planned to be rolled out in parallel with the continued operations. Plant-related actions were consolidated into an online database through a generation recovery action tracker per station that allows improved and continuous tracking and monitoring against station specific goals. The tracker was rolled out to all 14 coal-fired power stations. Approximately 3 045MW of 3 115MW (98%) of the generation recovery actions were executed and completed. The energy availability factor (EAF) target of 65% for 2024 was not achieved as the EAF of the generating plant deteriorated to 54.6% (2023: 56.0%) partly due to the unavailability of three units at Kusile and the planned outages of the two Koeberg units. Unplanned partial and full load losses (UCLF) increased to 32.3% (2023: 31.9%). The Generation Recovery Plan aims to achieve a step change in improving generation performance and plant reliability by improving availability to an EAF level of 65% for the year ending 31 March 2025 and at least 70% by the end of March 2025. The energy utilisation factor (EUF) for the entire generation fleet increased to 81.8% (2023: 81.5%). The high average fleet EUF was largely due to coal-fired power stations running at an average EUF of 96.5% (2023: 95.6%) with all coal-fired power stations recording EUF levels above 90%. Coal EUF levels remains above the international norm of around 75% and negative technical consequences remain a risk over the long term due to the age of the fleet. The graph below reflects the inter-relationship of unplanned, planned and other capability loss factors with the EAF and coal EUF. % % 50 100 40 80 30 60 20 40 10 20 Coal energy utilisation factor (%) – right axis Energy availability factor (%) – right axis Other capability loss factor (%) – left axis Planned capability loss factor (%) – left axis 0 0 Unplanned capability loss factor (%) – left axis 2020 2021 2022 2023 2024 Eskom continues to make progress on the long-term operational activities to operate the Koeberg power station for another 20 years beyond 2024. Koeberg unit 1 was connected to the grid in December 2023 after a planned long-duration outage. The outage of Koeberg unit 2 with a similar long refuelling and maintenance outage as unit 1 to replace the three steam generators began on 11 December 2023. The three steam generators have been successfully placed in position with the return to service of unit 2 expected in January 2025. 3 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Directors’ report continued Operational performance (continued) Technical performance (continued) Generation performance (continued) The National Nuclear Regulator (NNR) separated the licence expiry dates for Koeberg unit 1 and 2 on 25 January 2024 to ensure alignment with each unit’s design life of 40 years. The licence expiry date for unit 1 therefore remained as 21 July 2024 and was extended to 9 November 2025 for unit 2. The NNR also announced its decision to grant Eskom a licence to continue operating unit 1 for another 20 years to 21 July 2044 on 15 July 2024 and deferred the decision on unit 2 as some of the prerequisites for long-term operation are still being implemented in the current outage of unit 2. All coal power stations had coal inventory above their individual minimum inventory holding levels at 31 March 2024. Normalised coal inventory of 45 days (2023: 29 days) (excluding coal inventory at Medupi power station) improved compared to the prior year. Eskom continues to work with mines on initiatives to improve coal quality with specific initiatives focused on the supply to Matla power station where the majority of the coal quality-related load losses occurred during the year. The coal quality from short- and medium-term suppliers across the system improved, which accounts for around 35% of coal supplied, due to initiatives such as verification sampling. Network performance Transmission system reliability improved compared to the prior year with a decrease in system minutes lost <1 minute to 3.3 minutes (2023: 4.7 minutes). This was due to a reduction in the number of interruption incidents, improved restoration response and reduced exposure to theft-related events. Distribution network performance remained stable. Energy losses increased marginally to 9.9% (2023: 9.7%), totalling 19 166GWh (2023: 19 151GWh) with an increase in the estimated non-technical losses to 13 924GWh (2023: 13 396GWh) for the year. Refer to note 51.3. Distribution continues to execute various initiatives to reduce both technical and non-technical energy losses whilst a review of the loss curtailment strategy is underway. Theft, vandalism and overloading of both networks and transformers continue to contribute to increased system interruptions that impact on resource availability. The management of overloading of transformers caused by illegal connections is a key focus area. Plans to modernise the grid and sustain the distribution network performance include constructing around 4 000km of medium- and high-voltage lines with a capacity of about 1 400MVA during the next five years. Environmental performance Relative particulate emissions performance deteriorated to 0.8kg/MWh sent out (2023: 0.7kg/MWh sent out) due to ash and dust handling plant issues as well as poor performance of electrostatic precipitator and sulphur trioxide plant. Combined Lethabo, Kriel, Matla and Kendal power stations contribute to more than half of the total emitted particulate matter. The criminal matter regarding the air quality of Kendal power station instituted against Eskom and its board has again been postponed by the court to January 2025. The emission recovery plan continues to be implemented as required by the atmospheric emission licence compliance directive received in 2019. The Minister of the Department of Forestry, Fisheries and the Environment (DFFE) issued a decision on 23 May 2024 granting Eskom’s request for the suspension of the minimum emissions standards limits for power stations operating up to 2030 and provides for an exemption process for plants operating beyond 2030. An exemption application for power stations operating beyond 2030 was submitted in December 2024 after a public consultation process in November 2024. The target for specific water usage was not met with 1.43ℓ/kWh sent out (2023: 1.39ℓ/kWh sent out) against the target of 1.38ℓ/kWh sent out for the year. Water performance across the fleet continues to be negatively affected by poor water management practices linked to operational challenges as well as low load factors. Safety The group is committed to the health, safety and Zero Harm of its employees, contractors and members of the public. Steps are being taken to ensure that risks and opportunities are being managed and that the value of Zero Harm is being entrenched throughout the organisation. The lost-time injury rate target of 0.30 for the year was achieved with a rate of 0.29 (2023: 0.26). There were two employee fatalities (2023: one), three contractor fatalities (2023: three) and 32 public fatalities (2023: 17) which include 12 (2023: one) coal haulage related incidents during the year. Public fatalities were restated to include coal haulage incidents. Capacity expansion programme Significant construction work was completed from inception to 31 March 2024 under Eskom’s capacity expansion programme resulting in the addition of 15 529MW (2023: 15 529MW) of installed generation capacity, 8 622km (2023: 8 548km) high-voltage transmission lines and 39 528MVA (2023: 39 505MVA) substation capacity to the national grid. Generation capacity is anticipated to increase by 17 130MW by 2025 with completion of the programme expected by 2028. The focus remains on completing the remaining scope on the balance of plant work, executing major plant defect repairs and resolving contractual and commercial matters towards project close-out at Medupi power station with the target for full project completion of December 2025. There are five units in commercial operation, connected and supplying energy to the national grid while the turbine repairs for unit 4 is currently in progress, following the generator explosion in August 2021. Commercial operation was achieved for four units at Kusile power station by 31 March 2024. The three units that were offline since October 2022 following the failure of the flue-gas duct were returned to service. Progress was made on the permanent solution to repair the flue-gas duct and is estimated to be completed by March 2025. Commercial operation at unit 5 was achieved on 30 June 2024 contributing 799MW of installed capacity to the grid. The first synchronisation of unit 6 is expected by the end of the 2025 financial year and commercial operation is targeted for six months thereafter with the final completion of the Kusile power station expected in May 2027. Kusile power station was fitted with wet flue-gas desulphurisation emission abatement technology in line with current international practice to ensure compliance with air quality standards. The Medupi power station flue-gas desulphurisation project is currently in the development phase. The project completion forecast, pending board approval, is targeted for September 2032 with anticipated costs of R41.8 billion which is subject to change. The interventions to correct major plant defects at new build projects will ultimately ensure that the plant achieves contractual levels of performance. Current interventions resulted in improvements which are evident at Medupi power station where the EAF improved by an average of 20% and at Kusile unit 4 where the reliability and availability is improving steadily. The target for transmission lines installed was not achieved due to tender delays on one of the lines. The transformer capacity installed and commissioned target was also not achieved due to unforeseen delays resulting from commissioning challenges of transformer protection schemes. Focus remains on accelerating project development and execution as well as closely monitoring contractor performance on projects in execution to strengthen the network through the Transmission Development Plan to support the grid connection with additional capacity. 4 The National Energy Regulator South Africa (NERSA) issued two licences to Eskom on 29 October 2024 that allow Eskom to operate the Sere and Lethabo solar photovoltaic power plants in the Western Cape and Free State provinces. Connections of 114 800 (2023: 102 590) households were completed during the financial year under the electrification programme funded by Department of Mineral Resources and Energy (DMRE). A total of 98 IPP projects with a capacity of 7 638MW (2023: 7 467MW) were connected to the grid since inception of the Renewable Energy IPP Programme in 2011. The group has 119 power purchase agreements in place at 31 March 2024 with a total capacity of 9 645MW. A total of 90 renewable energy IPP projects with a capacity of 6 180MW (2023: 6 106MW) are in operation. Eskom also procured energy from two peaker IPP OCGTs with a capacity of 1 005MW as well as through two short-term programmes and the Risk Mitigation IPP Procurement Programme with capacity of 160MW and 150MW respectively. Refer to page 70 of the integrated report for more information. Financial performance Performance EBITDA performance of the group improved by R8.8 billion to R43.4 billion (2023: R34.6 billion restated) mainly due to increased revenue in the current year. The net loss before tax of R25.5 billion (2023: R34.6 billion restated) reflected an improvement in performance of R9.1 billion. The net loss after tax of R55.0 billion (2023: R26.1 billion restated) increased by R28.9 billion compared to 2023 mainly due to the derecognition of the deferred tax asset as it is expected that Eskom will not generate sufficient taxable income against which the unused tax losses can be utilised over the period of the 2025 to 2029 Eskom Corporate Plan even though Eskom is expected to return to a tax paying position over the forecast period. Refer to note 14. Revenue increased by R36.3 billion to R295.8 billion (2023: R259.5 billion) mainly due to the standard tariff increase of 18.7% allowed by NERSA, offset by a year-on-year decline in total sales volumes of 5 090GWh to 183 311GWh (2023: 188 401GWh). Revenue was negatively impacted by the revenue not recognised of R17.2 billion (2023: R15.8 billion) where collectability criteria were not met offset by R8.3 billion (2023: R7.6 billion) revenue recognised from customers on the cash basis. The average electricity price amounted to 165.43c/kWh (2023: 141.38c/kWh) for the year. The graph below reflects the comparison between sales volumes and electricity revenue over the last five years. Rbn TWh 350 250 300 200 250 150 200 150 100 100 50 50 Sales volume (TWh) 0 0 Electricity revenue (Rbn) 2020 2021 2022 2023 2024 Primary energy expenses increased to R173.7 billion (2023: R156.8 billion restated) for the year although there was a decrease in production of 4TWh. Eskom’s own generation costs increased to R117.9 billion (2023: R108.6 billion restated) for the year. Expenditure on Eskom-owned OCGT costs increased to R26.6 billion (2023: R21.4 billion) due to higher production of 3 634GWh (2023: 3 018GWh) because of generation capacity shortages due to poor plant performance, delays in short-term IPP programmes as well as lower imports. IPP expenditure increased to R47.8 billion (2023: R41.8 billion) due to more extensive use of IPP OCGTs and higher generation by renewable IPPs. Primary energy expenses also increased by R2.8 billion during the year because of fuel levy refunds that were disallowed by the South African Revenue Services (SARS). The dispute relating to fuel levy refunds was resolved on 18 October 2024 resulting in a net amount of R9.2 billion payable to Eskom. The prior year primary energy expense was restated for certain changes in the measurement of power station-related environmental restoration and mine- related closure, pollution control and rehabilitation provisions that were incorrectly credited to profit or loss instead of deducted from the cost of the related assets in terms of International Financial Reporting Interpretations Committee (IFRIC®) 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities. Employee costs increased by R2.8 billion to R35.1 billion (2023: R32.3 billion) for the year, representing an 8.6% increase compared to the prior year largely due to employee salary adjustments together with a 2.6% increase in headcount to address skills shortages and rebuilding the skills pipeline. Other expenses increased by R5.0 billion to R41.4 billion (2023: R36.4 billion restated) for the year, mainly due to additional repairs and maintenance and plant operating costs in line with the Generation Recovery Plan. The impairment on financial assets amounted to R3.0 billion (2023: R1.0 billion) for the year, mainly relating to overdue municipal receivables. The write down on other assets amounted to R0.4 billion (2023: R1.2 billion) which relates mainly to the impairment of the value added tax (VAT) portion on cash receivables of R0.7 billion offset by inventory adjustments. Depreciation increased by R1.3 billion to R33.2 billion (2023: R31.9 billion restated) representing a 4.1% increase compared to the prior year. The increase is mainly due to commissioning of new generating units and accelerated depreciation because of changes in useful lives and residual values of generating assets. The group recorded a net fair value and foreign exchange gain on financial instruments, excluding embedded derivatives of R0.9 billion (2023: R0.2 billion loss) for the year. Financial instruments are largely impacted by interest rate and exchange rate movements as well as credit risk and hedge effectiveness adjustments. The gain is largely due to the decreased losses on foreign currency translations related to debt securities and borrowings compared to the prior year. A net fair value gain of R1.7 billion was recorded on embedded derivatives (2023: R0.1 billion loss), mainly because of new embedded derivative contracts entered during the year. 5 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Directors’ report continued Financial performance (continued) Performance (continued) Net finance costs increased to R38.4 billion (2023: R37.0 billion) in 2024 arising mainly from borrowings with development finance institutions and export credit facilities. The financial solvency ratios improved mainly due to the improvement in EBITDA. The net debt to equity ratio deteriorated to 1.80 (2023: 1.70 restated) at year end with net debt increasing to R401.1 billion (2023: R398.8 billion) and equity decreasing to R222.9 billion (2023: R233.9 billion restated). The net debt service cover ratio deteriorated to 0.46 (2023: 0.58) due to higher debt service costs. Liquidity remains under pressure given Eskom’s financial and operational challenges. Cash and cash equivalents increased to R23.6 billion (2023: R7.5 billion), mainly due to government support received. The graph below reflects the movement in net debt as well as the debt-to-equity and net debt service cover ratios over the last five years. Rbn Ratio 500 4 400 3 300 2 200 1 100 Net debt-to-equity (ratio) Net debt service cover (ratio) 0 0 Net debt (Rbn) 2020 2021 2022 2023 2024 Gross debt securities and borrowings decreased by R11.7 billion to R412.2 billion (2023: R423.9 billion), mainly due to accrued interest partially offset by the impact of the weakening of the rand relating to foreign denominated borrowings. The group repaid R54.6 billion and raised R23.6 billion of debt from existing facilities. Eskom received R76 billion of debt relief from the shareholder of which R44 billion was converted to equity by 31 March 2024. Total debt servicing of debt securities and borrowings amounted to R89.8 billion for the year. Net cash from operating activities of R40.4 billion (2023: R41.5 billion) remains inadequate to meet debt servicing and fund general capital expenditure requirements. The graph below shows the movement in cash from operating activities as well as the cash interest cover and net debt service cover ratios over the last five years. Rbn Ratio 60 2 50 40 30 1 20 10 Cash interest cover (ratio) Net debt service cover (ratio) 0 0 Cash from operating activities (Rbn) 2020 2021 2022 2023 2024 Eskom set aside R1.0 billion by 31 March 2024 and an additional R1.4 billion in 2025 after discussions with the NNR to ring-fence funds for nuclear decommissioning activities. This is a temporary measure until the final structure of the fund is agreed with the NNR after which the funds will be transferred into the permanent structure. The total gross municipal arrear debt increased to R74.4 billion (2023: R58.5 billion) at year end with 29.3% (2023: 32.2%) owed by Free State municipalities. The top 20 defaulting municipalities constitute 75.2% (2023: 78.0%) of total invoiced municipal arrear debt. 6 The graph below reflects the increase in the gross arrear municipal debt per province and the breakdown between the net impairment, interest and revenue not meeting collectability criteria over the last five years. Rbn 80 70 60 50 40 30 20 Other (Rbn) Gauteng (Rbn) Mpumalanga (Rbn) 10 Free State (Rbn) Net impairment (Rbn) 0 Interest and revenue not meeting collectability criteria (Rbn) 2020 2021 2022 2023 2024 NERSA tariff and Regulatory Clearing Account decisions Revenue growth by migrating towards cost reflective tariffs remains a focus area for the group. NERSA awarded Eskom an average standard tariff increase of 18.7% for 2024 and 12.7% for 2025 (multi-year price determination (MYPD) 5 covering 2022 to 2025). There have been minimal developments relating to tariff and Regulatory Clearing Account (RCA) decisions from NERSA during the year. The court hearing related to the review of NERSA’s revenue decision by the Democratic Alliance and the South African Local Government Association (SALGA) took place in September 2023. The High Court ruling issued on 1 December 2023, dismissed the review applications relating to NERSA’s revenue determination. The SALGA application for leave to appeal the High Court ruling on the review application of NERSA’s revenue determination was also dismissed with costs in April 2024. SALGA may submit an appeal to the Supreme Court of Appeal. The MYPD 6 application, covering 2026 to 2028, for the group which included all information per licensee was submitted on 16 August 2024 after consultation with SALGA and National Treasury. It is expected that NERSA will issue its revenue determination (including whether the determination will be per licensee) after a public consultation process has been followed. NERSA published Eskom’s proposed retail tariff plan that details changes to tariff charges and rates to ensure that customers only pay for the costs they incur on 9 November 2024 for public consultation. This is a separate process to the MYPD 6 application so that electricity tariffs reflect the costs approved by NERSA while considering affordability, fairness and transparency. Eskom review applications submitted to the High Court Revenue decision for 2020 to 2022 (MYPD 4) There were no further updates from the previous reporting period. The Supreme Court of Appeal issued an order in June 2022 on the timing of the recovery of the remaining R59 billion due to Eskom arising from the R69 billion government support incorrectly deducted by NERSA in its revenue determination for MYPD 4. NERSA is required to include an additional R15 billion in allowable revenue per year from 2024 to 2026 and R14 billion in 2027 in terms of the court order. NERSA complied with the court order in its MYPD 5 revenue decision for 2024 and 2025. Other RCA applications RCA decision for 2021 (MYPD 4) NERSA communicated a RCA decision of approximately R0.2 billion in March 2023 in favour of the consumer against Eskom’s application of R10.7 billion in favour of Eskom. The reasons for the decision were published in May 2023 and Eskom reviewed NERSA’s decision on a similar basis as previous RCA decisions. The case was lodged in October 2023. A court date was scheduled for 27 June 2024 for this matter. This date was subsequently withdrawn to allow NERSA to decide on its approach. RCA decision for 2022 (MYPD 4) Eskom submitted a RCA application of R23.9 billion in April 2023 mainly resulting from revenue, primary energy and operating cost variances. The RCA application was delayed because of the late release of the Eskom 2022 annual financial statements. NERSA released its decision to award Eskom an RCA balance of R8 billion in favour of Eskom on 2 August 2024. The reasons for the decision are awaited. RCA decision for 2023 (MYPD 5) Eskom submitted a RCA application of R9 million in favour of Eskom for 2023 to NERSA on 24 January 2024. The application was considerably lower than previous financial years due to the revenue variance arising from the impact of loadshedding. A decision from NERSA is expected in December 2024. The RCA application for 2024 will be prepared in accordance with the existing MYPD methodology based on the final financial results for the year. Other court review applications under way There have been no developments relating to court review applications in respect of the RCA decisions for 2015 to 2017 (MYPD 3), RCA decision for 2018 (MYPD 3), revenue and RCA decisions for 2019 as well as RCA decision for 2020 (MYPD 4). The legal processes for these review applications are still under way which collectively relate to the recovery of an estimated R50 billion. 7 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Directors’ report continued Financial performance (continued) Funding The group has a centralised treasury function. The funding and liquidity activities are overseen by a general manager who is the group treasurer and Eskom’s debt officer and has the relevant experience and expertise for this role. This role was fulfilled by Mr R Vaughan until his resignation when Mr K Masike was appointed as acting general manager effective from 20 August 2024. Debt relief of R76 billion (recognised as a loan from the shareholder) was received for the financial year of which R44 billion was approved for conversion to equity by 31 March 2024 and the remaining R32 billion was approved on 29 July 2024. Debt relief of R8 billion was received on 28 June 2024 and approved for conversion to equity on 21 October 2024. The next disbursement is expected in February 2025. The Eskom Debt Relief Amendment Act, 5 of 2024, enacted on 8 April 2024, requires Eskom to pay interest on future amounts advanced as a loan at the 91-day Treasury Bill rate. Interest is payable prospectively from the first disbursement received in 2025. The Act also provides power to the Minister of Finance to reduce the support for the requirements of Eskom (limited to five percent of the total amount allocated for the applicable financial year) in the event of non-compliance with the conditions. The repayment profile of existing debt at 31 March 2024 includes interest payments of R120 billion (2023: R195 billion) and debt repayments of R210 billion (2023: R135 billion) over the next five years. The debt relief support from government will assist with the repayment of these commitments until 31 March 2026 after which Eskom’s dependency on cash from operations to service or refinance debt as they become due will increase. The group has limited capacity to absorb any shortfall in revenue or increase in operational or capital expenditure as the conditions relating to the debt relief restricts the group from raising new borrowings from 1 April 2023 (except for drawdowns of existing development finance institutions) unless approved by the Minister of Finance. Existing guarantees issued in terms of the government guarantee facility remain in place until settlement of the guaranteed debt. Eskom received disbursements of R16 billion in April 2023 related to a private placement facility concluded on 31 March 2023 with the support of National Treasury. Drawdowns from development finance institutions amounted to R7.5 billion during the year against a target of R10.6 billion because of delays of various projects. Development finance institutions and export credit agency drawdown programme of R23.2 billion has been approved in the 2025 to 2029 Eskom Corporate Plan. Refer to page 63 of the integrated report for more information. Legal separation Non-executive directors were appointed to the NTCSA board effective from 1 February 2024. All the suspensive conditions necessary to effect the merger agreement and operationalise NTCSA were met and/or waived between Eskom and NTCSA on 31 March 2024 resulting in the accounting of the disposal of the transmission division to NTCSA on 31 March 2024 as described in note 12. Trading commenced on 1 July 2024 on the legal implementation date of the merger agreement. Transmission employees were transferred to NTCSA under the same employment contract and with the same conditions of employment as they had with Eskom except for NTCSA chief executive and chief financial officer roles. The Electricity Regulation Amendment Act, 38 of 2024 was gazetted on 20 August 2024 which lays the legislative foundation for the development of market rules as well as the establishment of an independent state-owned transmission system operator within five years from the date the Act was promulgated. The commencement date of the Act was gazetted on 18 December 2024 to be 1 January 2025. NTCSA will fulfil the role of transmission system operator in the interim and must apply for the relevant licences to carry out the function. Eskom and NTCSA signed an equity subscription agreement on 28 June 2024 to allow for the allocation of R3.8 billion to NTCSA relating to debt relief received by Eskom from the government to discharge indebtedness incurred by Eskom in connection with transmission assets that were transferred from Eskom to NTCSA on 1 July 2024. NTCSA is in a tax paying position from 2025 onwards based on the latest forecasts and paid provisional tax of R1.4 billion as at 30 September 2024. In the event of NERSA RCA rulings relating to the Transmission business for periods prior to 1 July 2024, whether such ruling are made by NERSA on Eskom or on the NTCSA specific licenses, Eskom will engage in an appropriate manner. The corporatisation and operationalisation of the National Electricity Distribution Company South Africa SOC Ltd (NEDCSA) is delayed due to external dependencies and the delayed operationalisation of NTCSA. It is expected that the lender engagement for distribution will be more complex than the transmission process mainly because of municipal non-payment and escalating municipal arrear debt. The project timelines will be revised to incorporate the anticipated external dependencies. The legal separation of generation has also been delayed as it is dependent upon the establishment and operationalisation of a new holding company as government was considering the due diligence report in terms of the appropriate mechanism to establish the new holding company. Awaiting feedback from government impacts the timing of the creation of the new holding company as it is dependent on legislation and government policy. Governance and compliance The enhancement of systems, controls, resources, reporting structures, policies and procedures remain key focus areas to address and rectify various governance and compliance challenges that the board is committed to as well as support the fight against fraud, crime and corruption. These enhancements are not yet fully effective as there are still areas that require significant improvement even though some progress has been made. Non-technical energy losses Many customers use electricity on a prepaid basis where prepaid electricity tokens are bought through various vending channels (linked to a vending agent) and then loaded onto a prepaid meter at the point of supply. Revenue from prepaid electricity tokens (cash is paid upfront by the customer to the vending agent) is recognised when the electricity is consumed by the customer. The prepaid sales and revenue collection is managed on the online vending system that issues encrypted prepaid electricity tokens using standard transfer specifications. All online prepaid electricity token requests created by the vending agent are authenticated by Eskom (by validating supplier credit information) which feeds information into the online vending system. The online vending system validates customer information (such as meter numbers) and encrypted prepaid electricity tokens are then generated by the hardware security module which is sent to the customer through the vending agent. The meter verifies key information and decrypts the token if information is valid. No external vending channel is permitted to sell a prepaid electricity token if the vending agent cannot communicate with the Eskom server (such as when the system is offline) or cannot be authenticated via the secure protocol. 8 An investigation uncovered the bulk generation of illegal prepaid electricity tokens on the online vending systems for both Key Revision Number (KRN) 1 and 2 meters. It is suspected that collusion between Eskom staff and illicit operators breached controls within the prepaid ecosystem to facilitate the creation and sale of fraudulent prepaid electricity tokens. This may result in an increase in the use of illicit prepaid electricity tokens which has the effect of increasing non-technical energy losses. Other risks identified in the online vending environment include: • Risks associated with service level agreements with various parties (where Eskom is the customer or service provider) within the prepaid ecosystem. • Risks associated with the use of retired hardware security modules to create illicit tokens. The illicit prepaid electricity tokens that have been issued creates an obligation for Eskom to deliver electricity and incur the related cost of providing electricity when a prepaid electricity token is loaded onto a prepaid meter. No revenue can be recognised from illicit consumption of electricity as there is no compensation for the electricity delivered. Redeemed prepaid electricity tokens result in a loss to Eskom (reported as part of the non-technical energy losses) where electricity was consumed without payment and unredeemed prepaid electricity tokens can result in a possible loss in the future. The possible loss emanating from the exposure that illicit tokens can be used in the future cannot be reliably measured because of uncertainty around the completeness of the data available. An independent forensic investigation is underway to identify root causes and recommendations for improvement. Two employees have been put on precautionary suspension whilst investigations are ongoing. The investigation report is in the process of being finalised. The recommendations from the report will be evaluated once received and implemented where possible to strengthen the security of the system. The matter has been handed over to the relevant investigative authorities, including to the South African Police Services (SAPS) and an enquiry number has been issued for 22 employees who have potentially benefited from the use of illicit tokens. Eskom is in the process of implementing action plans to address the risks relating to the prepaid environment to prevent the future creation and use of illicit prepaid electricity tokens as far as possible. The following initiatives are being pursued: • Management of non-technical losses including: – KRN rollover project: The change in vending standards from KRN 1 to KRN 2 on prepaid meters was initiated in 2023 to address the expiry of the 30-year lifespan of vending key 1 on 24 November 2024 and ensure that all prepaid meters are recoded to vending key 2. The rollover project has an added benefit that unused illicit prepaid tokens created for KRN 1 and not loaded before conversion are not compatible to meters which have been subsequently updated to KRN 2. There is still a risk that illicit tokens created for meters on KRN 2 can be used. The validity of the prepaid electricity tokens can only be nullified via a physical intervention at the meter. The majority of prepaid customers (5.64 million) with meters on KRN 1 were successfully updated to KRN 2 by 24 November 2024 including around 400 000 zero buyers (customers that consume electricity without payment) who became paying customers. It is estimated that there were still around 1.7 million zero buyers by November 2024 that are being investigated. – Smart meter installations: The roll out of smart meter installations aims to replace all prepaid meters with smart meters over a period of three years from 2026 to eliminate dysfunctional and outdated meters and enable smart grid technology that will allow remote disconnection, load limiting and remote update of related software. Plans are in place to accelerate installation focusing on those users most likely to be involved in the use of illegal prepaid electricity tokens with 735 198 meters installed for new customers by October 2024. – Illegal vending initiatives: Initiatives include focusing on enhanced security law enforcement and retrieval of illegal credit dispensing units. • Improvement and enhancement of the online vending ecosystem including: – Upgrading of internal-facing firewalls to new technology is currently in commercial process with scheduled completion expected by June 2025. An external service provider conducted a penetration test on the internal online vending system environment. The external firewalls are up to date and are configured to permit access only from authorised national vendors. – The revision of data retention policies and implementation of a system to maintain audit logs are underway to ensure extended retention periods and comprehensive evidence of all historical transaction activities for compliance and forensic purposes and will be implemented on the hardware security module and online vending systems. – The lack of segregation of duties, over reliance on and conflicting roles of a single supplier for the related software and hardware solutions as well as being a national vending agent are being considered for improvement. – The replacement of the entire online vending system in the future is being considered. • The accreditation of national vendors for new contracts to be implemented from December 2024 is in progress and will include enhanced cyber security requirements. Service organisations will be required to submit assurance reports (ISAE 3402) on their controls. 9 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Directors’ report continued Governance and compliance (continued) Addressing crime, fraud and corruption The independent external assessment of the group’s crime risk management landscape was completed. The assessment focused on identifying risks related to bribery, fraud and corruption, financial crime, physical asset crime, cyber-crime and money laundering and provided recommended remedial actions. The findings and recommendations are being considered by the group and will inform the nature and extent of the second phase of the project, being the design, improvement and implementation of appropriate and sustainable control frameworks. Eskom’s Fraud Prevention Plan was implemented in 2024 and the plan incorporated activities carried over from the prior year as well as new activities identified in the current year. An updated fraud prevention plan was developed for 2025 and included in the 2025 to 2029 Eskom Corporate Plan. Some of the key activities and actions of the plan including progress are included in the table below. Action Progress Use of independent service providers to evaluate allegations of fraud and Implemented corruption in support of a broader investigative process and to determine appropriate plan of action. Completion of several forensic investigations and assessments on reported Ongoing process and backlog reduced. incidents which assisted in reducing the backlog into outstanding forensic investigations. Implementation of a single investigative unit (forensics, security and In progress, to be established as the group investigation and security function investigative functions) to enhance effectiveness and response to allegations which will have the additional mandate of implementing recommendations of crime and other unethical behaviour. from investigations. Implementation of enhanced fraud awareness and training. Enhanced training material and compulsory training ongoing for both suppliers and employees. It is compulsory for all employees to participate in the programme once every three years. Information sharing sessions on procurement processes held with companies aspiring to become suppliers of the group. Internal awareness publications continually issued to employees. Use of independent service providers to assist Eskom in identifying possible Several overpayments identified, legal action instituted with ongoing overpayments relating to construction contracts with the objective to investigations. recover such overpayments. Use of independent service providers to assist Eskom with the management Several claims reviewed with successful outcome and ongoing support being of compensation claims from construction service providers. received in the management of claims. Enhanced control measures relating to coal supply being implemented, Pilot project implemented to track movement of trucks, testing coal quality including the coal automation project to monitor the end-to-end coal at source and enhanced weighbridge controls. supply chain. Enhancing transparency and credibility of procurement process. Data clean up exercises regarding prices and catalogues and establishing agreements with original equipment manufacturers was initiated. Planned expanded roll out of artificial intelligence capabilities to improve Fragmented approach being addressed, procuring assistance from external controls, including the ongoing monitoring of identified exceptions. service provider for initial assistance while developing in-house capability. Formalising regular feedback on actions taken. Enhancing ethical culture and legislative compliance. Integration of the declaration of interest system and Companies and Intellectual Property Commission information. The declaration of interest system is being enhanced to link private work applications with the declaration of interest. Whistle-blowing including maintenance of reporting mechanisms. Continuing, complaints or requests for protection are being investigated and attended to. The revision of fraud prevention and whistle-blowing policies are in progress. Conducting fraud deep dives. Data analysis and production of exception reports aid in identifying incidents for assessment and possible investigation. A plan to collaborate and consolidate reporting emanating from data analysis on a regular basis is underway. An independent legal firm was appointed to assist the board to address matters arising from allegations made in the private intelligence dossiers that were commissioned by the former group chief executive. The independent legal firm is consolidating the findings to aid in identifying matters for further investigation and comparing them to those matters that were already subject to active investigations to optimise remediation efforts. The group is cooperating with all external investigations and inquiries related to these matters. Various proceedings to recover losses have been launched by the Special Investigating Unit (SIU) and the group in response to findings from the Zondo Commission report. A settlement agreement was concluded between SAP, the SIU and Eskom during the year in respect of unlawful and invalid contracts from 2016 and R570 million (including VAT) was recovered from SAP in April 2024. This is a notable recovery in the fight against fraud, crime and corruption. Automated systems are being implemented in the procurement of goods and services to minimise manual intervention which include price check tools, digitalisation of stock control and e-auction systems to proactively address risks related to crime, fraud and corruption. A service provider has been appointed to assist with the use of data analytics to identify transactions and anomalies that should be investigated for potential crime, fraud and corruption as well as to build this capability within the group’s operations. 10 The board continues to affirm its zero-tolerance approach towards unethical behaviour and is committed to establishing a high-performance ethical culture throughout the organisation. All individuals acting on behalf of the group, including suppliers, are expected to adhere to Eskom’s standards of ethical conduct. Suppliers found to be engaging in unethical practices and in contravention of the group’s code of ethics are subject to a supplier disciplinary process. Any unethical behaviour involving crime, fraud and corruption identified by the group is referred to Eskom’s forensic function for further investigation. A total of 195 (2023: 278) new cases involving employees and suppliers were registered for internal investigation during the year, with 120 (2023: 227) forensic investigations concluded during the year and 380 (2023: 305) cases under investigation at year end relating to current and prior years. Disciplinary action was recommended for 167 employees (2023: 223) and 30 suppliers (2023: 54). In addition to recommendations of disciplinary action, 172 (2023:158) criminal cases were registered with the SAPS resulting in a total of 330 registered criminal investigations. Of these criminal cases, 15 are at trial stage at various magistrate and specialist commercial crimes courts across the country and progress is being monitored. A total of 45 (2023: 41) cases have been through the criminal proceedings provided for under the Criminal Procedure Act, 51 of 1977. The supplier review committee investigates cases of misconduct and institutes disciplinary action against suppliers which may include restricting them from the group’s supplier database as well as recommendations to National Treasury for restricting them on the national supplier database. The status of 90 suppliers were considered during the year. A total of 32 suppliers received sanctions for removal from Eskom’s database of which 30 were recommended for referral to National Treasury. A total of 30 suppliers received suspended sanctions and could be removed from Eskom’s supplier database if any further non-compliance is committed during the suspension period. The remaining 28 suppliers were recommended for no further action. The current focus remains on addressing the backlog of supplier disciplinary cases and responding to new cases as they arise. Directors and employees are required to declare all conflicts of interests every year irrespective of whether a conflict exists, or as soon as circumstances that may affect their declaration change, the failure of which leads to disciplinary action. Eskom’s conflict of interest policy was revised to strengthen and emphasise Eskom’s stance that no employee or related parties of employees, are allowed to do business with Eskom or its subsidiaries. The process control and assurance department continues to monitor employee declaration of interests for potential undeclared relationships with external companies (vendors or non-vendors) and issue reports to management for further action. Matters that require further investigation are referred to the forensic and anti-corruption department. Several interventions have been put in place to improve the effectiveness of consequence management processes, including: • the establishment of an external disciplinary tribunal, consisting of internal and external experts, to expedite disciplinary action and address the backlog of cases • training of disciplinary chairs and case presenters • establishment of a project management office within the forensics function to address findings from investigations timeously • monitoring and evaluation of long outstanding disciplinary actions at executive and board level Stakeholders can report suspected incidents of unlawful or irregular conduct involving Eskom’s directors, employees or suppliers through the Eskom whistle- blowing hotline, or other reporting mechanisms such as the shareholder’s whistle-blowing hotline. These reporting channels are managed by independent service providers to ensure the integrity and confidentiality of the process. Eskom’s overall assessment of the implementation of the King IV TM principles and practices remains partially effective for 2024. The board acknowledged that not all the King IV TM principles have been fully or effectively applied, even though many of the required practices have been in place for many years. Public Finance Management Act, 1 of 1999 compliance PFMA incidents are reported in accordance with legislative prescripts set out by National Treasury. Eskom has once again received a qualified opinion relating to the disclosure of PFMA information as associated financial records were not complete or accurately maintained in line with legislative requirements. The external auditors have raised material findings in respect of compliance with specific matters and key legislation as well as significant internal control deficiencies. Various initiatives to enhance and strengthen internal controls to improve PFMA compliance continues to be a key focus area to foster a culture of transparency and accountability within Eskom while ensuring that individuals responsible for non-compliance and non-conformance with the PFMA are held accountable. PFMA procedures and processes are continuously enhanced to align with changes in regulations and best practice. PFMA training is aligned to the latest National Treasury regulations and aims to ensure that employees understand their responsibilities and the importance of PFMA compliance. A dedicated communication channel has been created to enhance communication on PFMA-related matters throughout the organisation. The condonation process instruction was approved and is effective from 30 July 2024 for which training has been rolled out from August 2024. This instruction supplements the Eskom PFMA reporting procedure outlining the requirements which are to be adhered to if an incident is deemed to meet the definition of irregular expenditure. The Eskom PFMA and loss control function is responsible for conducting assessments and investigations into all occurrences of irregular as well as fruitless and wasteful expenditure including oversight of consequence management such as disciplinary action, condonations and recovery of losses. Irregular expenditure Irregular expenditure amounted to R4.7 billion (2023: R7.5 billion restated) consisting of new matters incurred in 2024 amounting to R0.4 billion. The balance related to existing multi-year contracts that will continue to attract irregular expenditure until condoned or expired and includes R2.7 billion that was attributable to a non-compliance that occurred in 2023 where the requirements of the National Industrial Participation Programme were not applied. The expenditure for the comparative period was restated due to prior year expenditure that was only confirmed as irregular in the current year. The process of collecting information and reporting on irregular expenditure continues to be a focus area although it is expected that new instances of irregularities will be detected as the group continues the governance clean-up exercise. Fruitless and wasteful expenditure and criminal conduct Fruitless and wasteful expenditure incurred during the year amounted to R1 million (2023: R44 million restated) with 12 (2023: 29 restated) incidents of fruitless and wasteful expenditure for the group. The comparative period was restated due to a reduction of R64 million on overpayments on Kusile power station contracts that were incurred and confirmed in 2023 after revised calculations were performed. Incidents of fruitless and wasteful expenditure cannot be closed until consequence management has been undertaken or valid reasons to not institute consequence management have been provided. The fruitless and wasteful expenditure must be recovered or written off as irrecoverable to fully address the incident for reporting purposes. 11 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Directors’ report continued Governance and compliance (continued) Public Finance Management Act, 1 of 1999 compliance (continued) Fruitless and wasteful expenditure and criminal conduct (continued) Losses due to criminal conduct of R6.7 billion (2023: R6.0 billion) were reported during the year for the group which the majority related to estimated non- technical energy losses. Investigations related to non-technical energy losses are ongoing and there is continual collaboration with other state-owned entities that are affected by similar challenges, industry role players, the SAPS and the National Prosecuting Authority to combat these losses. Board and executive committee changes The Eskom board should consist of a minimum of three and maximum of 15 directors with the majority being non-executive directors in terms of the memorandum of incorporation. The current board comprises of 13 directors of which 11 are independent non-executive directors and two executive directors. Changes to the board include the following: Non-executive directors Comment Dr M Nyati (chairman) Appointed as chairman effective from 31 October 2023. Mr PM Makwana (chairman) Resigned on 30 October 2023. Dr RDB Crompton Resigned on 27 February 2024. The group chief executive announced a new Exco structure in May 2024 which aims to address existing business challenges and entrench operational recovery and efficiencies. The new Exco structure includes a combination of existing and new roles to enable responsive decision-making required to deliver on Eskom’s strategic initiatives, navigate the rapidly changing environment in which it operates, focus on the legal separation activities as well as focus on investigations and recommendations to address fraud, crime and corruption. Changes to Exco include the following: Executive committee members Comment DL Marokane Appointed as Eskom group chief executive and member of the Eskom board effective from 1 March 2024. C Cassim Acted as Eskom group chief executive until he returned to the role of chief financial officer effective from 1 March 2024. JM Buys Acted as chief financial officer until he returned to the role of general manager financial and management reporting effective from 1 March 2024. JA Oberholzer Retired as group chief operating officer on 30 April 2023. ML Bala Appointed as member of Exco in the role of distribution divisional executive effective from 1 June 2023 and acting group executive: human resources effective from 24 June 2024. FS Burn Resigned as member of Exco on 31 October 2024 with the appointment of the chief technology and information officer effective from 1 November 2024. RA Crookes Appointed as group executive: group capital effective from 1 November 2024. M Govender Resigned as group executive: legal and compliance on 30 June 2023. NY Hadebe Appointed as group executive: strategy and sustainability effective from 1 November 2024. D Jackson Acted as group executive: legal and compliance from 15 December 2023 to 31 January 2024. W Madonsela Acted as group executive: legal and compliance from 7 July 2023 to 14 December 2023. N Minyuku Resigned as group executive: government and regulatory affairs on 30 April 2023. PB Mngomezulu Appointed as group executive: corporate services effective from 1 November 2024. The role incorporates procurement, legal as well as communications and stakeholder management functions. J Mthembu Appointed as group executive: legal and compliance effective from 1 May 2024. Resigned as member of Exco on 31 October 2024 with the appointment of the group executive corporate services on 1 November 2024. S Nassiep Acted as group executive: government and regulatory affairs from 1 June 2023 until 9 August 2023. BJ Nxumalo Appointed as member of Exco in the role of generation divisional executive effective from 1 June 2023. EM Pule Resigned as group executive: human resources on 31 July 2024. J Sankar Resigned as member of Exco on 31 October 2024 with the appointment of the group executive: corporate services on 1 November 2024. SM Scheppers Appointed as member of Exco in the role of transmission divisional executive effective from 1 June 2023 (also serving as interim chief executive officer of NTCSA effective from 1 July 2024). AE Seema Appointed as group executive: strategic delivery unit effective from 1 December 2024. NN Sithole Acted as group executive: government and regulatory affairs effective from 10 August 2023 until 31 October 2024. V Tuku Fixed term contract as group executive: transformation management office ended 30 June 2024. HS Vezi Acted as group executive: legal and compliance from 1 April 2024 until 30 April 2024. LM de Villiers Appointed on a three-year fixed term contract as chief technology and information officer effective from 1 November 2024. The divisional executives attended Exco in a participating role until their appointment as members of Exco. Refer to pages 13 and 43 of the integrated report for more information. 12 Human resources Workforce The group’s workforce plan is aimed at ensuring that current and future staffing levels are aligned to the strategic objectives of the organisation with the focus on retaining core and critical skills, driving employment equity transformation targets and meeting training and development needs. Group headcount increased by 1 024 to 40 625 (2023: 39 601) at year end. This increase is primarily due to the recruitment of core and critical skills in generation and Eskom Rotek Industries SOC Ltd (Rotek). The replacement rate for critical skills was higher than the attrition experienced. Recruitment initiatives are continuously under way to fill critical vacancies across the business. Industrial relations A collective agreement with trade unions was reached for a period of three years. The agreement includes a 7% salary increase per year applicable from 1 July 2023 to 30 June 2026, a 7% increase in the housing allowance per year over the three-year period and a once-off taxable payment of R10 000 for the first two years for all bargaining unit employees. Salary adjustments were implemented for managerial employees from 1 October 2023. The increase consists of a 7% increase in managerial remuneration costs of which a 4% cost-of-living adjustment was guaranteed for all managerial employees and the remaining 3% was available for managers to use at their discretion and award employees based on performance, correcting income differentials and retaining high performers. The shareholder approved a cost-of- living adjustment of 5.5% for executives in December 2023 backdated to 1 April 2023. The board reinstated the long-term performance incentive scheme that rewards the Exco members in cash for meeting organisational objectives measured over a three-year period effective from 1 April 2023 to 31 March 2026. The performance awards are linked to gatekeeper conditions and key performance indicators that are aligned with the 2025 to 2029 Eskom Corporate Plan and shareholder compact and include both financial and non-financial targets. Refer to note 49 as well as the integrated report. The board approved a performance management system that recognises and incentivises excellence for implementation in 2025 which aims to deliver improved operational performance and ensure the achievement of the turnaround plan. Building and retaining strong skills The skills audit sustainability index indicated good progress on closing the skills audit gaps since completion of the audit in October 2022 and performance is being tracked quarterly to monitor progress and divisional performance. The total learner pipeline represented 5.9% (2023: 4.6%) of the permanent Eskom workforce against a target of 2.5% with artisan learners making up around 31% of the total pipeline. There were 2 086 learners at year end (2023: 1 568) representing a 32% growth in learner numbers. Training spend of R1.4 billion (2023: R1.1 billion) was incurred in 2024, representing 4.0% (2023: 3.4%) of gross employee benefit costs. Eskom is committed to investing in employee development. A total of 930 (2023: 795) employees were enrolled in further studies during the year of which 549 were female and 31 were employees with disabilities. Fields of study range from certificate programmes to doctorates with over two-thirds of these employees pursuing a bachelor’s degree or higher qualification. Improving internal transformation Transforming the organisation to better reflect the demographics of South Africa through a more diverse and inclusive workforce in line with the group’s employment equity plan remains a key focus area. Transformation initiatives include enhancing employment equity through better representation across all levels of employment, optimising learner management and fostering training and development programmes to advance talent from under-represented groups. There was progress in improving racial and gender representation within senior management but it remains below the target while the targets were met for middle management and professionally qualified positions. Eskom’s overall gender ratio improved marginally to 64:36 (2023: 65:35) male to female employees against the target of 50:50 representation by 2030 with four out of 11 Exco members being female at 31 March 2024. The implementation of learning and development programmes targeted for females is expected to aid in the improvement in gender representation in senior and middle management as well as professionally qualified positions. Group disability equity remained unchanged at 3.0% (2023: 3.0%) with the number of employees with disabilities increasing to 1 201 (2023: 1 171). The group met and exceeded the national target of 2.0% but still falls short compared to the group target of 3.2%. The group continues to focus on efforts to enhance awareness and accessibility such as training, the deployment and use of virtual platforms as well as the provision of tailored physical equipment for persons living with disabilities. Refer to page 93 of the integrated report for more information. 13 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Directors’ report continued Shareholder compact performance The table below sets out Eskom’s performance measured against the shareholder compact that was subject to audit by the external auditors. The external audit opinion relating to this audit is detailed on page 30. All the Key Performance Indicators (KPIs) in the compact refer to the Eskom company, except for the lost-time injury rate and the finance measures which reflects the group. Actual performance against the year-end target is indicated as follows: Actual performance for the year met or exceeded the target Actual performance for the year did not meet the target Key performance indicator Ref Unit Target Actual Actual 2024 2024 2023 Generation1 Energy availability factor (a) % 65.00 54.56 56.03 Post-philosophy outage unplanned capability loss factor (b) % 14.00 31.61 35.75 Outage readiness indicator at T-3 (c) % 80.00 69.89 70.25 Boiler tube failure rate (12-month moving average) (d) rate 1.80 2.37 2.17 Relative particulate emissions (e) kg/MWh sent out 0.30 0.79 0.70 Specific water usage (f ) ℓ/kWh sent out 1.38 1.43 1.39 Compliance with atmospheric emission licences (g) % 91.00 80.20 87.40 Coal purchase rand/ton2 % increase 10.00 6.64 12.59 Generation capacity installed and commissioned (commercial operation) (h) MW 800 – 799 Loadshedding implemented (i) number of days ≤261 329 280 Transmission System minutes lost <1 minutes 3.53 3.29 4.71 Transmission lines installed (j) km 166.0 74.4 326.1 Transmission transformers capacity installed and commissioned (k) MVA 160 23 n/a Distribution Payment levels3 % 94.90 94.91 95.03 Distribution total energy losses (l) % 9.48 9.92 9.74 Total electrification connections number 85 474 114 800 102 590 System average interruption duration index (SAIDI) hours 38.00 34.88 35.51 Legal separation Transmission legal separation (trading) – Transmission is a legal operating (m) date 1 November No n/a subsidiary of Eskom4 2023 Research, testing and development Research and development (n) % of NERSA-allocated spend 95.00 91.00 123.64 Group information technology Data analytics diffusion rate (o) % 40.00 23.00 n/a Blockchain adoption rate (p) % 45.00 20.00 n/a Corporate social investment (CSI) CSI committed spend (q) R million 137.30 93.10 63.00 Just Energy Transition (JET) Repowering and repurposing – completion of agrivoltaics, microgrid (r) % 100.00 – – assembly and training facility at Komati Approved partnership strategy % 100.00 100.00 n/a Risk and sustainability Lost-time injury rate (employee) rate 0.30 0.29 0.26 Finance EBITDA 2 (s) R million 54 169 43 410 34 565 Cash interest cover (t) ratio 1.22 1.18 1.29 Debt service cover ratio 0.44 0.46 0.58 Savings from turnaround initiatives (u) R billion 22.4 9.9 27.8 Human resources Learner intake: artisans number 100 173 135 Learner intake: engineers number 50 184 144 Learner intake: technicians number 50 184 105 Learner intake: sector specific number 90 265 90 Training spend as % of budgeted gross employee benefit expense % 3.75 4.19 3.57 Procurement Preferential procurement (v) % of total measurable 80.00 75.55 73.44 procurement spend (TMPS) Local content (w) % 80.00 60.34 59.09 B-BBEE score number 4 3 4 Enterprise development R million 5.00 6.12 0.13 Supplier development R billion 6.00 8.31 3.67 National industrial participation programme % 100.00 100.00 100.00 1. Measures for planned capability loss factor was not included in the 2024 shareholder compact. Performance for this KPI was still reported to the shareholder in the quarterly shareholder reports. 2. The comparative figure was restated. Refer to note 48 for further information. 3. The definition of payment levels was amended to measure total payments received against total electricity billed including interest. The comparative figure disclosed is based on the previous shareholder compact measure which excluded Soweto interest. 4. The definition of legal separation was changed from operationalisation to trading in the 2024 shareholder compact addendum. Operationalisation referred to all suspensive conditions being met, licences acquired, lender consent obtained and directors appointed before trading can commence. 14 The reasons for the targets that were not achieved are discussed below: Ref Key performance indicator Target Actual Reason 2024 2024 Generation (a) Energy availability factor 65.00 54.56 The energy availability factor was negatively affected by an increase in unplanned maintenance due to high levels of both full and partial unplanned load losses as well as an increase in planned maintenance to address plant performance as part of the Generation Recovery Plan. Full load losses at Kusile units 1, 2 and 3 as well as the overrun on the outage at Koeberg unit 1 contributed significantly to unplanned losses for the year. Partial load losses, primarily at Kendal, Majuba, Matimba, Duvha, Kriel and Arnot power stations, also negatively affected generation availability performance. (b) Post-philosophy outage unplanned 14.00 31.61 The main contributors to unplanned losses which occurred within 60 days after a capability loss factor unit returned from an outage include turbine, generator, boiler, draught plant and mill-related losses. (c) Outage readiness indicator at T-3 80.00 69.89 Outage readiness is scored based on internal reviews and assessments of various indicators. Performance was negatively affected by delays in ordering of spares and other long-lead materials as well as finalisation of the integrated outage schedule. (d) Boiler tube failure rate (12-month 1.80 2.37 The main contributors to the poor performance were at Lethabo, Majuba, Arnot, moving average) Matla and Duvha power stations with failure rates of more than 1.8 failures per unit during the year. Performance was negatively affected by several factors including maintenance backlogs, deferral of midlife refurbishments and operating plant outside design limits. (e) Relative particulate emissions 0.30 0.79 Relative particulate emission performance continued to deteriorate due to poor plant performance and system constraints. Kriel, Kendal, Lethabo and Matla power stations were the main contributors to the poor emissions performance during the year. These stations experienced dust handling plant malfunctions and sulphur trioxide plant breakdowns which negatively impacted the efficiency of electrostatic precipitators that limit particulate emissions. The ash handling system at Kendal power station requires repairs and the station is applying alternate emissions values where emissions monitors have maxed out. (f ) Specific water usage 1.38 1.43 Water performance was negatively affected by low load factors at coal-fired plant and poor water management practices at power stations as well as high raw and demineralised water usage. (g) Compliance with atmospheric 91.00 80.20 Compliance is scored based on average emission limit compliance, number of emission licences emergency incidents reported to authorities in terms of section 30 of the National Environmental Management Act, 107 of 1998 (NEMA), emission monitor test validity, gaseous monitor reliability and general atmospheric emission licence compliance based on internal reviews and assessments completed. Performance was negatively affected due to a total of 16 units operating in non-compliance with average monthly emission limits. This was mainly due to challenges experienced with the dust handling plant and sulphur trioxide plant that negatively impacted performance of electrostatic precipitators. (h) Generation capacity installed and 800 – The gas air heater at Kusile unit 5 caught fire on 17 September 2022 while executing commissioned (commercial the third boiler steam blows which was the last milestone activity prior to first operation) synchronisation. All unit commissioning activities were discontinued as a result. The commissioning of eight key unit commissioning milestone activities had been successfully achieved at the time. A technical investigation was conducted and the investigation report was finalised in February 2023. The incident significantly impacted the unit commissioning schedule as the gas air heater had to be fully repaired before unit commissioning activities, including plant optimisation and capability tests, could resume. Repairs were completed at the end of August 2023. First synchronisation to the grid was successfully achieved on 31 December 2023. The shareholder advised Eskom not to submit a second addendum to the shareholder compact for the 2024 financial year despite the significant schedule delays from the incident. The target for commercial operation of Kusile unit 5 was therefore not revised. The measure and target were instead rolled over to the shareholder compact for the 2025 financial year. Commercial operation of Kusile unit 5 was successfully achieved after year end on 30 June 2024, connecting 799MW to the grid. (i) Loadshedding implemented ≤261 329 The poor Eskom generation plant performance, together with delays in other IPP programmes which have not yet delivered capacity in line with expectations as well as lower-than-budgeted power imports, contributed to supply constraints. These constraints required the implementation of prolonged, high stages of loadshedding to ensure the stability of the national grid. 15 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Directors’ report continued Shareholder compact performance (continued) Ref Key performance indicator Target Actual Reason 2024 2024 Transmission (j) Transmission lines installed 166.0 74.4 Performance was negatively affected by procurement delays on line construction projects. (k) Transmission transformers capacity 160 23 Unforeseen delays resulting from commissioning challenges of transformer protection installed and commissioned schemes as well as project procurement, commencement and execution delays resulted in the target not being met. Distribution (l) Distribution total energy losses 9.48 9.92 Non-technical losses resulted largely from electricity theft due to illegal connections, meter tampering and illegal vending. Technical losses were impacted by ageing distribution networks which are constrained, overloaded and exposed to equipment theft. Legal separation (m) Transmission legal separation 1 Nov No Critical external decisions and key dependencies, including obtaining lender consent, (trading) – Transmission is a legal 2023 issuing of licenses, designation of NTCSA as IPP buyer and the appointment of non- operating subsidiary of Eskom executive directors delayed trading by NTCSA. Trade commenced on 1 July 2024. Research, testing and development (RT&D) (n) Research and development 95.00 91.00 Project performance challenges experienced during the year resulted in reduced expenditure on research and development initiatives than planned. Group information technology (o) Data analytics diffusion rate 40.00 23.00 Performance was negatively affected by challenges in data maturity which also resulted in the review of the measure and target for the 2025 financial year and the measure has therefore not been included in the shareholder compact for the 2025 financial year. Initiatives to roll out data analytics are still maturing. (p) Blockchain adoption rate 45.00 20.00 The implementation of blockchain technology for the detection and prevention of fraud in the supply chain system was investigated in line with the shareholder’s expectations. Despite some identified areas of use for blockchain technology, none were directly related to the detection and prevention of fraud in supply chain systems. Eskom will continue to focus on leveraging technology to digitalise supply chain processes. Corporate social investment (CSI) (q) CSI committed spend 137.30 93.10 Leadership instability and limited resources resulted in non-functionality of governance structures, internal misalignment on the CSI strategy and delayed execution thereof resulted in less expenditure incurred on CSI initiatives than planned by the Eskom Development Foundation. Initiatives are underway to ensure effective and efficient execution of projects and compliance to the applicable policies and processes. Just Energy Transition (r) Repowering and repurposing – 100.00 – The KPI could not be reasonably measured as a percentage and was measured by completion of agrivoltaics, way of specific action items. microgrid assembly and training facility at Komati consisting of: The status of the action items were as follows: • Construction and commissioning • The photovoltaic component of the agrivoltaics plant was commissioned during the of the agrivoltaics test facility, year. Construction of the aquaponics system was completed in April 2024. One including raised photovoltaics community member and one Eskom employee were trained on the aquaponics and aquaponics system as well as system. Procurement of a training provider is underway. conducting community training • Refurbishment of the on-site training centre could not be completed due to a legal for the usage of aquaponics. intervention required for certification by SARETEC. The on-site facility was however • Complete refurbishment of in a suitable condition to offer training courses to the surrounding community. the training centre at Komati Construction of the off-site community training facility could not be completed as power station and construction the appointed contractor failed to comply with contractual requirements. Further of a community training centre, on-site training courses are planned for 2025 and certification of training facilitators obtaining certification from are underway. South African Renewable Energy • An initial business case was completed for the assembly of containerised microgrids Technology Centre (SARETEC) to support Eskom’s electrification programme. Grant funding has been secured by for the training programme and the Development Bank of South Africa for the development of a final business case. conducting community training. Construction of the assembly line was completed during the year and production • Establish a microgrid assembly of microgrid containers commenced in April 2024. business case. 16 Ref Key performance indicator Target Actual Reason 2024 2024 Finance (s) EBITDA 54 169 43 410 Eskom generation and IPP supply constraints resulted in loadshedding and load curtailment which affected sales volumes and revenue and required the increased use of Eskom-owned and IPP OCGTs to support the power system. Higher repairs and maintenance costs were also incurred to address poor plant performance. The target also assumed a favourable adjustment relating to the expected extension of the licence to operate Koeberg power station that will decrease the nuclear decommissioning provision because of later cash outflows. (t) Cash interest cover 1.22 1.18 Cash interest cover was negatively affected by insufficient operating cash flows due to poor plant performance, non-payment by some customer categories and a lack of cost-reflective tariffs. (u) Savings from turnaround initiatives 22.4 9.9 The 2024 target was set using an outdated baseline and methodology. Eskom requested the shareholder in October 2023 to amend the target to R10.5 billion based on a revised methodology using a more reasonable baseline using the 2023 financial results which caters for the decline in sales, worsening generation plant performance, change in production mix (specifically the contribution by OCGTs and IPPs) and growth in the cost base. The request to amend the target was denied. The revised methodology and baseline has been applied in the 2025 shareholder compact target. Procurement (v) Preferential procurement 80.00 75.55 Preferential procurement was negatively affected by higher spend with non-compliant suppliers, either due to the lack of a valid broad-based black economic empowerment (B-BBEE) certificate or if a B-BBEE status was deemed non-compliant. The calculation of TMPS also included spending on IPP contracts over which Eskom has no control as they were concluded in terms of the DMRE renewable energy IPP programme. These contracts which are not B-BBEE compliant further contribute to the poor performance. (w) Local content 80.00 60.34 Local content continues to be negatively affected by the low number of contracts with local content obligations for designated sectors. Reportable irregularities The action plans to address reportable irregularities raised in previous years remained a focus area. New reportable irregularities were raised for 2024, while some matters raised previously remained open. It is acknowledged that specific matters will reoccur and remain open until all related aspects are concluded as it takes time to resolve these matters because of the inherent nature thereof, such as environmental regulatory compliance. Detailed progress on reportable irregularities can be found in note 52. Events after the reporting date Events after the reporting date are discussed in note 47. Approval The group annual financial statements for the year ended 31 March 2024 were prepared under the supervision of the chief financial officer, C Cassim CA(SA), and approved by the board and signed on its behalf by: M Nyati DL Marokane C Cassim Chairman Group chief executive Chief financial officer 18 December 2024 18 December 2024 18 December 2024 17 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Report of the audit and risk committee Mandate and terms of reference The audit and risk committee (the committee) presents its report in terms of the requirements of the Public Finance Management Act, 1 of 1999 (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 Governance for South Africa for the financial year ended 31 March 2024. The role of the committee is defined in its mandate. It covers, among others, its statutory duties and assistance to the board with the oversight of financial and non-financial reporting and disclosure, internal control systems, risk management, compliance with legal and regulatory provisions, forensics, internal and external audit functions as well as combined assurance including technology and information governance. Information about the mandate, membership composition and attendance of meetings of the committee is set out in the 2024 integrated report under who we are, governance and ethics as well as supplementary information sections. The committee has adopted appropriate formal terms of reference as its audit and risk committee charter, has regulated its affairs in compliance with this charter and has discharged all its responsibilities contained therein. The committee also performs the functions required by the Companies Act on behalf of the wholly owned subsidiaries of the group, except for Escap SOC Ltd (Escap), Nqaba Finance 1 (RF) Ltd and NTCSA (terms of reference of NTCSA audit and risk committee approved in May 2024) which have independent audit committees. The governance principles and processes for the effective management of wholly-owned subsidiaries in the group is set out in the Subsidiary Governance Framework. The framework was reviewed and enhanced after 31 March 2024 to address governance gaps relating to the oversight and reporting of subsidiaries and are in the process of being implemented. The group is applying a combined assurance model to ensure coordinated assurance activities. The committee oversees the assurance activities and the establishment and maintenance of effective systems of internal control which aim to provide reasonable assurance that the group’s financial and non-financial objectives are achieved and that the preparation of the group’s suite of externally published reports (as detailed in the integrated report) are in accordance with the frameworks and standards set out within those reports. Execution of functions Internal control, management of risks and compliance with legal and regulatory requirements The committee considered the following: • effectiveness of internal control systems and governance processes • legal matters that could have a material impact on the group • reportable irregularities raised by the external auditors • effectiveness of the system and process of risk management including the following specific risks: – financial reporting – internal financial controls – fraud risks relating to financial reporting – information technology risks relating to financial reporting, internal control and security (where a breach resulted in fraud and criminal conduct) – the effectiveness of the entity’s compliance with legal and regulatory requirements Internal and external audit The committee considered the following: • Internal audit charter, three-year rolling internal audit plan, performance of the internal audit department that reports functionally to the committee as well as cooperation and coordination between internal and external auditors. • Organisational structure, disciplines and reporting lines of the assurance and forensic department for the restructuring of the department into separate assurance and forensic functions. • Appointment of the external auditors in terms of the Companies Act (tabled at the annual general meeting for approval), Johannesburg Stock Exchange Listings’ Requirements and all other applicable legal and regulatory requirements. • Quality and effectiveness of the external audit as well as the independence and objectivity of the external auditors including the tenure of the audit firm and the rotation of the engagement partner. Deloitte & Touche was appointed as external auditors for the 2022 to 2024 financial years with Mr AJ Dennis as the lead engagement partner. • Decision letters, findings and remedial explanations issued by the Independent Regulatory Board for Auditors as well as any summaries and explanations made available by external auditors to the committee. • External audit plan, audit budget, actual fees and terms of engagement of the external auditors including adherence to the policy of not allowing the external auditors to provide any non-audit services as well as the higher than anticipated audit fees because of more audit work needed as a result of the issues experienced and increased audit risks. • Feedback from the Auditor-General of South Africa resulting from their oversight of the external audit process including reviews of audit work on identified risk areas as well as understanding of the group to assist, identify and communicate good practises to improve governance, accountability and build public confidence in Eskom. • Accounting, sustainability and auditing concerns identified as a result of the internal and external audits including reportable irregularities. Oversight of financial and non-financial reporting and disclosure 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 IFRS® Accounting Standards. • Considered the appropriateness of key judgements, estimates and the accounting treatment applied to significant transactions in the annual financial statements. • Considered matters relating to liquidity, cost savings, budgeting and forecasting, future funding and taxation. • Considered the integrity of the information reported in the integrated report and reviewed the disclosure of non-financial issues, including sustainability and PFMA related information to ensure that it is reliable and does not conflict with the financial information. • Overseen the risk management function including the process of identifying significant risks and the resulting mitigation strategies. • Sought the input and views of the internal audit and forensic departments as well as the external auditors and encouraged rigorous challenging of control, accounting and disclosure matters. • Considered the audit recovery action plan including the status and adequacy of corrective action taken by management in response to significant internal and external audit findings. • Considered progress on forensic investigations, legal matters and other internal and external investigations into allegations of crime, fraud and corruption. • Overseen the establishment of the group investigation and security function by combining the security, investigations and forensic functions as well as the creation of a dedicated project management office to execute on the recommendations from investigations. • Considered the expertise, resources and experience of the finance function under the leadership of the group chief financial officer. A detailed assessment of the finance structure and skills has been requested which will be considered by the committee. 18 The following significant matters were considered: Significant matter Committee review and conclusion Going-concern The committee continued to monitor the liquidity and solvency of the group and company closely because of the financial position and assessment related challenges and concluded that it was not trading recklessly at any time during the year. The committee acknowledged the continued support from government, including the debt relief arrangement, as well as the strengthening of the financial sustainability and liquidity of the group because of the debt relief arrangement. The committee acknowledged that the group continues to face liquidity pressure due to long-term financial sustainability challenges arising from an inadequate tariff path, high debt service costs, above-inflationary cost increases, escalating arrear debt, operational inefficiencies, the impact of crime, fraud and corruption (including loss of revenue because of illegal electricity connections and illicit prepaid electricity tokens) as well as sub-standard generating plant performance requiring reliance on expensive Eskom and IPP OCGTs to augment supply. The committee assessed that the debt relief is a temporary solution and acknowledged that the liquidity in the longer term after the debt relief period remains at risk given the group’s financial and operational challenges, including the growth in overdue municipal and metro debt together with the municipal debt relief arrangement that is yielding minimal results, and sourcing of funding for the Transmission Development Plan. Intervention by government is needed to address the root cause of the challenges. It is also imperative that the improved generation plant performance continues going forward. The going-concern assessment evaluated the liquidity of the group based on the latest cash flow forecasts including servicing of debt in the 12 months after the sign-off of the annual financial statements and included stress-tested scenarios. The committee considered the key aspects, material uncertainties inherent in the events, conditions and assumptions that may cast significant doubt on the going concern of the group as well as the mitigation strategies and actions (aspects and considerations applicable to both group and company). The committee acknowledged, noted and considered the impact of, amongst others, the following matters discussed in note 3.2: • Earnings before interest, tax, depreciation and amortisation (EBITDA) and EBITDA margin improved while the net debt service cover and cash interest cover indicators deteriorated compared to the prior year. • The net loss after tax increased significantly primarily because of the derecognition of the deferred tax asset in the current year. Refer to note 14. • The debt relief from government with the conditions that the group needs to comply with to allow for the conversion of the debt relief to equity continues for 2025 and 2026 together with the takeover of R70 billion of Eskom debt (principal and future interest) in 2026 that still needs to be finalised. • Approval was granted by the Minister of Finance to convert the debt relief loan amounts received during the year and in the first quarter of 2025 to equity. • The Eskom Debt Relief Amendment Act, 5 of 2024, provides authority to the Minister of Finance to reduce the support to Eskom in the event of non-compliance with conditions and the payment of interest by Eskom on amounts advanced as a loan. • The debt relief support for 2024 and 2025 was reduced because of the delay in the disposal of EFC. Progress has been made to dispose of EFC with the board accepting a binding offer from African Bank Limited in October 2024, subject to PFMA and other regulatory approvals. • All other operational and relevant capital expenditure continues to be funded through operational cash flows and drawdowns from existing project related loan agreements. • The existing guarantees issued under the government guarantee facility of R350 billion were not impacted when the availability of the facility expired on 31 March 2023 and will remain in place until settlement of the guaranteed debt. • Overdue electricity receivables continued to increase mainly due to growing municipal debt and the municipal debt relief arrangement is yielding minimal results with most of the municipalities failing to comply with the conditions. • The NNR approved the separation of the licence expiry dates in line with the design life of the units at Koeberg power station. • The NNR also extended the licence for Koeberg unit 1 to 21 July 2044 which will decrease the nuclear decommissioning provision because of later cash outflows. • Funds were set aside as a temporary measure to create a ring-fenced fund for future nuclear decommissioning activities (R1.0 billion during the year and an additional R1.4 billion in 2025) whilst discussions with the NNR regarding a permanent solution are underway. • Eskom and SARS resolved the dispute relating to previously disallowed claims for fuel levy refunds on 18 October 2024, resulting in a net amount of R9.2 billion payable to Eskom. Refer to note 47. • Accounting of the disposal of the transmission division to NTCSA occurred on 31 March 2024 while NTCSA commenced trading on the legal implementation date of the merger agreement on 1 July 2024. Refer to note 12. • NTCSA is in a tax paying position from 2025 onwards based on the latest forecasts and paid provisional tax of R1.4 billion at 30 September 2024. • An equity subscription agreement was signed on 28 June 2024 between Eskom and NTCSA to allow for the allocation of R3.8 billion to NTCSA relating to debt relief received by Eskom from the government. Other mechanisms of support to NTCSA include, amongst others, approval of a short-term credit facility with Eskom Treasury, immediate settlement of intercompany energy purchases and sales as well as issuing of proforma invoices to Eskom for payments in advance should NTCSA experience financial challenges. There is also the benefit to NTCSA in 2025 resulting from transfer pricing associated with the difference between the NERSA MYPD allowed and actual IPP expenditure which will be recovered from future revenue allocations. • The enactment of the Electricity Regulation Amendment Act, 38 of 2024, allows for NERSA to issue licences for new generation capacity and electricity infrastructure and the establishment of the transmission system operator in the future. NTCSA will fulfil the role of the transmission system operator in the interim. • Increases in non-technical energy losses mainly because of illegal connections and selling of illegal tokens which increase the current and future costs incurred by Eskom to produce energy with no corresponding revenue received. The committee acknowledged that there are various dependencies and uncertainties that exist, both from the perspective of timing of interventions as well as whether the plans to address the risks to manage the going concern will materialise as anticipated. The committee concluded, after examining the forecast and stress-tested scenarios, that the going-concern basis of accounting was appropriate with support from government in the form of the debt relief arrangement to address the related material uncertainties. The committee recommended the adoption of the going-concern basis of preparation by the group and company to the board based on the critical factors as disclosed in note 3.2. 19 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Report of the audit and risk committee continued Execution of functions (continued) Oversight of financial and non-financial reporting and disclosure (continued) Significant matter Committee review and conclusion Governance The committee noted that the strategic leadership was restructured with a new Exco structure announced in May 2024, which aims to address the current business challenges and future-proof the organisation to enable growth and long-term sustainability. Progress was made in filling key leadership roles to enhance the leadership stability of the group, including the permanent appointment of the group chief executive, the return of the group chief financial officer to his role under a permanent employment contract and the appointment of various group executives in the new Exco structure. Refer to governance and compliance in the directors’ report. The committee noted that the appointment of the group information and technology officer (on a three-year contract) is integral in managing risks identified in the operational technology and information technology environment, allowing for a dedicated focus on the operational and information technology environments with emphasis on shifting to more preventative rather than detective controls. The committee noted that an investigation uncovered the bulk generation of illegal prepaid electricity tokens. An investigation into the prepaid environment started in 2022, but was only brought to the attention of the committee in 2024. The committee acknowledged that the prepaid electricity online vending environment exposes Eskom to various risks including the creation and use of illicit prepaid electricity tokens as well as the over reliance on and conflicting roles of a single supplier in the related software and hardware solutions as well as being a national vending agent. Refer to governance and compliance in the directors’ report and note 44.2. The committee focused on and overseen, with the assistance from external service providers, the progress of the investigation into the breach of the online vending system. The committee requested that all service level agreements in the prepaid ecosystem are reviewed and related risks evaluated and appropriately addressed, including possible exit of agreements where the risk is considered too high as well as implementation of a process where national vending agents provide assurance reports (ISAE 3402) on the controls at the service organisation and submit regular independent confirmation that their systems are secure and they are only selling valid prepaid electricity tokens. The committee increased its focus on monitoring the status and action taken on addressing key matters arising from allegations of criminality in the form of crime, fraud and corruption, theft and sabotage, investigations thereof, reportable irregularities and past corporate governance breaches. The committee acknowledged the assessment of Eskom’s crime risk management landscape by an independent service provider which focused on identifying risks related to bribery and corruption, financial crime, physical asset crime, cyber-crime and money laundering. The committee met with internal and external assurance service providers on an ongoing basis and acknowledged the findings and observations raised by them. The committee challenged management’s assessment of the root causes and immediate actions taken and made recommendations to avoid recurrence. The committee emphasised the need for management to enhance the control environment to move from being detective to preventative focused. The committee implemented processes to actively oversee and monitor the progress and will continue to do so until matters are satisfactorily progressed. The committee considered the use of data analytics to identify transactions and anomalies that should be investigated for potential crime, fraud and corruption. A service provider has been appointed to assist with this process and to build this capability within the group’s operations. Robust controls will be developed to address and prevent the findings identified by the service provider. Findings related to forensics and data analytics that emanate from inhouse capabilities will be monitored for timeous execution. The committee recommended the implementation of combining Eskom’s security and forensic functions, reporting to the group chief executive officer, to carry out all investigative matters and noted the appointment of the general manager investigations and security in October 2024. Internal and external forensic and data analytics findings will be expedited through a dedicated project management office. The committee considered the progress in implementing Eskom’s security vetting programme which aims to ensure appropriate security clearance of Eskom directors, employees, contractors and service providers. The committee noted the status of the annual declaration of interest of all employees and that failure by an employee to submit a declaration is considered to be non-compliance with Eskom’s conflict of interest policy and subjected to disciplinary action as well as that the conflict of interest policy was revised to strengthen and emphasise Eskom’s stance that no employee or related parties of employees, are allowed to do business with Eskom or its subsidiaries. The committee continues to monitor ongoing enhancement of automated systems to minimise manual intervention in the procurement of goods and services to improve internal controls. The committee considered the reportable irregularities that were raised by the external auditors, the actions taken to address these matters as well as measures taken to prevent any reoccurrence thereof and acknowledged that certain reportable irregularities will reoccur and remain open until all related aspects have been concluded as it takes time to resolve these matters because of the inherent nature thereof, such as environmental regulatory compliance. Refer to note 52 for further information on reportable irregularities. The committee noted that Eskom’s overall assessment of the implementation of the King IV TM principles and practices remains partially effective. Initiatives are underway to address focus areas where some of the principles have not been fully or effectively applied. Completeness and The committee is not satisfied that the prior year qualification issues have been adequately addressed, even though some progress accuracy of certain has been made in improving processes, as the audit qualification regarding the PFMA records that were not complete or accurately financial records in maintained in line with legislative requirements relating to irregular expenditure, fruitless and wasteful expenditure and losses due to terms of the criminal conduct continued in 2024. requirements of the PFMA and The committee continued to place significant focus on addressing the shortcomings in the accuracy and completeness of information Companies Act required by the PFMA and acknowledged that there are still significant internal control deficiencies in the PFMA reporting process. and the impact Reporting structures, systems, controls, resources, policies and procedures continued to be enhanced to address the challenges, with thereof on the specific focus on the PFMA and loss control function and the execution of its mandate. The focus to instil a culture of self-declaration audit opinion and reporting, and the timeliness thereof, is an area that requires enhancement. Refer to the directors’ report for further information. 20 Significant matter Committee review and conclusion Internal control The committee monitored the effectiveness of the control environment through feedback on the results of the combined assurance over financial activities from management, the internal audit and forensics departments as well as the external auditors and other external assurance reporting including providers and notes that the internal control environment requires significant improvement resulting in higher reliance on external information assurance providers by the committee. technology general controls The committee considered the independent auditors’ report and the qualified opinion relating to the accuracy and completeness of information disclosed in terms of the PFMA and that, except for this qualification, the consolidated annual financial statements are fairly presented in terms of IFRS Accounting Standards. The committee noted the continuing breakdown in internal controls over financial reporting including inadequate review and monitoring of financial and reporting processes at component level. This resulted in various material misstatements and a restatement that required correction to ensure reporting in terms of IFRS Accounting Standards as well as an ongoing reportable irregularity and noted the impact it had on the external audit of the financial statements. The committee noted that there are identified inadequacies in information technology and operational technology general controls, and emphasised the need for remedial actions and improvements including segregation of duties, system access management, security of confidential data, cyber security, information technology infrastructure, application issues and third-party supplier management. The committee also noted the need to improve the management of the data center and that action plans be implemented to address accountability, enhancement of skills and expertise, optimisation of infrastructure management and monitoring, physical access controls digitalisation as well as maintaining and upgrading of critical systems. The committee also noted identified control deficiencies relating to weaknesses in the adherence to internal controls involving contract, supply chain, sustainability and plant management as well as legal, regulatory and compliance processes. The committee scrutinised the significant risk areas and their associated remediation plans and mitigating controls implemented. Ongoing improvements to the control environment are being implemented where control deficiencies were identified, including enhancing the culture of adherence and work ethics of employees as well as focusing on strengthening financial control and reporting at component level. The effectiveness of the internal environment is largely dependent on the commitment of employees to adopt and demonstrate an ethical work culture. The committee acknowledged the effort by management to remedy identified weaknesses but is concerned that the internal control environment has not improved significantly and that matters are not addressed at the rate required to reduce the risk exposure to the business. The committee concluded that the design of internal controls is generally adequate although improvement is needed in adherence and monitoring the effectiveness thereof and it continues to be a focus area that requires improvement. Consideration of The committee considered the appropriateness of the CGUs for the group. The committee is comfortable that the Eskom company cash generating (generation and distribution segments) and NTCSA from 31 March 2024 (transmission segment) has been identified as a single CGU unit (CGU) and (referred to as the Eskom CGU) as it remains a regulated vertically integrated business and the segments do not generate largely assessment of independent cash flows. possible impairment The committee noted that revenue is allocated between the segments in the vertically integrated electricity business calculated on an internal transfer pricing allocation that is based on the NERSA methodology principles. Refer to note 7. The committee acknowledged that the identification of the Eskom CGU may be impacted in the future by the planned legal separation of generation and distribution into separate entities and when the separate legal entities (or some of the legal entities in the vertically integrated electricity business) are fully operational in terms of their individual mandates. Refer to note 2.6. The committee is satisfied that management contemplated impairment indicators for the main CGU of the group (Eskom CGU) such as damaged and unavailability of plant and overdue municipal debt have been appropriately considered in the impairment assessment. The committee contemplated management’s underlying assumptions and estimates used in the calculation of the recoverable amount of the Eskom CGU and is comfortable, considering the results of the key sensitivity analysis, that there is no impairment as the recoverable amount (determined based on the higher of fair value less costs of disposal and value in use) is higher than the carrying value. Refer to note 3.3. Valuation of The committee considered management’s feedback regarding the nature and quantum of costs capitalised to property, plant and equipment property, plant and that the costs were necessary in bringing the asset to the condition required for it to operate in the manner intended by management. and equipment The committee also considered management’s feedback that an appropriate methodology has been applied to determine the useful lives of assets based on Eskom’s experience of the performance of the assets in line with Eskom’s operating and maintenance regimes as well as the physical conditions and circumstances under which the assets operate. The committee acknowledged that there could be further adjustments to the carrying value of property, plant and equipment and identification of undetected irregular expenditure and losses due to criminal conduct in the future as a result of the outcome of internal and external investigations into crime, fraud and corruption that indicated overcapitalisation to assets of past expenditure incurred. Refer to note 2.4. Recovery of the The committee noted that a key development during 2024 related to the progress made in the disposal of the transmission division deferred tax asset to NTCSA in terms of the intra group relief provisions of the tax law and Companies Act. This together with the evaluation of the profitability of the company (which no longer includes the expected profits and taxable income of the transmission business which will accrue to NTCSA) resulted in the deferred tax asset in Eskom at 31 March 2024 being derecognised as it is considered that there is no persuasive evidence that Eskom will generate sufficient taxable income over the forecast period against which the unused tax losses can be utilised despite that it is expected that the company will return to a tax paying position within the forecast period. Refer to note 14. 21 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Report of the audit and risk committee continued Execution of functions (continued) Oversight of financial and non-financial reporting and disclosure (continued) Significant matter Committee review and conclusion Recovery of The committee considered the actions taken by Eskom to address the arrear debt challenge including enhancing of existing revenue overdue trade and debt management processes, enforcing Eskom’s rights through legal action and the implementation of the active partnering receivables solution for municipalities. (arrear debt) The committee acknowledged that the municipal debt relief programme is yielding minimal results and that there are claims from some electricity customers because of billing disputes which are being handled with the assistance of external experts. The committee monitored the municipal debt status and level of compliance of municipalities on a quarterly basis and noted the escalating debt and growing number of municipalities not complying with the debt relief conditions. The committee acknowledged that management of municipal debt has been well entrenched throughout all levels of distribution operations and performance management platforms. The committee noted the breach notifications issued to municipalities that are not complying with the conditions of the municipal debt relief programme and failing to settle current account payments. National Treasury is engaging the non-compliant municipalities, highlighting that these municipalities are at risk of being removed from the programme. Eskom continued with its credit management processes for municipalities that breached their debt relief conditions. Refer to note 5.1.1. The committee recognised that the challenges regarding the recovery of outstanding receivables cannot be solved by Eskom alone and that it could have an impact on the successful legal separation of distribution should the situation not improve. The continued support and cooperation from government and other stakeholders are crucial to address the root causes of the problem. Valuation of The committee noted that management made use of independent experts to assist with the valuation of specific financial instruments, financial including derivatives held for risk management and embedded derivatives, to ensure alignment of the valuation curve methodology instruments and in determining the fair values of the financial instruments to market practice. hedge accounting The committee acknowledged that the valuation of these instruments is complex and that it is important that Eskom has access to valuation professionals with the required specialised skills and knowledge. The committee noted that the process to appoint service providers (management experts) timeously needs to be improved and that improvement is needed in the accountability and understanding by management of the valuation processes, including underlying assumptions and estimates. The committee considered the external review of Eskom’s hedging strategy by an independent service provider and noted that the hedging strategy is in line with global practices and that the recommendations were already addressed. Valuation and The committee considered the briefings on provisions including the movement in provisions over time, the key assumptions and adequacy of discount rates applied. provisions including The committee considered the adequacy of the decommissioning provisions and noted that detailed annual reviews are done by employee benefit external experts (coal, OCGT and pumped storage power station provisions are updated annually based on the results of external obligations reviews performed yearly for five power stations on a rotational basis with the nuclear plant provision updated every second year) to re-assess the relevant decommissioning and rehabilitation liabilities against the latest international practices and benchmarks as well as compliance to legislation. The committee considered the restatement because of certain changes in the measurement of power station-related environmental restoration and mine-related closure, pollution control and rehabilitation provisions that were incorrectly credited to profit or loss instead of deducted from the cost of the related assets in terms of IFRIC 1. Refer to note 48. The committee is satisfied that management has adequately considered the provision for compensation events as assessed by experts and legal advisors based on the latest available information. The committee acknowledged that the provision is based on the group’s past experience regarding the finalisation and outcome of compensation events and that the outcome of open compensation events, which are subject to a contractual adjudication process, could be different to management’s assessment thereof. The committee noted that the potential financial impact of compensation events claims cannot be precisely determined and that developments related to contingencies are continuously monitored. Refer to note 44.2. The committee considered the adequacy of the employee benefit obligations and noted that the liabilities are based on values calculated annually by external experts in terms of market practise in line with International Accounting Standard (IAS®) 19 Employee Benefits. The matters listed above are key focus areas for the committee and will continue to be monitored and reported on. The committee considered the progress of the legal separation and noted that the lessons learnt from the NTCSA separation will be implemented in the remainder of the unbundling process. 22 Conclusion The committee concluded, based on the information and explanations provided by management and the internal audit and forensic departments as well as discussions with the independent external auditors, that: • The expertise and experience of the finance function under the leadership of the group chief financial officer are generally adequate but should be further enhanced with additional financial resources such as subject matter experts to execute complex functions as well as practises that allow for career planning from entry level employees, succession planning and retention of employees. The enhancement of skills in the process control and assurance department to monitor and improve the internal control environment is a key focus area. The need for improved and aligned finance business partnering, improved financial control, review and reporting at component level as well as enhanced cooperation and alignment between group finance and newly formed subsidiaries is a key focus area, especially with the legal separation of Eskom which requires a higher professional skill set at subsidiary level compared to at a division. • The system and process of risk management is adequate even though the effectiveness thereof needs to be improved. • The compliance framework requires greater focus to ensure application thereof, especially in terms of PFMA requirements and contract management. • The information and operational technology control environments are theoretically adequate but in practise susceptible to manual intervention. Ongoing oversight and understanding of the information and operational technology landscapes, including cyber security, logging and retention of data and management of contractors and service providers, is a key focus area for improvement. • The compensating measures in place to combat any identified breakdown in the internal accounting controls are adequate to ensure that the financial records may be relied upon for the preparation of the financial statements and accountability for assets and liabilities is maintained. Improvements are required to ensure the controls operate effectively. The monitoring of the implementation and continuous adherence to policies, process control manuals and procedures remains a focus area of the process control and assurance function. • Consequence management remains a focus area for improvement to address instances of crime, fraud and corruption as well as non-compliance with generally well-documented policies, process control manuals and procedures. • The expertise, resources and experience of the internal audit and forensic departments were considered. There remains a need to fill key vacancies, acquire additional resources and skills, including specialist skills, and to enhance the value that these functions add to the group. • The management of the internal audit and forensic departments have been separated. Further improvement is needed in the execution of mandates and proactive addressing of control deficiencies by the business to prevent any reoccurrence of findings. • The combined assurance model requires enhancement in the internal monitoring and assessment of the execution of controls to proactively address the circumvention of controls, prevent recurrence of findings and improve the functioning of business processes. • 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. • Eskom company and group have access to adequate resources and support from government to be able to continue their operations for the foreseeable future, supporting the going-concern assumption, noting that there are material uncertainties. • The information contained in the integrated and sustainability reports is reliable and does not contradict the information in the annual financial statements. The committee is satisfied, notwithstanding the aspects considered in relation to the annual financial statements regarding the PFMA reporting challenges, control deficiencies, findings and observations identified and ongoing investigations, that nothing significant has come to the attention of the committee to indicate a material breakdown in the functioning of the controls, procedures and systems, other than the breach in cyber security that resulted in fraud and criminal conduct, and that the controls are appropriate with compensating measures to ensure compliance with the requirements of the Companies Act, the PFMA and IFRS Accounting Standards. Recommendation of the annual financial statements The committee has evaluated the annual financial statements of Eskom and the group for the year ended 31 March 2024 and, based on the information provided to it, considers that they comply, in all material respects, with the requirements of the Companies Act, the PFMA and IFRS Accounting Standards. The committee concurs that the adoption of the going-concern premise in the preparation of the annual financial statements is appropriate. The committee has therefore, at its meeting held on 16 December 2024, recommended the adoption of the financial statements by the board. FBB Gany Chair 18 December 2024 Statement by company secretary 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 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. M Manjingolo Company secretary 18 December 2024 23 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Independent Auditor’s report to Parliament on Eskom Holdings SOC Ltd and its subsidiaries Report on the audit of the consolidated and separate financial statements Qualified opinion We have audited the consolidated and separate financial statements of Eskom Holdings SOC Limited and its subsidiaries (the group) set out on pages 38 to 135 which comprise the consolidated and separate statements of financial position as at 31 March 2024, the consolidated and separate income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, as well as notes to the consolidated and separate financial statements, including a summary of material accounting policy information. In our opinion, except for the effects and possible effects of the matters described in the basis for qualified opinion section of this auditor’s report, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the group as at 31 March 2024, and their financial performance and cash flows for the year then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board and the requirements of the Public Finance Management Act 1 of 1999 (PFMA) and the Companies Act, 2008 (Act No. 71 of 2008). Basis for qualified opinion Irregular expenditure The public entity did not fully and accurately record irregular expenditure in note 51.1 to the consolidated and separate financial statements, as required by section 55(2)(b)(i) of the PFMA. This was due to inadequate systems of internal control to timeously detect and record this expenditure in the consolidated and separate financial statements, as well as inadequate controls to ensure appropriate assessment of potential irregular expenditure arising from non- compliant supply chain management processes, various investigation reports, tracking of forensic report findings and abuse of deviation process with a related party. Payments on certain contracts were made to parties who are not party to the original agreement. The value of irregular expenditure disclosed in the annual financial statements did not agree to underlying registers and supporting documents. As a result of the weaknesses identified and described above, we were unable to determine the full extent of the misstatement of irregular expenditure disclosed in terms of section 55(2)(b)(i) of the PFMA stated at R4 738 million (2023: R7 548 million restated) and R4 149 million (2023: R5 934 million restated) in note 51.1 to the consolidated and separate financial statements respectively, as it was impracticable to do so. Fruitless and wasteful expenditure We were unable to obtain sufficient appropriate evidence to determine that fruitless and wasteful expenditure was fully recorded as required by section 55(2)(b)(i) of the PFMA. This was due to inadequate systems of internal control to timeously detect and record this expenditure in the financial statements, including the inappropriate assessment of possible fruitless and wasteful expenditure logged, and where items were detected, such items were not recorded as fruitless and wasteful expenditure. As a result of the weaknesses identified and described above, we were unable to determine the full extent of the understatement of fruitless and wasteful expenditure disclosed in the financial statements stated at R1 million (2023: R44 million restated) and R1 million (2023: R43 million restated) disclosed in note 51.2 to the consolidated and separate financial statements respectively, as we could not obtain audit evidence by alternative means. Losses due to criminal conduct The public entity did not fully record losses due to criminal conduct in note 51.3 to the consolidated and separate financial statements, as required by section 55(2)(b)(i) of the PFMA. This was due to inadequate systems of internal control to timeously detect and record these losses in the financial statements. In addition, certain items of inventory (reworks and transfers) were written off as unexplained losses included in impairment and write-down of assets in note 35 to the consolidated and separate financial statements. As a result of the combined impact of these weaknesses identified and described above, we were unable to determine the full extent of the understatement of losses due to criminal conduct disclosed in the financial statements stated at R6 718 million (2023: R6 032 million) and R6 706 million (2023: R6 031 million) disclosed in note 51.3 to the consolidated and separate financial statements respectively, as it was impracticable to do so. Context for the opinion We conducted our audit in accordance with the International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the consolidated and separate financial statements section of our report. We are independent of the group in accordance with the Code of professional conduct for auditors of the Independent Regulatory Board for Auditors (IRBA) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ International code of ethics for professional accountants (Including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for qualified opinion and the material uncertainty related to going concern sections, we have determined the matters described below to be the key audit matters to be communicated in our report. The key audit matters identified are applicable to the consolidated and separate financial statements. 24 Key audit matters How the matter was addressed in the audit Impact of Eskom’s forensic investigation into the illicit creation of prepaid tokens (Illicit prepaid tokens) Eskom sells prepaid electricity tokens via the online vending Our audit procedures to address the key audit matter were as follows: system (OVS) and recognizes revenue in line with IFRS 15, • Inquired with management’s forensic experts, the Chief Information Officer and the Revenue from contracts with customers as disclosed in note 2.20. Divisional Executive of Eskom Distribution to understand the timeline and events that led to the breach, and the events thereafter. Revenue is recognised for tokens generated for which cash has been received through Eskom’s national vending agents. An • Assessed the competence, qualifications and objectivity of the group and company’s estimate for the deferral of revenue is processed for electricity external forensic experts, including an assessment of the scope of their investigation that has not been delivered against purchased tokens, based on and reviewing conclusions reached. the historical purchasing patterns of customers. • Engaged specialists with critical skills to undertake the relevant procedures. The specialists include individuals in the fields/disciplines of information systems, cyber Eskom’s accounting and key financial reporting processes related to and security forensics, data analytics, information system architects, legal technical prepaid electricity is highly dependent on the automated processes accounting and technical auditing. within the prepaid information technology (IT) system. • Obtained an understanding and developed a systems architecture of the prepaid IT In the previous financial period, management commissioned a ecosystem which included the relevant hardware, software, underlying processes, forensic investigation which led to the identification of controls and links to key interdependent organisations. unauthorised use of privileged level access within the prepaid IT • Obtained an understanding of Eskom’s prepaid ecosystem including the third-party ecosystem to create illicit usable prepaid tokens, in the current agents, data centres and the relevant associations. year. The preliminary results were for the period October 2023 • Performed walkthroughs of the prepaid IT ecosystem. – May 2024. • With the assistance of our IT and cyber incident response specialists, we evaluated Our cyber risk assessment procedures and our IT audit specialists the actions taken by management in response to the breach, including procedures to concluded that a material breakdown of internal controls within evaluate management's conclusions as to the extent of impacts of the breach on the the prepaid IT ecosystem had occurred. Significant control IT environment and to understand improvements made to the IT security control deficiencies identified included inappropriate user access controls, environment. dated systems with a lack of available data logs, inadequate back- • Assessed the effects of the breach on the rest of the IT environment, specifically user up procedures, and limited understanding by Eskom staff of the access controls, and the effectiveness of internal control activities. prepaid environment including hardware and relevant systems. • Re-assessed areas where control reliance was historically taken on the relevant revenue systems and performed alternative procedures to confirm accuracy and The significant control deficiencies have resulted in an inability to completeness of information. determine the full extent of illicit prepaid tokens created. In addition, • Obtained independent confirmations from the National Vending Agents on total to assess whether the illicit prepaid tokens created have been utilised tokens sold and revenue earned for the financial year. This was reconciled to the by outside parties, is a manual process of inspecting meters. prepaid revenue recorded and the commissions paid in the current year. The existence of illicit prepaid tokens results in a heightened risk • Assessed the impacts of the breach and management's evaluation and conclusions regarding the occurrence and completeness of prepaid revenue with respect to possible non-compliance with applicable local legislation, in particular recognised in terms of IFRS 15 and disclosed in Note 31. with section 34(1) of the Prevention and Combatting of Corrupt Activities of South Africa (PRECCA). In addition, as disclosed in Note 44, in terms IAS 37 Provisions, Contingent Liabilities and Contingent Assets, Eskom has a present • Obtained a legal opinion on the potential liabilities on Eskom for -illicit tokens created obligation due to the probability of an outflow of economic relating to service level agreements with various parties in the prepaid ecosystem. benefit through the future use of illicit prepaid tokens by • With the assistance of our technical accounting specialists, we evaluated the impacts customers managed on the Eskom OVS. As a result of the arising from the breach on the financial statements. significant deficiencies to support the accuracy and completeness • Consulted with our auditing specialists on the impact on the Group’s internal control of data in the online vending operating system and to assess the environment and the sufficiency of the audit work we have performed in response to extent of tokens utilised to date, management is unable to the breach. Using management’s forensic specialist data for the period October 2023 measure this liability with sufficient reliability, resulting in the – May 2024, we engaged our data analytics specialists to determine the valid tokens, as disclosure of the contingent liability. The key judgements with the well as the illicit tokens created for Eskom. most significant impact on the contingent liability are whether the • Obtained written representations from management concerning its intent to limit the creation and distribution of illicit prepaid tokens creates an exposure emanating from the creation and distribution of illicit tokens, as well as the obligation for providing electricity for illicit prepaid tokens that work to rectify all manual and/or system and general IT control deficiencies identified. could be utilised by customers managed on the Eskom OVS and, • Evaluated the accounting policy disclosure of prepaid revenue. from other parties within the prepaid ecosystem arising from • Evaluated the significant assumptions used by management to estimate the contingent service level agreements. liability and the disclosures thereof. We identified this as a key audit matter due to its impact on the As disclosed in note 51.3, the forensic investigation remains ongoing. We consider the prepaid revenue and the contingent liabilities assessment. This related disclosures of the prepaid revenue accounting policy in note 2.20 and contingent required an increased extent of audit effort, including the need for liabilities in note 44.2 to be appropriate. us to involve professionals with expertise in cyber incident response, data analytics and IT. This also required a high degree of auditor judgement in identifying, testing, and evaluating the potential extent and consequences of the information system breach on the Group and Company's IT environment and controls. 25 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Independent Auditor’s report to Parliament on Eskom Holdings SOC Ltd and its subsidiaries continued Report on the audit of the consolidated and separate financial statements (continued) Key audit matters (continued) Key audit matters How the matter was addressed in the audit Valuation of complex financial instruments The group and company are a party to certain derivative financial Our procedures to respond to the key audit matter included the following: instruments. These include embedded derivatives in supply • Evaluated the design and implementation of certain internal controls over the group contracts, and derivatives entered into for risk management as and company's valuation of derivative financial instruments. described below: • Assessed the accounting impact of new contracts with large power users entered into a) Embedded derivatives in supply contracts: In accordance with to determine the existence of embedded derivatives. IFRS 9 Financial Instruments, embedded derivatives that are • Reviewed and assessed the appropriateness of the hedge accounting policies adopted. not closely related to the host contract are separately • Involved valuation professionals with specialised skills and knowledge, who assisted in recognised and measured at fair value through profit or loss. the evaluation of the group and company's hedge documentation for certain contracts, Certain electricity supply contracts entered into by the group for the purposes of determining whether the related accounting treatment was in and the company have underlyings that are not closely related accordance with the requirements of the prevailing accounting standards. to the host electricity supply contract, such as commodity prices and foreign currencies. This has resulted in the • Assessed the competence, qualifications and objectivity of group and company’s recognition of embedded derivatives which have been external specialists. measured at fair value through profit or loss, applying the • For selected instruments, with the assistance of our valuation specialists we: guidance in IFRS 13 Fair Value Measurement. – Challenged the appropriateness of the valuation methodology, inputs and technique used by the group and company in the valuation of the instruments, b) Derivatives used for risk management: the group and where relevant. company entered into forward exchange contracts and cross – Reperformed the valuation using an independent model and compared the fair currency swaps that are designated as hedging instruments. value results to group and company’s valuation to assess the reasonableness of the The group and company apply the hedge accounting model methodology and the output of model calculations. requirements of IAS 39 Financial Instruments: Recognition and Measurement. In addition, the group and company are a party – Evaluated the swap curves, overnight indexed swap curves, ZAR and EUR foreign to derivatives which do not qualify for hedge accounting but exchange basis adjusted curves and the ZAR CPI curves used in the valuation of are used for economic hedging. The derivatives used for risk the derivatives. management are measured at fair value through profit or loss – Reperformed the valuation of commodity forwards used to hedge various as required by IFRS 9. commodities. The valuation of both the embedded derivatives and the A number of differences were identified with the most material arising from an derivatives used for risk management rely on complex valuations. inadequate consideration of CVA/DVA pertaining to the derivatives. The impact of these Inputs include forward curves for valuation adjustments, curve inaccuracies resulted in material misstatements in the day-one gain/loss on initial interpolation methodology and forward rate calculation recognition of embedded derivatives and the resultant impact on the evaluation of the methodology. In addition, where appropriate, the group’s instruments at subsequent reporting dates. valuations include the credit risk of Eskom (known as debit value The misstatements identified during the audit were corrected, and the related adjustment “DVA”) and counterparties (known as credit value disclosures reflected in the annual financial statements are appropriate. adjustment “CVA”). These inputs have a significant impact on the measurement of the derivatives. As a result, the valuation of the embedded derivatives, and derivatives used for risk management are a key audit matter. Primary energy costs and inventory management In the prior year, our external audit has confirmed that significant Our overall audit approach was designed to take into account the results of these risks control deficiencies exist over the management of the coal supply and the impact of a higher fraud risk on our audit. chain, fuel oil, consumables and spares and primary energy costs. We also identified deficiencies in the directors’ own control Our procedures to address this key audit matter included: processes. These identified deficiencies are present in the • Involvement of our internal forensics specialists to assess risk in the potential fraud following areas: areas, identify the fraud schemes and assist in designing appropriate procedures. • IT controls around weighbridge systems at power stations for • Assessment of weighbridge controls and systems by our forensic and IT specialists. fuel oil and coal . • Performing weighbridge analytics to identify anomalies with respect to fuel oil and coal • Quality assessment of the coal and fuel oil delivered, and at deliveries recorded at the coal power stations. certain stations the monitoring of fuel oil usage at various • Deploying benchmark analytics on the costs of consumables paid at power stations as power stations. it relates to the catalogued consumables. • The performance of inventory cycle counts at both power • Attendance of the year end inventory counts by senior audit personnel. stations and Distribution centres. • Obtained the supporting evidence relating to a sample of stock items registered as • The recording of the outcomes of the inventory cycle counts off-site for repairs to determine whether the item is still in repair with the supplier. performed. • Selecting a sample of the purchases and inspecting supporting documents such as the • Investigation and reconciliation of inventory losses. service level agreements, proof of delivery, proof of payments and the invoices, in • Existence of stock items registered in the system as off-site order to determine the validity and existence thereof. for repairs. There is an improvement in the inventory count processes of consumables within • The maintenance of accurate and complete inventory valuation Generation with fewer power stations requiring additional recounts. However, we reports. observed an increase in inventory control weaknesses across Distribution sites. This This is considered to be a key audit matter due to the significant included some sites not performing counts in line with the group policies, failure to and pervasive impact this has had on the overall timing, level of timeously investigate and process stock count differences. expertise and effort associated with the current audit of the Following certain adjustments we can conclude that the existence of coal, fuel oil and financial statements. consumables and spares as reflected on the statement of financial position is appropriate. 26 Key audit matters How the matter was addressed in the audit Material breakdown in internal controls over financial reporting and the impact on the audit of the financial statements Strong internal controls over the financial reporting process are The primary response to the audit engagement has been the use and deployment of key to ensuring that financial statements are reliable and fairly senior audit personnel, internal and external specialists, with skill in areas of complexity presented. Internal control is defined as the process designed, and judgement. In addition, we adopted mostly a substantive audit approach to the audit implemented and maintained by those charged with governance, of the separate and consolidated financial statements, whilst, utilising sophisticated management and other personnel to provide reasonable analytical tools to better understand and respond to the risks of fraud. assurance about the achievement of an entity’s objectives with regard to the reliability of financial reporting, effectiveness and The following are the primary procedures we performed to address this key audit matter: efficiency of operations, and compliance with laws and regulations. • We applied auditor judgement to plan the nature, timing, and extent of our audit procedures to be performed over financial statement account balances. The adherence to policies and procedures and the monitoring • We altered the timing of the audit procedures and completed these closer to the thereof continues to be a concern. A significant number of balance sheet date. material misstatements were identified in the current year that required correction and restatement. • The audit process was delayed to allow management, the directors and the auditors sufficient time to close out on the key areas of judgement. In areas of complex transactions and accounting, we identified • We re-assessed certain critical judgements and reviewed critical decisions taken on that at component level, the accounting position papers were not certain estimates and judgements in the prior year. appropriately considered and critically evaluated resulting in • We evaluated our scoping thresholds and control risk assessments, considering the material misstatements. material breakdowns in controls. Where external specialists were required, these specialists were • We increased the number of sample selections compared to what we would have not timeously appointed. The reliance on external experts on otherwise made had the public entity’s controls been properly designed and operated some key estimates, showed that there had been inadequate effectively. challenge by management on the assumptions used by the experts • We evaluated the sufficiency of audit evidence obtained by assessing the results of resulting in material audit differences being identified and adjusted. procedures performed, including the appropriateness of the nature and extent of We identified a lack of accountability and consequence management such evidence. in areas where errors, restatements and write-offs occurred, Based on the audit procedures performed and the level of expertise and effort resulting in recurring errors and significant control deficiencies. associated with the current year audit, we are satisfied that our audit procedures were Similar to prior year, we identified that component management did sufficient to mitigate the impact of the material breakdown in financial controls. not share critical information with those charged with governance and the auditors. This coupled with the significant control deficiencies resulted in significant management and audit effort to appropriately address the matters identified and delayed the audit process and the resultant reporting on the financial statements. Due to the significant and pervasive impact the internal controls have on financial reporting and the overall efficiency, level of expertise and effort associated with the audit, we consider this to be a key audit matter. Valuation of the compensation events provisions relating to mega-build projects As disclosed in Note 2.18, note 29 and note 44 to the Our audit procedures included the following: consolidated and separate financial statements, the group • We assessed the design and implementation of controls operating, and the recognises provisions for compensation events. appropriateness of the oversight performed by the compensation events committee, the responsible contract managers and Eskom executives to ensure that compensation Compensation event liabilities arise where contractors believe events settled are valid and that appropriate provision is raised for outstanding claims. that they are due additional amounts from Eskom as a result of either scope changes, design errors, industrial disputes, • For a sample of claims submitted by contractors we performed the following: prolongation claims, contractor swap-out costs, access delays or – Assessed the validity of each claim with reference to contract documentation. acceleration incentives, resulting in re-assessment of project – Reviewed the reports of and held discussions with Eskom’s internal and external prices, key dates or completion dates. There is judgement around experts, to obtain an understanding of the significant assumptions, judgements and the claims value raised as a liability (i.e., the valuation and methods used in determining the assumptions, the outcome of their estimates and allocation assertion, as there is a risk that claims are received for the basis of their conclusions. which no liability is raised, or insufficient provision raised). – Considered the reasonableness of estimates made in recognising the provision for The quantum of the final obligation is dependent on a number of compensation events, through inspection of claim submissions, quantity surveyor factors which may be outside the control of the group. This reports, and correspondence between the contractor and Eskom. includes the contractual consultation, dispute adjudication and – Assessed completeness of claims raised with reference to minutes of compensation ultimately arbitration processes. This impacts the timing and event claims meetings by reconciling our assessment to the claim registers. quantum of the settlement of these claims. – Assessed the competence, capabilities and objectivity of Eskom’s internal and where applicable, external experts, through inspection of their qualifications and As disclosed in accounting policy note 2.4, the group and company their membership of professional organisations. acknowledge certain overpayments on the mega-build projects that are currently under investigation. This is an ongoing matter, and in – Considered the historical accuracy of previous provisions raised and settlements the current year the external construction experts continued their ultimately made. assessment on Kusile and began the assessment at Medupi, with no – We updated our understanding of claims in progress to the date of signing the additional overpayment write-offs recorded in the current year. financial statements and updated our understanding of subsequent rulings and whether these should be adjusted as at 31 March 2024. The estimation of the amount required to settle claims arising • With regards to potential overpayments write-offs, we held discussions with from compensation events requires significant judgement. Due to management’s internal and external experts, to obtain an understanding on the the high level of judgement and estimation required in determining progress made in the current year on the investigation and assessment on the the provision for compensation events, it is considered to be a overpayments on the big-build projects. key audit matter. The resultant disclosures made in the financial statements are appropriate. 27 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Independent Auditor’s report to Parliament on Eskom Holdings SOC Ltd and its subsidiaries continued Report on the audit of the consolidated and separate financial statements (continued) Key audit matters (continued) Key audit matters How the matter was addressed in the audit Impairment assessment of property, plant, and equipment and indefinite useful life intangible assets As disclosed in note 3.3, the Directors assessed property, plant In evaluating the impairment of property, plant and equipment within the applicable and equipment for impairment in line with IAS 36 Impairment of CGU, we reviewed the “fair value less cost to sell” and “value in use” calculation/model Assets. The recoverable amount of a group of assets, or cash prepared by the Directors, with a particular focus on the assumptions with the most generating unit (CGU), is to be measured whenever there is an significant impact. This included the forecasted sales price, the forecasted available indication that the value of the group of assets or the CGU may generation capacity, increase in primary energy costs from OCGTs and the be impaired. Significant judgement is required by management in implementation of carbon tax, discount rates, the long-term growth rate and consistent assessing the impairment of the group of assets or the CGUs, implementation of the pricing methodology as identified by management. which is determined with reference to fair value less cost to sell or the value in use, based on the cash flow forecast for the CGU. Our procedures included the following: • Evaluating management updated accounting position around the appropriateness of The group financial position continued to be impacted by the the identified cash generating units within the group. constrained generation capacity on the back of plant performance • Testing of the key controls relating to the preparation and review of the group’s cash challenges resulting in the reliance on more expensive generating flow forecasts used in the respective impairment models. capacity from open-cycle gas turbines (OCGTs) and independent • Assessing the mathematical accuracy of the respective cash flow models and agreed power producers (IPPs) which gave rise to an identified relevant data to the latest long-term business plans used by management to manage impairment indicator. and monitor the performance of the business, whilst also performing a retrospective The key assumptions with the most significant impact on the cash comparison of forecasted cash flows to actual past performance and previous forecasts. flow forecasts were: • Given that the assumptions with the most significant impact is the forecasted sales • The evaluation of the appropriateness of the identified cash price and the forecasted available generation capacity identified by the directors, we generating units within the group, considering the progress challenged the expectation as to the electricity price path with a focus on management’s made on the unbundling activities and related issued legislation; forecast price path in comparison to the historic MYPD outcomes; • Revenue volumes – dependent on electricity sales volumes, • Challenged the model assessing the generation capacity, specifically the energy wheel, forecasted embedded self-generation and generation capacity including the forecasted impact of embedded-self generation; as well as the forecasted price of electricity, which is based on • Analysed the future projected cash flows used in the models to determine whether the tariff increase determined by National Energy Regulator of they are reasonable and supportable given the current macroeconomic climate and South Africa (NERSA); expected future performance of the CGU, against external market data, historical • The discount rate which is based on the regulatory electricity performance and forecasts; pricing methodology where the rate of return on the entity’s • Recalculated the recoverable amount of the CGU; and assets should equate to its weighted average cost of capital. • Considered the appropriateness of the disclosures and sensitivity analyses presented. The determination of the weighted average cost of capital is • We engaged our internal valuation and engineering specialists to perform the following: highly complex and whether it is considered appropriate for – Critically evaluated whether management’s assertion regarding a single cash- the NERSA determined weighted average cost of capital to be generating unit and the recoverable amount calculation complies with the applied on the impairment models; requirements of IAS 36 Impairment of Assets (including the impact of the National • Long-term growth rates and targeted earnings before interest, Transmission Company South Africa (NTCSA) unbundling on the CGU assessment); taxes, depreciation and amortization (EBITDA) ratio; – Assessed the logic and mathematical accuracy of the valuation models against best • Available generation capacity, including potential additional practice; capacity from current capex and/or maintenance projects. The – Benchmarked the growth rates and forecasted sustainable EBITDA margin; reliance on IPPs and OCGTs should the projects not materialise as per the forecast production plan; – Assessed the weighted average cost of capital (discount rate) and the determination of this rate; • Impact of carbon tax from 2026 results in material increases in primary energy costs from 2027; and – Assessed the forecasted available generation capacity and evaluated this against the 2035 Just Energy Programme and the expected impact of the Generation • The evaluation of the following key uncertainties and Recovery Plan; and dependencies: – Stress-tested the future projected cash flows specifically in relation to the key − Timing of NERSA’s determination of price on a per licensee assumptions of price and energy availability factor inputs and the suggested basis; reduction of the Energy Availability Factor (EAF) assumptions as suggested by our − Continued application of NERSA’s current multi-year price specialists. determination (MYPD) methodology; and − Introduction of the system market operator and the impact The discount rate and other assumptions were within independently determined on the energy trading market in South Africa. acceptable ranges. We note that the recoverable amount of the CGU is significantly dependent on NERSA approving the tariffs in line with the regulatory electricity pricing Based on the outcome of the respective cash flow models, the methodology. This is a significant assumption as in recent determinations, the group has directors did not record an impairment charge for the current year. resorted to legal measures to have certain NERSA decisions reassessed post NERSA’s announcements. In addition, the determination of the relevant CGUs might be impacted Due to the significant estimation uncertainty and subjective by the corporatisation of the Distribution and Generation divisions and at such time, nature of the assumptions used in these estimates, this was this could result in different conclusions. considered a key audit matter. We considered the related disclosures of the key dependencies and the sensitivities in the impairment model to be appropriate. 28 Material uncertainty related to going concern We draw attention to the matter below: We draw attention to note 3.2 in the consolidated and separate financial statements which indicates that the group incurred a net loss of R55 015 million (2023: R26 082 million), and the company incurred a net loss of R57 084 million (2023: R26 357 million) for the year ended 31 March 2024. In addition, the group’s current liabilities exceed current assets at year-end by R41 357 million (2023: R33 866 million), and the company’s current liabilities exceed current assets at year-end by R50 538 million (2023: R51 300 million). As disclosed in note 3.2, the group and company are faced by significant challenges that is evidenced by: • Eskom remains in a debt-reliant liquidity position over the short, medium, and long term with reliance on the continued support from government. • Stagnant and contracting sales volumes. • Increased operational costs and significant losses incurred in the 2024 financial year. • Extent of requirements in the capital programme to increase and replace generating and transmitting capacity. • There is uncertainty around the timing of price rulings on separate licenses by the National Electricity Regulator of South Africa (NERSA) and the continued application of the current methodology. The on-going corporatisation activities and alignment of strategies is key to the company and group as a whole. • The continuous increase in overdue electricity receivables primarily from municipalities and metros. This position has deteriorated more than expected in 2024 and post the end of the financial year. • The continued success of the generation recovery plan to improve on the generating plant performance. Since March 2024, the generation recovery plan has resulted in a significant improvement in the EAF, as well as the related measures and positively impacted cash flows. The going concern assumption remains fully dependent on the on-going positive and incremental impact of the generation recovery programme; and • There are above expected increases in technical and non-technical losses (for reasons such as illegal connections, ghost vending, selling of illegal tokens, etc.) which results in an increase in Eskom’s current and future cost to produce such energy, with no related billings and cash collections for these production volumes. There are several mitigating strategies and actions disclosed in note 3.2, however, there are various dependencies and internal and external uncertainties which could impact the ability to deliver against these strategies. This is indicative of the existence of a material uncertainty that may cast significant doubt on the group and company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Emphasis of matter We draw attention to the matters below. Our opinion is not modified in respect of these matters. Restatement of corresponding figures As disclosed in note 48, to the consolidated and separate financial statements, the corresponding figures for March 2023, were restated due to an error in the prior year. Events after the reporting period We draw attention to note 47 in the consolidated and separate financial statements, which discloses several material non-adjusting events. Investigations into possible corruption and related impact on capital projects We draw attention to note 2.4 in the consolidated and separate financial statements, which discloses the group and company’s accounting policy on the impact of corruption on the valuation of capital projects which states that once an investigation on the overpayment on capital projects is finalised and if required, an adjustment is made to the carrying value. Responsibilities of the accounting authority for the consolidated and separate financial statements The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with IFRS, the requirements of the Companies Act and PFMA, and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and separate financial statements, the accounting authority is responsible for assessing the group and company’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 the accounting authority either intends to liquidate the group and company or to cease operations, or has no realistic alternative but to do so. Responsibilities of the auditor for the audit of the consolidated and separate financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. A further description of our responsibilities for the audit of the consolidated and separate financial statements is included in the annexure to this auditor’s report. This description, which is located at page 36, forms part of our auditor’s report. Report on other legal and regulatory requirements 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 reportable irregularities in terms of the Auditing Profession Act. We have reported such matters to the IRBA. The matters pertaining to the reportable irregularities have been described in note 52.1 to the consolidated and separate financial statements. 29 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Independent Auditor’s report to Parliament on Eskom Holdings SOC Ltd and its subsidiaries continued Report on the audit of the annual performance report Introduction and scope In accordance with the Public Audit Act 25 of 2004 (PAA) and the general notice issued in terms thereof, we must audit and report on the usefulness and reliability of the reported performance against predetermined objectives for selected key performance areas presented in the shareholders compact performance section of the directors’ report. The accounting authority is responsible for the preparation of this annual performance report. We selected the following key performance areas presented in the shareholders compact performance section of the directors’ report for the year ended 31 March 2024 for auditing. We selected key performance areas that measures the entity’s performance on its primary mandated functions and that are of significant national, community or public interest. Key performance area Page numbers Purpose Generation 14 Measurement and monitoring of key indicators specific to the operational efficiency within electricity generation including energy availability at a power station level following from planned and unplanned energy losses. The rate at which boiler tube failure contributes towards unplanned energy losses, the readiness for planned maintenance outages and the success of generation units returning to service post planned maintenance outages. Measurement and monitoring of the mass of particulates emitted from Eskom’s coal-fired power stations, the amount of raw water used for power generation, the average increase in coal cost per annum and various indicators emanating from the Atmospheric Emissions License compliance requirements imposed per power station. Measurement and monitoring of the creation of new assets to support the expansion of the current generation capacity and improve the ratio of electricity supply in relation to electricity demand. Measurement and monitoring of scheduled and controlled power cuts that rotate available capacity between all customers when demand is greater than supply in order to protect the integrity and stability of the grid to avoid a blackout. Transmission 14 Measurement and monitoring of key indicators specific to the operational efficiency within electricity transmission including the measurement of transmission interruptions experienced as well as transmission infrastructure expansion and strengthening projects. Distribution 14 Measurement and monitoring of key indicators specific to the operational efficiency within electricity distribution including the measurement of distribution energy losses, the average duration of distribution interruptions experienced by customers during a year, the progress on new electricity connections of previously disadvantaged households and the level of customer debt recovery of invoiced electricity supplied. Just Energy Transition 14 Measurement and monitoring of key indicators focussed on ensuring the shift towards a low-carbon electricity future is just and occurs without extensive disruptions to socio-economic development. The public entity is required to develop a Just Energy Transition strategic implementation plan that enable the delivery of the government’s Just Energy Transition Framework. Finance 14 Measurement and monitoring of key financial sustainability indicators focussed on operational profitability, operating cash flow availability to service net interest on borrowings as well as interest and capital repayments on borrowings, and progress in identified and targeted operational and capital cost savings/optimisation initiatives, cost avoidance initiatives, working capital optimisation initiatives as well as income recovery initiatives against established baselines through Eskom’s turnaround plan. We evaluated the reported performance information for the selected key performance areas against the criteria developed from the performance management and reporting framework, as defined in the general notice. When an annual performance report is prepared using these criteria, it provides useful and reliable information and insights to users on the public entity’s planning and delivery on its mandate and objectives. We performed procedures to test whether: • the indicators used for planning and reporting on performance can be linked directly to the public entity’s mandate and the achievement of its planned objectives. • all the indicators relevant for measuring the public entity’s performance against its primary mandated and prioritised functions and planned objectives are included. • the indicators are well defined to ensure that they are easy to understand and can be applied consistently, as well as verifiable so that we can confirm the methods and processes to be used for measuring achievements. • the targets can be linked directly to the achievement of the indicators and are specific, time bound and measurable to ensure that it is easy to understand what should be delivered and by when, the required level of performance as well as how performance will be evaluated. • the indicators and targets reported on in the annual performance report are the same as those committed to in the approved initial or revised planning documents. • the reported performance information is presented in the annual performance report in the prescribed manner and is comparable and understandable. • there is adequate supporting evidence for the achievements reported and for the reasons provided for any over or underachievement of targets. We performed the procedures for the purpose of reporting material findings only; and not to express an assurance opinion or conclusion. 30 The material findings on the performance information of the selected key performance areas are as follows: Finance Savings from turnaround initiatives: Included in the reported achievement of R9.9 billion is an amount of R1.3 billion contributing to the reported achievement as a contributing cost saving initiative measuring the actual cost per ton incurred for uncontracted coal supplied to generation facilities compared to the budgeted cost per ton established as part of the baseline for measurement of this initiative. Management determined the baseline cost per ton based on available market information and management’s estimate of coal grading and movement in export coal markets as of December 2022. We are unable to substantiate the estimates and judgements applied in management’s estimation of the baseline and consequently, we could not determine the actual achievement associated with this initiative but estimate it to be materially less than reported achievement. Consequently, it is likely that the achievement on the target was less than reported. Missing indicator Eskom Distribution is responsible, amongst others, for the ongoing maintenance and strengthening of plant assets and the creation of new assets to support the expansion of the current distribution capacity and improve the ratio of electricity supply in relation to electricity demand. However, an indicator to measure performance on the progress of Eskom Distribution infrastructure expansion and the conversion from conventionally billed post-paid customers to prepaid customers and Smart grid technologies was omitted from the approved planning documents. Consequently, progress towards the achievement of this mandate was not reported on in the shareholders compact performance section of the directors’ report. Other matters We draw attention to the matters below. Achievement of planned targets The annual performance report, which is included in the directors’ report, includes information on reported achievements against planned targets and provides explanations for over and under achievements. This information should be considered in the context of the material findings on the reported performance information. Material misstatements corrected We identified material misstatements in the Finance key performance area of the annual performance report submitted for audit resulting from corrections to the underlying financial statements submitted for audit. In addition, we identified material misstatements in our audit of savings from turnaround initiatives under the Finance key performance area. Management did not correct all the misstatements and we reported material findings in this report. Report on compliance with legislation Introduction and scope In accordance with the PAA and the general notice issued in terms thereof, we must audit and report on compliance with applicable legislation relating to financial matters, financial management and other related matters. The accounting authority is responsible for the public entity’s compliance with legislation. We performed procedures to test compliance with selected requirements in key legislation in accordance with the Auditor General of South Africa (AGSA) findings engagement methodology. This engagement is not an assurance engagement. Accordingly, we do not express an assurance opinion or conclusion. Through an established AGSA process, we selected requirements in key legislation for compliance testing that are relevant to the financial and performance management of the public entity, clear to allow consistent measurement and evaluation, while also sufficiently detailed and readily available to report in an understandable manner. The selected legislative requirements are included in the annexure to this auditor’s report. The material findings on compliance with the selected legislative requirements, presented per compliance theme, are as follows: Annual financial statements The financial statements submitted for auditing were not fully prepared in accordance with the prescribed financial reporting framework (IFRS Accounting Standards) as required by section 55(1)(b) of the PFMA. The submitted financial statements contained material misstatements on property, plant and equipment, intangible assets, investment in subsidiaries, future fuel supplies, deferred tax, loan receivable, inventories, embedded derivatives, lease liabilities, trade and other receivables, payment received in advance, contract liabilities and deferred income, trade and other payables, impairment of financial assets and income tax identified by the auditors which were subsequently corrected. Furthermore, the note disclosures relating to going concern, critical accounting estimates and assumptions- financial risk management - credit and liquidity risk, guarantees and contingent liabilities, related party transactions and balances as well as the restatement of comparatives were subsequently corrected and/or completed. This non-compliance resulted in a reportable irregularity as described in the report on other legal and regulatory requirements. A similar non-compliance was reported in the prior year. Expenditure management 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 of opinion, the amount of irregular expenditure disclosed in note 51.1 of the separate financial statements does not reflect the full extent of the irregular expenditure incurred and the full extent of the irregular expenditure could not be quantified. The majority of the irregular expenditure disclosed in the financial statements was caused by non-compliance with section 51(1)(a)(iii) of the PFMA. A similar non-compliance was reported in the prior year. Effective steps were not taken to prevent fruitless and wasteful expenditure, as required by section 51(1)(b)(ii) of the PFMA. As reported in the basis for qualified opinion, the amount of fruitless and wasteful expenditure disclosed in note 51.2 of the separate financial statements does not reflect the full extent of the fruitless and wasteful expenditure incurred. A similar non-compliance was reported in the prior year. Resources of the public entity were not utilised economically, as required by section 57(b) of the PFMA. This non-compliance resulted in a reportable irregularity as reported in the report on other legal and regulatory requirements. A similar non-compliance was reported in the prior year. Revenue management Effective and appropriate steps were not taken to collect all revenue due from local large power users (municipalities) and local small power users. A similar non-compliance was reported in the prior year. Furthermore, not all contractual agreements were concluded with a large power user to enable the public entity to bill and collect the revenue due where the supply of electricity took place. The latter non-compliance resulted in a reportable irregularity as described in the report on other legal and regulatory requirements. 31 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Independent Auditor’s report to Parliament on Eskom Holdings SOC Ltd and its subsidiaries continued Report on compliance with legislation (continued) Procurement and contract management We were unable to obtain sufficient appropriate audit evidence that, in all instances, contracts and quotations were awarded in accordance with the legislative requirements as due proper record keeping was not maintained. A similar limitation was reported in the prior year. We were unable to obtain sufficient appropriate audit evidence that goods, works and services were procured through a procurement process which is fair, equitable, transparent and competitive, as required by section 51(1)(a)(iii) of the PFMA. A non-compliance was reported in the prior year. We were unable to obtain sufficient appropriate audit evidence that procurement requirements on some commodities designated for local content and production, were procured from suppliers who comply with the requirements of the 2017 Preferential Procurement Regulation 8(2). A limitation of scope was reported in the prior year. We were unable to obtain sufficient appropriate audit evidence that contracts were awarded to suppliers based on preference points that were allocated and calculated in accordance with the requirements of section 2(a) of the Preferential Procurement Policy Framework Act (PPPFA) and Preferential Procurement Regulation 2017 and/or 2022. A similar limitation was reported in the prior year. Some of the contracts and quotations were awarded to bidders that did not score the highest points in the evaluation process, as required by section 2(1)(f ) of PPPFA and Preferential Procurement Regulation 2017 and/or 2022. A limitation was reported in the prior year. Tenders for contracts above R30 million, which had a condition for mandatory subcontracting to advance designated groups, were awarded to bidders who did not submit evidence of subcontracting agreements, in contravention of the 2017 Preferential Procurement Regulation 9(1). This non-compliance was identified in the procurement processes for coal contracts amounting to R16 billion. A limitation was reported in the prior year. Consequence management We were unable to obtain sufficient appropriate audit evidence that disciplinary steps were taken against officials who had incurred irregular and fruitless and wasteful expenditure as required by section 51(1)(e)(iii) of the PFMA. This was due to investigations into irregular and fruitless and wasteful expenditure which were not performed. This limitation resulted in a reportable irregularity as reported in 2022, 2023 and 2024 on the report on other legal and regulatory requirements. A similar limitation was reported in the prior year. Where investigations were performed, disciplinary steps were not taken against the officials who had permitted irregular and fruitless and wasteful expenditure, as required by section 51(1)(e)(iii) of the PFMA. This non-compliance resulted in a reportable irregularity as reported in 2022, 2023 and 2024 on the report on other legal and regulatory requirements. A similar non-compliance was reported in the prior year. Investigations were not conducted into all allegations of financial misconduct committed by officials, as required by Treasury Regulation 33.1.1. The non- compliance was reported as a reportable irregularity in 2022, 2023 and 2024 on the report on other legal and regulatory requirements. A limitation was reported in the prior year. Disciplinary hearings were not held for confirmed cases of financial misconduct committed by officials, as required by Treasury Regulation 33.1.1. The non- compliance was reported as a reportable irregularity in 2022, 2023 and 2024 on the report on other legal and regulatory requirements. A limitation was reported in the prior year. Due to inadequate processes of management of cases and investigations, we are unable to obtain sufficient evidence that allegations of corruption or theft, fraud, extortion, forgery, uttering a forged document which exceeded R100 000 were reported to the South African Police Service (SAPS), as required by section 34(1) of the Prevention and Combatting of Corrupt Activities of South Africa. This limitation is included in a reportable irregularity as reported in 2022, 2023 and 2024 on the report on other legal and regulatory requirements. A similar limitation was also reported in the prior year. State-owned enterprise oversight and governance The annual return and the latest approved audited financial statements were not timeously filed, as required by section 33(1)(a) of the Companies Act and 30(2) of the Companies Regulation. Other information The accounting authority is responsible for the other information. The other information comprises the information included in the document titled “Eskom Annual financial statements 31 March 2024” which includes the directors’ report, the report of the audit and risk committee and statement by the company secretary as required by the Companies Act, and the document entitled “Eskom Integrated Report”, which were obtained prior to the date of this report. The other information does not include the consolidated and separate financial statements, our auditor’s report and those selected key performance areas presented in the shareholder compact performance section of the directors’ report that have been specifically reported on in this auditor’s report. Our opinion on the financial statements and our findings on the reported performance information and the report on compliance with legislation do not cover the other information and we do not express an audit opinion or any form of assurance conclusion on it. In connection with our audit, our responsibility is to read the other information and, in doing so, consider whether the other information 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 materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. The matters included in the Basis of Qualification will materially impact the other information and in addition, we describe below that we have concluded that a material misstatement of the other information exists as it relates to the disclosure of fruitless and wasteful, irregular expenditure and losses due to criminal conduct. 32 The opening balances for irregular, fruitless and wasteful expenditure were subjected to audit in the prior years, with irregular expenditure being qualified on the basis of accuracy and completeness and fruitless and wasteful expenditure being qualified on completeness of these disclosures. In addition, taking into account the qualifications above relating to current year expenditure and disclosure, and the fact that inadequate progress has been made to address the control deficiencies that gave rise to these conclusions, we highlight that the information presented on page 128 to 133 of the Eskom Integrated Report is remains materially misstated. The ageing of matters still under determination for disclosure as either irregular expenditure and fruitless and wasteful expenditure is on average 1.92 years, coupled with the reportable irregularity on delay in investigations in Note 52.1, means that any findings on irregular expenditure and fruitless and wasteful expenditure would not be timeously disclosed and will be adjusted in the prior year opening balance in the information presented in the Eskom Integrated Report. These matters indicate that the cumulative irregular expenditure disclosed in the integrated report may not be complete and accurate, and the cumulative fruitless and wasteful expenditure disclosed in the integrated report may not be complete. Internal control deficiencies We considered internal control relevant to our audit of the consolidated and separate financial statements, annual performance report and compliance with applicable legislation; however, our objective was not to express any form of assurance on it. The matters reported below are limited to the significant internal control deficiencies that resulted in the basis for the qualified opinion, the findings on the annual performance report and the material findings on the compliance with legislation included in this report. The significant internal control deficiencies that resulted in negative audit outcomes for at least the previous five years were not addressed by the accounting authority. The reports of current and previous auditors over the same period have consistently highlighted material breakdown in controls over compliance with applicable laws and regulations that have hindered the entity’s ability to prevent material non-compliance findings resulting in qualified audit opinions. The commitments made over the years by those charged with governance to address these matters have not materialised due to a lack of accountability at various levels in the organisation, inadequate oversight and monitoring processes and ineffective consequence management. The lack of group monitoring activities of compliance at component level, results in matters surfacing through the external audit process. Management should proactively evaluate findings by obtaining a thorough understanding of the key drivers of the audit outcomes (i.e., symptoms as opposed to the underlying causes), and identify the key areas across the business that require attention. A plan to respond to each area should then be allocated to key individuals to drive, implement and monitor preventative controls. Clear key performance indicators should be assigned to ensure there is appropriate, effective, and sustained change. Management should further design and implement a self-assessment process to identify and drive initiatives specific to enhancing and improving processes and meeting the objectives and commitments made by those charged with governance. The accounting authority did not ensure that there were adequate controls in place to ensure that amounts included in the annual financial statements and PFMA disclosure notes are supported by accurate registers. Some underlying information supporting registers was not always accurate, sufficient and appropriate and the format of underlying registers at times made it impracticable to allow for an efficient audit process. Management does not have adequate processes in place to remedy the control environment surrounding the accuracy of the information reported on the PFMA disclosure note which results in repeat findings. The accounting authority did not exercise adequate oversight over those responsible for compliance and the implementation of effective action plans to ensure that all significant prior year audit findings are remediated and that the backlogs of transgressions were investigated and concluded timeously, which results in the remediation dates of prior year findings being extended to the next financial year. The accounting authority committed in the prior year’s integrated report to improving consequence management, by putting a number of interventions in place, which included taking disciplinary action within three months from the date that management becomes aware of any misconduct. Management has not implemented the intervention to improve consequence management and the accounting authority has not followed through to ensure that all the commitments made were achieved. This is also evidenced by the identified instances of non-compliance with applicable legislation on consequence management reported in the current year and prior years. The accounting authority did not exercise adequate oversight over those responsible for ensuring that all procurement transactions and contracts have followed the appropriate procurement and contract management process in accordance with the appropriate legislative requirements. Leadership did not ensure that adequate entity and process level controls were designed, implemented, and monitored to prevent, identify, and correct non- compliances within the supply chain management environment. There are no self-assessments made regarding the procurement transactions concluded in the current year and where contracts were awarded in the past, there were no adequate monitoring controls to ensure that initial contracting conditions were at all times adhered to. Management did not address the worsening backlog relating to alleged possible irregular and fruitless and wasteful expenditure within the specified timeframe as required by the National Treasury frameworks and instruction notes. This poses a risk that items of irregular and fruitless and wasteful expenditure with potential fraud and losses are not addressed timeously to prevent further non-compliances and losses and does not promote a culture of compliance in the entity. This was reported in the prior years and no adequate controls have been put in place to ensure compliance with the legislation and actively reduce the backlog resulting in the under reporting of the irregular and fruitless and wasteful expenditure. The accounting authority did not exercise adequate oversight nor held management accountable for the less than adequate design and implementation of effective action plans to follow up, investigate and address prior year audit findings that led to negative audit outcomes for procurement and contract management for the past two audits. This resulted in not all prior year audit findings being investigated and remediated timeously to act as a deterrent for future possible non-compliances as there has not been notable progress in addressing the issues nor improvement in audit outcomes as transgressions that result in irregular expenditure persist. This is evidenced in the management’s reporting on the audit findings status and progress. Leadership and management again in the current year developed forward looking action plans as part of addressing current and prior year issues related to consequence management for irregular, fruitless and wasteful expenditure, and qualifications. The implementation of these action plans has been extended into the future financial periods with no progress being made in the current year as audit outcomes remained stagnant. The public entity has not implemented adequate processes to address consequences of historic transgressions, and other non-compliance identified. This is evidenced in the management’s reporting on the audit findings status and progress. There is a weak control environment in relation to the monitoring and implementation of consequence management as the reporting of disciplinary matters/ alleged misconduct that serves as a trigger to initiate disciplinary processes and the tracking of the disciplinary processes and ultimately reporting to those charged with governance for matters emanating from the irregular and fruitless and wasteful expenditure determination reports issued by the Loss Control Function to the People Relations Department is at the discretion of the line managers who may or may not trigger the process and the lapses are identified through the audit process. 33 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Independent Auditor’s report to Parliament on Eskom Holdings SOC Ltd and its subsidiaries continued Internal control deficiencies (continued) There is a lack of accountability and unwillingness to accept responsibility for the outcomes of the audit process within some units of the public entity. In some instances, leadership did not take ownership for the audit findings within their areas of responsibility. Management did not always respond to matters communicated by the auditors in areas of material non-compliance and significant internal control deficiencies. The lack of improvement in the control environment is the result of management and leadership not taking responsibility and committing to addressing all the issues emanating from the audit process, specifically matters relating to significant internal control deficiencies. Management do not have adequate controls in place to ensure that complete and accurate procurement and contract management registers exist. We found that accurate and complete procurement and contract management registers were not readily available for audit purposes in the current year. This resulted in delays in submission of information impacting the audit process and in certain instances, the audit outcome on compliance of procurement and contract management. Management did not design and implement adequate controls to ensure that, in accordance with the appropriate legislative requirements, the bids of the winning suppliers were received on or before the closing date and time determined for the bid. The current process is prone to manipulation and abuse of the procurement processes where late bids from suppliers can be accepted and awarded against the legislation. As a result, we could not confirm whether any of the tenders awarded were received from the winning bidders who submitted their bids on or before the closing date and time advertised to the public. Management and leadership did not design and implement adequate controls to ensure that the initial contracting commitments were adhered to at contract implementation stage and throughout the life cycle of the contracts awarded to related parties. In instances where approved subcontracting thresholds were not adhered to; management did not have internal processes to identify and deal with these breaches of contracts as this was identified through the audit process. This lack of processes also points out to an overarching weakness in the governance mechanisms and oversight on awarding, execution and contract management of contracts which were awarded to related parties within the group without the required capacity and capability to deliver on these contracts. The accounting authority committed to improving the efficacy of the loss control function in an effort to reduce the occurrences of irregular and fruitless and wasteful expenditure as part of initiatives to address the compliance with the applicable legislation. However, management did not adequately implement the continuous review and monitoring controls relating to self-assessment for supply chain management, irregular, fruitless and wasteful expenditure, nor did they implement the mechanism of effective collaboration between the internal audit and forensics, and loss control functions to identify PFMA related issues. Furthermore, the accounting authority did not monitor or hold management accountable to ensure that there is improvement in the efficacy of the loss control function. The non-compliance with procurement processes by the public entity has resulted in irregular expenditure incurred that is not reported in the financial records of the entity. There is a lack of ownership and accountability for these matters that should be referred for assessment and determination between business, supply chain management unit and loss control function. This is because there is lack of accountability between business and loss control function as transgressions that resulted in irregular expenditure are identified through the audit process. Despite the accounting authority’s stated commitment to improve the efficacy of the loss control function as mentioned above, in our interactions with the loss control function, it absolves itself from identifying the matters that result in irregular expenditure from the procurement processes. These are the matters that continue to contribute to the qualification of irregular expenditure due to completeness. Leadership did not ensure that adequate entity and process level controls were designed, implemented, and monitored to prevent, identify, and correct non- compliances within the supply chain management environment and quantify the full extent of irregular expenditure, fruitless and wasteful expenditure, and losses due to criminal conduct, thereby addressing the repeat qualification. There was no comprehensive process to address the prior year qualifications and findings related to irregular, fruitless and wasteful expenditure. These matters have been re-reported. The accounting authority did not provide adequate oversight to address the delays in conducting forensic investigations. The delays will impact management’s ability to confirm the existence of matters that need to be reported to SAPS in terms of section 34(1) of PRECCA, mitigate any possible future exposures to financial losses, and effective consequence management. The accounting authority did not exercise adequate oversight over the financial statements before submitting them for audit. We identified material misstatements to the financial statements submitted for audit. The identified material misstatements, which were appropriately corrected in the final audited financial statements, poses of significant risk of modification of the areas that were identified to have material misstatements in future periods. The consistent performance by management of routine key financial controls such as inventory cycle counts, review of stock obsolescence, asset verification and supplier creditor reconciliations were not always adequately performed during the year. There were instances of inventory write-offs that could not be adequately substantiated. Management did not implement adequate internal controls around the management of inventory. Though we have noted an improvement from what was reported in the prior year, Eskom is still susceptible to material losses of inventory due to the poor control environment across all Eskom power stations. The inventory matters described above result in potential losses due to criminal conduct and points to uneconomic use of resources of the public entity. Revenue collections remain a concern for local power users and municipalities including those on the debt relief programme as the entity continues to struggle to collect the revenue due. The steps taken for collection did not yield the desired results as the revenue collection remain an issue. The accounting authority has not implemented measures to collect all revenues due to the public entity and thus compromising the long-term financial sustainability of the public entity. The accounting authority failed to enter into a reciprocal and reconciliation agreements for additional generation of power where there were payments made without economic benefits flowing into the public entity resulting in material financial losses incurred. Management did not implement adequate internal controls for the collection of supporting evidence and the documentation of applied judgments in the establishment of a baseline for measuring savings from uncontracted coal supplies for the year under review. This resulted in the material finding reported within the Report on the audit of the annual performance report. The accounting authority did not exercise adequate oversight in the development and approval of the annual shareholder compact to ensure that the compact is sufficiently complete to prioritise relevant core functions of its mandate. Performance indicators specific to Distribution plant maintenance, strengthening and expansion has been omitted from the approved plans and has been included in this report as a material missing indicator. 34 Other reports We draw attention to the following engagements conducted by various parties which had, or could have, an impact on the matters reported in the consolidated and separate financial statements, reported performance information, compliance with applicable legislation and other related matters. These reports did not form part of our opinion on the financial statements or our findings on the reported performance information or compliance with legislation. Matters under investigation Allegations of maladministration regarding supply chain management and other improper conduct highlighted in the state capture report have been brought to the attention of those charged with governance. As at the date of this report, investigations are still ongoing by various state institutions. In addition, there are Presidential proclamations for investigations on alleged maladministration, improper or unlawful conduct by employees, official or agents and unlawful appropriation or expenditure of public money or property. These investigations are conducted by the Special Investigating Unit and are still in progress. As disclosed in note 52.2 and note 2.4 to the financial statements, various matters are reported to be under investigation. During the financial year under review, the regulatory authorities and the accounting authority conducted investigations into alleged irregularities, fraud and corruption within the procurement environment, capital projects, prepaid revenue and other areas of the entity. In addition, internal and external investigations referenced findings of maladministration associated with supply chain management, improper conduct, manipulation of the prepaid revenue environment, in addition to the matters associated with state capture that have been brought to the attention of the accounting authority. The sophisticated nature and complexity of the fraud schemes impacts the time it takes to investigate such matters resulting in a backlog, which needs to be investigated. The directors have employed the services of forensic firms to assist in these investigations. As at the reporting date, investigations remain ongoing, and we could not determine the extent of the impact of the outcomes of these investigations to the consolidated and separate financial statements. We refer you to the accounting policies note 2.4 and note 44 where the policies regarding recognition, measurement and disclosure of investigations have been discussed. Limited assurance and agreed upon procedures engagements At the date of this report, we have commenced/completed the following engagements: • Agreed upon procedures on net sent out power megawatt hours, gross sent out power megawatt hours and actual sent out power production figures to NERSA for the year ended 31 December 2023. The report was issued to the accounting authority on 30 April 2024. • Agreed upon procedures on the group’s generation, transmission and distribution activities regulatory financial report as issued to NERSA. This engagement is in progress at the date of our audit report. • Agreed upon procedures on the verification of historical financial information of the Transmission division included in historical financial statements of Eskom. The report was issued to the accounting authority on 24 November 2024. • Agreed upon procedures on net sent out power megawatt hours, gross sent out power megawatt hours and actual sent out power production figures of Koeberg to Green Certificate Company for the six months ended 31 December 2023. The report was issued to the accounting authority on 2 September 2024. • Assurance engagement on the 2022 greenhouse gas emissions results submitted reported to the Department of Forestry, Fisheries and the Environment as part of the National Greenhouse Gas Emission Reporting Regulations. The engagement is in progress at the date of our report. • Agreed upon procedures on the Home Loan and Mortgage Disclosure Act 63 of 2000, Annual Return Form of Eskom Finance Company SOC Ltd. The report was issued to the accounting authority on 26 June 2024. • Agreed-upon Procedures Reports on National Credit Regulator Annual Financial Statement Return (Form 40)- for Eskom Finance Company SOC Ltd for the years ended the 31 March 2022 and 31 March 2023. The reports were issued on 12 April 2024. • Agreed-upon Procedures Report on National Credit Regulator Annual Financial Statement Return (Form 40) for Nqaba Finance 1 (RF) Limited)- for years ended the 31 March 2022 and 31 March 2023. The reports were issued to the accounting authority on 12 April 2024. • Assurance engagement on the Annual Solo Quantitative reporting template of Escap SOC Ltd in terms of the Insurance Act, 2017 for the Prudential Authority. The report was issued to the accounting authority on 14 August 2024. • Assurance engagement on the sustainability reporting as included in the Integrated Report for the year ended 31 March 2024. The report will be issued to the accounting authority on the same date as this report. Auditor tenure In terms of the IRBA rule published in Government gazette number 39475 dated 4 December 2015, we report that Deloitte & Touche has been the auditor of Eskom Holdings SOC Ltd for three years. Deloitte & Touche Registered Auditor Per: André J. Dennis Partner 18 December 2024 5 Magwa Crescent Waterfall City Waterfall 2090 35 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Independent Auditor’s report to Parliament on Eskom Holdings SOC Ltd and its subsidiaries continued Annexure to the auditor’s report The annexure includes the following: • The auditor’s responsibility for the audit; and • The selected legislative requirements for compliance testing. Auditor’s responsibility for the audit Professional judgement and professional scepticism As part of an audit in accordance with the ISAs, we exercise professional judgement and maintain professional scepticism throughout our audit of the consolidated and separate financial statements, and the procedures performed on the reported performance information for selected key performance areas and on the public entity’s compliance with selected requirements in key legislation. Financial statements In addition to our responsibility for the audit of the consolidated and separate financial statements as described in this auditor’s report, we also: • identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error; design and perform audit procedures responsive to those risks; and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • obtain an understanding of internal control 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 public entity’s internal control. • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. • conclude on the appropriateness of the accounting authority’s use of the going concern basis of accounting in the preparation of the financial statements. We also conclude, based on the audit evidence obtained, whether a material uncertainty exists relating to events or conditions that may cast significant doubt on the ability of the public entity 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 in the consolidated and separate financial statements about the material uncertainty or, if such disclosures are inadequate, to modify our opinion on the consolidated and separate financial statements. Our conclusions are based on the information available to us at the date of this auditor’s report. However, future events or conditions may cause a public entity to cease operating as a going concern. • evaluate the overall presentation, structure, and content of the consolidated and separate financial statements, including the disclosures, and determine whether the consolidated and separate 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. Communication with those charged with governance We communicate with the accounting authority regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the accounting authority with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with 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. 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. 36 Compliance with legislation The list of selected legislative requirements are as follows: Selected legislation and regulations Consolidated firm level requirements Public Finance Management Act No.1 of 1999 (PFMA) Section 50(3); 50(3)(a); 50(3)(b) Section 51(1)(a)(iii); 51(1)(b)(i); 51(1)(b)(ii); 51(1)(e)(iii) Section 52(b) Section 54(2)(c); 54(2)(d) Section 55(1)(a); 55(1)(b); 55(1)(c)(i) Section 56 Section 57(b); 57(d) Section 66(3)(a) Treasury Regulations for departments, trading entities, constitutional Regulation 29.1.1; 29.1.1(a); 29.1.1(c’); 29.2.1; 29.2.2; 29.3.1 institutions and public entities (TR) Regulation 31.2.5; 31.2.7(a); 31.2.7(a) Regulation 33.1.1; 33.1.3 Companies Act No.71 of 2008 Section 30(3)(b)(i); 33(1)(a) Section 45(3)(a)(ii); 45(3)(b)(i); 45(3)(b)(ii); 45(4) Section 46(1)(a); 46(1)(b); 46(1)(c') Section 72(4)(a); Section 75(6) Section 86(1); 86(4); Section 88(2)(d) Section 112(2)(a); Section 129(7) Prevention and Combating of Corrupt Activities Act No.12 of 2004 Section 34(1) Companies Regulations Regulation 30(2); 43(2)(a) Construction Industry Development Board Act No.38 of 2000 Section 18(1) Construction Industry Development Board Regulations, 2004 Regulation 17; section 25(7A) Second amendment National Treasury Instruction no. 5 of 2020/21 Paragraph 1 National Treasury Instruction No. 5 of 2020/21 Paragraph 2; 4.8; 4.9; 5.3 National Treasury Instruction No. 4 of 2015/16 Paragraph 3.4 National Treasury Instruction No. 3 of 2020/21 Paragraph 4.2 National Treasury Instruction No. 11 of 2020/21 Paragraph 3.1; 3.4(b); 3.9 Preferential Procurement Policy Framework Act 5 of 2000 Section 1; 2.1(a); 2.1(f ) Preferential Procurement Regulations, 2022 Paragraph 4.1; 4.2; 4.3; 4.4; 5.1; 5.2; 5.3; 5.4 Preferential Procurement Regulations, 2017 Regulation 4.1; 4.2 Regulation 5.1; 5.3; 5.6; 5.7 Regulation 6.1; 6.2; 6.3; 6.5; 6.6; 6.8 Regulation 7.1; 7.2; 7.3; 7.5; 7.6; 7.8 Regulation 8.2; 8.5 Regulation 9.1 Regulation 10.1; 10.2 Regulation 11.1; 11.2 37 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Statements of financial position at 31 March 2024 Group Company Restated 1 Restated1 2024 2023 2024 2023 Note Rm Rm Rm Rm Assets Non-current 750 872 741 092 720 243 741 637 Property, plant and equipment 8 680 950 668 339 603 093 670 424 Intangible assets 9 3 438 3 370 816 3 367 Future fuel supplies 10 6 782 5 290 6 782 5 290 Investment in equity-accounted investees 11 346 350 95 95 Investment in subsidiaries 12 – – 22 697 380 Inventories 13 13 297 12 209 13 297 12 209 Deferred tax 14 81 17 983 – 18 457 Loans receivable 15 7 565 7 823 36 815 5 674 Embedded derivatives 16 10 486 772 10 486 772 Derivatives held for risk management 17 18 881 17 633 18 881 17 633 Finance lease receivables 18 174 218 109 218 Payments made in advance 19 1 793 1 986 1 792 1 984 Trade and other receivables 20 4 031 4 101 4 356 5 134 Investments 21 3 048 1 018 1 024 – Current 115 450 84 652 99 995 69 028 Inventories 13 28 293 24 014 27 972 23 834 Taxation 11 37 – – Loans receivable 15 208 247 2 610 – Embedded derivatives 16 1 315 51 1 315 51 Derivatives held for risk management 17 8 135 9 359 8 162 9 359 Finance lease receivables 18 37 31 22 31 Payments made in advance 19 1 413 1 066 1 299 1 033 Trade and other receivables 20 35 975 26 702 35 650 28 888 Investments 21 16 478 15 629 – – Cash and cash equivalents 22 23 585 7 516 22 965 5 832 Total assets 866 322 825 744 820 238 810 665 Equity Capital and reserves 222 858 233 944 200 312 213 492 Liabilities Non-current 486 657 473 282 469 393 476 845 Debt securities and borrowings 24 359 692 367 993 363 992 372 195 Derivatives held for risk management 17 27 241 27 241 Deferred tax 14 10 412 – – – Payments received in advance 25 5 013 3 986 2 478 4 000 Contract liabilities and deferred income 25 34 687 26 078 33 688 26 078 Employee benefit obligations 26 17 448 16 902 16 236 16 573 Provisions 27 52 561 50 143 52 561 50 141 Lease liabilities 28 6 553 7 415 252 7 414 Trade and other payables 29 264 524 159 203 Current 156 807 118 518 150 533 120 328 Debt securities and borrowings 24 52 508 55 936 56 293 56 182 Loan from shareholder 30 32 000 – 32 000 – Derivatives held for risk management 17 566 1 788 566 1 788 Payments received in advance 25 4 300 4 026 4 158 4 004 Contract liabilities and deferred income 25 3 684 2 019 3 645 2 019 Employee benefit obligations 26 3 777 3 584 3 130 3 272 Provisions 27 9 325 5 914 9 177 5 832 Lease liabilities 28 850 711 61 626 Trade and other payables 29 49 664 44 264 41 503 46 605 Taxation 133 276 – – Total liabilities 643 464 591 800 619 926 597 173 Total equity and liabilities 866 322 825 744 820 238 810 665 1. Refer to note 48. 38 Income statements for the year ended 31 March 2024 Group Company Restated 1 Restated1 2024 2023 2024 2023 Note Rm Rm Rm Rm Revenue 31 295 814 259 543 295 814 259 543 Other income 32 1 295 2 742 3 046 4 374 Primary energy 33 (173 729) (156 819) (173 729) (156 819) Employee benefit expense 34 (35 096) (32 321) (30 967) (28 205) Impairment of financial assets 35 (3 017) (1 026) (3 080) (1 042) Impairment and write down of other assets 35 (416) (1 156) (414) (1 149) Other expenses 36 (41 441) (36 398) (47 937) (41 274) Profit before depreciation and amortisation expense and net fair value and foreign exchange gain/(loss) (EBITDA) 43 410 34 565 42 733 35 428 Depreciation and amortisation expense 37 (33 239) (31 941) (33 310) (31 670) Net fair value and foreign exchange gain/(loss) 38 2 644 (285) 2 668 (223) Profit before net finance cost and share of profit of equity-accounted investees 12 815 2 339 12 091 3 535 Net finance cost (38 389) (37 015) (40 590) (38 480) Finance income 39 4 859 3 365 2 989 1 962 Finance cost 40 (43 248) (40 380) (43 579) (40 442) Share of profit of equity-accounted investees after tax 11 105 93 – – Loss before tax (25 469) (34 583) (28 499) (34 945) Income tax 41 (29 546) 8 501 (28 585) 8 588 Loss for the year2 (55 015) (26 082) (57 084) (26 357) Statements of comprehensive income for the year ended 31 March 2024 Group Company Restated1 Restated1 2024 2023 2024 2023 Note Rm Rm Rm Rm Loss for the year 2 (55 015) (26 082) (57 084) (26 357) Other comprehensive (loss)/income (71) 1 112 (96) 1 058 Items that may be reclassified subsequently to profit or loss (527) 556 (533) 523 Cash flow hedges Changes in fair value 17 (493) 1 567 (493) 1 567 Net amount transferred to profit or loss (34) (730) (34) (730) Amortisation of effective portion of terminated cash flow hedges 38 3 (3) 3 (3) Ineffective portion of cash flow hedges 38 (37) (727) (37) (727) Net amount transferred to initial carrying amount of hedged items (203) (120) (203) (120) Foreign currency translation differences on foreign operations 6 33 – – Income tax thereon 41 197 (194) 197 (194) Items that may not be reclassified subsequently to profit or loss 456 556 437 535 Remeasurement of benefits 26 625 761 601 733 Income tax thereon 41 (169) (205) (164) (198) Total comprehensive loss for the year2 (55 086) (24 970) (57 180) (25 299) 1. Refer to note 48. 2. A nominal amount is attributable to the non-controlling interest in the group. The remainder is attributable to the owner of the company. 39 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Statements of changes in equity for the year ended 31 March 2024 Share Other Cash flow Unrealised Foreign Accumulated Total capital capital hedge fair value currency profit/(loss) equity reserve reserve translation reserve Rm Rm Rm Rm Rm Rm Rm Group Balance at 31 March 2022 219 693 – (858) (9 671) 14 27 879 237 057 Loss for the year restated1 – – – – – (26 082) (26 082) Other comprehensive income, net of tax – – 523 – 33 556 1 112 Share capital issued 21 857 – – – – – 21 857 Transfers between reserves – – – (3 086) – 3 086 – Balance at 31 March 2023 restated 241 550 – (335) (12 757) 47 5 439 233 944 Loss for the year – – – – – (55 015) (55 015) Other comprehensive (loss)/income, net of tax – – (533) – 6 456 (71) Conversion of loan from shareholder – 44 000 – – – – 44 000 Transfers between reserves – – – 2 444 – (2 444) – Balance at 31 March 2024 241 550 44 000 (868) (10 313) 53 (51 564) 222 858 Company Balance at 31 March 2022 219 693 – (858) (9 671) – 7 770 216 934 Loss for the year restated1 – – – – – (26 357) (26 357) Other comprehensive income, net of tax – – 523 – – 535 1 058 Share capital issued 21 857 – – – – – 21 857 Transfers between reserves – – – (3 086) – 3 086 – Balance at 31 March 2023 restated 241 550 – (335) (12 757) – (14 966) 213 492 Loss for the year – – – – – (57 084) (57 084) Other comprehensive (loss)/income, net of tax – – (533) – – 437 (96) Conversion of loan from shareholder – 44 000 – – – – 44 000 Transfers between reserves – – – 2 444 – (2 444) – Balance at 31 March 2024 241 550 44 000 (868) (10 313) – (74 057) 200 312 Share capital Refer to note 23 for details regarding share capital. Other capital Other capital comprises of the portions of the loan from the shareholder of R16 billion and R28 billion that were approved for conversion to equity by the Minister of Finance on 13 December 2023 and 20 March 2024 respectively where the share certificates were only issued on 22 April 2024. Refer to note 47. Cash flow hedge reserve The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments (forward exchange contracts and cross-currency swaps) related to hedged transactions that have not yet occurred. The cross-currency swap hedges foreign exchange rate and interest rate risk of the future interest payments and the principal repayment on bonds and loans (denominated in US dollar, euro and yen). Unrealised fair value reserve The cumulative net change in the fair value of financial instruments that have not been designated as cash flow hedging instruments is recognised in profit/(loss). The unrealised portion of the net change in fair value is not distributable and has been reallocated from a distributable reserve (accumulated profit/(loss)) to a non-distributable reserve. Foreign currency translation reserve The foreign currency translation reserve comprises exchange differences resulting from the translation of the results and financial position of foreign operations. Accumulated profit/(loss) Accumulated profit/(loss) is the amount of cumulative profit/(loss) retained in the business after tax. No dividend has been proposed in the current or prior year. There are no restrictions on the distribution of dividends. Non-controlling interest The non-controlling interest in the group is a nominal amount. 1. Refer to note 48. 40 Statements of cash flows for the year ended 31 March 2024 Group Company 2024 2023 2024 2023 Note Rm Rm Rm Rm Cash flows from operating activities Cash generated from operations 42 40 515 41 969 39 912 40 825 Net cash from derivatives held for risk management 794 97 789 97 Finance income received 412 462 412 462 Finance cost paid (4) (109) (4) (109) Income taxes paid (1 321) (892) – – 40 396 41 527 41 109 41 275 Cash flows used in investing activities Disposals of property, plant and equipment 1 082 491 1 076 557 Disposals of intangible assets – 255 – – Acquisitions of property, plant and equipment (42 492) (31 698) (42 339) (31 754) Acquisitions of intangible assets (85) (167) (84) (31) Acquisitions of future fuel supplies (2 857) (3 137) (2 857) (3 137) Acquisitions of investments in subsidiaries – – (116) – Acquisitions of treasury investments (1 002) – (1 002) – Disposals of insurance investments 25 560 36 850 – – Acquisitions of insurance investments (27 295) (36 203) – – Payments made in advance (101) (442) (101) (442) Cash used in provisions (135) (1 900) (135) (1 900) Net cash used in derivatives held for risk management (221) (18) (221) (18) Loans receivable repaid 703 816 50 19 Loans receivable advanced (640) (746) – – Cash from finance lease receivables 21 39 21 39 Dividends received 74 93 889 161 Dividends received – investment in equity-accounted investees 11 109 161 – – Finance income received 2 336 1 792 496 343 (44 943) (33 814) (44 323) (36 163) Cash flows from/(used in) financing activities Debt securities and borrowings raised 43 23 562 29 603 23 561 34 599 Loan from shareholder raised 43 76 000 – 76 000 – Payments made in advance 43 (426) (369) (426) (369) Debt securities and borrowings repaid 43 (54 594) (39 110) (54 550) (41 406) Share capital issued 23 – 21 857 – 21 857 Net cash from derivatives held for risk management 43 10 992 4 894 10 992 4 894 Cash used in lease liabilities 43 (721) (687) (638) (575) Net cash used in financial trading liabilities 43 – (2) – (2) Finance income received 1 110 789 1 030 725 Finance cost paid (35 255) (33 069) (35 564) (33 200) Taxes paid (71) (58) (71) (58) 20 597 (16 152) 20 334 (13 535) Net increase/(decrease) in cash and cash equivalents 16 050 (8 439) 17 120 (8 423) Cash and cash equivalents at beginning of the year 7 516 15 885 5 832 14 218 Foreign currency translation 6 33 – – Effect of movements in exchange rates on cash held 13 37 13 37 Cash and cash equivalents at end of the year 22 23 585 7 516 22 965 5 832 Cash flow allocation Cash flows that form part of the changes in the line items of the statement of financial position are classified into operating, investing and 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 statement of financial position may be split into multiple cash flow activities in the statement of cash flows. These line items are: Derivatives held for risk management Derivatives held for risk management are classified as operating, investing or financing activities based on the allocation of the cash flows of the underlying hedged item. Refer to note 17. Payments made in advance 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 are deemed operational in nature and are therefore included within operating activities. Refer to note 19. Provisions Cash flows related to provisions for compensation events where the cost of property, plant and equipment includes these costs are classified as investing activities. All other provisions are operational in nature and are classified as operating activities. Refer to note 27. Finance income and costs Finance income and costs are allocated in line with the allocation of the related balances on which the income or cost arose. The interest income classified as financing activities was earned incidental to the financing activities and has thus been classified as such in the statement of cash flows. 41 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements for the year ended 31 March 2024 1. General information Eskom Holdings SOC Ltd (Eskom), a state-owned company and holding company of the group, is incorporated and domiciled in the Republic of South Africa. The group is wholly owned by the government with the Minister of Electricity and Energy (previously the Minister of DPE) as the shareholder representative. The principal activity of the group is the vertically integrated regulated electricity business (Eskom and National Transmission Company South Africa SOC Ltd (NTCSA)) that generates, transmits and distributes electricity to local industrial, mining, commercial, agricultural, redistributor (metropolitan and other municipalities) and residential customers, and to international customers in southern Africa. The group also purchases electricity from IPPs and international suppliers in southern Africa. The primary business focus of the other subsidiaries is to support the electricity business. The business nature of the significant operating subsidiaries is set out in note 12. The assets and liabilities of the transmission division were transferred to NTCSA as part of a common control transaction within the Eskom group on 31 March 2024. Refer to note 12. 2. Summary of material accounting policies The accounting policies applied in the preparation of these separate and consolidated financial statements are set out below. 2.1 Basis of preparation and measurement Statement of compliance The consolidated financial statements of Eskom Holdings SOC Ltd at and for the year ended 31 March 2024 comprise the Eskom company, its subsidiaries, joint ventures, associates and structured entities (together the group). The separate and consolidated financial statements have been prepared in accordance with IFRS Accounting Standards 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 18 December 2024. Basis of measurement The separate and consolidated financial statements are prepared on the historical-cost basis except for the following items which are measured at fair value: • derivatives held for risk management • embedded derivatives • certain other investments Functional and presentation currency The separate and consolidated financial statements are presented in South African rand (rounded to the nearest million unless otherwise stated), which is the company’s functional currency and the presentation currency of the group. Changes in accounting policies The group has consistently applied the accounting policies to all periods presented in these consolidated financial statements except for new or revised statements and interpretations implemented during the year. The nature and effect of new standards and interpretations are discussed in note 50.2. 2.2 Consolidation Subsidiaries Subsidiaries are consolidated from the date on which control is transferred to the group until the date that control ceases. 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 equity. Any resulting gain or loss is recognised in profit or loss. Common control transactions are accounted for at carrying value in the consolidated and separate financial statements where the acquirer recognises the acquired assets and liabilities at the carrying values reflected in the financial statements of the transferring entity (Eskom company). The transferring entity recognises the net carrying value of the assets and liabilities transferred as its investment in the subsidiary and the acquirer recognises the same value as equity in their respective financial statements. Any difference between the acquisition consideration and the net carrying value of the assets and liabilities that form part of the common control transaction is recognised in the respective financial statements as part of the investment in the subsidiary by the transferring entity and as equity by the acquirer. The accounting policies of the subsidiaries have been adjusted, where necessary, to ensure consistency with the policies adopted by the group. Investment in equity-accounted investees Investments in equity-accounted investees (associates and joint ventures) are accounted for at cost less impairment losses in the separate financial statements of the company and on the equity method of accounting in the consolidated financial statements. The 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. The cumulative post-acquisition movements, including dividends received, are adjusted against the carrying amount of the investment. 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 group (maximum of three months difference), adjustments were made to the group financial statements for significant transactions and events that occurred between the date of the financial statements of the associate or joint venture and the date of the financial statements of the group. 42 2.3 Foreign currency translation Transactions and balances 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 end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when recognised in other comprehensive income for qualifying cash flow hedges. Non-monetary items are measured at historical cost. Foreign loans are initially recognised at the exchange rate prevailing at transaction date and are translated at spot rate at every reporting date. Foreign exchange gains and losses that relate to financial assets and liabilities at amortised cost are presented in profit or loss within net fair value and foreign exchange gain/loss. Foreign operations The assets and liabilities of foreign operations (including fair value adjustments arising on acquisition) are translated to rand at the prevailing exchange rates at the reporting date. The income and expenses of foreign operations are translated to rand at the average exchange rate. Foreign currency differences arising as a result of these transactions are recognised in other comprehensive income within the foreign currency translation reserve. 2.4 Property, plant and equipment Recognition and measurement Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes environmental rehabilitation costs, borrowing costs and transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency transactions. Work under construction includes the cost of materials and direct labour and any other directly attributable costs incurred in bringing an item of property, plant and equipment to its present location and condition. Significant parts of an item of property, plant and equipment that have different useful lives are accounted for as separate items (major components). Spare parts classified as strategic and critical spares are recognised as property, plant and equipment and are only capable of operating in the manner intended by management when they are installed. Items of property, plant and equipment transferred from customers are initially recognised at fair value in accordance with IAS 16 Property, Plant and Equipment and any related revenue is recognised in accordance with IFRS 15 Revenue from Contracts with Customers, within revenue. 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 is derecognised. Repairs and maintenance are charged to profit or loss during the financial period incurred. Owned land and spare parts are not depreciated. Depreciation on other owned assets is calculated using the straight-line method to allocate cost over the estimated useful lives (limited to residual values). Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful life of the assets. The useful lives of owned and right-of-use assets are as follows: Owned Right-of-use Years Years Buildings and facilities 8 to 40 2 to 5 Plant • Generating 3 to 80 2 to 15 • Transmitting 5 to 50 n/a • Distributing 5 to 55 n/a • Other 10 to 40 16 to 22 Equipment and vehicles 3 to 15 2 to 5 The depreciation method, residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date. The estimation of the useful lives and residual values of property, plant and equipment is an area of judgement. The estimation is based on professional judgement and independent expert opinion, where available, considering historical performance, the circumstances and operating environment in which the assets operate, alignment to industry benchmarks as well as expectations about the future. Gains or losses on the disposal or write-off of an item of property, plant and equipment are recognised in profit or loss within other income or other expenses. Projects in works under construction that have been discontinued are written off and included in other expenses. Investigations into possible corruption and related impact on capital projects Eskom acknowledges that there is evidence that its control environment to ensure that capital contracts were awarded appropriately, subsequent changes and amendments were valid, and that value was received have not operated effectively and that remediation of such control deficiencies is on-going. Several contracts and contract amendments have been highlighted by the Zondo Commission, SIU and other internal and external mechanisms. Matters that are under investigation include: • contracts being irregularly awarded • non-compliance with contractual terms in submitting claims • modifications to contracts where the value added to Eskom is questionable Eskom is mostly reliant on the SIU who has the requisite knowledge and access to systems and data to evaluate and investigate these complex transactions and the consequential effects thereof. Eskom does not have access to the SIU investigations and related progress as the details are only made available to Eskom once an investigation is finalised. The outcomes of these SIU and other internal investigations are assessed once finalised and, if required, an adjustment is made to the carrying value of the related assets. The investigations are complex and determining the correct accounting implications for these possible irregularities that cover an extended period of time presents a key judgement. A receivable is only raised for a recovery of an overpayment when the realisation of the income is probable and included as other income in profit or loss. Internal investigations into corruption and maladministration are completed from time-to-time and where wasteful, fruitless and fraudulent expenditure is identified, these are expensed and the carrying value of the related asset reduced. These write-offs will have an impact on the EBITDA at the time of recognition but are non-cash in nature. 43 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 2. Summary of material accounting policies (continued) 2.5 Intangible assets Research and development Research expenditure is recognised as an expense as incurred. Development expenditure (relating to the design and testing of new or improved products) is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the group intends to, and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in profit or loss within other expenses as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs previously capitalised that have been discontinued are written off and included in other expenses. Capitalised development costs are amortised from the point at which the asset is ready for use on a straight-line basis over its useful life. Subsequent to initial recognition, the capitalised development costs are measured at cost less accumulated amortisation and impairment losses. Rights Rights consist mainly of servitudes and rights of way under power lines. A servitude right is granted to the group for an indefinite period (useful life) and is therefore not amortised. Computer software Computer software and licences acquired have a finite useful life and are measured at cost less accumulated amortisation and any accumulated impairment losses. If software is integral to the functionality of related equipment, it is capitalised as part of the equipment. Costs associated with the support and maintenance of computer software programmes 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. 2.6 Impairment of non-financial assets The carrying amounts of non-financial assets within the scope of IAS 36 Impairment of Assets are assessed at each reporting date to determine whether there is any indication of impairment. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or if there are indicators of impairment. Assets that have an indefinite useful life (rights) are tested annually for impairment. The group’s assets are grouped at the smallest identifiable group of assets (CGUs) that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The identification of CGUs involves judgement. The core operating assets of the group (generation, transmission and distribution segments) function together to deliver and earn revenue from the sale of electricity to customers in South Africa. The end product is the sale of electricity generated, transmitted and distributed through the vertically integrated value chain at a single exit price as determined by NERSA. Revenue is allocated between the segments through internal transfer pricing that is based on the NERSA methodology principles to determine the Eskom allowed revenue and single exit price. Some limited capacity in the grid is sold by the transmission segment to international customers in southern Africa. Eskom company (generation and distribution segments) and NTCSA from 31 March 2024 (transmission segment) have therefore been identified as a single CGU (referred to as the Eskom CGU) as it currently remains a vertically integrated regulated business and the segments do not generate largely independent cash flows. The identification of Eskom company and NTCSA as a single CGU may be impacted in the future by the planned legal separation of the generation and distribution divisions into separate entities and when the separate legal entities (or some of the legal entities in the vertically integrated electricity business) are fully operational in terms of their individual mandates. This is presumed to be possible when an active market exists where the market operator (currently housed in NTCSA) can trade independently and generate independent cash flows through the buying and selling of electricity with external customers. This is dependent on the development, approval and implementation of the market code, rules and trading platform (systems) for the market operator which is expected to take some time to finalise as required. The individual licensees will only be able to generate independent cash flows when the market operator is fully operational, even if NERSA approves separate tariffs per licensee. An impairment loss is recognised for the amount by which the asset’s (or CGU's) carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s (or CGU's) fair value less costs of disposal and value in use. The fair value less cost of disposal is determined using a cost-based methodology, referred to as the depreciated replacement cost (DRC) method calculated as a proxy to assess impairment. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Non-financial assets that were subject to impairment are reviewed for possible reversal of the impairment at each reporting date. Impairment losses or reversals are recognised in profit or loss within net impairment and write down of other assets. 2.7 Capitalisation of borrowing costs Borrowing costs attributable to the construction of qualifying assets are capitalised as part of the cost of these assets over the period of construction, until the asset is substantially ready for its intended use. All other borrowing costs are expensed in the period in which they occur. Borrowing costs for qualifying assets financed by specific borrowings are capitalised using the actual interest expense incurred. Borrowing costs for qualifying assets not financed by specific borrowings are capitalised at the weighted average of the borrowing costs (capitalisation rate) using the borrowings applicable to the entity in the group. 44 2.8 Leases The group assesses at contract inception whether a contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lessee accounting The group recognises right-of-use assets relating to the right to use the underlying assets and lease liabilities for the lease payments except for short-term leases and leases of low-value assets, where the recognition exemption is applied. Right-of-use assets The group recognises a right-of-use asset at lease commencement (the date the underlying asset is available for use). Right-of-use assets are measured at cost less any accumulated depreciation and impairment losses and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date. Refer to note 2.4 for details regarding the depreciation of right-of-use assets and to note 2.6 regarding assessment for impairment of right-of-use assets. Lease liabilities The group recognises a lease liability at the commencement of a lease at the present value of the lease payments that must be made over the lease term. The lease payments include fixed payments and variable payments dependent on an index or rate. The group uses the incremental borrowing rate at lease commencement to calculate the present value of lease payments if the interest rate implicit in the lease is not readily determinable. The incremental borrowing rate requires a degree of judgement regarding the determination of an appropriate discount rate for the lease term and is based on borrowings of a similar term which considers current market conditions. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for lease payments made. The carrying amount of lease liabilities is remeasured to reflect any reassessment, lease modification or a change of the in substance fixed lease payments. Short-term leases and leases of low-value assets The group applies the short-term lease recognition exemption to leases with a term of less than 12 months. The group also applies the lease of low- value assets recognition exemption 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. Lessor accounting Finance leases Finance lease receivables mainly comprise premium power supply equipment contracts. The present value of the lease payments is recognised as a receivable when property, plant and equipment are leased out under a finance lease. The difference between the gross receivable and the present value of the receivable is disclosed as unearned finance income within finance lease receivables. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return. Finance lease receivables are assessed for impairment and derecognised in accordance with the requirements for financial assets. Operating leases Leases where substantially all of the risks and rewards of ownership are not transferred are classified as operating leases. Payments received under operating leases are recognised in profit or loss within other income on a straight-line basis over the period of the lease. 2.9 Payments made in advance Securing debt raised Payments are made in advance to lenders for the commitment and issuing fees incurred in raising debt. Environmental rehabilitation trust fund Contributions were made by Eskom to environmental rehabilitation trust funds that were established to fund the financial obligation in respect of the rehabilitation of certain coal mines from which Eskom sources its coal for the generation of electricity. The trust funds are controlled by third parties and will be used solely for the environmental rehabilitation of the relevant coal mines. The contributions made to the trust funds are recognised separately from the environmental rehabilitation provision in accordance with the requirements of IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds. Fair value adjustments on the trust funds are recognised in profit or loss within other income. Other Other payments made in advance comprise mainly of payments made to suppliers to reserve manufacturing capacity and resources for the future construction of assets as well as for support and maintenance of IT infrastructure. These amounts will be used as partial settlement towards the future amounts payable to the suppliers. In the event of default or non-performance there are various remedies in place including performance bonds, early cancellation penalties and guarantees that can be used to recover outstanding payments in advance. 45 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 2. Summary of material accounting policies (continued) 2.10 Financial instruments 2.10.1 Financial assets (excluding derivatives) Classification The appropriate classification of a financial asset is determined on acquisition of the financial asset and is based on: • whether the contractual terms of the financial asset gives rise to contractual cash flows that are solely payments of principal and interest • the objective of the business model in which the financial asset is held at a portfolio level that best reflects the way the business is managed Financial assets are not reclassified subsequent to their initial recognition unless the group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. The group may irrevocably designate a financial asset on initial recognition that otherwise meets the requirements to be measured at amortised cost or at fair value through other comprehensive income, as at fair value through profit or loss, if doing so, eliminates or significantly reduces an accounting mismatch that would otherwise arise. The group may also irrevocably elect on initial recognition of an equity investment that is not held for trading to present subsequent changes in the investment’s fair value, in other comprehensive income. This election is made on an investment-by-investment basis. 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. Financial assets are classified into the following categories: Amortised cost 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 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 amount outstanding • it is held within a business model whose objective is to hold assets to collect contractual cash flows Fair value through other comprehensive income A financial asset is measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated as at fair value through profit or loss: • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets 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. Measurement Initial recognition Financial assets are initially measured at fair value on the date of commitment to purchase (trade date). The transaction price is 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. 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 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 amortised over the term of the instrument in profit or loss. Any directly attributable transaction costs are included in the initial measurement of financial assets except for financial assets at fair value through profit or loss where directly attributable transaction costs are recognised in profit or loss. After initial recognition Amortised cost Financial assets at amortised cost are measured at amortised cost after initial recognition using the effective interest rate method less any accumulated impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in profit or loss. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Fair value through other comprehensive income Financial assets at fair value through other comprehensive income are measured at fair value after initial recognition. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairments are recognised in profit or loss. Other net gains and losses are recognised in other comprehensive income. Fair value through profit or loss 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. Impairment 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. The general approach requires impairment to be measured using a 12-month or lifetime expected credit loss. The lifetime expected credit loss method will be used if, after initial recognition, there is a significant increase in the credit risk of a financial asset or if it becomes credit impaired. The simplified approach requires impairment to be measured using a lifetime expected credit loss and is applied to trade and other receivables. 46 The maximum period considered when estimating expected credit losses is the maximum contractual period over which the group is exposed to credit risk. The 12-month expected credit losses are the portion of the expected credit loss resulting from default events that are possible within 12 months after reporting date (or a shorter period if the expected life of the instrument is less than 12 months). Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of the financial instrument. Expected credit losses are probability-weighted estimates of credit losses. Credit losses are measured as the difference between the cash flows due in accordance with the contract and the cash flows expected to be received, discounted at the effective interest rate of the financial asset. All financial assets subject to impairment based on the general approach are monitored to assess whether they have been subject to a significant increase in credit risk after initial recognition. There will be a significant increase in credit risk when: • payments are more than 30 days past due • a significant qualitative event has occurred Where it is assessed that a counterparty’s credit risk has increased significantly from its initial low risk designation, the related asset is moved from stage 1 to stage 2. An assessment is performed at each reporting date to determine whether financial assets subject to impairment are credit impaired. A financial asset is credit impaired when there is observable evidence that one or more events have occurred that has had a detrimental impact on the estimated future cash flows expected to flow from the asset such as: • significant financial difficulty of the borrower, issuer or customer • a breach of contract such as a default (where the counterparty is unlikely to pay its obligations) or being more than 90 days past due • restructuring of a loan or advance on terms that the group would not otherwise consider • it is probable that the borrower or customer will enter bankruptcy or other financial reorganisation • the disappearance of an active market for a security because of financial difficulties Where the counterparty is assessed to be credit impaired, the related asset is disclosed in stage 3. Summary of staging Instrument Criteria used for assessment of expected credit loss measurement 12-month expected credit loss Lifetime expected credit loss Stage 1 Stage 2 Stage 3 Low credit risk Not credit impaired or significant Credit impaired or default increase in credit risk Trade and other receivables Not applicable (simplified approach Elected to measure loss allowances Financial asset more than 90 applied and therefore use lifetime at an amount equal to the lifetime days past due expected credit loss) expected credit losses Finance leases, loans receivable Credit risk is assessed as low Financial asset more than 30 days Financial asset more than 90 (other than home loans) and (where the credit risk rating assigned past due days past due financial guarantees is equivalent to the globally understood definition of investment grade) Loans receivable (home loans) Financial asset is not past due Financial asset more than 30 days Financial asset more than 90 past due days past due Investments and cash and Credit risk is assessed as low (where Significant increase in credit risk There is objective evidence that cash equivalents the credit risk rating assigned is since initial recognition but there the counterparty is unlikely to equivalent to the globally understood is no objective evidence of loss pay its obligations definition of investment grade) (ie the counterpar ty is still considered likely to pay its obligations) Derecognition Financial assets are derecognised when the right to receive cash flows from the assets has expired or substantially all the risks and rewards of ownership have transferred from the group. Realised gains or losses on derecognition are determined using the last-in-first-out method. Gains and losses, including those accumulated in other comprehensive income, are recognised in 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. 2.10.2 Financial liabilities (excluding derivatives) Classification Financial liability balances have been classified as either amortised cost or other liabilities. Measurement Initial recognition Financial liabilities are recognised at the date it becomes a party to the contractual provisions of the instrument. Where financial liabilities are carried at amortised cost, transaction costs are included in the value of the financial liability. Where financial liabilities are carried at fair value through profit or loss, transaction costs are recognised in profit or loss. Fees paid on the establishment of loan facilities are recorded 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 are recognised as transaction costs upon drawdown and then amortised to profit or loss within finance costs from the date of first drawdown to final maturity of each facility. After initial recognition Financial liabilities at amortised cost are measured at amortised cost using the effective interest method. Financial liabilities classified 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 profit or loss. Derecognition Financial liabilities are derecognised when the obligation expires, is discharged or cancelled or there is a substantial modification to the terms of the liability. Realised gains and losses are determined using the last-in-first-out method. 47 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 2. Summary of material accounting policies (continued) 2.10 Financial instruments (continued) 2.10.3 Derivatives held for risk management Classification and measurement Derivatives held for risk management are not managed on a held-to-collect and/or for sale business model and the default classification and measurement is therefore at fair value through profit or loss unless they meet the criteria for and have been designated as cash flow hedges. Economic hedges Certain derivative instruments do not qualify for cash flow hedge accounting but are used for economic hedging. Changes in the fair value of these derivative instruments (realised and unrealised gains or losses) are recognised in profit or loss within net fair value and foreign exchange gain/loss. Cash flow hedges The relationship between hedging instruments and hedged items as well as risk management objectives and the strategy for undertaking various hedging transactions are documented at the inception of a transaction. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. It is expected that the values of the hedging instrument and hedged item will move in opposite directions because of the hedged 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%. Day-one gains and losses are deferred in the statement of financial position (in derivatives held for risk management) and amortised on a straight-line basis over the term of the hedging instrument to profit or loss. Unamortised day-one gains and losses are written off to profit or loss if the related financial instrument is derecognised (extinguished) before maturity date. Day-one gains and losses on hedging instruments are predominantly a function of the inclusion of credit, liquidity and other risks in the terms of the trading instrument. These risks are not included in the determination of a hypothetical derivative used to measure fair value movements in a hedged item and are therefore excluded from any hedge accounting relationships. The effective realised and unrealised portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income within the cash flow hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within net fair value and foreign exchange gain/loss. 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 recognised in the cash flow hedge reserve in other comprehensive income will affect profit or loss in the periods during which the relevant non-financial assets are expensed to profit or loss. Cumulative gains or losses existing in other comprehensive income where the hedged item is a financial liability are taken to profit or loss within finance cost or net fair value and foreign exchange gain/loss when the cash flows occur on the hedged financial liability. When a hedging instrument expires, is sold or a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in other comprehensive income until the forecast transaction occurs. If a forecast transaction is still expected to occur, the cumulative gains or losses in other comprehensive income are reclassified from equity to profit or loss in the same periods during which the hedged forecast cash flows affect profit or loss. If a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to profit or loss within net fair value and foreign exchange gain/loss. Sources of ineffectiveness include the following: • period mismatches between the hedging instrument and hedged item • the fair value of the hedging instrument at the hedge relationship designation date (if not zero) • the fair value or cash flow of the hedged item and hedging instrument are dependent on different variables 2.10.4 Embedded derivatives Embedded derivatives that are closely related to the host contract are not separated and are effectively accounted for as part of the hybrid instrument. Derivatives that are separated are accounted for on terms that result in a fair value of zero at the date of inception. Option-based 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 as deferred income and amortised over the period of the agreement to profit or loss. 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. 2.10.5 Financial guarantees Financial guarantees are contracts that require the group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. Financial guarantees issued are initially measured at fair value and subsequently at the loss allowance calculated in accordance with IFRS 9 Financial Instruments. 2.11 Future fuel supplies Coal The capital costs incurred which are associated with the contractual agreements with coal mines for the right to future coal supplies is accounted for as future fuel. The output of the coal mine is controlled through the contractual agreement between Eskom and the mine. Eskom does not have control over the coal resources until the coal has been mined and delivered to the group. The right to future coal supplies from coal mines is measured at cost. Cost includes payments made to coal suppliers for mine establishment and related equipment in terms of cost-plus agreements. The cost also includes the initial estimate of environmental 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. 48 Nuclear Expenditure incurred to obtain, convert, enrich and fabricate fuel assemblies is stated at cost in future fuel supplies. The fuel assemblies are transferred to inventory when they are received. Costs include the transfer from equity of any gains or losses on qualifying cash flow hedges relating to purchases of raw materials, fabrication and enrichment. 2.12 Inventories Coal, liquid fuel, maintenance spares and consumables Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and includes expenditure incurred in acquiring inventories and other costs in bringing inventory to its present location and condition as well as the cost of ongoing programmes to rehabilitate the impact of cost-plus mines on the environment and other closure costs for active mines that are charged to profit or loss within primary energy as the coal is consumed. The Eskom Grid Code specifies the minimum coal inventory level to be on stockpile at the coal-fired power stations (either 10 or 20 days). All coal inventory up to the grid code level (except for Medupi and Matimba power stations) is classified as non-current as it is not anticipated that it will be used within 12 months from the reporting date. Coal inventory at Medupi and Matimba power stations is classified as non-current as it is not expected that the coal will be used within 12 months from the reporting date as it is foreseen that the planned production requirements of these stations will be met from the minimum contractual offtake of the underlying coal supply agreements. Nuclear fuel Nuclear fuel consists of enriched and fabricated fuel assemblies and fuel in reactors. Nuclear fuel is stated at the lower of cost and net realisable value. Cost is determined on the first-in-first-out basis and includes cost for the management of fuel assemblies that are recognised to profit or loss on a straight-line basis within primary energy over the estimated useful life of the fuel in the reactor (average 46 months). Nuclear fuel is classified as current as it is expected to be realised within the normal operating cycle. 2.13 Share capital Ordinary shares are classified as equity. 2.14 Loan from shareholder The loan from the shareholder in terms of the debt relief arrangement arises from the Debt Relief Act, 7 of 2023, and is accordingly classified as a statutory liability. The group elected to measure the loan at historic cost in terms of the Conceptual Framework for Financial Reporting. The loan is subsequently measured at amortised cost. The loan is derecognised when the Minister of Finance confirms that the attached conditions were met and approves that the amounts can be converted to equity. Refer to note 3.1.3. 2.15 Income tax Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or equity, in which case it is recognised on that basis. 2.16 Deferred tax Deferred tax is recognised on temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Deferred tax is determined using tax rates (and laws) enacted or substantively enacted at the reporting date and that are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are reviewed at each reporting date and derecognised if it is no longer probable 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 to recover or settle the carrying amount of its assets and liabilities at the reporting date. Deferred tax is not recognised for: • temporary differences on the initial recognition of assets or liabilities in a transaction other than a business combination that, at 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 timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is also recognised in respect of temporary differences arising on the assets and provisions created in respect of decommissioning and nuclear waste management and closure, pollution control and rehabilitation. Future taxable profits are determined based on business plans for legal entities in the group. 2.17 Payments received in advance, contract liabilities and deferred income Customer connections Customer connections arise when customers make a contribution to the group to construct regular distribution and transmission assets or when the constructed assets are transferred to the group to connect customers to the electricity network. Contributions are made in advance in terms of a financing agreement or the completed assets are transferred to the group. Customer connections received in advance are initially recognised as payments received in advance. The related customer connections that arise when customers transferred distribution and transmission assets to the group to connect to the electricity network are accounted for when the customer hands over the completed assets to the group. Connections for electricity customers that were connected after 1 April 2018 (transition date to IFRS 15) When the connection provides the customer with a material right, the connection is allocated to deferred income (contract liabilities) when the customer is connected to the electricity network. The deferred income is recognised in profit or loss within revenue on a 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. When the connection does not provide the electricity customer with a material right, the connection is recognised in full in profit or loss within revenue when the customer is connected to the electricity network. 49 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 2. Summary of material accounting policies (continued) 2.17 Payments received in advance, contract liabilities and deferred income (continued) Customer connections (continued) Connections for electricity customers that were connected after 30 June 2009 but before 1 April 2018 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. Connections for electricity customers that were connected before 30 June 2009 Connections were allocated to deferred income when the customer was connected to the electricity network. The deferred income is recognised in profit or loss within revenue on a straight-line basis over the expected useful lives of the related assets. Refer to note 2.20 for revenue recognition of connections. Grants Government grants for electrification are initially recognised in payments received in advance and allocated to deferred income when the related asset has been connected to the electricity network. The deferred income is recognised in profit or loss within depreciation and amortisation expense on a straight-line basis over the expected useful lives of the related assets. 2.18 Employee benefit obligations Post-employment medical benefits All permanent employees qualify for post-employment medical benefits, except for new employees appointed on or after 1 June 2003 at a managerial level. The entitlement to post-employment medical benefits is conditional on the employee remaining in service up to retirement when the employee qualifies for the full benefit. Retirement includes any early retirement from age 55 up to normal retirement at age 65. The group accounts for its post-employment medical benefits obligation as a defined benefit plan in line with IAS 19. The post-employment medical benefits plan is unfunded. The cost to the employer, in the form of employer contributions, is actuarially determined. Provision is made for the estimated cost over the period until the date of early retirement at age 55 when further service 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 remeasurement of benefits. Interest and other expenses related to these benefits are recognised in profit or loss. Pension benefits All permanent employees of the group are members of the Eskom Pension and Provident Fund (EPPF) in terms of its rules and conditions. The EPPF is registered as a defined benefit fund in terms of the requirements of the Pension Funds Act, 24 of 1956. 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 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 participants in terms of the rules of the fund and the provisions of the Pension Funds Act and are responsible for setting policies including those governing investments and ensuring that there are sufficient assets to meet the plan obligations as they become due. 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. Eskom, NTCSA (from 1 July 2024), Rotek and the EPPF itself are the employers in the EPPF. The fund is measured as a whole and there is no policy in place for proportionate allocation of net assets to individual entities of the group. The fund is accounted for in terms of IAS 19 as a defined benefit plan although the terms of the fund do not automatically require the employer to make good any deficit should it arise. The contributions to the EPPF comprise 20.80% of pensionable emoluments of which 13.50% is contributed by the employer and 7.30% by members. Contributions are made by each employer in the fund. 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 by the pensionable service period in months. The formula does not limit the benefits payable to the assets and contributions made 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 contributions (if consented to by the employer) or reductions in member benefits (as agreed by the members). The obligation on Eskom as the employer to contribute towards the deficit is an area of judgement. As the benefit formula does not limit the payments to the assets in existence in the fund at the payment date, management concluded that the actuarial and investment risk fall on Eskom when considering the requirements of IAS 19 and therefore classified the fund as a defined benefit fund. If there is a substantial surplus on the valuation of the fund, future contributions may be decreased or pensioner benefits may be improved as determined and appropriated by the trustees of the fund. The surplus is not controlled by Eskom but by the trustees 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 limits the net benefit asset to zero. The pension benefits plan is funded. The cost to the employer, in the form of employer contributions, is actuarially determined. Return on plan assets in excess of interest, adjustments to the asset ceiling and actuarial gains or losses on the obligation are recognised in other comprehensive income within remeasurement of benefits. The expense or income recognised in profit or loss includes the current service cost, interest income on plan assets and interest expense on the defined benefit obligation and the irrecoverable surplus (effect of asset ceiling). Occasional and service leave The liability for occasional and service leave is of a long-term nature in terms of IAS 19 as it is not expected to be settled wholly within 12 months after the reporting period but there is no unconditional right to defer settlement for at least 12 months after the reporting period. The full provision is therefore presented as a current liability in the statement of financial position. An actuarial valuation of the occasional and service leave liability is performed at the reporting date. All actuarial gains or losses and 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. 50 Bonus Annual and production bonuses are short-term employee benefits which are expensed as the related services are provided. A liability for annual bonuses is accrued on a proportionate basis as services are rendered. A liability for production bonuses is raised on the estimated amount payable in terms of the scheme. 2.19 Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of a past event, when it is probable that an outflow of resources will be required to settle the obligation and when the amount can be reliably estimated. Provisions are not recognised for future operating losses. The valuation of long-term provisions requires a degree of judgement regarding the future cash flows and the timing thereof. Provisions are determined by discounting the expected future cash flows using pre-tax discount rates that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The initial cost of a provision is capitalised against the cost of the related asset if it meets the requirements for capitalisation. Subsequent changes in the liability for capitalised provisions are added to, or deducted from, the cost of the related asset. Any amount exceeding the cost of the related asset is allocated to profit or loss. The increase in the provision due to the passage of time is recognised as an expense in profit or loss under finance costs. The main categories of provisions include the following: Power station-related environmental restoration – nuclear plant and other generating plants The provision includes the estimated decommissioning cost of nuclear and other generating plants. The estimated cost of 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. A provision is also raised for the management of fuel assemblies and radioactive waste, which is recognised and measured based on a report from independent experts. The costing and methodologies are revised on a regular basis to ensure alignment with the requirements of the NNR. The cost for the fuel assemblies is included in the cost of inventory while the fuel is in the reactor. The cost relating to radioactive waste is charged to profit or loss within primary energy. Mine-related closure, pollution control and rehabilitation The provision includes the estimated cost of physical, biophysical and social closure and environmental rehabilitation of the mines where a legal or constructive obligation exists. The initial cost of the provision is capitalised against future fuel. The cost of ongoing closure and rehabilitation programmes for active mines is charged to inventory and subsequently to profit or loss within primary energy as the coal is consumed, while the cost relating to defunct mines is charged directly to profit or loss. Compensation events Compensation events and claims are a normal part of construction agreements and are triggered by changes in scope of work or time needed to complete the work. A dispute resolution process, as outlined in the contractual agreements, is followed as and when a compensation event or claim arises and is dealt with through a structured process involving notification, consultation, assessment and agreement or adjudication. All open compensation events and claims are assessed at the reporting date by management’s experts and legal advisors (where deemed necessary) based on the latest available information to determine the probability of an outflow of resources and the best estimate of the expenditure that would be required to settle the present obligation. There is significant judgement applied by management and the board, based on past experience regarding the finalisation and outcome of compensation events, in determining the appropriate provision for these matters. The related costs are charged to profit or loss within other expenses or work under construction if it meets the requirements for capitalisation. Other Other provisions include provisions made for contractual obligations relating to onerous contracts, litigation matters and guarantees. These provisions are recognised based on contractual obligations and measured based on the best estimate of the expenditure that would be required to settle the present obligation at the end of the reporting period and are charged to profit or loss within other expenses. The amount of the provisions is based on management’s assessment of the most likely amounts due based on the current information available. The group expects to settle the majority of these provisions within 12 months. The finalisation of an obligation depends on factors outside the control of the group, for example, arbitration and dispute resolution processes, which could impact the timing. 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. 2.20 Revenue from contracts with customers The main revenue activity of the group is the sale of electricity which is recognised when electricity is consumed by the user. The subsidiaries, other than NTCSA support this main activity but are not considered to be part of the main revenue activity as their operations include providing home loans to Eskom employees, insurance, maintenance and construction services to Eskom. 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. Customers that fail the collectability criterion are accounted for on a cash basis and revenue is only recognised when cash is received. Refer to note 4.6. An invoice is still raised for sales to customers accounted for on a cash basis. The group has a statutory obligation to charge VAT for local customers, payable to SARS, when an invoice is created which gives rise to a receivable that is accounted for as a statutory receivable within other receivables. A portion of the VAT on revenue recognised on a cash basis (for municipalities recorded on a cash basis) are not expected to be realised within 12 months after the reporting period because of the low payment levels of the municipalities which are accounted for on the cash basis and are therefore classified as non-current. An impairment is raised based on the discounted cash flows at a market related interest rate. The expected recovery period is based on current information and past experience limited to a maximum recovery period of five years to provide for a recovery from SARS through a write-off. 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. 51 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 2. Summary of material accounting policies (continued) 2.20 Revenue from contracts with customers (continued) The group’s principal revenue-generating activities are as follows: Revenue activity Nature and timing of satisfaction of performance Revenue recognition obligation, including significant payment terms Electricity sales Performance obligation is settled when electricity is Revenue is recognised over time as electricity is consumed by the customer (ie supplied to the customer. Most customers pay for when control is transferred). Conventional customers are billed on a monthly electricity after consumption and have terms basis after electricity is consumed whereas prepaid customers pay for electricity ranging between 15 and 45 days. Some customers upfront when electricity tokens are purchased resulting in a contract liability to prepay for electricity. deliver electricity in the future. Prepaid revenue is recognised and the contract liability derecognised for electricity consumed on tokens loaded on the prepaid meter. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Connections Connections arise when customers make a Connections that were completed before 30 June 2009 were allocated to contribution to the group to construct regular deferred income when the customer was connected to the electricity distribution and transmission assets or when the network. The deferred income is recognised in profit or loss within revenue constructed assets are transferred to the group to on a straight-line basis over the expected useful life of the related assets. connect customers to the electricity network. Connections that were completed after 30 June 2009 were recognised as Connections arise from contracts with customers revenue when the customer was connected to the electricity network in who will also become electricity purchasing terms of IFRIC 18. customers once they are connected and those who Connections that were completed from 1 April 2018 are recognised as follows: will not purchase electricity (eg proper ty • connections relating to electricity purchasing customers where there is developers). a material right are allocated to deferred income when the customer is connected to the electricity network. The deferred income is recognised in profit or loss within revenue on a straight-line basis over the estimated customer relationship period of 25 years. Refer to note 25 for the contract liabilities of connections recognised on a straight-line basis • connections relating to electricity purchasing customers where there is not a material right are recognised as revenue over the initial contract term • connections relating to non-electricity purchasing customers are recognised as revenue at a point in time when the customer is connected to the electricity network Other Ad hoc requests for electricity-related services that Revenue is recognised at a point in time when the service is completed. are distinct from the sale of electricity or the connection of customers to the grid. The assessment to defer revenue for connection charges from electricity customers requires judgement because of divergent international treatments based on contract and operational differences. Changes to the recognition of customer connections are not expected based on the current information available. The assessment of whether a connection charge is a material right or not in terms of IFRS 15 requires judgement of what constitutes a material right from the perspective of the customer and results in different accounting treatments as discussed above. 2.21 Finance income Finance income comprises interest receivable on loans, trade receivables, finance lease receivables and income from financial market investments. Finance income is calculated by applying the effective interest rate method to the gross carrying amount of non-credit impaired 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 financial assets (ie the gross carrying amount less the allowance for expected credit losses). Interest income is recognised in profit or loss. 2.22 Finance cost 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. 2.23 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. 2.24 Net debt Gross debt is the aggregate of debt securities and borrowings and lease liabilities. Net debt is calculated by adjusting gross debt for related payments made in advance, derivatives held for risk management and cash and cash equivalents. 3. Capital management, going concern and impairment 3.1 Capital management The objective of capital management is to ensure that the group is sustainable over the long term. The government, as the sole shareholder, and the board have the responsibility to ensure that the group is adequately capitalised and that the business is attractive to investors and lenders. Group funding consists of external debt and equity investments by the shareholder (including those under the Debt Relief Act and Debt Relief Amendment Act), funds generated from operations and funds borrowed on local and foreign debt markets (for borrowings allowed during the debt relief period) with strong government support. 52 The following capital reserves are managed by the group: Group Company Restated Restated 2024 2023 2024 2023 Note Rm Rm Rm Rm Share capital 23 241 550 241 550 241 550 241 550 Other capital 44 000 – 44 000 – Accumulated (loss)/profit (51 564) 5 439 (74 057) (14 966) Net debt 43 401 060 398 833 402 675 404 879 635 046 645 822 614 168 631 463 Facilities available – debt securities and borrowings1 22 495 19 374 22 495 19 374 3.1.1 Share capital Share capital consist of R241 550 million of issued shares. 3.1.2 Accumulated (loss)/profit Revenue The group analyses the Integrated Resource Plan (which forecasts the growth in long-term electricity demand) and evaluates the alternative options to meet and manage forecast demand. This information impacts the planning process and informs the revenue applications made to NERSA for tariff increases that will allow the group to be financially sustainable. Operating cost The group continues to pursue cost-saving opportunities to assist in ensuring financial sustainability. The following non-generally accepted accounting principles profit or loss measures (unaudited) are monitored by management: Group Company Restated Restated 2024 2023 2024 2023 % % % % EBITDA margin 14.67 13.32 14.45 13.65 Net loss margin (18.60) (10.05) (19.30) (10.16) 3.1.3 Net debt Group Company 2024 2023 2024 2023 % % % % Funding used 133 682 105 204 133 407 110 044 Debt repayment and net finance costs 88 739 71 390 89 084 73 881 Investment funding requirements 44 943 33 814 44 323 36 163 Funding raised 133 682 105 204 133 407 110 044 Cash from operations 40 396 41 527 41 109 41 275 Financing activities 109 336 55 238 109 418 60 346 (Used)/obtained cash (16 050) 8 439 (17 120) 8 423 The following ratios (unaudited) play an important role in the credit ratings given to the group, which in turn influences the cost of funding. The credit rating of the group is affected by its own financial position as well as the credit rating of the sovereign: Group Company Restated Restated Unit 2024 2023 2024 2023 Net debt: equity Ratio 1.80 1.70 2.01 1.90 Net debt: EBITDA Ratio 9.24 11.54 9.42 11.43 Net debt service cover Ratio 0.46 0.58 0.46 0.56 Free funds from operations: net debt % 13.46 10.99 13.17 11.10 Eskom’s credit ratings at 31 March were as follows: Rating Outlook 2024 2023 2024 2023 Standard & Poor’s Foreign currency CCC+ CCC+ Credit watch positive2 Credit watch positive Local currency CCC+ CCC+ Credit watch positive2 Credit watch positive Moody’s Foreign currency Caa1 Caa1 Positive Positive Local currency B1 B1 Positive Positive Fitch Ratings Local currency B B Stable Stable 1. Facilities in foreign currency (refer to note 5.3.2) are converted to rand at mid-spot rate (refer to note 5.2.1) at reporting date. 2. The outlook was revised to positive in November 2024. 53 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 3. Capital management, going concern and impairment (continued) 3.1 Capital management (continued) 3.1.3 Net debt (continued) Net debt is sourced globally (when allowed during the period of the debt relief ) to ensure the lowest cost of funding. Net debt is managed via the continuous monitoring of current and potential debt funding arrangements to achieve the most favourable terms possible. These terms and costs are heavily dependent on the group’s credit rating. Eskom is focusing on alleviating the rating agencies’ concerns regarding the high leveraged financial profile, inadequate electricity price path and funding requirements of the group. Funds received and not yet spent are invested to provide the maximum possible return while ensuring minimal capital risk and matching the maturity term requirements of the spending of the amount. Refer to note 43 for a reconciliation of the movements and analysis of the composition of net debt. Debt relief arrangement The Eskom Debt Relief Act was enacted on 7 July 2023. The arrangement provides debt relief of R254 billion to Eskom over three years, subject to conditions to allow for the conversion of the debt relief to equity, consisting of liquidity support of R184 billion together with the takeover of R70 billion in Eskom debt (principal and interest) in 2026 to support Eskom’s debt and interest payments as they fall due. The conditions were confirmed by the Minister of Finance in terms of section 2(2)b of the Act. The conditions that are applicable from 1 August 2023 to 31 March 2026 (which can be amended by the Minister from time to time) are as follows: • The debt relief may only be used to settle debt and interest payments. • Capital expenditure may only be incurred for transmission and distribution as well as generation relating to minimum emission standards, flue-gas desulphurisation, outages and maintenance of existing plant and a greenfield generation project with the written approval from the Minister of Finance. • All net cash proceeds from the sale of non-core assets, including EFC and any property sales may only be used to settle debt and interest payments. • Eskom may only borrow new facilities with the written approval of the Minister of Finance. • The Eskom guarantee framework agreement for the R350 billion facility (which expired on 31 March 2023) must, subject to the terms of that agreement, be reduced as the relevant redemptions fall due. • Positive equity balances in Eskom’s derivative contracts may not be used to structure new debt or loan agreements or be used as margin financing for another derivative contract or derivative overlays, without the written approval of the Minister of Finance. • Eskom must continue to prioritise and expedite the implementation of the legal separation process, including for example, obtaining the required lender consent. • Eskom may not implement remuneration adjustments that negatively affect its overall financial position and sustainability. • Any transaction undertaken in terms of section 54 of the PFMA must be subject to joint approval by the Eskom shareholder representative and the Minister of Finance. The loan is settled in Eskom ordinary shares upon confirmation of compliance with the conditions and obtaining written approval from the Minister of Finance in terms of the Debt Relief Act for conversion to equity. In the event of unconverted loan amounts that fail to qualify for the conversion of debt to equity due to non-compliance with the conditions, these will become due and payable after the debt relief period (from 1 April 2026) and a separate loan agreement will be entered into with specific terms and conditions. The Eskom Debt Relief Amendment Act was amended and promulgated on 8 April 2024. The Eskom Debt Relief Amendment Act provides for the payment of interest on amounts advanced as a loan at a rate determined by the Minister of Finance and power to the Minister of Finance to reduce the support for the requirements of Eskom (limited to five percent of the total amount allocated for the applicable financial year) in the event of non- compliance with the conditions. Interest is payable prospectively based on the 91-day Treasury Bill rate in the previous quarter effective from the first disbursement received in the 2025 financial year (8.71% on R8 billion received on 28 June 2024). The debt relief support was reduced by R2 billion in both 2024 and 2025 to R76 billion and R64 billion respectively due to the delays in the sale of EFC. The sale of EFC remained a key focus with the board accepting the binding offer from the approved bidder on 25 October 2024. Refer to note 47. 3.2 Going concern The board assessed the ability of the group to continue as a going concern in the foreseeable future. The board: • Reviewed the performance of the group for the year ended 31 March 2024 including the net loss after tax of R55 015 million and the net current liabilities of R41 357 million. • Considered the impact of the cash flow forecast for the 24 months ending 31 March 2026 and the projected net profit before tax for 2025 estimated at R19 819 million (unaudited – information has not been reviewed or reported on by the external auditors). • Noted an improvement in EBITDA and EBITDA margin and a deterioration in the net debt service cover and cash interest cover of the group’s financial indicators compared to 31 March 2023. • Noted the increase in the cash and cash equivalents balance to R23 585 million from R7 516 million at 31 March 2023 mainly due to the debt relief support received. • Noted the impact of the debt relief arrangement that resulted in an improved liquidity position, but that liquidity remains under pressure given the group’s financial and operational challenges. The liquidity in the longer term after the debt relief period remains at risk because of the financial sustainability challenges arising from an inadequate tariff path, high debt service costs, escalating arrear debt, operational inefficiencies, the impact of fraud and corruption and sub-standard generating plant performance requiring reliance on expensive Eskom and IPP OCGTs to augment supply as well as sourcing of funding for the Transmission Development Plan. • Noted the remaining portion of the debt relief support from government of R66 billion in 2025 and R40 billion in 2026, including the conditions the group needs to comply with to allow for the conversion of debt relief to equity, to address Eskom’s debt and interest payments as they fall due together with the takeover of R70 billion of Eskom debt (principal and future interest) in 2026 (to be finalised), thereby allowing Eskom to better manage its liquidity position as well as the reduction of R2 billion in the debt relief support for 2025 as a result of the delay in the disposal of EFC. The sale of EFC continues to be prioritised with board accepting a binding offer from the approved bidder in October 2024, subject to PFMA approval. • Noted and considered the implications of the Eskom Debt Relief Amendment Act, that was enacted on 8 April 2024 that provides for the monthly payment of interest by Eskom on amounts advanced as a loan at the 91-day Treasury Bill rate and power to the Minister to reduce the support to Eskom in the event of non-compliance with the conditions. Any loan amount that fails to qualify for the conversion of debt to equity because of non-compliance with the conditions will become due and payable after the debt relief period (from 1 April 2026). Interest is payable prospectively from the first disbursement received in 2025. Refer to note 47. 54 • Noted that no new borrowings (except for drawdowns from existing facilities) were allowed from 1 April 2023 until the end of the debt relief period unless approved by the Minister of Finance, and that existing government guarantees issued on borrowings before 31 March 2023 in terms of the government guarantee facility of R350 billion remain in place until settlement of the guaranteed debt. All other operational and relevant capital expenditure spending are financed through operational cash flows and drawdowns from existing project related loan agreements. • Considered the impact of the continuous increase in overdue electricity receivables mainly due to growing municipal debt (including the impact of non-recoverability of long outstanding electricity receivables) and the municipal debt relief arrangement that is yielding minimal results with most of the municipalities failing to comply with the conditions. • Noted the approval by the NNR on 25 January 2024 to separate the licence expiry dates in line with the design life of the units at Koeberg power station (licence expiry date for unit 1 remained as 21 July 2024 and was extended to 9 November 2025 for unit 2). • Considered the impact of the licence extension by the NNR on 15 July 2024 to continue to operate Koeberg unit 1 for another 20 years to 21 July 2044 which will decrease the nuclear decommissioning provision because of later cash outflows. The licence extension decision on unit 2 was deferred until later but prior to the licence expiry date as some of the prerequisites for long-term operation are still being implemented in the current outage of unit 2. • Considered the impact on future cash flows of ongoing ring-fenced funds set aside (R1.0 billion during the year and an additional R1.4 billion in 2025) for the funding of future nuclear decommissioning activities as directed by the NNR whilst discussions regarding a permanent solution are underway. • Considered the impact of the dispute between Eskom and SARS that was resolved on 18 October 2024 relating to previously disallowed claims for fuel levy refunds for a net amount of R9.2 billion payable to Eskom. Refer to note 47. • Considered the impact of improved generating plant performance even though certain challenges remain. A worsening of generating plant performance could negatively impact cash flow due to lost revenue and an increase in costs, including the level of spend required on OCGTs. The group’s generation capacity continues to be managed as a critical focus area to ensure appropriate steps are being taken to manage performance. • Considered the impact of the current economic climate, including that some rating agencies expressed a positive outlook on the group after the enactment of the Eskom Debt Relief Act. • Acknowledged that an acceptable price increase, uncertainty of timing and impact of separate licence price determinations, continued improved plant performance and addressing payment by municipalities are critical factors in the going-concern assessment. • Noted the increase in non-technical energy losses because of illegal connections and selling of illegal tokens which increase the current and future costs incurred by Eskom to produce energy with no corresponding revenue received. • Recognised the progress made with the legal separation of Eskom. All suspensive conditions were met and/or waived on 31 March 2024 to give full effect to the merger agreement resulting in the disposal of the transmission division to NTCSA on 31 March 2024. NTCSA commenced trading on the legal implementation date of the merger agreement on 1 July 2024 (refer to note 12). NTCSA is in a tax paying position from 2025 onwards based on the latest forecasts and paid provisional tax of R1.4 billion at 30 September 2024. The corporatisation and operationalisation of NEDCSA is delayed due to external dependencies and the delayed operationalisation of NTCSA. • Noted that Eskom and NTCSA signed an equity subscription agreement on 28 June 2024 to allow for the allocation of R3.8 billion to NTCSA relating to debt relief received by Eskom from the government (refer to note 47). Other mechanisms of support to NTCSA include amongst others approval of a short-term credit facility with Eskom Treasury, immediate settlement of intercompany energy purchases and sales as well as issuing of proforma invoices to Eskom for payments to be made in advance should NTCSA experience financial challenges. • Recognised that the group continues to face various challenges that resulted from mismanagement and corruption that could have an influence on stakeholder sentiment. Progress has been made in cleaning-up irregularities, improving processes and strengthening controls but adherence and timely identification of all issues, taking appropriate corrective action and implementing consequence management remain a challenge. • Considered the possible impact if key risks materialise and acknowledged that improved plant performance, the management of operating (particularly generating expenditure) and capital costs, as well as addressing the escalating overdue electricity receivables are critical factors in the going-concern assessment. The challenges that the group is facing are being addressed by the following mitigation strategies and actions: • Continuous engagement is taking place with the shareholder and National Treasury to ensure that the challenges that impact the group’s going- concern status are addressed satisfactorily within a reasonable timeframe. Government believes that it is critical that a credible, comprehensive and long-term strategy (which incorporates addressing municipal receivables, providing greater clarity and transparency in tariff pricing and addressing operational efficiencies) is developed to fully optimise the group and company’s balance sheet. The Eskom debt relief arrangement is assisting in putting the group on a path to long-term financial stability. Compliance by the municipalities with the requirements of the municipal debt relief programme as set out by National Treasury remains a key focus area as the programme is not yielding the expected results. • Eskom is working with National Treasury and the shareholder representative regarding Eskom’s ongoing compliance with the conditions of the debt relief arrangement to enable the conversion of the loan to equity. A total of R76 billion was received for the year of which R44 billion was approved by 31 March 2024 and the remaining R32 billion was approved on 29 July 2024 for conversion to equity. The first disbursement of R8 billion received on 28 June 2024 for 2025 was approved for conversion to equity on 21 October 2024. Refer to note 47. • There is continued focus on implementing various strategies to recover overdue trade receivables. The successful outcome of these strategies remains uncertain. Eskom advised National Treasury of the municipalities not compliant with the municipal debt relief arrangement conditions. National Treasury is engaging with these municipalities to highlight the risk of terminating their participation in the debt relief programme. Eskom continued with its credit management processes for municipalities that breached their debt relief conditions. Refer to note 5.1.1. • Eskom continues to work with the Minister of Electricity and Energy leveraging the National Energy Crisis Committee structures to ensure that the Electricity Action Plan is implemented expeditiously in collaboration with all key stakeholders to resolve the electricity crisis. • The Electricity Regulation Amendment Act, 38 of 2024, provides for NERSA to consider the application and issue of licences, new generation capacity and electricity infrastructure and the establishment of the transmission system operator in the future to cater for an open market platform that will allow for competitive electricity trading with entity specific revenue determinations by NERSA in line with the approved licenses. It is envisaged that there will be a transition period, most likely between three to five years, as the development, approval and implementation of the market code, rules and trading platform (system) as well as the qualifying criteria for participants is a time-consuming process involving various stakeholder consultations and approval by NERSA. • The cost structures and capital programme of the group are continuously reviewed to extract cost savings and improve cash flows. • The group is aware of the impact of large capital projects on its statement of financial position and will only engage in such projects in compliance with the conditions attached to the Eskom Debt Relief Act and with full disclosure and approval by the Minister of Finance and the shareholder. The board considered that there are uncertainties and dependencies that exist both from the perspective of timing of interventions as well as whether the plans will materialise as anticipated. The events, conditions and assumptions described above inherently include material uncertainties that may cast significant doubt on the going concern of the group and company. 55 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 3. Capital management, going concern and impairment (continued) 3.2 Going concern (continued) The board has a reasonable expectation 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 they materialise as envisaged. The board assessed the current cash flow projections considering that future capital costs during the debt relief period will be funded from cash from operations. The board concluded after carefully considering the progress of the initiatives included in note 3.2 and the continued financial support from the government through the debt relief arrangement that there is a reasonable expectation that the group and company have access to adequate resources and facilities to be able to continue its operations and fund the capital programme for the foreseeable future as a going concern. The consolidated and separate financial statements have therefore been prepared on a going-concern basis. 3.3 Impairment assessment of the Eskom CGU The Eskom CGU (refer to note 2.6) was assessed for impairment because of ongoing liquidity, financial and operational performance challenges. The assessment includes property, plant and equipment and assets with an indefinite useful life of intangible assets (rights). No impairment loss was recognised on the Eskom CGU as the recoverable amount of the Eskom CGU (determined based on the higher of its fair value less costs of disposal and value in use) was higher than the carrying value. There was no impairment loss in the individual legal entities and the impairment assessment as part of the Eskom CGU remains appropriate. The group uses two models as part of its impairment assessment to determine the recoverable amount of the Eskom CGU. Fair value less cost of disposal The fair value less cost of disposal (no estimate for the cost of disposal was provided, as this is deemed to not be material) is determined using a cost-based methodology, referred to as the DRC method that is a calculated proxy to assess for impairment (referred to as the Eskom regulatory model). The DRC approximates the current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation. This approach is normally adopted for the valuation of specialised assets or installations where there is little or no comparable market evidence to estimate value. The fair value determined using the DRC methodology was adjusted by a revenue shortfall that approximates the discount to market participants because the electricity tariff is not cost reflective and therefore would result in an insufficient return on assets. Value in use The value in use calculation is based on the estimated future cash flows discounted to their present value based on the future revenue and cost to operate and maintain the assets over their useful lives. Estimates in the value in use calculation include long-term growth rates, electricity sales volumes, price path, available generation capacity and discount rates. Estimates are based on past experience and expectations of future changes in the market, including the prevailing economic climate. Key assumptions The cash flow projections used in the two models were based on the Eskom Corporate Plan for 2025 to 2029, adjusted to exclude new capacity and expansion of assets. The projections after the first five years were extrapolated based on the estimated long-term average growth rates, inflation and available existing capacity. The extrapolation beyond the first five years was deemed appropriate as generating plants have long useful lives. A declining sales trajectory limited to available capacity was assumed. The available capacity depends on generating capacity (still under construction) becoming available and decommissioning of old power stations. It was assumed that there will be no new electricity production sources, both from Eskom and IPPs. The usage of the OCGTs was assumed at an average load factor of 9% in 2025 and 6% in 2026, reducing over time to 3%. The power stations’ Energy Availability Factor (EAF) was aligned to the performance as at the reporting date, with a gradual improvement over time. The price path is based on the NERSA approved price increase of 12.74% for 2025, the 2026 to 2028 NERSA price application (not approved) that was refined for the impairment assessment and an assumed long term estimate for all future price increases not yet applied for. A conservative view was taken on overdue municipality debt by assuming that it will continue to increase. The possible positive impact of the municipal debt relief arrangement was not taken into account as the majority of the accepted municipalities have not been complying with the conditions. Eskom will only be impacted by carbon tax in 2026 with a substantial increase from 2027. Management concluded that the key assumptions (which includes price path and EAF) are reasonable. The price increases used for the Eskom CGU were: Year ended 31 March 2025 2026 2027 2028 2029 2030 % % % % % % 2024 Price increase 13 15 14 18 11 4 Year ended 31 March 2024 2025 2026 2027 2028 2029 % % % % % % 2023 Price increase 19 13 13 11 15 11 An average long-term negative sales growth rate of 5% (2023: 0.5%) was used whilst there was sufficient production capacity to support sales. Once production capacity was insufficient to support sales, sales was restricted to production capacity. A pre-tax nominal discount rate of 16.25% (2023: 16.25%) was used as derived from the NERSA determination. 56 Outcome of impairment calculation Price sensitivity A conservative price path has been assumed. The price already approved by NERSA was used for 2025. A reduction of 1% in the price assumption for 2026 results in the recoverable amount exceeding the carrying amount by 5%. A reduction in the price for 2026 will result in permanent reduction in the base price in future periods. Discount rate sensitivity An increase of 2% in the discount rate will result in a recoverable amount being equal to the carrying value. Other sensitivities A 1% cumulative increase in the cost of coal over the 2025 to 2050 periods results in the recoverable amount equal to carrying value. A 2% cumulative reduction in available total production from coal plants over the 2025 to 2050 periods results in the recoverable amount exceeding the carrying amount by approximately 5%. 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 liabilities within the next financial year are discussed in this note. The methods and types of assumptions used in preparing the sensitivity analyses did not change compared to the previous period. Sensitivity analyses are calculated based on a change in a single key assumption keeping all other assumptions constant. In practice it is unlikely that changes in assumptions would occur in isolation from one another. All relevant inputs are listed and sensitivities have then been provided for the key sources of estimation uncertainty. 4.1 Embedded derivatives Eskom entered into agreements to supply electricity to electricity-intensive businesses where the revenue from the contracts is based on approved tariffs with a possible upside charge that is applicable when predefined thresholds are exceeded. These upside charges resulted in option-based embedded derivatives arising from: • Aluminium market price – applicable if both the aluminium price and foreign exchange rate simultaneously exceed predefined thresholds from August 2021 to July 2031. • Ferrochrome market price – applicable when the ferrochrome price exceeds predefined thresholds from January 2024 to December 2029. The valuation of the embedded derivatives reflects the remaining benefit to Eskom attributable to the upside charge when the thresholds are exceeded. Valuation Valuation techniques are used to determine the fair value as there is no active market for embedded derivatives. The embedded derivative is valued independently from the host contract. A Monte Carlo valuation method was used which uses random paths to model the price of commodities (aluminium and ferrochrome) and the USD/ZAR exchange rate. The simulation paths allow for varying prices depending on the underlying simulations being above or below the threshold levels. The fair value of the embedded derivatives reflects a probability-weighted estimate of the upside benefit to Eskom in terms of the Monte Carlo method. Input and valuation assumptions The key valuation approach and methodology used include the following: • Aluminium price forecasting was modelled using the Schwartz 1-factor model and is calibrated to the futures prices and at-the-money European options on futures contracts traded on the London Metal Exchange. • Aluminium price and USD/ZAR correlation was modelled by identifying the correlation between the log returns in outlier scenarios which is driven by global economic shocks, where commodities tend to appreciate as the global economy deteriorates. • Ferrochrome price forecasting was modelled by using the Schwartz 1-factor model and by establishing a suitable proxy as there is no exchange market for ferrochrome futures. Stainless steel was selected as an appropriate proxy as the majority of global ferrochrome resources are used in the production of stainless steel. • The aluminium and USD/ZAR volatility was based on implied volatilities of the at-the-money options traded in the market. The volatility data for aluminium was selected as a suitable volatility proxy for ferrochrome because of its proximity in usage by industry participants and common industry alternative to stainless steel (ferrochrome). • Counterparty credit risk was calculated by using the marginal probability of default (using a hazard rate model and calibrated to the counterparty’s credit default swap spread), weighted by the present value of the expected future exposure, at each cash flow date. • Projected cash flows were weighted and discounted at the appropriate risk-free rate by simulating forward USD/ZAR rates and underlying commodity’s price (in USD) and then valuing the payoff using Monte Carlo methods. The average of the simulated upside tariffs across the contract’s supply term structure was discounted to the valuation date using the ZAR three-month swap zero curve. • The United States and South African Producer Price Index (PPI) are significant unobservable inputs used in the model. Other inputs were obtained from appropriate market data providers or were otherwise modelled using market standard modelling procedures which do not attract significant uncertainty or judgement. 57 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 4. Critical accounting estimates and assumptions (continued) 4.1 Embedded derivatives (continued) Valuation (continued) Input and valuation assumptions (continued) The following valuation assumptions were used and are regarded as the best estimates by management: 2024 Year ended 31 March Input Unit 2024 2025 2026 2027 2028 2029 Aluminium price USD per ton 2 295 2 415 2 536 2 627 2 696 2 744 Aluminium volatility Year-on-year (%) 14.89 17.73 17.95 17.97 17.97 17.97 Ferrochrome price USD per ton 2 150 2 198 2 176 2 144 2 127 2 091 Stainless steel price Chinese yuan per ton 13 915 14 020 – – – – ZAR/USD ZAR per USD 18.94 19.59 20.34 21.26 22.84 23.86 USD/ZAR volatility Year-on-year (%) 9.82 14.78 15.17 15.40 15.40 16.07 Rand interest rates Annual actual/365 days (%) 5.60 9.34 8.56 8.57 8.74 9.08 Dollar interest rates Annual actual/365 days (%) 5.57 5.11 4.61 4.30 4.13 4.02 South African PPI Year-on-year (%) 5.00 4.80 4.60 4.50 4.30 4.20 United States PPI Year-on-year (%) 1.50 1.80 1.60 1.40 1.40 1.30 Electricity usage – aluminium Electricity usage per maximum capacity (%) 97.64 97.64 97.64 97.64 97.64 97.64 Electricity usage – ferrochrome Electricity usage per maximum capacity (%) 79.18 79.18 79.18 79.18 79.18 79.18 2023 Year ended 31 March Input Unit 2023 2024 2025 2026 2027 2028 Aluminium price USD per ton 2 377 2 496 2 608 2 713 2 798 2 875 Aluminium volatility Year-on-year (%) 24.53 24.53 24.53 24.53 24.53 24.53 ZAR/USD ZAR per USD 17.72 19.27 20.00 20.62 21.32 21.98 USD/ZAR volatility Year-on-year (%) 18.36 18.36 18.36 18.36 18.36 18.36 Rand interest rates Annual actual/365 days (%) 10.06 8.35 8.11 8.09 8.25 8.47 Dollar interest rates Annual actual/365 days (%) 4.95 4.72 4.05 3.65 3.46 3.32 South African PPI Year-on-year (%) 7.43 7.75 6.75 5.75 5.50 5.50 United States PPI Year-on-year (%) (0.61) 4.75 3.00 2.50 2.25 2.25 Electricity usage Electricity usage per maximum capacity (%) 97.49 97.49 97.49 97.49 97.49 97.49 Sensitivity analysis The effect on profit/loss before tax of an increase or decrease in the significant assumptions is: Group and company 2024 2023 Input Unit Change in assumption increase decrease increase decrease Rm Rm Rm Rm Aluminium price USD per ton 10% relative 545 (375) 258 (218) Aluminium volatility Index 1% absolute 51 (55) – – Ferrochrome price USD per ton 10% relative 2 653 (2 695) – – Rand interest rates Continuous actual/365 days (%) 100 basis points (10) 10 43 (48) South African PPI Index 1% absolute 38 (43) (51) 48 United States PPI Index 1% absolute (193) 237 3 (13) 4.2 Post-employment medical benefits Valuation 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 current cost liability. The accrued service liability is based on the completed service to the valuation date for the in-service members and the full liability in respect of retired members. The current cost liability is the cost of providing the benefit over the next year. The present value of the obligation is determined by using government bonds which have maturities similar to the liability. The fund is exposed to inflation risk, interest rate risks and changes in the life expectancy of beneficiaries. 58 Valuation assumptions The principal actuarial assumptions used were: Group Company Unit 2024 2023 2024 2023 Discount rate % 15.0 13.2 15.0 13.2 Medical aid inflation % 10.6 9.3 10.6 9.3 Male longevity years 14.42 14.42 14.42 14.42 Female longevity years 20.82 20.82 20.82 20.82 Weighted average duration years 17.10 17.60 16.70 17.70 Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. Sensitivity analysis The effect of an increase or decrease in the assumptions is: Group Company Change in 2024 2023 2024 2023 assumption increase decrease increase decrease increase decrease increase decrease Rm Rm Rm Rm Rm Rm Rm Rm Effect on aggregate current service cost and finance cost Discount rate 1% (241) 293 (210) 258 (217) 264 (209) 256 Medical aid inflation 1% 510 (413) 467 (374) 466 (377) 462 (369) Future mortality 1 year 70 (71) 63 (63) 66 (67) 62 (62) Effect on post-employment medical benefits obligation Discount rate 1% (2 067) 2 546 (2 089) 2 595 (1 899) 2 333 (2 057) 2 556 Medical aid inflation 1% 2 579 (2 118) 2 618 (2 133) 2 363 (1 944) 2 580 (2 100) Future mortality 1 year 413 (418) 410 (414) 388 (393) 402 (406) 4.3 Pension benefits Valuation 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 current cost. The accrued service liability is based on the completed years of service to the valuation date in respect of current in-service members and the full liability in respect of pensioners. The current cost liability is the cost of providing the benefit over the next year. The present value of the obligation is determined by using government bonds which have maturities similar to the liability. 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 asset ceiling). The fair value of the plan assets represents the market value of the assets. The fund is exposed to inflation, interest rate risks, changes in the life expectancy of pensioners, changes in the age profile of members, equity and debt market risk and foreign exchange risk. Valuation assumptions The principal actuarial assumptions used were: Group and company Unit 2024 2023 Discount rate % 15.0 13.2 Long-term price inflation rate % 8.6 7.3 Future salary inflation % 10.1 8.8 Future pension increases % 8.6 7.3 Male longevity years 13.5 13.5 Female longevity years 19.7 19.7 Weighted average duration years 14.3 14.4 Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. Sensitivity analysis The effect on fund obligations of an increase or decrease in the assumptions is: Group and company Change in 2024 2023 assumption increase decrease increase decrease Rm Rm Rm Rm Discount rate 1% (6 834) 7 945 (7 288) 11 429 Inflation rate 1% 8 345 (7 270) 11 571 (7 682) Future mortality 1 year (1 654) 1 612 (1 471) 1 506 59 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 4. Critical accounting estimates and assumptions (continued) 4.4 Occasional and service leave Valuation 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 assumed benefit options employees will exercise and salary increases up to the date the benefit is estimated to be paid. The present value of the obligation is determined by using government bonds which have maturities similar to the liability. Valuation assumptions The principal actuarial assumptions used were: Group and company 2024 2023 % % Discount rate 15.0 13.2 General price inflation 8.6 7.3 Salary increases 10.1 8.8 Leave usage 8.0 8.0 Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. For details regarding current longevities underlying the values of the occasional and service leave obligation at the reporting date refer to note 4.2. Sensitivity analysis Based on current experience, 8% (2023: 8%) of the leave is utilised. If the rate at which leave is taken is 16% (2023: 16%), then the liability will increase by R103 million (2023: R97 million) for the group and R83 million (2023: R91 million) for the company. If the rate at which leave is taken is 4% (2023: 4%), then the liability will decrease by R58 million (2023: R55 million) for the group and R47 million (2023: R52 million) for the company. The carrying amount of the occasional and service leave liability for the group is R1 309 million (2023: R1 279 million) and R1 020 million (2023: R1 155 million) for the company. 4.5 Power station-related environmental restoration and mine-related closure, pollution control and rehabilitation Valuation These provisions are determined by discounting the current estimated future decommissioning and rehabilitation costs. The present value of the obligation is determined by using government bonds which have maturities similar to the liability. Valuation assumptions and estimated payment dates The real discount rates used for these provisions and estimated payment dates of the costs are: Group and company 2024 2023 % Year % Year Nuclear plant 4.4–5.1 2025–2039 3.4–4.6 2025–2039 Coal, pump storage, open cycle gas turbine and renewable stations 4.4–5.1 2026–2099 3.4–4.7 2024–2099 Spent nuclear fuel 4.4–5.1 2025–2100 3.1–4.6 2024–2100 Mine-related closure, pollution control and rehabilitation 4.4–5.1 2025–2151 3.1–4.6 2024–2150 Sensitivity analysis The effect on the provisions of an increase or decrease in the real discount rate is: Group and company 2024 2023 Change in increase decrease increase decrease assumption Rm Rm Rm Rm Nuclear plant 1% (466) 504 (533) 580 Coal, pump storage, open cycle gas turbine and renewable stations 1% (2 187) 2 735 (2 057) 2 598 Spent nuclear fuel 1% (1 271) 2 377 (1 647) 2 425 Mine-related closure, pollution control and rehabilitation 1% (1 180) 1 523 (1 458) 1 935 4.6 Revenue from contracts with customers Customer connections Connection charges are charged to customers in exchange for connection to the group’s electricity network. This connection enables the group 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 the group at a given point of supply. A period of 25 years was determined after considering, inter alia, assumptions about the life-cycle of the distribution network used to supply electricity to customers. Collectability of amounts receivable 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 payment history and for which the group does not have the ability to manage the credit risk due to external facts and circumstances (for example socio-economic or political reasons). The group accounts for revenue from these contracts on a cash (rather than accrual) basis. Where the recoverability requirement is met, revenue is recognised on an accrual basis. The risk of non-collection is reflected in the expected credit loss as an impairment expense rather than an adjustment to the revenue recognised. 60 4.7 Expected credit loss on financial assets The expected credit loss on financial assets is calculated using the following formula: Expected credit loss = Exposure at default x Probability of default x Discounted loss given default The exposure is the estimated amount outstanding at the point of default less any collateral held. The probability of default measures the likelihood that the amount outstanding will become more than 90 days past due, and depending on the portfolio, this is either on a 12-month or lifetime basis in accordance with IFRS 9 requirements. 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 expected recovery period. The financial assets that are subject to IFRS 9 impairment are stratified using factors such as the balance type, credit risk rating, existence and type of collateral, remaining term to maturity, delinquency status and geographical location. An economic overlay in the form of a five-year forward-looking scaler that incorporates economic variables (including gross domestic product and exchange rate growth) has been applied to international electricity receivables, intercompany trade and other receivables, other receivables, finance lease receivables, loans receivables, investments, financial trading assets and financial guarantee portfolios. It was not necessary to apply an economic overlay to the municipality, large power and small power user portfolios as the models to determine the probability of default are considered to be sensitive to the economic environment and representative of the most recent economic conditions. An additional expected credit loss consideration was applied to the municipality portfolio for the possible impact of the municipal debt relief arrangement. National Treasury approved for some municipalities that the Eskom arrear debt at 31 March 2023 can be written off over a three-year period subject to them meeting the predetermined conditions. An assessment was performed on the probability of these municipalities meeting the conditions, including consideration of past payment trends and current financial health, which resulted in an additional impairment of R1 903 million (2023: R824 million). None of the municipalities have reached a full 12-month cycle at 31 March 2024 and there have therefore been no write-offs as yet. The following details are applicable to the models used for the various financial asset balances: Financial asset Model details International electricity Expected credit losses were calculated using a benchmark approach that assigns a probability of default to a client receivables based on the size and country in which the client operates. Credit ratings were assigned to these categories which were then used to determine the probability of default. A five-year economic forward-looking scaler was applied to the probability of default. The loss given default was calculated as a weighted average of industry benchmarks (Basel Pillar 3 disclosures). Local large and small power Expected credit losses were calculated using a provision matrix which utilises a transition approach. The probability user electricity receivables of default relevant to balances with similar characteristics was determined by analysing their most recent delinquency data. The loss given default was calculated using the long-run average recovery rates. Intercompany loans The expected credit losses were calculated using a dual rating approach, which relies on key financial ratios to receivable determine a through-the-cycle probability of default. The through-the-cycle probability of default was updated with economic information to produce a point-in-time probability of default, which is consistent with the current and future forecasted economic conditions. The loss given default was calculated as a weighted average of industry benchmarks (Basel Pillar 3 disclosures). Intercompany trade and The estimates of the probability of default were based on the external rating of Eskom mapped to an internal rating other receivables scale. A five-year economic forward-looking scaler was applied to the probability of default. The loss given default was calculated as a weighted average of industry benchmarks (Basel Pillar 3 disclosures). Other receivables, finance Expected credit losses were calculated using a benchmark approach that assigns a probability of default to a client lease receivables and loans based on the size and country in which the client operates. Credit ratings were assigned to these categories which receivable (excluding were then used to determine the probability of default. A five-year economic forward-looking scaler was applied home loans) to the probability of default. The loss given default was calculated as a weighted average of industry benchmarks (Basel Pillar 3 disclosures). Loans receivable The estimates of the probability of default are influenced by factors including whether a client is still employed by (home loans) Eskom and whether they are in arrears. Loans are assigned a risk rating based on payment levels. 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 between the outstanding loan amount and the amount that can be recovered through the legal collection process, which also includes the perfection of physical collateral. The historical loss experience is adjusted for current observable data to determine the loss given default. Investments and financial The estimates of the probability of default were based on the external credit ratings of the counterparts using an guarantees external rating scale mapped to an internal rating scale. A five-year economic forward-looking scaler was applied to the probability of default. The loss given default was calculated as a weighted average of industry benchmarks (Basel Pillar 3 disclosures). 5. Financial risk management The group’s integrated risk and resilience management process enables management to assess and respond to all material risks that may affect the achievement of organisational objectives. 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 of financial risks, as defined by IFRS 7 Financial Instruments: Disclosures, falls within these overarching structures, policies and standards. The management of financial risks is delegated by the board to the audit and risk committee. Day-to-day management of financial risks is carried out in the area in which the risks arise. Risk assessments, treatment plans and monitoring measures are reported to the audit and risk committee on a quarterly basis. 61 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) The group’s exposure to risk, its objectives, policies and processes for managing the risk and the methods used to measure it have been consistently applied in the years presented. The group has exposure to the following risks as a result of its financial instruments: • credit risk – the risk of financial loss to the group if a customer or other counterparty to a financial instrument fails to meet its contractual obligations • market risk – the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates, commodity prices, interest rates or equity prices • liquidity risk – the risk that the group will not have sufficient financial resources to meet its obligations when they fall due or will have to do so at excessive cost 5.1 Credit risk The carrying amounts of financial assets represent the maximum credit exposure. The group’s maximum exposure as a result of financial guarantees issued is disclosed in note 44.1. 5.1.1 Trade and other receivables Impairment analysis 2024 Stage 2 Stage 3 Total Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying for value for value for value impairment impairment impairment Rm Rm Rm Rm Rm Rm Rm Rm Rm Trade receivables Group International 1 706 (11) 1 695 691 (586) 105 2 397 (597) 1 800 B- to BB+ 1 576 (7) 1 569 691 (586) 105 2 267 (593) 1 674 Below B- 130 (4) 126 – – – 130 (4) 126 Local large power users – municipalities 16 496 (838) 15 658 3 783 (3 521) 262 20 279 (4 359) 15 920 0–30 days 10 641 (128) 10 513 – – – 10 641 (128) 10 513 30–90 days 5 855 (710) 5 145 – – – 5 855 (710) 5 145 More than 90 days or credit impaired – – – 3 783 (3 521) 262 3 783 (3 521) 262 Local large power users – other 12 206 (28) 12 178 662 (566) 96 12 868 (594) 12 274 0–30 days 12 082 (6) 12 076 – – – 12 082 (6) 12 076 30–90 days 124 (22) 102 – – – 124 (22) 102 More than 90 days or credit impaired – – – 662 (566) 96 662 (566) 96 Local small power users 2 879 (207) 2 672 1 313 (984) 329 4 192 (1 191) 3 001 0–30 days 2 440 (89) 2 351 – – – 2 440 (89) 2 351 30–90 days 439 (118) 321 – – – 439 (118) 321 More than 90 days or credit impaired – – – 1 313 (984) 329 1 313 (984) 329 33 287 (1 084) 32 203 6 449 (5 657) 792 39 736 (6 741) 32 995 Other receivables (B- to BB+) 2 489 (53) 2 436 544 (539) 5 3 033 (592) 2 441 35 776 (1 137) 34 639 6 993 (6 196) 797 42 769 (7 333) 35 436 Company International B- to BB+ 15 – 15 – – – 15 – 15 Local large power users – municipalities 16 496 (838) 15 658 3 783 (3 521) 262 20 279 (4 359) 15 920 0–30 days 10 641 (128) 10 513 – – – 10 641 (128) 10 513 30–90 days 5 855 (710) 5 145 – – – 5 855 (710) 5 145 More than 90 days or credit impaired – – – 3 783 (3 521) 262 3 783 (3 521) 262 Local large power users – other 12 206 (28) 12 178 662 (566) 96 12 868 (594) 12 274 0–30 days 12 082 (6) 12 076 – – – 12 082 (6) 12 076 30–90 days 124 (22) 102 – – – 124 (22) 102 More than 90 days or credit impaired – – – 662 (566) 96 662 (566) 96 Local small power users 2 879 (207) 2 672 1 313 (984) 329 4 192 (1 191) 3 001 0–30 days 2 440 (89) 2 351 – – – 2 440 (89) 2 351 30–90 days 439 (118) 321 – – – 439 (118) 321 More than 90 days or credit impaired – – – 1 313 (984) 329 1 313 (984) 329 31 596 (1 073) 30 523 5 758 (5 071) 687 37 354 (6 144) 31 210 Other receivables (B- to BB+) 4 350 (54) 4 296 257 (254) 3 4 607 (308) 4 299 35 946 (1 127) 34 819 6 015 (5 325) 690 41 961 (6 452) 35 509 62 2023 Stage 2 Stage 3 Total Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying for value for value for value impairment impairment impairment Rm Rm Rm Rm Rm Rm Rm Rm Rm Trade receivables Group and company International 1 204 (19) 1 185 504 (227) 277 1 708 (246) 1 462 B- to BB+ 920 (7) 913 504 (227) 277 1 424 (234) 1 190 Below B- 284 (12) 272 – – – 284 (12) 272 Local large power users – municipalities 10 009 (204) 9 805 2 492 (2 281) 211 12 501 (2 485) 10 016 0–30 days 9 793 (166) 9 627 – – – 9 793 (166) 9 627 30–90 days 216 (38) 178 – – – 216 (38) 178 More than 90 days or credit impaired – – – 2 492 (2 281) 211 2 492 (2 281) 211 Local large power users – other 10 544 (56) 10 488 580 (386) 194 11 124 (442) 10 682 0–30 days 10 299 (16) 10 283 – – – 10 299 (16) 10 283 30–90 days 245 (40) 205 – – – 245 (40) 205 More than 90 days or credit impaired – – – 580 (386) 194 580 (386) 194 Local small power users 2 162 (141) 2 021 1 309 (885) 424 3 471 (1 026) 2 445 0–30 days 1 764 (53) 1 711 – – – 1 764 (53) 1 711 30–90 days 398 (88) 310 – – – 398 (88) 310 More than 90 days or credit impaired – – – 1 309 (885) 424 1 309 (885) 424 23 919 (420) 23 499 4 885 (3 779) 1 106 28 804 (4 199) 24 605 Trade and other receivables Group 26 145 (441) 25 704 5 410 (4 258) 1 152 31 555 (4 699) 26 856 Trade receivables 23 919 (420) 23 499 4 885 (3 779) 1 106 28 804 (4 199) 24 605 Other receivables (B- to BB+) 2 226 (21) 2 205 525 (479) 46 2 751 (500) 2 251 Company 29 484 (519) 28 965 5 305 (4 195) 1 110 34 789 (4 714) 30 075 Trade receivables 23 919 (420) 23 499 4 885 (3 779) 1 106 28 804 (4 199) 24 605 Other receivables (B- to BB+) 5 565 (99) 5 466 420 (416) 4 5 985 (515) 5 470 ECL percentages used 2024 2023 Stage 2 Stage 3 Total Stage 2 Stage 3 Total % % % % % % Group Trade receivables International 1 85 25 2 45 14 B- to BB+ – 85 26 1 45 16 Below B- 3 – 3 4 – 4 Local large power users – municipalities 5 93 21 2 92 20 0–30 days 1 – 1 2 – 2 30–90 days 12 – 12 18 – 18 More than 90 days or credit impaired – 93 93 – 92 92 Local large power users – other – 85 5 1 67 4 30–90 days 18 – 18 16 – 16 More than 90 days or credit impaired – 85 85 – 67 67 Local small power users 7 75 28 7 68 30 0–30 days 4 – 4 3 – 3 30–90 days 27 – 27 22 – 22 More than 90 days or credit impaired – 75 75 – 68 68 3 88 17 2 77 15 Other receivables 2 99 20 1 91 18 63 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) 5.1 Credit risk (continued) 5.1.1 Trade and other receivables (continued) ECL percentages used (continued) 2024 2023 Stage 2 Stage 3 Total Stage 2 Stage 3 Total % % % % % % Company Trade receivables International – – – 2 45 14 B- to BB+ – – – 1 45 16 Below B- – – – 4 – 4 Local large power users – municipalities 5 93 21 2 92 20 0–30 days 1 – 1 2 – 2 30–90 days 12 – 12 18 – 18 More than 90 days or credit impaired – 93 93 – 92 92 Local large power users – other – 85 5 1 67 4 30–90 days 18 – 18 16 – 16 More than 90 days or credit impaired – 85 85 – 67 67 Local small power users 7 75 28 7 68 30 0–30 days 4 – 4 3 – 3 30–90 days 27 – 27 22 – 22 More than 90 days or credit impaired – 75 75 – 68 68 3 88 16 2 77 15 Other receivables 1 99 7 2 99 9 Age analysis of trade receivables balances 2024 2023 <1 year >1 year >2 years >3 years <1 year >1 year >2 years >3 years % % % % % % % % Group International 87 12 1 – 93 7 – – Local large power users – municipalities 90 8 2 – 97 2 1 – Local large power users – other 97 3 – – 100 – – – Local small power users 86 8 3 3 82 10 4 4 Company International 100 – – – 93 7 – – Local large power users – municipalities 90 8 2 – 97 2 1 – Local large power users – other 97 3 – – 100 – – – Local small power users 86 8 3 3 82 10 4 4 64 Reconciliation of movements in allowance for impairment 2024 2023 Stage 2 Stage 3 Total Stage 2 Stage 3 Total Note Rm Rm Rm Rm Rm Rm Group Balance at beginning of the year 441 4 258 4 699 480 3 547 4 027 Raised to the income statement 35 794 2 006 2 800 85 938 1 023 Reversed on payment of opening balance (343) (2 557) (2 900) (359) (2 037) (2 396) Remeasurement of opening balances held at year end 2 759 761 136 (80) 56 Raised on new balances 1 135 3 804 4 939 308 3 055 3 363 Transfer of balances between stage 2 and 3 (75) 75 – (101) 101 – Finance income on stage 3 balances – 231 231 – 283 283 Write-offs (23) (374) (397) (23) (611) (634) Balance at end of the year 20 1 137 6 196 7 333 441 4 258 4 699 Company Balance at beginning of the year 519 4 195 4 714 519 3 482 4 001 Raised to the income statement 35 715 1 980 2 695 121 937 1 058 Reversed on payment of opening balance (382) (2 515) (2 897) (356) (2 019) (2 375) Remeasurement of opening balances held at year end (11) 743 732 139 (80) 59 Raised on new balances 1 108 3 752 4 860 338 3 036 3 374 Transfer of balances between stage 2 and 3 (65) 65 – (101) 101 – Finance income on stage 3 balances – 231 231 – 283 283 Write-offs (22) (381) (403) (20) (608) (628) Disposal of business (20) (765) (785) – – – Balance at end of the year 20 1 127 5 325 6 452 519 4 195 4 714 Security held for trade receivables (guarantees and deposits) Group and company 2024 2023 Fair value of security held Security Rene- Fair value of security held Security Rene- Credit- Not Total called gotiated Credit- Not Total called gotiated impaired credit- upon balances impaired credit- upon balances receivables impaired receivables impaired receivables receivables Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm International – 7 7 – – – 6 6 – – Local large power users 370 17 898 18 268 44 2 331 349 15 569 15 918 46 3 146 Municipalities 329 895 1 224 2 2 309 301 709 1 010 – 3 138 Other 41 17 003 17 044 42 22 48 14 860 14 908 46 8 Local small power users 181 2 972 3 153 152 69 203 2 597 2 800 117 48 Soweto 11 – 11 4 – 13 – 13 1 1 Other 170 2 972 3 142 148 69 190 2 597 2 787 116 47 551 20 877 21 428 196 2 400 552 18 172 18 724 163 3 194 Additional information Trade receivables Credit risk attributable to trade receivables is assessed taking into account the following counterparty characteristics: • geographic location of the customer (both internationally and within South Africa) • size of demand (large or small power user) • receivable ageing profile • security held (deposits and guarantees) • payment history 65 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) 5.1 Credit risk (continued) 5.1.1 Trade and other receivables (continued) Additional information (continued) Trade receivables (continued) A large number of residential customers are on a prepaid basis thereby eliminating credit risk relating to these customers. The group has well established credit control measures for conventional customers that include: • increased security deposits and guarantees • conversion of customers to prepayment • early identification of and engagement with non-paying customers • negotiation of mutually acceptable payment arrangements • disconnection of supply • use of debt collectors • taking legal measures such as issuing letters of demand and pursuing adverse listing of defaulting customers All billed customers must provide security and this requirement can only be deviated from based on sound business decisions. The granting of deviations for a customer must be approved according to the revenue security policy. Progress on the collection process is regularly reviewed. Strict procedures are in place governing the write-off of trade receivables. Where balances are assessed to not be collectable (for example deceased customers and businesses in liquidation after completion of business rescue), write-offs are considered. Outstanding amounts after recovery from the security held are written off once the relevant governance and legal collection processes have been followed. The process of recovery continues unless it is confirmed that there is no prospect of recovery or the costs of such action will exceed the benefits to be derived. The main classes of trade receivables are: International customers Electricity supply agreements are entered into with key international customers who comprise utility companies, governments of neighbouring countries and sundry large power users. Their payment terms are between 10 and 45 days. Impairment is assessed based on the country-specific risk. International customers are not required to provide upfront security. If they default, new payment arrangements are negotiated or supply is curtailed. Certain international customers may be required to pay upfront when their credit risk profile has changed. The expected credit loss percentages for balances in stage 3 increased compared to the prior year because of collection challenges with a customer. Management is engaging with the customer regarding settlement. Local large power users Local large power users comprise South African redistributors (metropolitan and municipal) and commercial, industrial and mining 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 at a maximum of 30 days. Municipalities are required to provide security for all new supplies or where they request an upgrade of existing supply points. Where a large power user has an acceptable credit rating from an approved rating agency, the provision of security is amended based on the type of risk as defined in the revenue security policy. The group continues its efforts to ensure maximum collections from non-paying municipalities. Unfortunately these attempts are hampered by drawn out litigation and interdicts granted by the courts in the interest of municipal end-consumers. The group is advocating an active partnering solution whereby Eskom supports municipalities with distribution, reticulation and revenue collection services. The municipal debt relief programme commenced during the current financial year and has been a key focus area for the group in ensuring that the municipalities comply and adhere to the requirements as set out by National Treasury. Interventions include: • tracking and monitoring compliance status on the municipal debt relief programme • credit management processes focussing on current accounts • entering into special payment arrangements • promoting and implementing an active partnering solution for municipalities • following the Promotion of Administrative Justice Act, 3 of 2000, processes to restrict, interrupt or terminate supply • restricting electricity supply if the set maximum demand levels are exceeded • terminating supply where no other option are available • issuing of summonses and legal interventions • government intervention (participation at inter-ministerial task team subcommittees, National Treasury and the Eskom shareholder representative) There were 72 municipalities, representing 95% of the 31 March 2023 municipal arrear debt, that applied to National Treasury for debt relief at 31 March 2024. Of these applications, 71 were approved and 1 was rejected. The following actions were taken by Eskom relating to the municipalities approved for debt relief in line with the debt relief conditions: • arrear debt at 31 March 2023 was ring-fenced (including interest and penalties) • legal proceedings have been stayed and existing payment arrangements terminated • interest on arrear debt has been permanently suppressed from 1 April 2023 • interest rate reduced from prime plus 5% to prime plus 2.5% on arrear receivables • monitoring of municipalities compliance to the conditions in consultation with National Treasury including tracking of unpaid current accounts 66 The total value of debt that had been identified and ring-fenced for future write-off as part of the programme was R56 billion of which R53.8 billion related to municipalities accounted for on the cash basis in terms of IFRS 15 with no further financial impact expected thereon as any future write- offs will offset against previous revenue and interest not recognised. The remaining arrear debt balance of R2.2 billion (consisting of arrear debt of R1.9 billion and VAT of R0.3 billion) was fully impaired at 31 March 2024. Eskom can potentially recover VAT of R6 billion that was paid over when an invoice was raised for sales from SARS when the related arrear debt is written off. None of the qualifying municipalities have completed a full compliance cycle of 12 consecutive months and there were therefore no write-offs implemented and approved by National Treasury at 31 March 2024. Only 23 of the 71 qualifying municipalities were still compliant at 31 March 2024 with the number further deteriorating to 10 by 30 November 2024. One municipality has met the compliance cycle for 12 consecutive months resulting in a write-off of R0.3 billion in November 2024. National Treasury issued instruction letters to Eskom on 16 December 2024 to write off one-third of the ringfenced debt for five municipalities to the value of R3.0 billion, even though these municipalities have not fully complied with the conditions of the municipal debt relief programme at the close of their first cycle. The value of the expected write-off if these municipalities meet the full 12 month compliance cycle in the 2025 financial year relating to the 10 compliant municipalities represents R1.2 billion of the ringfenced debt of which R0.4 billion might be written off in financial year 2025. There is no expected impact on the income statement when the debt is written off as the debt has either been impaired in full or not recognised. Breach notices have been issued and engagements between all parties, including National Treasury, is underway for municipalities that defaulted on the municipal debt relief conditions. Pending termination letters as a warning to non-compliant municipalities were issued by National Treasury in December 2024. Eskom continued with its credit management processes for municipalities that breached their debt relief conditions. The credit loss model for municipalities has been enhanced to include segmentation of metropolitan versus non-metropolitan accounts. This did not result in any material impact in the current financial year but can result in an increase in the expected credit loss percentages if metropolitan non- payment trend continues to deteriorate. There were no other material changes to the expected credit loss percentages compared to the prior year. Local small power users Local small power users comprise local customers that have a supply of 100kVA or less in size. Payment terms for small power customers are 30 days. New customers are required to provide security equivalent to between one and three months’ consumption at the commencement of the supply agreement. The level of security is reviewed if a customer defaults on their payment obligation or requires additional 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. The residential revenue management strategy continues to be implemented with a focus on converting customers to prepaid. There were no material changes to the expected credit loss percentages for small power users compared to the prior year. Other receivables Other receivables comprise of various sundry receivables. There are no significant balances with specific repayment terms. No security is held in respect of these balances and no interest has been charged on overdue balances. There were no material changes to the expected credit loss percentages compared to the prior year. 5.1.2 Derivatives held for risk management and cash and cash equivalents Impairment analysis 2024 2023 Not Subject to Total Not Subject to Total subject to impairment subject to impairment impairment Stage 1 impairment Stage 1 Rm Rm Rm Rm Rm Rm Group Derivatives held for risk management 27 016 – 27 016 26 992 – 26 992 BBB- to AAA 11 020 – 11 020 11 042 – 11 042 B- to BB+ 15 996 – 15 996 15 950 – 15 950 Cash and cash equivalents – 23 585 23 585 – 7 516 7 516 BBB- to AAA – 2 328 2 328 – 2 039 2 039 B- to BB+ – 21 253 21 253 – 5 202 5 202 Unrated – 4 4 – 275 275 Company Derivatives held for risk management 27 043 – 27 043 26 992 – 26 992 BBB- to AAA 11 047 – 11 047 11 042 – 11 042 B- to BB+ 15 996 – 15 996 15 950 – 15 950 Cash and cash equivalents – 22 965 22 965 – 5 832 5 832 BBB- to AAA – 1 746 1 746 – 661 661 B- to BB+ – 21 215 21 215 – 5 168 5 168 Unrated – 4 4 – 3 3 The gross values of cash and cash equivalents approximate its carrying value as the impairments calculated are immaterial. The Treasury and Risk Committee (previously the Asset and Liability Committee) manages credit risk arising from the treasury department’s activities in the financial markets 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 general manager of treasury, as delegated by the chief financial officer, and reports on a quarterly basis to Exco. 67 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) 5.1 Credit risk (continued) 5.1.2 Derivatives held for risk management and cash and cash equivalents (continued) Impairment analysis (continued) The Treasury and Risk Committee’s terms of reference are maintained and approved by the chief financial officer. They are aligned to the Exco credit risk governance standards and are supplemented by appropriate policies and procedures. Specific activities undertaken by the Treasury and Risk Committee include the following: • assessing the credit quality of counterparties and approving credit limits based on this assessment • monitoring the adherence to credit limits • approving methodologies for the management of counterparty exposure • ensuring that, where applicable, transactions with counterparties are supported by trading agreements • facilitating and managing the issuing of financial guarantees by the group To assist the Treasury and Risk Committee 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 management of credit risk is governed by the following policies: • trading in financial instruments is only conducted with selected counterparties after credit limits have been authorised • financial institutions and/or counterparties with an independent minimum rating of A1 are preferred for investments. If there are no independent ratings, the credit quality of the counterparty is assessed, taking into account its financial position, past experience and other factors • all exposures are based on mark-to-market value. Transaction or close-out netting takes place in accordance with the terms and conditions of the underlying trading agreements • minimum credit-rating requirements for financial institutions are maintained to assess the risk categories by rating class and to ascertain the probability of default inherent in each rating class • 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 in relation to counterparty credit limits. Counterparty-specific exposure is monitored against a set concentration of credit risk limits in relation to the total credit risk exposure to all counterparties Risk is measured by determining a default probability per counterparty using default probabilities assessed by rating agencies for 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. 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. The following are monitored and reported on: • aggregate credit risk exposure • limits utilisation including any breaches • hold-limit exceptions • risk profile changes • risk concentrations 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: • significance of financial difficulty • probability of bankruptcy • probability of breach of contract 5.1.3 Investments Impairment analysis Not Subject to impairment Total subject to Stage 1 impairment Gross Gross Allowance Carrying Gross Allowance Carrying for value for value impairment impairment Rm Rm Rm Rm Rm Rm Rm 2024 Group Treasury investments B- to BB+ – 1 028 (4) 1 024 1 028 (4) 1 024 Insurance investments 1 550 16 986 (34) 16 952 18 536 (34) 18 502 BBB- to AAA – 3 173 – 3 173 3 173 – 3 173 B- to BB+ – 13 813 (34) 13 779 13 813 (34) 13 779 Not subject to credit risk 1 550 – – – 1 550 – 1 550 1 550 18 014 (38) 17 976 19 564 (38) 19 526 Company Treasury investments B- to BB+ – 1 028 (4) 1 024 1 028 (4) 1 024 68 Not Subject to impairment Total subject to Stage 1 impairment Gross Gross Allowance Carrying Gross Allowance Carrying for value for value impairment impairment Rm Rm Rm Rm Rm Rm Rm 2023 Group Insurance investments B- to BB+ – 15 153 (20) 15 133 15 153 (20) 15 133 Not subject to credit risk 1 514 – – – 1 514 – 1 514 1 514 15 153 (20) 15 133 16 667 (20) 16 647 Eskom invested in a long-term fixed deposit to phase in the funding for the nuclear decommissioning provision over the remaining life of Koeberg power station in line with nuclear regulations in South Africa. Investments in fixed deposits are made with banks with an investment-grade credit rating. The credit risk associated with the counterparty’s credit rating is managed in line with the treasury risk framework and forms part of the treasury department’s activities discussed in note 5.1.2. There was a slight increase in the expected credit loss percentage because of downgraded counterparty credit ratings in 2024. Escap invests in listed shares, negotiable certificates of deposit, floating rate notes and inflation-linked bonds 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. The objective is to invest negotiable certificates of deposit in banks with an investment-grade credit rating. The group uses the highest available investment grade where investment-grade ratings are not available. 5.1.4 Finance lease receivables Impairment analysis Stage 1 Stage 3 Total Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying for value for value for value impairment impairment impairment Rm Rm Rm Rm Rm Rm Rm Rm Rm 2024 Group B- to BB+ 212 (1) 211 1 (1) – 213 (2) 211 Company B- to BB+ 131 – 131 1 (1) – 132 (1) 131 2023 Group and company B- to BB+ 253 (4) 249 1 (1) – 254 (5) 249 There were no material changes to the expected credit loss percentages compared to the prior year. The supply of electricity to customers may be in the form of either a standard or premium power supply. A standard power supply is the least life-cycle cost technically acceptable solution as defined in the South African Grid Code and the Distribution Network 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. This payment option is no longer available for new premium supplies as the connection charges are payable upfront. The standard payment terms for trade receivables are also applied to the premium supply equipment connection charge customers. The credit risk exposure resulting from premium supply contracts is managed by monitoring payment levels of the customer’s trade receivable balance. There were no significant overdue or distressed balances relating to finance lease receivables in the current or prior financial year. Security in the form of bank guarantees is required from customers before the asset is constructed and is in place 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. 69 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) 5.1 Credit risk (continued) 5.1.5 Loans receivable Impairment analysis Stage 1 Stage 2 Stage 3 Total Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying for value for value for value for value impairment impairment impairment impairment Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm 2024 Group Home loans 6 979 (15) 6 964 360 (3) 357 336 (265) 71 7 675 (283) 7 392 B- to BB+ 6 979 (15) 6 964 360 (3) 357 – – – 7 339 (18) 7 321 Below B- – – – – – – 336 (265) 71 336 (265) 71 Other loans 381 (2) 379 1 – 1 3 (2) 1 385 (4) 381 B- to BB+ 381 (2) 379 1 – 1 – – – 382 (2) 380 Below B- – – – – – – 3 (2) 1 3 (2) 1 7 360 (17) 7 343 361 (3) 358 339 (267) 72 8 060 (287) 7 773 Company Loans to subsidiaries B- to BB+ 39 847 (422) 39 425 – – – – – – 39 847 (422) 39 425 2023 Group Home loans 7 173 (5) 7 168 330 (21) 309 324 (36) 288 7 827 (62) 7 765 B- to BB+ 7 173 (5) 7 168 330 (21) 309 – – – 7 503 (26) 7 477 Below B- – – – – – – 324 (36) 288 324 (36) 288 Other loans 300 (1) 299 6 (1) 5 2 (1) 1 308 (3) 305 B- to BB+ 300 (1) 299 6 (1) 5 – – – 306 (2) 304 Below B- – – – – – – 2 (1) 1 2 (1) 1 7 473 (6) 7 467 336 (22) 314 326 (37) 289 8 135 (65) 8 070 Company Loans to subsidiaries B- to BB+ 5 681 (7) 5 674 – – – – – – 5 681 (7) 5 674 Reconciliation of movements in allowance for impairment 2024 2023 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Note Rm Rm Rm Rm Rm Rm Rm Rm Group Balance at beginning of the year 6 22 37 65 10 3 45 58 Raised to the income statement 35 12 (6) 228 234 (4) 20 (7) 9 Reversed on payment of opening balance – 1 (3) (2) – – (2) (2) Remeasurement of opening balances held at year end (7) (9) 197 181 (4) (1) (27) (32) Raised on new balances 19 2 34 55 – 21 22 43 Transfer of balances between stages (1) (13) 14 – – (2) 2 – Write-offs – – (12) (12) – 1 (3) (2) Balance at end of the year 15 17 3 267 287 6 22 37 65 Company Balance at beginning of the year 7 – – 7 7 – – 7 Raised to the income statement 35 416 – – 416 (7) – 7 – Reversed on payment of opening balance (7) – – (7) (7) – – (7) Raised on new balances 423 – – 423 – – 7 7 Transfer of balances between stages – – – – 7 – (7) – Write-offs (1) – – (1) – – – – Balance at end of the year 15 422 – – 422 7 – – 7 70 Home loans EFC provides loan facilities mainly for the purchase of immoveable property to the employees of the group. Credit risk policies are in place requiring employees to meet various criteria on valuation, affordability and credit history in compliance with the National Credit Act, 34 of 2005, before they are granted home loans. Home loans are extended up to a maximum of 112% of the market value of the property being purchased to cater for bond and transfer costs. Credit risk exposure is mitigated by having: • recourse to the value of the underlying properties through mortgage contracts • monthly instalments deducted from the salaries of employees Credit risk is re-assessed when an employee leaves the service of the group. Ex-employees may make arrangements for a monthly debit order or over-the-counter deposits to settle monthly instalments. EFC closely monitors properties held as collateral where the related loans are considered to be credit-impaired in order to mitigate potential credit losses. Group Unit 2024 2023 Carrying value of credit-impaired balances Rm 71 288 Fair value of properties held as security for credit-impaired loans Rm 347 179 Weighted average loan to value ratio % 86 85 Average repayment period years 17 17 Eskom guarantees all losses that EFC incurs where the loan granted by EFC exceeded 80% of the market value of the property at the time of origination. Refer to note 44 for details regarding this guarantee. Loans to subsidiaries Loans to subsidiaries consist of loans by Eskom to subsidiaries, mainly to NTCSA and EFC. The Treasury Risk Committee manages credit risk arising from loans to subsidiaries to reduce the costs for the group and continuously monitor the liquidity and solvency of the group. The term loan to NTCSA has a maturity date of June 2042 and is repayble quarterly. Finance cost is charged based on Eskom’s underlying weighted average cost of servicing the relevant external debt incurred by Eskom to finance the loan. NTCSA provided an upstream guarantee to impacted lenders of Eskom due to the disposal of collaterised assets to NTCSA. The upstream guarantee is limited to the net asset value of NTCSA. The loan to EFC is a revolving facility with no fixed repayment terms. There were no material changes to the expected credit loss percentages compared to the prior year. 5.2 Market risk A significant part of market risk encountered by the group arises from financial instruments that are managed centrally within the group’s treasury department. The objective of the group’s market risk management framework is to protect and enhance the statement of financial position and profit or loss by managing and controlling market risk exposures and to optimise the funding of business operations and facilitate capital expansion. The basis for calculating risk and sensitivity measures are consistent with the prior year. Sensitivity analyses assume that only the input being analysed changes with all other variables remaining constant. Financial instruments mainly managed by the treasury department The treasury department is responsible for managing market risk within the risk management framework approved by Exco and the board. The overall authority for the management of market risks within the treasury department is vested in the Treasury and Risk Committee. Measurement 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. Financial instruments managed by various divisions of Eskom and subsidiaries Market risk arises mainly from changes in foreign exchange rates and, to a limited extent, commodity and equity prices. The divisions of Eskom and subsidiaries are responsible for identifying the exposure arising from these risks. They liaise with the centralised treasury department to hedge (economic and cash flow hedges) these exposures appropriately on their behalf. 71 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) 5.2 Market risk (continued) 5.2.1 Currency risk Currency risk arises primarily from purchasing imported goods and services directly from overseas or indirectly via local suppliers, foreign sales and foreign borrowings. The group is exposed to foreign exchange risk arising from future commercial transactions and recognised assets and liabilities that are denominated in a currency other than the functional currency of the group. All transactions 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. Most of the forward exchange contracts have a maturity of less than one year from the reporting date and are rolled over at maturity when necessary. Hedging instruments are entered into once the exposure is firm and ascertainable. Foreign currency exposure (notional amounts in millions per currency) EUR USD GBP JPY NOK SEK 2024 Group Liabilities Debt securities and borrowings (938) (8 199) – – – – Trade and other payables (71) (32) – (40) – (3) Gross statement of financial position exposure (1 009) (8 231) – (40) – (3) Estimated forecast purchases1 (246) (375) (22) – (16) (313) Gross exposure (1 255) (8 606) (22) (40) (16) (316) Derivatives held for risk management 2 1 238 8 588 22 40 3 312 Net exposure (17) (18) – – (13) (4) Company Liabilities Debt securities and borrowings (938) (8 199) – – – – Trade and other payables (62) (26) – (40) – (2) Gross statement of financial position exposure (1 000) (8 225) – (40) – (2) Estimated forecast purchases1 (216) (332) (22) – (16) (271) Gross exposure (1 216) (8 557) (22) (40) (16) (273) Derivatives held for risk management 2 1 200 8 539 22 40 3 268 Net exposure (16) (18) – – (13) (5) Mid-spot rate for one unit of the currency to the rand 20.51 18.98 23.99 0.13 1.75 1.78 Foreign currency exposure (notional amounts in millions per currency) EUR USD GBP JPY SEK 2023 Group Liabilities Debt securities and borrowings (1 261) (8 414) – – – Trade and other payables (34) (15) (1) – (24) Gross statement of financial position exposure (1 295) (8 429) (1) – (24) Estimated forecast purchases1 (236) (337) (9) (143) (336) Gross exposure (1 531) (8 766) (10) (143) (360) Derivatives held for risk management 2 1 527 8 761 10 143 355 Net exposure (4) (5) – – (5) Company Liabilities Debt securities and borrowings (1 261) (8 414) – – – Trade and other payables (33) (15) (1) – (24) Gross statement of financial position exposure (1 294) (8 429) (1) – (24) Estimated forecast purchases1 (236) (337) (9) (143) (336) Gross exposure (1 530) (8 766) (10) (143) (360) Derivatives held for risk management 2 1 526 8 761 10 143 355 Net exposure (4) (5) – – (5) Mid-spot rate for one unit of the currency to the rand 19.30 17.72 21.95 0.13 1.71 1. Represents future purchases contracted for. 2. Includes notional value and accrued interest. 72 Sensitivity analysis Group and company 2024 2023 1% increase 1% decrease 1% increase 1% decrease Rm Rm Rm Rm Profit/(loss) before tax ZAR/EUR exposure 37 (37) 32 (32) ZAR/USD exposure 153 (153) 156 (156) ZAR/other currency 4 (4) 22 (22) Equity ZAR/EUR exposure 27 (27) 24 (24) ZAR/USD exposure 13 (13) 10 (10) ZAR/other currency 8 (8) 5 (5) The differences between group and company are nominal. 5.2.2 Commodity risk The group is exposed to commodity risk where commodities are either used directly (liquid fuels) or indirectly as a component of plant, equipment or inventory (eg aluminium, copper or steel). The exposures are hedged economically by means of commodity forwards and 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 South African Reserve Bank requirements. Commodities used directly The group is exposed to price risk on diesel (low sulphur gas oil) used in the generation of electricity at the OCGT power stations and on fuel oil (bunker fuel oil) used to manage the temperature of heat generating components at the coal-fired power stations. Prices are determined by the DMRE based on the price of brent crude oil, refining margins and USD exchange rates. Commodities used indirectly The group had a small exposure to commodities that formed a part of plant, equipment or inventory, mainly copper. Commodity exposure Group and company 2024 2023 Estimated Derivatives Net Estimated Derivatives Net forecast held for risk exposure forecast held for risk exposure purchases management purchases management Unit (notional) (notional) Low sulphur gas oil kilo litres 736 342 (204 000) 532 342 85 000 (85 000) – Bunker fuel oil tons – – – 115 000 (115 000) – Copper tons 22 (22) – 135 (135) – Sensitivity analysis The group is exposed mainly to changes in the price of brent crude oil and USD exchange rates. The sensitivity analysis has been performed assuming that all other variables remain constant and the possible impact on profit or loss is: Group and company 2024 2023 Change in increase decrease increase decrease Input Unit assumption Rm Rm Rm Rm ZAR/USD ZAR per USD 10% relative 326 (326) 143 (143) Low sulphur gas oil price USD per metric ton 10% relative 326 (326) 69 (69) Bunker fuel oil price USD per ton 10% relative – – 72 (72) Copper price USD per ton 10% relative –1 –1 2 (2) 5.2.3 Interest rate risk 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, yield curves and spreads. Debt securities and borrowings and derivatives held for risk management at variable rates expose the group to cash flow risk and 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 interest rate reset within the next 12-month period to 40%. The group's exposure to interest rate risk on other financial assets and liabilities is immaterial. The group’s quantitative exposure to interest rate risk is disclosed in note 24. 1. Nominal 73 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) 5.2 Market risk (continued) 5.2.3 Interest rate risk (continued) Sensitivity analysis The group analyses its interest rate exposure on a dynamic basis by conducting a sensitivity analysis. This involves determining the impact on profit or loss of defined interest rate shifts. The same interest rate shift is used for each simulation for all currencies. The sensitivity analysis for interest rate risk excludes finance costs capitalised. The simulation is performed on a monthly basis to verify that the maximum loss potential is within the limit set by management. The results of the simulation are included in the table below: Group Company 2024 2023 2024 2023 +100 -100 +100 -100 +100 -100 +100 -100 basis points basis points basis points basis points basis points basis points basis points basis points Rm Rm Rm Rm Rm Rm Rm Rm Profit/(loss) before tax ZAR interest rates 1 243 (1 303) 680 (713) 1 236 (1 296) 680 (713) EUR interest rates (63) 32 (150) 42 (59) 28 (149) 42 USD interest rates (1 639) 1 722 (1 008) 1 046 (1 635) 1 718 (1 008) 1 046 Equity ZAR interest rates 1 886 (1 975) 2 546 (2 679) 1 886 (1 975) 2 546 (2 679) EUR interest rates (325) 342 (464) 488 (325) 342 (432) 456 USD interest rates (2 429) 2 556 (3 164) 3 350 (2 429) 2 556 (3 164) 3 350 Fixed and floating rate debt Group and company 2024 2023 fixed floating fixed floating % % % % Proportion of fixed versus floating rate debt at 31 March 54 46 54 46 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 held by the group will fluctuate because of changes in market prices caused by factors specific to the individual equity issuer or factors affecting all similar equity securities traded on the market. The investment policy is approved by the Escap board and monitored by the Escap audit and risk committee. Exposure to market risk is limited through diversification and by applying strict investment criteria. Carrying values of investments per sector Group 2024 2023 portfolio portfolio Rm % Rm % Banks, financial services and insurance 562 36 511 34 Basic materials and resources 297 19 334 22 Consumer goods and services 559 36 546 36 Other 132 9 123 8 1 550 100 1 514 100 A 1% increase or decrease in share prices would have increased/decreased profit or loss before tax by R16 million (2023: R15 million). 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 and capital expenditure as well as debt commitments 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. The management of group liquidity and funding risk is centralised in the treasury department in accordance with practices and limits set by Exco and the board. The group’s liquidity and funding management process includes: • projecting cash flows and considering the cash required by the group and optimising the short-term liquidity as well as the long-term funding • managing the concentration and profile of debt maturities • maintaining liquidity and funding contingency plans The group has an established corporate governance structure and process for managing the risks regarding guarantees and contingent liabilities. All significant guarantees issued by the group are approved by the board and are managed on an ongoing basis by the treasury department and by Exco and the audit and risk committee. Refer to note 44. 74 5.3.1 Key liquidity indicators Group Company Unit 2024 2023 2024 2023 Weighted average term to maturity of debt securities and borrowings years 6.07 6.17 6.08 6.18 Working capital ratio 0.98 0.89 1.12 0.90 Cash interest cover ratio 1.18 1.29 1.19 1.27 Net debt service cover ratio 0.46 0.58 0.46 0.56 Liquid assets Rm 23 585 7 516 22 965 5 832 The cash interest cover and debt service cover ratios measure the ability to fund debt costs via cash from operations. Management has targeted 3.5 for cash interest cover and 1.5 for net debt service cover. Liquid assets are investments identified as having the potential to be quickly converted into cash and consists of cash and cash equivalents. 5.3.2 Primary sources of funding and unused facilities The primary sources to meet the group’s liquidity requirements are cash generated from operations, cash inflows from maturing financial assets, funds committed by government through the Debt Relief Act as well as signed development finance institution facilities. No new borrowings are allowed during the period of the debt relief, unless approved by the Minister of Finance. Eskom is allowed to drawdown on existing facilities that were in place at 31 March 2023. All figures are quoted in notional amounts. Group and company ZAR EUR USD 2024 2023 2024 2023 2024 2023 m m m m m m Facilities available Development financing institutions 2 035 2 930 – – 1 065 928 World Bank – – – – 439 – African Development Bank 2 035 2 095 – – 4 25 Clean technology fund – African Development Bank – – – – 36 58 Clean technology fund – World Bank – – – – 48 136 New Development Bank – – – – 60 78 Kreditanstalt für Wiederaufbau – – – – 91 94 Agence Française de Développement – 835 – – – – China Development Bank – – – – 387 537 Export credit agencies Kreditanstalt für Wiederaufbau – Hermes1 – – 12 – – – 2 035 2 930 12 – 1 065 928 Facilities available (rand equivalent) 2 035 2 930 246 – 20 214 16 444 World Bank funding finalised after 31 March 2023 for the repurposing of the Komati power station as part of the 2023 borrowing programme. Group and company ZAR EUR USD 2024 2023 2024 2023 2024 2023 m m m m m m Funds received during the year Development financing institutions 895 516 – – 351 341 World Bank 2 – – – – 1 – African Development Bank 3 60 – – – 21 – Clean technology fund – World Bank4 – – – – 135 79 Clean technology fund – African Development Bank4 – – – – 22 – New Development Bank 5 – – – – 18 62 Kreditanstalt für Wiederaufbau6 – – – – 4 – Agence Française de Développement7 835 516 – – – – China Development Bank8 – – – – 150 200 Export credit agencies Kreditanstalt für Wiederaufbau – Hermes – – – 4 – – 895 516 – 4 351 341 Funds received during the year (rand equivalent) 895 516 – 77 6 662 6 043 1. An extension was granted on the availability period of the existing facility. 2. Funds received were for the Komati project. 3. Funds received were for transmission projects. 4. Funds received were for the battery energy storage system project. 5. Funds received were for the renewable energy integration and transmission augmentation project. 6. Funds received were for the renewable grid integration and strengthening programme. 7. Funds received were for phase 2 of the Namaqualand strengthening project. 8. Funds received were for the Kusile power station. 75 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) 5.3 Liquidity risk (continued) 5.3.2 Primary sources of funding and unused facilities (continued) Government guarantees Group and company 2024 2023 Domestic General Total Domestic General Total multi-term multi-term note note programme programme Rm Rm Rm Rm Rm Rm Opening balance 6 232 2 191 8 423 7 912 27 788 35 700 Guarantee granted 152 000 198 000 350 000 152 000 198 000 350 000 Accumulated amounts used (145 768) (195 809) (341 577) (144 088) (170 212) (314 300) Facilities repaid – 15 000 15 000 21 664 – 21 664 Facilities raised – – – (23 344) (25 597) (48 941) Reduction in facility granted due to debt relief (6 232) (15 000) (21 232) – – – Closing balance – 2 191 2 191 6 232 2 191 8 423 Guarantee granted 145 768 183 000 328 768 152 000 198 000 350 000 Accumulated amounts used (145 768) (180 809) (326 577) (145 768) (195 809) (341 577) The availability of the unused portion of the government guarantee facility of R350 billion expired on 31 March 2023. Capital repayments on existing government guaranteed debt facilities amounted to R10.4 billion, totalling R25.4 billion capital repayments on government guaranteed debt for the 2024 financial year. Loan covenants There are various loan covenants, both of a financial and non-financial nature, attached to the loan facilities. The covenants are closely monitored for compliance. The group proactively notifies and engages with lenders should an event of default be anticipated to remedy the possible event before a default is triggered including obtaining an extension of a submission deadline or a waiver for a potential breach. The covenants generally fall into the following categories: • Events of default There are various events, both of a financial and non-financial nature, that can trigger a default. Eskom has to on occurrence of these events, without delay, notify the relevant lender and all other lenders. If an event is not cured or remedied within specified periods, it could trigger acceleration of outstanding amounts (immediately due and payable upon notice) and cancellation of undisbursed funds. Acceleration will lead to re-calling of government guarantees and event of default of government debt. Cross default to other loans may be triggered in most instances. Potential events of default and mitigating measures include: – Maintain financial ratios: Key lenders require that certain financial ratios be maintained at specified levels (debt service cover ratio between 0.9 to 1.3 and a minimum EBITDA margin of 25%). Potential non-compliance is mitigated through financial action plans as detailed in the loan agreements. These include sharing of relevant financial information with lenders, such as the performance on financial measures quarterly and the Eskom Corporate Plan annually, as well as submission of annual compliance certificates. Eskom maintained compliance to the relevant loan conditions through continuous interaction during the year. – Annual and interim financial statements submitted within specified timelines: All potential defaulting events were managed. Eskom proactively engaged on a continuous basis with all lenders at the highest level of governance to obtain extensions and waivers for the late submission of the annual and interim financial statements. Eskom received the necessary extensions and waivers timeously and thereby ensured full compliance with all the loan conditions with no default on any of the loan agreements. – Unqualified audit opinion of the financial statements and no reportable irregularities: Eskom has one loan agreement where a default event could be triggered with the issue of a qualified audit opinion due to PFMA non-compliance or raising of a reportable irregularity. Eskom proactively engaged with the lender regarding the details and potential impact of a qualified audit opinion and reportable irregularities prior to the release of the financial statements. The relevant waivers were obtained in advance and the potential default was therefore successfully remedied. – Information submitted within specified timelines: Information covenants include submission of project progress reports, compliance certificates and environmental reports. Any anticipated delays in submitting the required information are communicated upfront to lenders. The financial position, operational performance, progress of the legal separation and PFMA compliance of the group were discussed during the quarterly engagements with lenders. • Prepayment events Certain events could trigger the prepayment of outstanding loan balances prior to the original maturity date, usually within 30 days of notice. Potential prepayment events and mitigating measures include: – Environmental compliance: Certain obligations in the loan agreements could have been breached with emissions above allowed limits when the three units at Kusile power station that were damaged after the flue-gas duct failure at unit 1 on 22 October 2022 became operational in November 2023 without using the flue-gas desulphurisation plant. Eskom obtained approval from the DFFE as a mitigation measure to operate the temporary stacks and postpone compliance with emission standards. Eskom engaged with the three impacted lenders in advance regarding the mitigation measures to prevent any potential breach of loan conditions. Eskom has not exceeded any emission standards and is complying with all obligations under the loan agreements. An independent environmental consultant was appointed as requested by two of the lenders to conduct an environmental and social review of the impact of the temporary stacks and to review the mitigation measures. A draft report was issued in October 2024 for review and comment by Eskom before finalisation. – Legal separation of Eskom divisions: The legal separation of the transmission division to NTCSA required advance approval from lenders and Eskom received consent from all the lenders that were impacted. A similar process of engaging with lenders in advance started for the future separation of the distribution and generation divisions. 76 – Voluntary repayment: Eskom voluntarily repaid its loan with the European Investment Bank. No mandatory prepayment provisions were triggered with the early redemption. • Suspension and cancellation events Certain events such as audit qualifications, misprocurement or funds not used in line with the loan conditions could trigger suspension and/or cancellation of undisbursed amounts if the event that has triggered the suspension is not cured or remedied within a specified period (usually 60 days). Eskom proactively engaged with lenders to ensure that all possible suspension and/or cancellation events are remedied in time. Independent external reviews were performed on certain facilities to ensure funds were utilised in compliance with the loan conditions and disbursements were received on these facilities. • Representation and warranties Eskom made certain representations about its status and the information provided to lenders by signing the loan agreement. Making false and/or misleading representation and warranties is an event of default in all the agreements. All possible events and covenant breaches have been successfully remedied before default and there were no loan defaults or breaches during the year and up to the date of approval of the financial statements. There were also no breaches that resulted in the early repayment of a facility at the reporting date. 5.3.3 Contractual cash flows The contractual undiscounted cash flows of the group’s financial assets and liabilities are indicated on the basis of their earliest possible contractual maturity. The cash flows for derivatives held for risk management are presented on a net basis in line with the classification in the statement of financial position. Contractual cash flows are a function of forward exchange rates and forward interest rates and are a point-in-time calculation that are impacted by market conditions at that time. Only cash flows relating to financial instruments and financial guarantees have been presented and do not include future cash flows expected from the normal course of business and related commodity-linked pricing agreements. Cash flows Nominal 0–3 months 4–12 months 1–5 years >5 years inflow/outflow Rm Rm Rm Rm Rm 2024 Group Financial assets Loans receivable 19 037 283 841 4 273 13 640 Derivatives held for risk management 40 116 325 7 698 19 926 12 167 Finance lease receivables 295 16 45 186 48 Trade and other receivables 42 789 40 652 1 607 530 – Treasury investments 1 559 – – 1 559 – Insurance investments 19 702 8 634 8 463 2 605 – Cash and cash equivalents 23 585 23 585 – – – 147 083 73 495 18 654 29 079 25 855 Financial liabilities Debt securities and borrowings 710 255 8 528 67 372 273 137 361 2181 Derivatives held for risk management 2 646 496 2 150 – – Lease liabilities 11 544 441 1 309 8 488 1 306 Trade and other payables 47 941 39 717 7 926 298 – 772 386 49 182 78 757 281 923 362 524 Company Financial assets Loans receivable 63 305 819 4 941 34 495 23 050 Derivatives held for risk management 40 129 338 7 698 19 926 12 167 Finance lease receivables 184 8 27 107 42 Trade and other receivables 42 026 39 320 1 899 807 – Treasury investments 1 559 – – 1 559 – Cash and cash equivalents 22 965 22 965 – – – 170 168 63 450 14 565 56 894 35 259 Financial liabilities Debt securities and borrowings 718 992 12 413 67 406 278 047 361 1261 Derivatives held for risk management 2 646 496 2 150 – – Lease liabilities 467 31 77 324 35 Trade and other payables 39 727 31 717 7 822 188 – Financial guarantees 206 206 – – – 762 038 44 863 77 455 278 559 361 161 1. The maturity profile of undiscounted contractual payments of debt securities and borrowings due after five years comprise of: – between years five and 10: group R202 813 million (2023: R230 196 million) and company R202 721 million (2023: R230 179 million) – beyond 10 years: group R158 405 million (2023: R202 531 million) and company R158 405 million (2023: R202 531 million) 77 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 5. Financial risk management (continued) 5.3 Liquidity risk (continued) 5.3.3 Contractual cash flows (continued) Cash flows Nominal 0–3 months 4–12 months 1–5 years >5 years inflow/outflow Rm Rm Rm Rm Rm 2023 Group Financial assets Loans receivable 18 319 186 416 5 267 12 450 Derivatives held for risk management 39 185 765 7 877 7 481 23 062 Finance lease receivables 354 15 45 219 75 Trade and other receivables 31 855 29 235 1 278 1 342 – Insurance investments 16 667 6 451 9 194 1 022 – Cash and cash equivalents 7 516 7 516 – – – 113 896 44 168 18 810 15 331 35 587 Financial liabilities Debt securities and borrowings 745 939 7 567 71 059 234 586 432 7271 Derivatives held for risk management 3 609 1 059 3 750 273 (1 473) Lease liabilities 13 402 480 1 379 8 527 3 016 Trade and other payables 42 427 34 684 7 184 559 – 805 377 43 790 83 372 243 945 434 270 Company Financial assets Loans receivable 5 803 2 724 3 079 – – Derivatives held for risk management 39 185 765 7 877 7 481 23 062 Finance lease receivables 354 15 45 219 75 Trade and other receivables 35 371 30 444 2 631 2 296 – Cash and cash equivalents 5 832 5 832 – – – 86 545 39 780 13 632 9 996 23 137 Financial liabilities Debt securities and borrowings 751 569 8 004 71 067 239 788 432 7101 Derivatives held for risk management 3 610 1 059 3 751 273 (1 473) Lease liabilities 13 315 444 1 329 8 527 3 015 Trade and other payables 44 473 37 067 7 168 238 – Financial guarantees 2 2 – – – 812 969 46 576 83 315 248 826 434 252 1. The maturity profile of undiscounted contractual payments of debt securities and borrowings due after five years comprise of: – between years five and 10: group R202 813 million (2023: R230 196 million) and company R202 721 million (2023: R230 179 million) – beyond 10 years: group R158 405 million (2023: R202 531 million) and company R158 405 million (2023: R202 531 million) 78 6. Accounting classification and fair value 6.1 Accounting classification 2024 2023 Fair value Amortised Other Total Fair value Amortised Other Total through cost assets and through cost assets and profit liabilities1 profit liabilities1 or loss or loss Note Rm Rm Rm Rm Rm Rm Rm Rm Group Financial assets Loans receivable 15 – 7 773 – 7 773 – 8 070 – 8 070 Home loans – 7 392 – 7 392 – 7 765 – 7 765 Other loans – 381 – 381 – 305 – 305 Embedded derivatives 16 11 801 – – 11 801 823 – – 823 Derivatives held for risk management 17 5 574 – 21 442 27 016 3 890 – 23 102 26 992 Foreign exchange contracts 209 – 56 265 943 – 145 1 088 Cross-currency swaps 4 819 – 21 386 26 205 2 661 – 22 957 25 618 Commodity forwards 210 – – 210 1 – – 1 Commodity options 7 – – 7 – – – – Credit default swaps – – – – 5 – – 5 Inflation-linked swaps 329 – – 329 280 – – 280 Finance lease receivables 18 – – 211 211 – – 249 249 Trade and other receivables 20 – 35 436 – 35 436 – 26 856 – 26 856 Treasury investments 21 – 1 024 – 1 024 – – – – Insurance investments 21 1 550 16 952 – 18 502 1 514 15 133 – 16 647 Negotiable certificates of deposit – 13 900 – 13 900 – 14 115 – 14 115 Floating rate notes – 2 024 – 2 024 – 1 018 – 1 018 Inflation-linked bonds – 1 028 – 1 028 – – – – Listed shares 1 550 – – 1 550 1 514 – – 1 514 Cash and cash equivalents 22 – 23 585 – 23 585 – 7 516 – 7 516 Bank balances – 10 865 – 10 865 – 7 514 – 7 514 Fixed deposits – 12 720 – 12 720 – 2 – 2 18 925 84 770 21 653 125 348 6 227 57 575 23 351 87 153 Financial liabilities Debt securities and borrowings 24 – 412 200 – 412 200 – 423 929 – 423 929 Eskom bonds – 165 809 – 165 809 – 160 218 – 160 218 Commercial paper – 748 – 748 – 896 – 896 Eurorand zero coupon bonds – 8 045 – 8 045 – 7 128 – 7 128 Foreign bonds – 64 551 – 64 551 – 75 411 – 75 411 Development financing institutions – 139 270 – 139 270 – 137 352 – 137 352 Export credit facilities – 25 583 – 25 583 – 15 956 – 15 956 Other loans – 8 194 – 8 194 – 26 968 – 26 968 Derivatives held for risk management 17 358 – 235 593 1 219 – 810 2 029 Foreign exchange contracts 318 – 45 363 842 – 28 870 Cross-currency swaps 12 – 190 202 52 – 782 834 Commodity forwards – – – – 232 – – 232 Credit default swaps 27 – – 27 92 – – 92 Inflation-linked swaps 1 – – 1 1 – – 1 Lease liabilities 28 – – 7 403 7 403 – – 8 126 8 126 Trade and other payables 29 – 47 912 – 47 912 – 42 817 – 42 817 358 460 112 7 638 468 108 1 219 466 746 8 936 476 901 1. Other assets and liabilities include derivatives held for risk management designated as hedges measured at fair value through other comprehensive income and finance leases measured at amortised cost. The total assets measured at amortised cost amounts to R84 981 million (2023: R57 824 million), the total liabilities measured at amortised cost amounts to R467 515 million (2023: R474 872 million). 79 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 6. Accounting classification and fair value (continued) 6.1 Accounting classification (continued) 2024 2023 Fair value Amortised Other Total Fair value Amortised Other Total through cost assets and through cost assets and profit liabilities1 profit liabilities1 or loss or loss Note Rm Rm Rm Rm Rm Rm Rm Rm Company Financial assets Loans receivable Loans to subsidiaries 15 – 39 425 – 39 425 – 5 674 – 5 674 Embedded derivatives 16 11 801 – – 11 801 823 – – 823 Derivatives held for risk management 17 5 601 – 21 442 27 043 3 890 – 23 102 26 992 Foreign exchange contracts 236 – 56 292 943 – 145 1 088 Cross-currency swaps 4 819 – 21 386 26 205 2 661 – 22 957 25 618 Commodity forwards 210 – – 210 1 – – 1 Commodity options 7 – – 7 – – – – Credit default swaps – – – – 5 – – 5 Inflation-linked swaps 329 – – 329 280 – – 280 Finance lease receivables 18 – – 131 131 – – 249 249 Trade and other receivables 20 – 35 509 – 35 509 – 30 075 – 30 075 Treasury investments 21 – 1 024 – 1 024 – – – – Cash and cash equivalents 22 – 22 965 – 22 965 – 5 832 – 5 832 Bank balances – 10 245 – 10 245 – 5 830 – 5 830 Fixed deposits – 12 720 – 12 720 – 2 – 2 17 402 98 923 21 573 137 898 4 713 41 581 23 351 69 645 Financial liabilities Debt securities and borrowings 24 – 420 285 – 420 285 – 428 377 – 428 377 Eskom bonds – 170 931 – 170 931 – 165 294 – 165 294 Eurorand zero coupon bonds – 8 045 – 8 045 – 7 128 – 7 128 Foreign bonds – 64 551 – 64 551 – 75 411 – 75 411 Development financing institutions – 139 270 – 139 270 – 137 352 – 137 352 Export credit facilities – 25 583 – 25 583 – 15 956 – 15 956 Other loans – 11 905 – 11 905 – 27 236 – 27 236 Derivatives held for risk management 17 358 – 235 593 1 219 – 810 2 029 Foreign exchange contracts 318 – 45 363 842 – 28 870 Cross-currency swaps 12 – 190 202 52 – 782 834 Commodity forwards – – – – 232 – – 232 Credit default swaps 27 – – 27 92 – – 92 Inflation-linked swaps 1 – – 1 1 – – 1 Lease liabilities 28 – – 313 313 – – 8 040 8 040 Trade and other payables 29 – 39 703 – 39 703 – 44 894 – 44 894 358 459 988 548 460 894 1 219 473 271 8 850 483 340 6.2 Fair value Valuation processes The group has a control framework in place for the measurement of fair values. It includes a valuation team (supported by external specialist) that ultimately reports to the chief financial officer and has overall responsibility for all significant fair value measurements. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. Where third-party information, such as broker quotes or pricing services, is used to measure fair value, this information is assessed as to whether it provides adequate support for the accounting treatment applied including the level of the fair value hierarchy assigned to it. Principal markets The group is involved in various principal markets because of the unique funding activities undertaken where the fair value is determined by each participant in the different principal markets. The principal markets include: • capital and money markets • development financing institutions • export credit agencies 1. Other assets and liabilities include derivatives held for risk management designated as hedges measured at fair value through other comprehensive income and finance leases measured at amortised cost. The total assets measured at amortised cost amounts to R99 054 million (2023: R41 830 million), the total liabilities measured at amortised cost amounts to R460 301 million (2023: R481 311 million). 80 Fair value hierarchy Fair value measurements are categorised into the different levels in the fair value hierarchy based on the inputs to the valuation techniques used. There were no changes in the valuation techniques applied. The hierarchy levels are defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable, either directly (ie as prices) or indirectly (ie derived from prices). Level 3: Unobservable inputs. 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 determining when transfers between levels in the hierarchy have occurred includes monitoring of the following factors: • 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) Valuation techniques Financial instrument Valuation technique Level 1: Quoted prices (unadjusted) in active markets Insurance investments (listed shares) Quoted bid price in active markets. A market is regarded as active when it is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2: Inputs other than quoted prices included within level 1 that are observable Loans receivable (excluding home loans), A discounted cash flow technique is used which uses expected cash flows and a market-related treasury investments, insurance investments discount rate. (excluding listed shares) and debt securities and borrowings 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 for reasonableness by discounting expected future cash flows using a market interest rate for a similar instrument at the measurement date. Valuations of cross-currency swaps include the credit risk of Eskom (known as debit value adjustment) and counterparties (known as credit value adjustment) where appropriate. A stochastic modelling approach is followed where the expected future exposure to credit risk for Eskom and its counterparties (considering default probabilities and recovery rates derived from market data) is modelled. Trade and other payables and cash and cash Fair values have not been disclosed for financial instruments where the carrying amounts are a equivalents reasonable approximation of fair value. Level 3: Unobservable inputs Embedded derivatives Fair value determined using unobservable inputs. Refer to note 16 for a movement reconciliation and to note 4.1 for information regarding the valuation techniques and assumptions used. Loans receivable (home loans) The fair value of home loans is based on discounted cash flows using market related interest rates. Trade and other receivables Fair value determined using unobservable inputs. The carrying value is equal to the fair value due to the expected short-term maturity of the trade receivables. The fair value for long-term receivables is based on discounted cash flows using the effective interest rate method. The carrying value approximates the fair value as the interest rates are market related and no additional disclosure is required. 81 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 6. Accounting classification and fair value (continued) 6.2 Fair value (continued) Fair value hierarchy (continued) Valuation techniques (continued) The fair value hierarchy of financial instruments is as follows: 2024 2023 Measured Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 at fair value Rm Rm Rm Rm Rm Rm Group Financial assets Loans receivable – 415 6 646 – 196 7 503 Home loans No – – 6 646 – – 7 503 Other loans No – 415 – – 196 – Embedded derivatives Yes – – 11 801 – – 823 Derivatives held for risk management – 27 016 – – 26 992 – Foreign exchange contracts Yes – 265 – – 1 088 – Cross-currency swaps Yes – 26 205 – – 25 618 – Commodity forwards Yes – 210 – – 1 – Commodity options Yes – 7 – – – – Credit default swaps Yes – – – – 5 – Inflation-linked swaps Yes – 329 – – 280 – Treasury investments No – 1 039 – – – – Insurance investments 1 550 17 090 – 1 514 15 192 – Negotiable certificates of deposit No – 13 925 – – 14 126 – Floating rate notes No – 2 112 – – 1 066 – Inflation-linked bonds No – 1 053 – – – – Listed shares Yes 1 550 – – 1 514 – – Financial liabilities Debt securities and borrowings – 385 808 – – 404 706 – Eskom bonds No – 144 176 – – 148 395 – Commercial paper No – 748 – – 887 – Eurorand zero coupon bonds No – 6 348 – – 5 486 – Foreign bonds No – 63 953 – – 73 408 – Development financing institutions No – 134 585 – – 134 921 – Export credit facilities No – 27 622 – – 14 396 – Other loans No – 8 376 – – 27 213 – Derivatives held for risk management – 593 – – 2 029 – Foreign exchange contracts Yes – 363 – – 870 – Cross-currency swaps Yes – 202 – – 834 – Commodity forwards Yes – – – – 232 – Credit default swaps Yes – 27 – – 92 – Inflation-linked swaps Yes – 1 – – 1 – 82 2024 2023 Measured Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 at fair value Rm Rm Rm Rm Rm Rm Company Financial assets Loans receivable Loans to subsidiaries1 No – 38 803 – – 5 683 – Embedded derivatives Yes – – 11 801 – – 823 Derivatives held for risk management – 27 043 – – 26 992 – Foreign exchange contracts Yes – 292 – – 1 088 – Cross-currency swaps Yes – 26 205 – – 25 618 – Commodity forwards Yes – 210 – – 1 – Commodity options Yes – 7 – – – – Credit default swaps Yes – – – – 5 – Inflation-linked swaps Yes – 329 – – 280 – Treasury investments No – 1 039 – – – – Financial liabilities Debt securities and borrowings – 393 783 – – 409 155 – Eskom bonds No – 149 189 – – 153 462 – Eurorand zero coupon bonds No – 6 348 – – 5 486 – Foreign bonds No – 63 953 – – 73 408 – Development financing institutions No – 134 585 – – 134 921 – Export credit facilities No – 27 622 – – 14 396 – Other loans No – 12 086 – – 27 482 – Derivatives held for risk management – 593 – – 2 029 – Foreign exchange contracts Yes – 363 – – 870 – Cross-currency swaps Yes – 202 – – 834 – Commodity forwards Yes – – – – 232 – Credit default swaps Yes – 27 – – 92 – Inflation-linked swaps Yes – 1 – – 1 – 7. Segment information Management has determined the reportable segments based on the reports regularly provided, reviewed and used by Exco to make strategic decisions and assess performance of the segments. Exco assessed the performance of the operating segments based on a measure of profit or loss consistent with that of the financial statements. The amounts provided to Exco with respect to total assets and liabilities were measured in terms of IFRS Accounting Standards. These assets and liabilities were allocated based on the operation of the segment and the physical location of the assets. The operations in each of the group’s reportable segments are as follows: Segment Operations Generation Consists of generation, primary energy and group capital functions that respectively: • generates electricity for sale to transmission • procures primary energy • plan, develop, execute and monitor generation-related capital projects Transmission (NTCSA) Consists of transmission network, international customers and operator functions that respectively: • operates and maintains the network for transmitting electricity • purchase and sale of bulk electricity to international customers • operates electricity trading system by balancing the supply and demand of electricity, managing voltage levels and purchase of electricity from generation and IPPs and sale of electricity to distribution The segment assessment was not impacted by the transfer of assets and liabilities from Eskom to NTCSA on 31 March 2024 as this was done as a common control transaction within the Eskom group and with no change in the transmission segment. Refer to note 12. Distribution Consists of five operating clusters across nine provinces who provides, operates, and maintains the distribution network for distributing electricity and sale of electricity to local large and small power users (including residential customers). All other segments Relates to operating segments which are below the quantitative thresholds for determining a reportable 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. 1. The fair values are based on the assumption that there are no changes in the manner of recovery of the loans. It is assumed that the outstanding amount on the loan to: – EFC would be recovered based on the collections from the underlying loans and advances in EFC in the normal course of business – NTCSA would be recovered through the underlying cost of servicing the debt incurred to fund NTCSA in the normal course of business 83 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 7. Segment information (continued) The revenue earned by subsidiaries in the segment note was presented in line with what was reported in the respective subsidiary financial statements. Inter-segment revenue and recoveries (achieved through transfer pricing) for the flow of electricity from generator to consumer was allocated between the generation, transmission and distribution segments as derived from the revenue in the approved corporate plan based on cost recovery plus a return on assets informed by the regulatory methodology principles and adjusted in line with records of decision as well as RCA and court decisions. The sale of electricity by generation to transmission is based on a two-part tariff (reflective of the generating costs) consisting of fixed capacity (depressed because of an inadequate return on assets on allowable revenue in the NERSA determinations) and variable energy components. Transmission incurs additional energy costs (energy purchases from IPPs and import of energy) and supplies electricity to distribution at a marked-up tariff (costs and return on assets) consisting of fixed and variable components allocated on a ratio that aligns with the ratio in the tariff charged to customers as determined by NERSA. Transmission also charges generation for their portion of transmission network cost (grid code mandates equal recovery from generation and consumer which is recovered via distribution). Transfer pricing between the segments is adjusted in future periods as a recovery or reduction to account for differences between actual and estimated information. There was a benefit to the transmission segment in 2024 associated with the difference between the estimated and actual IPP expenditure which will be recovered from future revenue allocation. This trend is expected to continue in 2025. It is expected that NERSA will determine separate revenue determinations per licensee in the future based on similar regulatory methodology principles following the corporatisation of NTCSA. All direct corporate overhead costs were allocated to the relevant segments based on service consumption and an appropriate cost driver apportionment was used to split the remaining overhead costs on a fair basis between segments. Net finance costs, net fair value and foreign exchange gains/(losses) were allocated to segments based on divisional funding requirements. The segment information provided to Exco for the reportable segments is as follows: Generation Transmission Distribution All other Reallocation Group segments and inter- segment transactions Rm Rm Rm Rm Rm Rm 2024 External revenue – 11 054 284 760 1 085 (1 085) 295 814 Inter-segment revenue/recoveries 190 236 64 160 (254 358) 15 818 (15 856) – Total revenue 190 236 75 214 30 402 16 903 (16 941) 295 814 Other income 597 1 186 290 2 277 (3 055) 1 295 Primary energy (117 873) (55 842) (14) – – (173 729) Employee benefit expense (13 332) (3 283) (12 407) (6 074) – (35 096) Reversal of impairment/(impairment) of financial assets 17 (450) (2 216) (500) 132 (3 017) Reversal of impairment/(impairment) and write down of other assets 309 (2) (720) (3) – (416) Other expenses (36 722) (2 364) (10 148) (10 667) 18 460 (41 441) Profit/(loss) before depreciation and amortisation expense and net fair value and foreign exchange gain/(loss) (EBITDA) 23 232 14 459 5 187 1 936 (1 404) 43 410 Depreciation and amortisation expense (26 186) (2 565) (4 365) (339) 216 (33 239) Net fair value and foreign exchange gain/(loss) 522 (70) 2 166 26 – 2 644 (Loss)/profit before net finance (cost)/income and share of profit of equity-accounted investees (2 432) 11 824 2 988 1 623 (1 188) 12 815 Net finance (cost)/income (33 582) (4 861) (2 024) 1 909 169 (38 389) Finance income 222 105 1 141 3 603 (212) 4 859 Finance cost (33 804) (4 966) (3 165) (1 694) 381 (43 248) Share of profit of equity-accounted investees after tax – – – 105 – 105 (Loss)/profit before tax (36 014) 6 963 964 3 637 (1 019) (25 469) Income tax – – – (29 793) 247 (29 546) (Loss)/profit for the year (36 014) 6 963 964 (26 156) (772) (55 015) Other information Segment assets 561 658 85 157 143 681 163 683 (88 203) 865 976 Investment in equity-accounted investees – – – 346 – 346 Total assets 561 658 85 157 143 681 164 029 (88 203) 866 322 Total liabilities 94 159 32 287 65 175 518 964 1 (67 121) 643 464 Additions and transfers to property, plant and equipment and intangible assets 28 686 5 414 8 486 591 (233) 42 944 1. Represents the external debt and borrowings that are accounted for in the treasury segment. 84 Generation Transmission Distribution All other Reallocation Group segments and inter- segment transactions Rm Rm Rm Rm Rm Rm 2023 External revenue – 10 276 249 267 1 537 (1 537) 259 543 Inter-segment revenue/recoveries 168 015 48 761 (216 717) 14 280 (14 339) – Total revenue 168 015 59 037 32 550 15 817 (15 876) 259 543 Other income 2 976 150 890 1 082 (2 356) 2 742 Primary energy (108 583)2 (48 224) (12) – – (156 819) Employee benefit expense (11 792) (2 721) (11 626) (6 182) – (32 321) (Impairment)/reversal of impairment of financial assets (74) (321) (637) (72) 78 (1 026) (Impairment)/reversal of impairment and write down of other assets (731) (10) (410) (85) 80 (1 156) Other expenses (30 686)2 (2 502) (10 213) (8 643) 15 646 (36 398) Profit/(loss) before depreciation and amortisation expense and net fair value and foreign exchange (loss)/gain (EBITDA) 19 125 5 409 10 542 1 917 (2 428) 34 565 Depreciation and amortisation expense (24 731)2 (2 274) (4 472) (665) 201 (31 941) Net fair value and foreign exchange (loss)/gain (527) 262 (5) (16) 1 (285) (Loss)/profit before net finance (cost)/income and share of profit of equity-accounted investees (6 133) 3 397 6 065 1 236 (2 226) 2 339 Net finance (cost)/income (31 329) (4 433) (2 511) 1 053 205 (37 015) Finance income 220 91 589 2 390 75 3 365 Finance cost (31 549) (4 524) (3 100) (1 337) 130 (40 380) Share of profit of equity-accounted investees after tax – – – 93 – 93 (Loss)/profit before tax (37 462) (1 036) 3 554 2 382 (2 021) (34 583) Income tax – – – 7 992 2 509 8 501 (Loss)/profit for the year (37 462) (1 036) 3 554 10 374 (1 512) (26 082) Other information Segment assets 549 0562 81 373 121 620 102 3352 (28 990) 825 394 Investment in equity-accounted investees – – – 350 – 350 Total assets 549 056 81 373 121 620 102 685 (28 990) 825 744 Total liabilities 85 639 21 306 52 747 462 2161 (30 108) 591 800 Additions and transfers to property, plant and equipment and intangible assets 23 469 3 203 5 253 734 (200) 32 459 Group Revenue Non-current assets Restated 2024 2023 2024 2023 Geographical information Rm Rm Rm Rm South Africa 284 357 248 844 693 309 679 335 Foreign countries 11 457 10 699 – – 295 814 259 543 693 309 679 335 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. 1. Represents the external debt and borrowings that are accounted for in the treasury segment. 2. Refer to note 48. 85 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 8. Property, plant and equipment Land, Plant Equipment Work Total buildings Generating Transmitting Distributing Spares and under and and vehicles construction facilities other Note Rm Rm Rm Rm Rm Rm Rm Rm 2024 Group Carrying value at beginning of the year 8 777 388 721 48 007 76 432 14 139 4 368 127 895 668 339 Cost 11 888 559 303 74 597 143 222 16 038 17 975 127 895 950 918 Accumulated depreciation and impairment losses (3 111) (170 582) (26 590) (66 790) (1 899) (13 607) – (282 579) Additions and transfers 38 1 029 343 418 4 145 778 36 108 42 859 Transfers of assets from customers – – 2 876 – – – 878 Commissioning of assets constructed 78 14 319 4 166 5 765 110 83 (24 521) – Basis adjustment – cash flow hedge reserve – – – – – – (118) (118) Finance cost capitalised 40 – – – – – – 8 081 8 081 Provisions capitalised 27 – (2 253) – – – – (516) (2 769) Disposals and write-offs (79) (276) (146) (204) (41) (43) (560) (1 349) Depreciation (130) (26 459) (1 753) (5 737) (91) (801) – (34 971) Carrying value at end of the year 8 684 375 081 50 619 77 550 18 262 4 385 146 369 680 950 Cost 11 897 568 199 78 705 149 415 20 162 18 273 146 369 993 020 Accumulated depreciation and impairment losses (3 213) (193 118) (28 086) (71 865) (1 900) (13 888) – (312 070) Company Carrying value at beginning of the year 8 273 391 578 48 214 76 665 14 139 3 286 128 269 670 424 Cost 11 289 563 463 74 878 143 600 16 038 14 344 128 269 951 881 Accumulated depreciation and impairment losses (3 016) (171 885) (26 664) (66 935) (1 899) (11 058) – (281 457) Additions and transfers 32 1 030 343 418 4 144 471 36 268 42 706 Transfers of assets from customers – – 3 875 – – – 878 Commissioning of assets constructed 73 14 500 4 210 5 768 110 15 (24 676) – Basis adjustment – cash flow hedge reserve – – – – – – (118) (118) Finance cost capitalised 40 – – – – – – 8 081 8 081 Provisions capitalised 27 – (2 253) – – – – (516) (2 769) Disposals and write-offs (79) (276) (146) (204) (41) (29) (492) (1 267) Depreciation (128) (26 684) (1 766) (5 754) (91) (620) – (35 043) Disposal of business 12 (1 436) (4 414) (50 858) – (3 143) (480) (19 468) (79 799) Carrying value at end of the year 6 735 373 481 – 77 768 15 118 2 643 127 348 603 093 Cost 9 540 562 717 – 149 792 16 050 13 097 127 348 878 544 Accumulated depreciation and impairment losses (2 805) (189 236) – (72 024) (932) (10 454) – (275 451) 86 Land, Plant Equipment Work Total buildings Generating Transmitting Distributing Spares and under and and vehicles construction facilities other Note Rm Rm Rm Rm Rm Rm Rm Rm 2023 Group Carrying value at beginning of the year 9 072 362 906 46 503 77 205 14 805 4 774 152 193 667 458 Cost 11 683 511 201 71 313 138 558 16 615 17 457 152 193 919 020 Accumulated depreciation and impairment losses (2 611) (148 295) (24 810) (61 353) (1 810) (12 683) – (251 562) Additions and transfers 43 812 133 205 (622) 807 30 914 32 292 Transfers of assets from customers – – – 628 – – – 628 Commissioning of assets constructed 539 53 403 2 834 4 232 46 46 (61 100) – Basis adjustment – cash flow hedge reserve – – – – – – (112) (112) Finance cost capitalised 40 – – – – – – 7 459 7 459 Provisions capitalised 27 – (1 997)1 – – – – (56) (2 053) Disposals and write-offs (229) (1 892) (6) (270) (3) (102) (1 403) (3 905) Depreciation (648) (24 511)1 (1 457) (5 568) (87) (1 157) – (33 428) Carrying value at end of the year as restated 8 777 388 7211 48 007 76 432 14 139 4 368 127 895 668 339 Cost 11 888 559 3031 74 597 143 222 16 038 17 975 127 895 950 918 Accumulated depreciation and impairment losses (3 111) (170 582)1 (26 590) (66 790) (1 899) (13 607) – (282 579) Company Carrying value at beginning of the year 8 646 365 592 46 714 77 447 14 805 3 596 152 693 669 493 Cost 11 166 515 084 71 587 138 929 16 615 14 126 152 693 920 200 Accumulated depreciation and impairment losses (2 520) (149 492) (24 873) (61 482) (1 810) (10 530) – (250 707) Additions and transfers 40 813 133 207 (623) 489 31 092 32 151 Transfers of assets from customers – – – 628 – – – 628 Commissioning of assets constructed 461 53 780 2 842 4 238 46 37 (61 404) – Basis adjustment – cash flow hedge reserve – – – – – – (112) (112) Finance cost capitalised 40 – – – – – – 7 459 7 459 Provisions capitalised 27 – (1 997)1 – – – – (56) (2 053) Disposals and write-offs (228) (1 892) (6) (270) (3) (36) (1 403) (3 838) Depreciation (646) (24 718)1 (1 469) (5 585) (86) (800) – (33 304) Carrying value at end of the year as restated 8 273 391 5781 48 214 76 665 14 139 3 286 128 269 670 424 Cost 11 289 563 4631 74 878 143 600 16 038 14 344 128 269 951 881 Accumulated depreciation and impairment losses (3 016) (171 885)1 (26 664) (66 935) (1 899) (11 058) – (281 457) The ongoing internal and external investigations (including by the SIU) into allegations of contract corruption are continuing. No write-offs were done in the current year based on the progress of the investigations into these matters at the time. There were write-offs of R2 billion including borrowing cost at 31 March 2023 of cost previously capitalised relating to overpayments to a number of contractors involved in the construction of the Kusile power station. There could be further write-offs in the future as the investigations are ongoing and once advanced to the stage where the outcome is certain, the related accounting impact will be assessed and processed. Refer to note 2.4. The total depreciation charge for property, plant and equipment is disclosed in profit or loss in the following categories: Group Company Restated Restated 2024 2023 2024 2023 Note Rm Rm Rm Rm Depreciation and amortisation expense 37 34 959 33 416 35 031 33 292 Primary energy 12 12 12 12 34 971 33 428 35 043 33 304 1. Refer to note 48. 87 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 8. Property, plant and equipment (continued) Average rates of finance cost capitalised to qualifying assets: Group and company 2024 2023 % % General borrowings 10.52 10.08 Specific borrowings 9.51 8.96 Property, plant and equipment includes the following right-of-use asset balances: Land, Plant Equipment Total buildings Generating Spares and and and other vehicles facilities Rm Rm Rm Rm Rm 2024 Group Carrying value at beginning of the year 78 5 065 73 93 5 309 Cost 164 9 768 505 266 10 703 Accumulated depreciation and impairment losses (86) (4 703) (432) (173) (5 394) Additions and transfers 7 – – – 7 Disposals and write-offs (7) – – (4) (11) Depreciation (34) (651) (12) (81) (778) Carrying value at end of the year 44 4 414 61 8 4 527 Cost 131 9 769 505 70 10 475 Accumulated depreciation and impairment losses (87) (5 355) (444) (62) (5 948) Company Carrying value at beginning of the year 78 5 065 74 22 5 239 Cost 164 9 768 506 68 10 506 Accumulated depreciation and impairment losses (86) (4 703) (432) (46) (5 267) Additions 7 – – – 7 Disposals and write-offs (7) – – – (7) Depreciation (34) (651) (13) (14) (712) Disposal of business (15) (4 414) – – (4 429) Carrying value at end of the year 29 – 61 8 98 Cost 88 – 505 67 660 Accumulated depreciation and impairment losses (59) – (444) (59) (562) 2023 Group Carrying value at beginning of the year 126 5 717 86 36 5 965 Cost 284 9 768 506 70 10 628 Accumulated depreciation and impairment losses (158) (4 051) (420) (34) (4 663) Additions 20 – – 196 216 Disposals and write-offs (7) – – – (7) Depreciation (61) (652) (13) (139) (865) Carrying value at end of the year 78 5 065 73 93 5 309 Cost 164 9 768 505 266 10 703 Accumulated depreciation and impairment losses (86) (4 703) (432) (173) (5 394) Company Carrying value at beginning of the year 126 5 717 86 35 5 964 Cost 283 9 768 506 67 10 624 Accumulated depreciation and impairment losses (157) (4 051) (420) (32) (4 660) Additions 19 – – – 19 Disposals and write-offs (6) – – – (6) Depreciation (61) (652) (12) (13) (738) Carrying value at end of the year 78 5 065 74 22 5 239 Cost 164 9 768 506 68 10 506 Accumulated depreciation and impairment losses (86) (4 703) (432) (46) (5 267) 88 9. Intangible assets 2024 2023 Rights Computer Total Rights Computer Concession Total software software assets Note Rm Rm Rm Rm Rm Rm Rm 2024 Group Carrying value at beginning of the year 3 328 42 3 370 3 299 57 268 3 624 Cost 3 544 1 351 4 895 3 515 1 346 821 5 682 Accumulated amortisation and impairment losses (216) (1 309) (1 525) (216) (1 289) (553) (2 058) Additions and transfers 22 63 85 29 5 133 167 Write-offs – – – – – (255) (255) Amortisation 37 – (17) (17) – (20) (146) (166) Carrying value at end of the year 3 350 88 3 438 3 328 42 – 3 370 Cost 3 566 624 4 190 3 544 1 351 – 4 895 Accumulated amortisation and impairment losses (216) (536) (752) (216) (1 309) – (1 525) Company Carrying value at beginning of the year 3 328 39 3 367 3 299 56 – 3 355 Cost 3 544 1 018 4 562 3 515 1 016 – 4 531 Accumulated amortisation and impairment losses (216) (979) (1 195) (216) (960) – (1 176) Additions and transfers 22 62 84 29 2 – 31 Amortisation 37 – (16) (16) – (19) – (19) Disposal of business 12 (2 618) (1) (2 619) – – – – Carrying value at end of the year 732 84 816 3 328 39 – 3 367 Cost 805 288 1 093 3 544 1 018 – 4 562 Accumulated amortisation and impairment losses (73) (204) (277) (216) (979) – (1 195) 89 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 10. Future fuel supplies Group and company 2024 2023 Coal Nuclear Total Coal Nuclear Total Note Rm Rm Rm Rm Rm Rm Carrying value at beginning of the year 4 284 1 006 5 290 5 734 570 6 304 Additions 1 763 1 094 2 857 1 595 1 187 2 782 Provisions capitalised/(reversed) 27 382 – 382 (2 293)1 – (2 293) Basis adjustment – cash flow hedge reserve – (85) (85) – (8) (8) Transfer to inventories 13 (665) (997) (1 662) (752) (743) (1 495) Carrying value at end of the year 5 764 1 018 6 782 4 284 1 006 5 290 11. Investment in equity-accounted investees Group Company 2024 2023 2024 2023 Rm Rm Rm Rm Balance at beginning of the year 350 418 95 95 Share of profit after tax 105 93 – – Dividends received (109) (161) – – Balance at end of the year 346 350 95 95 The group’s investments in joint ventures and associates are not individually material. The group’s share of the results of its joint ventures and associates, all of which are unlisted, is as follows: Group Company 2024 2023 2024 2023 Name Main business Country of Interest Share of Share of Investment Investment incorporation held profit/(loss) profit after at cost at cost after tax tax for for the year the year % Rm Rm Rm Rm Directly held Motraco – Mozambique Transmission Electricity Company SARL transmission Mozambique 33 112 91 95 95 Indirectly held Trans Africa Projects (Pty) Ltd Engineering services South Africa 50 (7) 2 105 93 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. 12. Investment in subsidiaries 2024 2023 Name Main business Interest Interest held held % % Directly held Escap SOC Ltd Insurance 100 100 Eskom Development Foundation NPC Corporate social investment 100 100 Eskom Enterprises SOC Ltd Non-regulated electricity supply industry activities in South 100 100 Africa and electricity supply and related services outside South Africa Eskom Finance Company SOC Ltd Finance (employee housing loans) 100 100 National Electricity Distribution Company Distribution of electricity – not trading 100 100 South Africa SOC Ltd National Transmission Company South Africa SOC Ltd Transmission and trading of electricity 100 100 PN Energy Services SOC Ltd Deregistered – 100 Indirectly held Eskom Rotek Industries SOC Ltd Construction and abnormal load transportation 100 100 Eskom Uganda Ltd2 Operations management – not trading 100 100 Golang Coal SOC Ltd Coal exports 67 67 Nqaba Finance 1 (RF) Ltd Residential backed mortgage securities 100 100 Pebble Bed Modular Reactor SOC Ltd Reactor driven generation project – not trading 100 100 South Dunes Coal Terminal Company SOC Ltd Coal exports 69 69 1. Refer to note 48. 2. Eskom Uganda Ltd is in the process of unwinding after the service concession arrangement in Uganda ended on 31 March 2023. 90 2024 2023 Investment Investment Accumulated at cost at cost impairment Rm Rm Rm Escap SOC Ltd 380 380 – Eskom Development Foundation NPC – – – Eskom Enterprises SOC Ltd –1 –1 – Eskom Finance Company SOC Ltd –1 –1 – National Electricity Distribution Company South Africa SOC Ltd –1 –1 – National Transmission Company South Africa SOC Ltd 22 201 –1 – PN Energy Services SOC Ltd – 4 (4) 22 581 384 (4) Other 116 – – 22 697 384 (4) All subsidiaries continue to be accounted for as previously assessed as there has not been any change in the outcome of the control assessment. The group does not have any subsidiaries with a material non-controlling interest. All subsidiaries were incorporated in South Africa with the exception of Eskom Uganda Ltd (Eskom Uganda) which was incorporated in Uganda. Disposal of transmission division assets and liabilities to NTCSA The assets and liabilities of the transmission division were transferred from Eskom to NTCSA, a wholly owned subsidiary of Eskom, on 31 March 2024 as part of a common control transaction within the group. Eskom and NTCSA concluded binding merger and subscription agreements on 21 December 2021 for the disposal of the transmission business from Eskom to NTCSA and subscription of shares in NTCSA. Suspensive conditions with statutory formalities were specified in the merger agreement (original and amended) that had to be fulfilled and or waived to give full effect to the merger agreement and to operationalise NTCSA, resulting in the legal implementation of the merger agreement and operationalisation of NTCSA on 1 July 2024. Management applied judgement in determining the accounting of the disposal of the transmission division from Eskom to NTCSA. The principles in IFRS 3 Business Combinations and IFRS 10 Consolidated Financial Statements were applied as common control transactions are not specifically addressed in IFRS Accounting Standards. The accounting principle of substance over form in terms of the Conceptual Framework for Financial Reporting was also considered. Management concluded that the acquisition date was 31 March 2024 when NTCSA as the acquirer obtained control over the transmission business. The accounting acquisition date is therefore not aligned to the legal implementation date of 1 July 2024. The following were considered at the reporting date: • The relevant parties to the merger agreement as well as the Minister of DPE as the shareholder representative confirmed that the agreement had become unconditional by 31 March 2024. All suspensive conditions were either fulfilled as required or the parties waived the remaining suspensive conditions. • The transaction was deemed to be substantively concluded by 31 March 2024 as the remaining outstanding statutory requirements as specified in the merger agreement were considered administrative. The statutory formalities included the following: – Statutory notice to creditors of the merger in terms of section 116 of the Companies Act Deemed low probability that any creditor will be successful in objecting to the merger by proving material prejudice as consent was obtained from impacted lenders and Eskom was replaced with NTCSA as the designated buyer for IPPs as part of meeting the suspensive conditions. The remaining creditors were insignificant in value and of a short-term nature. – Notice to impacted employees in terms of section 197 of the Labour Relations Act, 66 of 1995 Deemed low probability that it will prevent the conclusion of the transaction as employees were not adversely impacted since all conditions and benefits remained the same before and after the merger. – Lodging of required documents with Companies and Intellectual Property Commission • Approval was not required from the Take-Over Regulation Panel in terms of the Competition Act, 89 of 1998, and an exemption was granted in this regard. • The key control considerations include the following: – NTCSA obtained power over the transmission business on 31 March 2024. The transaction was substantively concluded. The remaining statutory formalities were administrative in nature. – NTCSA had exposure and rights to variable returns through the business activities and operation of the transmission business as all profits and losses for the period between 1 April 2024 to 30 June 2024 were for the account of NTCSA and will be reported in the NTCSA income statement. These profits and losses will still be taxed in Eskom as the legal owner and there will therefore be a difference between the share capital from an accounting perspective and issued capital on the effective date for tax purposes. As the transmission business effectively belonged to NTCSA, Eskom operated the business on behalf of NTSCA between 1 April 2024 and 30 June 2024. – NTCSA had the ability to use its power over the transmission business to affect returns considering that there was no change in the business activities and decision-making processes between 1 April 2024 and 30 June 2024 as NTCSA is fulfilling its role and is still part of the Eskom group in the vertically integrated electricity business. Eskom continued to operate the transmission facility on behalf of NTCSA in the ordinary course of business during this period in the best interest of Eskom and NTCSA as the NTCSA license (same rights and obligations as the Eskom license that expired on 30 June 2024) only became effective on 1 July 2024 when NTCSA commenced trading per the legal merger agreement. 1. Nominal. 91 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 12. Investment in subsidiaries (continued) The transaction was accounted for at carrying value. Refer to note 2.2. Company 2024 Note Rm Statements of financial position at 31 March 2024 Assets Non-current 82 859 Property, plant and equipment 8 79 799 Intangible assets 9 2 619 Finance lease receivables 65 Trade and other receivables 376 Current 2 298 Inventories 13 145 Finance lease receivables 15 Payments made in advance 19 23 Trade and other receivables 2 115 85 157 Liabilities Non-current 20 870 Deferred tax 14 10 095 Payments received in advance 25 2 548 Contract liabilities and deferred income 25 1 000 Employee benefit obligations 26 885 Lease liabilities 28 6 301 Trade and other payables 41 Current 11 417 Derivatives held for risk management 17 27 Payments received in advance 25 51 Contract liabilities and deferred income 25 38 Employee benefit obligations 26 330 Provisions 27 29 Lease liabilities 28 788 Trade and other payables 10 154 32 287 Net assets disposed 52 870 Consisting of: Investment in subsidiaries 22 201 Loans receivable 34 199 Debt securities and borrowings (3 530) 52 870 92 13. Inventories 2024 2023 Coal and Nuclear Maintenance Total Coal and Nuclear Maintenance Total liquid fuel fuel spares and liquid fuel fuel spares and consumables consumables Note Rm Rm Rm Rm Rm Rm Rm Rm Group Carrying value at beginning of the year 16 869 2 113 17 241 36 223 17 659 1 920 15 023 34 602 Changes in working capital 4 144 (614) (15) 3 515 (1 284) (638) 3 033 1 111 Transfer from future fuel supplies 10 665 997 – 1 662 752 743 – 1 495 Provisions capitalised 27 (185) 98 – (87) (258) 88 – (170) Reversal of write down/(write down) 35 – – 277 277 – – (815) (815) 21 493 2 594 17 503 41 590 16 869 2 113 17 241 36 223 Maturity analysis 21 493 2 594 17 503 41 590 16 869 2 113 17 241 36 223 Non-current 13 297 – – 13 297 12 209 – – 12 209 Current 8 196 2 594 17 503 28 293 4 660 2 113 17 241 24 014 Company Carrying value at beginning of the year 16 869 2 113 17 061 36 043 17 659 1 920 14 787 34 366 Changes in working capital 4 144 (614) (13) 3 517 (1 284) (638) 3 082 1 160 Transfer from future fuel supplies 10 665 997 – 1 662 752 743 – 1 495 Provisions capitalised 27 (185) 98 – (87) (258) 88 – (170) Reversal of write down/(write down) 35 – – 279 279 – – (808) (808) Disposal of business 12 – – (145) (145) – – – – 21 493 2 594 17 182 41 269 16 869 2 113 17 061 36 043 Maturity analysis 21 493 2 594 17 182 41 269 16 869 2 113 17 061 36 043 Non-current 13 297 – – 13 297 12 209 – – 12 209 Current 8 196 2 594 17 182 27 972 4 660 2 113 17 061 23 834 Nuclear fuel of R1 961 million (2023: R1 484 million) will be recovered more than 12 months after the reporting date. 14. Deferred tax Group Company Net assets/(liabilities) Assets 2024 2023 2024 2023 Note Rm Rm Rm Rm Reconciliation of movements in balances Balance at beginning of the year 17 983 8 978 18 457 10 261 Recognised in profit or loss Raised/(reversal) of temporary differences 41 8 304 9 4041 8 061 8 5881 Recognised in other comprehensive income Raised/(reversal) of temporary differences 41 28 (399) 33 (392) Disposal of business 12 – – 10 095 – Derecognition of deferred tax asset (36 646) – (36 646) – Balance at end of the year (10 331) 17 983 – 18 457 Comprising (10 331) 17 983 – 18 457 Property, plant and equipment (117 017) (111 694)1 (104 996) (110 552)1 Revenue not recognised 12 482 10 1452 12 482 10 1452 Tax losses 88 276 80 834 88 127 80 762 Derecognition of deferred tax asset (36 646) – (36 646) – Trade and other receivables 18 380 15 926 18 357 15 675 Payments made in advance (198) (178) (198) (182) Insurance investments (10) (33) – – Derivatives held for risk management 320 122 320 122 Embedded derivatives (626) (41) (626) (41) Provisions 14 815 13 9141 14 771 13 5521 Employee benefit obligations 6 055 5 374 5 553 5 358 Payments received in advance 3 838 3 614 2 856 3 618 The total net assets/(liabilities) for the group consist of assets of R81 million (2023: R17 983 million) and liabilities of R10 412 million (2023: R0). 1. Refer to note 48. 2. In the prior year R10 145 million was incorrectly disclosed as deferred tax balances relating to property, plant and equipment instead of revenue not recognised. 93 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 14. Deferred tax (continued) The group has R326 948 million (2023: R299 385 million) and the company has R326 396 million (2023: R299 119 million) of unused tax losses available for offset against future taxable income. The tax losses do not expire. The financial loss position of the company is mainly attributed to: • inadequate cost reflective tariffs approved by NERSA • increased use of OCGTs, both Eskom and IPPs, to minimise the impact of loadshedding • increased non-payment by municipalities • high debt service costs In terms of IAS 12 Income Taxes, when an entity has a history of recent losses, the entity recognises a deferred tax asset from unused tax losses or credits only to the extent that the entity has sufficient taxable temporary differences or there is convincing evidence that sufficient taxable profit will be available against which the unused tax losses or credits can be utilised by the entity. The following factors and possible uncertainties have been considered in the assessment of sufficient future taxable income over the forecast period (2025 to 2029) of the company: • revenue determination in terms of the NERSA tariff path which will be impacted by future MYPD applications and approvals which will impact the future profitability of the company • favourable court rulings relating to tariff determinations which will impact the future profitability of the company • sustaining the current level of generation plant performance and the action plans addressing other operational challenges • the company will be required to pay interest on the loan advanced by the government in terms of the Eskom Debt Relief Amendment Act which will result in additional finance costs incurred by the company and deductible for tax purposes • proposed closure dates of coal-fired power stations and the impact on production • decline in sales volumes and potential impact of customers moving to alternative energy sources which impacts the future profitability of the group and company • increased trend of non-payment by municipalities will result in greater amounts of revenue not recognised hence impacting the future profitability of the company A key development during 2024 related to the progress made in the disposal of the transmission division into NTCSA in terms of the intra group relief provisions of the tax law and the Companies Act. Eskom transferred the assets and liabilities of the transmission division to NTCSA for accounting purposes on 31 March 2024 as detailed in note 12. The legal implementation of the merger agreement and operationalisation of NTCSA was 1 July 2024. The corporatisation and operationalisation of NEDCSA is delayed due to external dependencies and the delayed operationalisation of NTCSA. Management critically evaluated and assessed the various factors to determine the possible impact on the company’s future taxable income and the likely timing thereof. The profitability of the company had to be evaluated by excluding expected profits and taxable income of the transmission business which will accrue to NTCSA. The legal separation resulted in the transfer of taxable temporary differences of R37 387 million to NTCSA which reduces the taxable temporary differences that remain in the company. The company is expected to return to profitability by 2027 as per the 2025 to 2029 Eskom Corporate Plan. Based on management’s assessment, it is probable that future taxable profits will be available due to the implementation of Eskom’s turnaround plan, NERSA’s revenue determination over the forecast period and the debt relief from government. However, the cumulative assessed loss is not expected to unwind in the forecasted period and a significant portion of the tax losses will remain unused at the end of the forecast period by 2029. There is no persuasive evidence that the generation business will generate sufficient taxable income over the forecast period against which the unused tax losses can be utilised based on the deferred tax asset recoverability assessment at 31 March 2024, despite the company expecting to return to a tax paying position within the forecast period. Future taxable income together with the reversal of taxable temporary differences will be insufficient in the five-year forecasted period to recognise the deferred tax asset position in terms of IAS 12. The deferred tax asset relating to the unused tax losses should only be recognised to the extent that there are taxable temporary differences as at 31 March 2024. Accordingly, the deferred tax asset of R36 646 million arising from unused tax losses (R135 726 million) as at 31 March 2024 has been derecognised. 94 15. Loans receivable 2024 2023 Gross Allowance Carrying Gross Allowance Carrying for value for value impairment impairment Rm Rm Rm Rm Rm Rm Group Home loans 7 675 (283) 7 392 7 827 (62) 7 765 Other 385 (4) 381 308 (3) 305 8 060 (287) 7 773 8 135 (65) 8 070 Maturity analysis 8 060 (287) 7 773 8 135 (65) 8 070 Non-current 7 850 (285) 7 565 7 887 (64) 7 823 Current 210 (2) 208 248 (1) 247 Company Loans to subsidiaries NTCSA term loan 34 199 (416) 33 783 – – – EFC revolving credit facility 5 648 (6) 5 642 5 681 (7) 5 674 39 847 (422) 39 425 5 681 (7) 5 674 Maturity analysis 39 847 (422) 39 425 5 681 (7) 5 674 Non-current 37 155 (340) 36 815 5 681 (7) 5 674 Current 2 692 (82) 2 610 – – – The loan to EFC has been classified as non-current as it was not expected that the loan would be settled within 12 months from the reporting date as the intention and practice has been to extend the loan facility to a future date upon maturity. Interest rates are linked to prevailing market rates. Refer to note 5.1.5 for details regarding the loans. 16. Embedded derivatives Group and company 2024 2023 Asset Asset Note Rm Rm Balance at beginning of the year 823 939 Day-one fair value recognised in deferred income 25 9 279 – Net fair value gain/(loss) 38 1 699 (116) Balance at end of the year 11 801 823 Maturity analysis 11 801 823 Non-current 10 486 772 Current 1 315 51 95 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 17. Derivatives held for risk management Foreign Cross- Commodity Commodity Credit Inflation- Total exchange currency forwards options default linked contracts swaps swaps swaps Note Rm Rm Rm Rm Rm Rm Rm 2024 Group Net asset/(liability) at beginning of the year 218 24 784 (231) – (87) 279 24 963 Net fair value gain/(loss) 1 625 10 639 499 (51) 65 (28) 12 749 Recognised in profit or loss 38 1 361 11 396 499 (51) 65 (28) 13 242 Recognised in other comprehensive income 264 (757) – – – – (493) Transfers – – – 51 – – 51 Finance cost accrued – 153 – – (5) 77 225 Cash (received)/paid (1 941) (9 573) (58) 7 – – (11 565) Net (liability)/asset at end of the year (98) 26 003 210 7 (27) 328 26 423 Hedge exposure covered (98) 26 003 210 7 (27) 328 26 423 Debt securities and borrowings 1 26 003 – – (27) 328 26 305 Other (99) – 210 7 – – 118 Assets Economic hedging 209 4 819 210 7 – 329 5 574 Cash flow hedging 56 21 386 – – – – 21 442 265 26 205 210 7 – 329 27 016 Maturity analysis 265 26 205 210 7 – 329 27 016 Non-current – 18 543 12 – – 326 18 881 Current 265 7 662 198 7 – 3 8 135 Liabilities Economic hedging 318 12 – – 27 1 358 Cash flow hedging 45 190 – – – – 235 363 202 – – 27 1 593 Maturity analysis 363 202 – – 27 1 593 Non-current – – – – 27 – 27 Current 363 202 – – – 1 566 Notional amount per currency m m m m m m m EUR 655 579 – – – – 1 234 USD 2 294 6 252 – – – – 8 546 GBP 22 – – – – – 22 JPY 40 – – – – – 40 SEK 312 – – – – – 312 ZAR – – – – 372 1 000 1 372 Notional amount per commodity1 Unit Group and company Copper tons – – 22 – – – 22 Low sulphur gas oil kilo litres – – 278 000 (74 000) – – 204 000 1. Enhanced disclosure has been included to present the notional amount per commodity, opposed to the aggregated amount previously included under notional amount per currency. The comparative information has been adjusted accordingly. 96 Foreign Cross- Commodity Commodity Credit Inflation- Total exchange currency forwards options default linked contracts swaps swaps swaps Note Rm Rm Rm Rm Rm Rm Rm 2024 Company Net asset/(liability) at beginning of the year 218 24 784 (231) – (87) 279 24 963 Net fair value gain/(loss) 1 621 10 639 499 (51) 65 (28) 12 745 Recognised in profit or loss 38 1 357 11 396 499 (51) 65 (28) 13 238 Recognised in other comprehensive income 264 (757) – – – – (493) Transfers – – – 51 – – 51 Finance cost accrued – 153 – – (5) 76 224 Cash (received)/paid (1 937) (9 573) (58) 7 – 1 (11 560) Disposal of business 12 27 – – – – – 27 Net (liability)/asset at end of the year (71) 26 003 210 7 (27) 328 26 450 Hedge exposure covered (71) 26 003 210 7 (27) 328 26 450 Debt securities and borrowings 1 26 003 – – (27) 328 26 305 Other (72) – 210 7 – – 145 Assets Economic hedging 236 4 819 210 7 – 329 5 601 Cash flow hedging 56 21 386 – – – – 21 442 292 26 205 210 7 – 329 27 043 Maturity analysis 292 26 205 210 7 – 329 27 043 Non-current – 18 543 12 – – 326 18 881 Current 292 7 662 198 7 – 3 8 162 Liabilities Economic hedging 318 12 – – 27 1 358 Cash flow hedging 45 190 – – – – 235 363 202 – – 27 1 593 Maturity analysis 363 202 – – 27 1 593 Non-current – – – – 27 – 27 Current 363 202 – – – 1 566 Notional amount per currency m m m m m m m EUR 615 579 – – – – 1 194 USD 2 246 6 252 – – – – 8 498 GBP 22 – – – – – 22 JPY 40 – – – – – 40 SEK 268 – – – – – 268 ZAR – – – – 372 1 000 1 372 97 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 17. Derivatives held for risk management (continued) Foreign Cross- Commodity Credit Inflation- Total exchange currency forwards default linked contracts swaps swaps swaps Note Rm Rm Rm Rm Rm Rm 2023 Group Net (liability)/asset at beginning of the year (3 924) 2 344 – (76) 187 (1 469) Net fair value gain/(loss) 8 070 23 448 (333) (11) (1) 31 173 Recognised in profit or loss 38 7 445 22 506 (333) (11) (1) 29 606 Recognised in other comprehensive income 625 942 – – – 1 567 Finance cost accrued – 139 – – 93 232 Cash (received)/paid (3 928) (1 147) 102 – – (4 973) Net asset/(liability) at end of the year 218 24 784 (231) (87) 279 24 963 Hedge exposure covered 218 24 784 (231) (87) 279 24 963 Debt securities and borrowings 38 24 784 – (87) 279 25 014 Other 180 – (231) – – (51) Assets Economic hedging 943 2 661 1 5 280 3 890 Cash flow hedging 145 22 957 – – – 23 102 1 088 25 618 1 5 280 26 992 Maturity analysis 1 088 25 618 1 5 280 26 992 Non-current – 17 356 – – 277 17 633 Current 1 088 8 262 1 5 3 9 359 Liabilities Economic hedging 842 52 232 92 1 1 219 Cash flow hedging 28 782 – – – 810 870 834 232 92 1 2 029 Maturity analysis 870 834 232 92 1 2 029 Non-current – 179 – 62 – 241 Current 870 655 232 30 1 1 788 Notional amount per currency m m m m m m EUR 774 747 – – – 1 521 USD 2 905 6 560 – – – 9 465 GBP 10 – – – – 10 JPY 143 – – – – 143 SEK 355 – – – – 355 ZAR – – – 5 088 1 000 6 088 Notional amount per commodity1 Unit Group and company Copper tons – – 135 – – 135 Low sulphur gas oil kilo litres – – 85 000 – – 85 000 Bunker fuel oil tons – – 115 000 – – 115 000 1. Enhanced disclosure has been included to present the notional amount per commodity, opposed to the aggregated amount previously included under notional amount per currency. The comparative information has been adjusted accordingly. 98 Foreign Cross- Commodity Credit Inflation- Total exchange currency forwards default linked contracts swaps swaps swaps Note Rm Rm Rm Rm Rm Rm 2023 Company Net (liability)/asset at beginning of the year (3 923) 2 344 – (76) 187 (1 468) Net fair value gain/(loss) 8 069 23 448 (333) (11) (1) 31 172 Recognised in profit or loss 38 7 444 22 506 (333) (11) (1) 29 605 Recognised in other comprehensive income 625 942 – – – 1 567 Finance cost accrued – 139 – – 93 232 Cash (received)/paid (3 928) (1 147) 102 – – (4 973) Net asset/(liability) at end of the year 218 24 784 (231) (87) 279 24 963 Hedge exposure covered 218 24 784 (231) (87) 279 24 963 Debt securities and borrowings 38 24 784 – (87) 279 25 014 Other 180 – (231) – – (51) Assets Economic hedging 943 2 661 1 5 280 3 890 Cash flow hedging 145 22 957 – – – 23 102 1 088 25 618 1 5 280 26 992 Maturity analysis 1 088 25 618 1 5 280 26 992 Non-current – 17 356 – – 277 17 633 Current 1 088 8 262 1 5 3 9 359 Liabilities Economic hedging 842 52 232 92 1 1 219 Cash flow hedging 28 782 – – – 810 870 834 232 92 1 2 029 Maturity analysis 870 834 232 92 1 2 029 Non-current – 179 – 62 – 241 Current 870 655 232 30 1 1 788 Notional amount per currency m m m m m m EUR 773 747 – – – 1 520 USD 2 905 6 560 – – – 9 465 GBP 10 – – – – 10 JPY 143 – – – – 143 SEK 355 – – – – 355 ZAR – – – 5 088 1 000 6 088 The hedging practices and accounting treatment are disclosed in note 2.10.3 in the accounting policies. The derivative instruments used to hedge the various financial risks are set out as follows: Derivative instrument Financial risk hedged Exposure Foreign exchange contracts Market (currency) Electricity generation, transmission and distribution activity purchases and loans denominated in foreign currencies Cross-currency swaps Market (currency and interest rate) Foreign fixed rate bonds and other foreign fixed or floating borrowings Commodity forwards and options Market (commodity) Liquid fuel purchases for electricity generation activities and base metal exposure relating to a component of plant, equipment or inventory Credit default swaps Credit Event of default by Eskom on debt securities and borrowings Inflation-linked swaps Market (interest rate) Finance cost that are dependent on current interest rates 99 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 17. Derivatives held for risk management (continued) Cash flow hedges Contractual cash flows are a function of foreign exchange and interest rates and are a point-in-time calculation that are impacted by market conditions at that time. This may result in future contractual cash outflows or inflows even though the fair value of the derivative may be reflected as an asset or liability. Group and company Carrying Un- 0–3 4–12 1–5 >5 years amount discounted months months years cash flows Rm Rm Rm Rm Rm Rm The periods in which the cash flows of derivatives designated as cash flow hedges are expected to occur are: 2024 Foreign exchange contracts Assets 56 62 13 49 – – Liabilities (45) (43) (27) (16) – – Cross-currency swaps Assets 21 386 31 606 120 6 573 17 094 7 819 Liabilities (190) (1 293) (48) (1 245) – – 21 207 30 332 58 5 361 17 094 7 819 2023 Foreign exchange contracts Assets 145 151 92 59 – – Liabilities (28) (26) (6) (20) – – Cross-currency swaps Assets 22 957 34 586 20 5 376 6 969 22 221 Liabilities (782) (2 628) (86) (2 632) 90 – 22 292 32 083 20 2 783 7 059 22 221 The periods in which the cash flows associated with derivatives are expected to impact profit or loss are: 2024 Foreign exchange contracts Assets 56 5 509 36 123 544 4 806 Liabilities (45) (43) (27) (16) – – Cross-currency swaps Assets 21 386 31 606 120 6 573 17 094 7 819 Liabilities (190) (1 293) (48) (1 245) – – 21 207 35 779 81 5 435 17 638 12 625 2023 Foreign exchange contracts Assets 145 5 473 92 59 421 4 901 Liabilities (28) (26) (6) (20) – – Cross-currency swaps Assets 22 957 34 586 20 5 376 6 969 22 221 Liabilities (782) (2 628) (86) (2 632) 90 – 22 292 37 405 20 2 783 7 480 27 122 Ineffective cash flow hedges The change in the fair value of the hedging instrument of R2 603 million (2023: R9 470 million) and for the hedged item (represented by a hypothetical derivative) of R2 326 million (2023: R10 208 million) were used to calculate hedge effectiveness. The cash flow 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 gain of R37 million (2023: R727 million) was recognised in profit or loss as ineffectiveness. Refer to note 38. Day-one gain/(loss) The group recognises a day-one gain/(loss) on initial recognition of cross-currency swaps held as hedging instruments where applicable. Group and company Cross- Inflation- Total currency linked swaps swaps Rm Rm Rm Loss at 31 March 2022 (1 589) (16) (1 605) Day-one loss recognised (154) – (154) Amortised to profit or loss 246 3 249 Loss at 31 March 2023 (1 497) (13) (1 510) Day-one loss recognised (168) – (168) Amortised to profit or loss 262 3 265 Loss at 31 March 2024 (1 403) (10) (1 413) 100 18. Finance lease receivables 2024 2023 Gross Unearned Allowance Carrying Gross Unearned Allowance Carrying receivables finance for value receivables finance for value income impairment income impairment Rm Rm Rm Rm Rm Rm Rm Rm Group Non-current 234 (58) (2) 174 294 (72) (4) 218 Between one and five years 186 (51) (2) 133 219 (69) (3) 147 After five years 48 (7) – 41 75 (3) (1) 71 Current 61 (24) – 37 60 (28) (1) 31 295 (82) (2) 211 354 (100) (5) 249 Company Non-current 149 (39) (1) 109 294 (72) (4) 218 Between one and five years 107 (32) (1) 74 219 (69) (3) 147 After five years 42 (7) – 35 75 (3) (1) 71 Current 35 (13) – 22 60 (28) (1) 31 184 (52) (1) 131 354 (100) (5) 249 19. Payments made in advance 2024 2023 Securing Environ- Other Total Securing Environ- Other Total debt raised mental debt raised mental rehabili- rehabili- tation tation trust fund trust fund Note Rm Rm Rm Rm Rm Rm Rm Rm Group Balance at beginning of the year 692 1 256 1 104 3 052 778 1 470 565 2 813 Payments made 426 – 912 1 338 369 – 809 1 178 Recognised in profit or loss – 60 (386) (326) – 86 (184) (98) Transfers (465) – (393) (858) (455) (300) (86) (841) Balance at end of the year 653 1 316 1 237 3 206 692 1 256 1 104 3 052 Maturity analysis 653 1 316 1 237 3 206 692 1 256 1 104 3 052 Non-current 154 1 316 323 1 793 589 1 256 141 1 986 Current 499 – 914 1 413 103 – 963 1 066 Company Balance at beginning of the year 692 1 256 1 069 3 017 778 1 470 563 2 811 Payments made 426 – 843 1 269 369 – 774 1 143 Recognised in profit or loss – 60 (374) (314) – 86 (182) (96) Transfers (465) – (393) (858) (455) (300) (86) (841) Disposal of business 12 – – (23) (23) – – – – Balance at end of the year 653 1 316 1 122 3 091 692 1 256 1 069 3 017 Maturity analysis 653 1 316 1 122 3 091 692 1 256 1 069 3 017 Non-current 154 1 316 322 1 792 589 1 256 139 1 984 Current 499 – 800 1 299 103 – 930 1 033 101 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 20. Trade and other receivables 2024 2023 Receivable Amounts Allowance Carrying Receivable Amounts Allowance Carrying before not meeting for value before not meeting for value collectability collectability impairment collectability collectability impairment adjustments criteria adjustments criteria Rm Rm Rm Rm Rm Rm Rm Rm Group Financial instruments Trade receivables International 2 397 – (597) 1 800 1 708 – (246) 1 462 Local large power users 93 022 (59 875) (4 953) 28 194 74 904 (51 279) (2 927) 20 698 Municipalities 80 154 (59 875) (4 359) 15 920 63 780 (51 279) (2 485) 10 016 Other 12 868 – (594) 12 274 11 124 – (442) 10 682 Local small power users 5 860 (1 668) (1 191) 3 001 5 532 (2 061) (1 026) 2 445 Soweto 1 668 (1 668) – – 2 061 (2 061) – – Other 4 192 – (1 191) 3 001 3 471 – (1 026) 2 445 101 279 (61 543) (6 741) 32 995 82 144 (53 340) (4 199) 24 605 Other receivables 3 033 – (592) 2 441 2 751 – (500) 2 251 104 312 (61 543) (7 333) 35 436 84 895 (53 340) (4 699) 26 856 Non-financial instruments 4 570 4 570 3 947 3 947 VAT 73 73 – – VAT on cash basis receivables 4 497 4 497 3 947 3 947 108 882 (61 543) (7 333) 40 006 88 842 (53 340) (4 699) 30 803 Maturity analysis 108 882 (61 543) (7 333) 40 006 88 842 (53 340) (4 699) 30 803 Non-current 4 090 – (59) 4 031 4 101 – – 4 101 Current 104 792 (61 543) (7 274) 35 975 84 741 (53 340) (4 699) 26 702 Company Financial instruments Trade receivables International 15 – – 15 1 708 – (246) 1 462 Local large power users 93 022 (59 875) (4 953) 28 194 74 904 (51 279) (2 927) 20 698 Municipalities 80 154 (59 875) (4 359) 15 920 63 780 (51 279) (2 485) 10 016 Other 12 868 – (594) 12 274 11 124 – (442) 10 682 Local small power users 5 860 (1 668) (1 191) 3 001 5 532 (2 061) (1 026) 2 445 Soweto 1 668 (1 668) – – 2 061 (2 061) – – Other 4 192 – (1 191) 3 001 3 471 – (1 026) 2 445 98 897 (61 543) (6 144) 31 210 82 144 (53 340) (4 199) 24 605 Other receivables 4 607 – (308) 4 299 5 985 – (515) 5 470 103 504 (61 543) (6 452) 35 509 88 129 (53 340) (4 714) 30 075 Non-financial instruments VAT on cash basis receivables 4 497 4 497 3 947 3 947 108 001 (61 543) (6 452) 40 006 92 076 (53 340) (4 714) 34 022 Maturity analysis 108 001 (61 543) (6 452) 40 006 92 076 (53 340) (4 714) 34 022 Non-current 4 368 – (12) 4 356 5 164 – (30) 5 134 Current 103 633 (61 543) (6 440) 35 650 86 912 (53 340) (4 684) 28 888 Group Company 2024 2023 2024 2023 Note Rm Rm Rm Rm Reconciliation of movements in amounts not meeting collectability criteria Balance at beginning of the year 53 340 44 144 53 340 44 144 Revenue not meeting collectability criteria 31 17 245 15 774 17 245 15 774 Finance income not meeting collectability criteria1 39 (242) 3 416 (242) 3 416 Cash basis revenue recognised 31 (8 347) (7 563) (8 347) (7 563) Write-offs (453) (2 431) (453) (2 431) Balance at end of the year 61 543 53 340 61 543 53 340 Refer to note 5.1.1 for a reconciliation of the movements in allowance for impairment. 1. The net credit resulted from the reversal of interest raised during March 2023 for municipalities approved on the debt relief programme in the current year. No interest was raised on these municipalities from 1 April 2023. 102 21. Investments Portfolio Managed by Purpose Treasury Treasury division To maintain ring-fenced funds over the remaining life of Koeberg power station for nuclear decommissioning activities in line with the requirements of the National Nuclear Regulator Act, 47 of 1999. Insurance Escap To maintain adequate ring-fenced capital reserves to meet the statutory solvency requirements of the Insurance Act, 18 of 2017. 2024 2023 Gross Allowance Carrying Gross Allowance Carrying for value for value impairment impairment Rm Rm Rm Rm Rm Rm 21.1 Treasury investments Group and company Fixed deposits 1 028 (4) 1 024 – – – Maturity analysis Non-current 1 028 (4) 1 024 – – – 21.2 Insurance investments Group Negotiable certificates of deposit 13 911 (11) 13 900 14 131 (16) 14 115 Floating rate notes 2 038 (14) 2 024 1 022 (4) 1 018 Inflation-linked bonds 1 037 (9) 1 028 – – – Listed shares 1 550 – 1 550 1 514 – 1 514 18 536 (34) 18 502 16 667 (20) 16 647 Maturity analysis 18 536 (34) 18 502 16 667 (20) 16 647 Non-current 2 038 (14) 2 024 1 022 (4) 1 018 Current 16 498 (20) 16 478 15 645 (16) 15 629 Group Total investments 19 564 ( 38) 19 526 16 667 ( 20) 16 647 Maturity analysis 19 564 ( 38) 19 526 16 667 ( 20) 16 647 Non-current 3 066 ( 18) 3 048 1 022 ( 4) 1 018 Current 16 498 ( 20) 16 478 15 645 ( 16) 15 629 22. Cash and cash equivalents Group Company 2024 2023 2024 2023 Rm Rm Rm Rm Bank balances 10 865 7 514 10 245 5 830 Fixed deposits 12 720 2 12 720 2 23 585 7 516 22 965 5 832 23. Share capital Group and company 2024 2023 Shares Shares Authorised ordinary shares 300 000 000 000 300 000 000 000 Issued Balance at beginning of the year 241 550 276 001 219 692 945 001 Share capital issued – 21 857 331 000 Balance at end of the year 241 550 276 001 241 550 276 001 Unissued 58 449 723 999 58 449 723 999 The unissued share capital is under the control of the Government of the Republic of South Africa, represented by the Minister of Energy and Electricity (previously DPE), as the shareholder representative. 103 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 24. Debt securities and borrowings Group Company 2024 2023 2024 2023 Rm Rm Rm Rm Eskom bonds 165 809 160 218 170 931 165 294 Commercial paper 748 896 – – Eurorand zero coupon bonds 8 045 7 128 8 045 7 128 Foreign bonds 64 551 75 411 64 551 75 411 Development financing institutions 139 270 137 352 139 270 137 352 Export credit facilities 25 583 15 956 25 583 15 956 Other loans 8 194 26 968 11 905 27 236 412 200 423 929 420 285 428 377 Maturity analysis 412 200 423 929 420 285 428 377 Non-current 359 692 367 993 363 992 372 195 Current 52 508 55 936 56 293 56 182 Group Company Currency Security Interest rate Nominal Maturity Carrying value Carrying value number date 2024 2023 2024 2023 2024 2023 2024 2023 % % m m Rm Rm Rm Rm Eskom bonds 165 809 160 218 170 931 165 294 ZAR ES26 1,2 9.26 9.26 37 987 37 987 Apr 26 33 392 33 025 38 514 38 101 ZAR EL281 2.55 2.55 6 278 6 278 May 28 11 494 10 902 11 494 10 902 ZAR EL291 1.90 1.90 5 370 5 370 Nov 29 9 304 8 793 9 304 8 793 ZAR EL301 2.30 2.30 5 136 5 136 Jul 30 8 478 8 023 8 478 8 023 ZAR EL311 2.10 2.10 5 699 5 699 Jun 31 8 864 8 369 8 864 8 369 ZAR ECN32 2.95 2.95 5 000 5 000 Mar 32 7 629 7 257 7 629 7 257 ZAR ES331 9.21 9.21 34 542 34 542 Sep 33 31 019 30 789 31 019 30 789 ZAR EL361 2.25 2.25 5 594 5 594 Jan 36 8 151 7 698 8 151 7 698 ZAR EL371 2.25 2.25 23 725 23 725 Jan 37 28 473 26 416 28 473 26 416 ZAR ES421 10.39 10.39 21 437 21 437 Apr 42 19 005 18 946 19 005 18 946 Commercial paper 748 896 – – ZAR n/a 10.70 9.28 291 358 May 52 3 294 360 – – ZAR n/a 11.16 9.42 449 530 May 55 3,4 454 536 – – Eurorand zero coupon bonds5 8 045 7 128 8 045 7 128 ZAR n/a 13.33 13.33 8 000 8 000 Aug 27 5 240 4 622 5 240 4 622 ZAR n/a 11.89 11.89 7 500 7 500 Dec 32 2 805 2 506 2 805 2 506 Foreign bonds 64 551 75 411 64 551 75 411 USD n/a – 6.90 – 1 000 Aug 23 – 17 890 – 17 890 USD n/a 7.39 7.39 1 250 1 250 Feb 25 23 904 22 259 23 904 22 259 USD n/a1 5.42 5.42 500 500 Jul 27 19 122 8 471 19 122 8 471 USD n/a 8.47 8.47 500 500 Aug 28 9 588 8 947 9 588 8 947 USD n/a1 6.37 6.37 1 000 1 000 Aug 28 9 185 17 844 9 185 17 844 ZAR n/a1 14.15 – 2 753 – Mar 31 2 752 – 2 752 – Balances carried forward to the next page 239 153 243 653 243 527 247 833 1. Government guaranteed. 2. Includes, inter alia, instruments issued to subsidiaries. 3. 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. 4. The maturity dates were renegotiated for an additional 32 years. 5. Holders have a right to first charge against revenue and assets of Eskom in terms of section 7 of the Eskom Conversion Act, 13 of 2001. 104 Group Company Currency Security Interest rate Nominal Maturity Carrying value Carrying value number date 2024 2023 2024 2023 2024 2023 2024 2023 % % m m Rm Rm Rm Rm Balances carried forward from the previous page 239 153 243 653 243 527 247 833 Development financing institutions1 139 270 137 352 139 270 137 352 ZAR n/a 2 9.74 8.80 600 733 Aug 28 610 744 610 744 USD n/a2 6.95 6.24 87 107 Aug 28 1 672 1 906 1 672 1 906 EUR n/a2 4.33 4.01 346 409 Aug 29 7 142 7 937 7 142 7 937 ZAR n/a2 8.96 8.10 3 928 4 642 Aug 29 3 986 4 703 3 986 4 703 ZAR n/a2 10.10 10.10 2 164 2 557 Sep 29 2 162 2 553 2 162 2 553 USD n/a2 3.47 3.47 2 6 Sep 30 36 99 36 99 ZAR n/a 10.47 10.47 12 000 12 000 Jan 31 12 156 12 149 12 156 12 149 EUR n/a2 5.39 4.60 313 358 Feb 31 5 845 6 326 5 845 6 326 USD n/a2 6.39 5.76 5 5 Aug 31 87 92 87 92 ZAR n/a – 7.92 – 818 Mar 32 3 – 821 – 821 USD n/a2 8.01 7.75 3 313 3 378 Sep 33 62 238 59 237 62 238 59 237 USD n/a2 8.70 7.99 7 7 Feb 36 121 121 121 121 ZAR n/a2 12.39 11.45 3 528 3 822 Feb 36 3 534 3 822 3 534 3 822 ZAR n/a2 9.14 9.14 25 531 27 297 May 38 26 519 28 349 26 519 28 349 USD n/a2 6.56 4.21 21 1 Aug 38 400 15 400 15 ZAR n/a2 9.39 8.50 837 791 Nov 38 857 806 857 806 USD n/a2 6.88 5.71 120 102 Mar 39 2 275 1 803 2 275 1 803 USD n/a2 6.36 – 1 – Jun 42 21 – 21 – ZAR n/a2 10.56 10.36 3 833 3 173 Nov 43 3 930 3 253 3 930 3 253 USD n/a2 0.25 0.25 237 107 May 51 4 496 1 889 4 496 1 889 USD n/a2 0.25 0.25 62 41 Feb 62 4 1 183 727 1 183 727 Export credit facilities 25 583 15 956 25 583 15 956 EUR n/a – 4.63 – 5 Sep 23 – 91 – 91 EUR n/a 4.81 3.82 1 2 Jul 24 17 46 17 46 EUR n/a 4.81 4.76 147 258 Jan 27 2 928 4 803 2 928 4 803 EUR n/a 5.16 3.81 123 219 Jul 27 2 490 3 989 2 490 3 989 ZAR n/a 10.67 9.74 630 902 Jul 27 592 842 592 842 USD n/a2 10.99 – 750 – Mar 29 14 076 – 14 076 – USD n/a 2.32 2.32 315 382 Mar 31 5 480 6 185 5 480 6 185 Other loans and bonds5 8 194 26 968 11 905 27 236 ZAR n/a 11.90 11.26 1 000 2 000 Apr 24 1 023 2 031 1 023 2 031 ZAR n/a – 9.63 – 15 000 Oct 23 – 15 171 – 15 171 ZAR n/a 14.84 13.43 791 3 451 Feb 25 6 717 3 216 717 3 216 ZAR n/a 13.29 12.37 4 250 4 250 Feb 25 4 326 4 318 4 326 4 318 ZAR n/a 13.19 12.99 2 000 2 100 Feb 27 2 098 2 198 2 098 2 198 On ZAR n/a7 10.50 7.30 3 740 300 demand – – 3 741 302 On ZAR n/a7 – – 30 34 demand 30 34 – – 412 200 423 929 420 285 428 377 1. Latest in a range of maturity dates is indicated for these instruments. 2. Government guaranteed. 3. The loan was voluntarily repaid before the maturity date. 4. Later maturity date due to additional drawdown. 5. Comprises of loans with various banking institutions. 6. The maturity date was incorrectly disclosed as August 2023 in the prior year. 7. Includes, inter alia, current accounts with subsidiaries that have no repayment terms. 105 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 25. Payments received in advance and contract liabilities and deferred income Customer Government Other Total connections grant Note Rm Rm Rm Rm 25.1 Payments received in advance 2024 Group Balance at beginning of the year 5 582 1 765 665 8 012 Payments received 1 977 3 060 238 5 275 Transfers to contract liabilities and deferred income 25.2 (296) (2 897) – (3 193) Income recognised (401) (165) (215) (781) Balance at end of the year 6 862 1 763 688 9 313 Maturity analysis 6 862 1 763 688 9 313 Non-current 4 891 – 122 5 013 Current 1 971 1 763 566 4 300 Company Balance at beginning of the year 5 582 1 765 657 8 004 Payments received 1 977 3 060 168 5 205 Transfers to contract liabilities and deferred income 25.2 (296) (2 897) – (3 193) Income recognised (401) (165) (215) (781) Disposal of business 12 (2 585) – (14) (2 599) Balance at end of the year 4 277 1 763 596 6 636 Maturity analysis 4 277 1 763 596 6 636 Non-current 2 343 – 135 2 478 Current 1 934 1 763 461 4 158 2023 Group Balance at beginning of the year 4 504 1 201 751 6 456 Payments received 1 681 3 120 244 5 045 Transfers to contract liabilities and deferred income 25.2 (206) (2 384) – (2 590) Income recognised (397) (172) (330) (899) Balance at end of the year 5 582 1 765 665 8 012 Maturity analysis 5 582 1 765 665 8 012 Non-current 3 864 – 122 3 986 Current 1 718 1 765 543 4 026 Company Balance at beginning of the year 4 504 1 201 763 6 468 Payments received 1 681 3 120 221 5 022 Transfers to contract liabilities and deferred income 25.2 (206) (2 384) – (2 590) Income recognised (397) (172) (327) (896) Balance at end of the year 5 582 1 765 657 8 004 Maturity analysis 5 582 1 765 657 8 004 Non-current 3 864 – 136 4 000 Current 1 718 1 765 521 4 004 106 Customer Government Embedded Total connections grant derivatives Note Rm Rm Rm Rm 25.2 Contract liabilities and deferred income 2024 Group Balance at beginning of the year 4 499 22 925 673 28 097 Transfers of property, plant and equipment from customers 288 – – 288 Transfers from payments received in advance 25.1 296 2 897 – 3 193 Day-one fair value gain 16 – – 9 279 9 279 Income recognised 37 (282) (1 737) – (2 019) Amortisation of day-one fair value 38 – – (467) (467) Balance at end of the year 4 801 24 085 9 485 38 371 Maturity analysis 4 801 24 085 9 485 38 371 Non-current 4 520 22 310 7 857 34 687 Current 281 1 775 1 628 3 684 Company Balance at beginning of the year 4 499 22 925 673 28 097 Transfers of property, plant and equipment from customers 288 – – 288 Transfers from payments received in advance 25.1 296 2 897 – 3 193 Day-one fair value gain 16 – – 9 279 9 279 Income recognised 37 (282) (1 737) – (2 019) Amortisation of day-one fair value 38 – – (467) (467) Disposal of business 12 (1 038) – – (1 038) Balance at end of the year 3 763 24 085 9 485 37 333 Maturity analysis 3 763 24 085 9 485 37 333 Non-current 3 521 22 310 7 857 33 688 Current 242 1 775 1 628 3 645 2023 Group Balance at beginning of the year 4 510 22 182 754 27 446 Transfers of property, plant and equipment from customers 45 – – 45 Transfers from payments received in advance 25.1 206 2 384 – 2 590 Income recognised 37 (262) (1 641) – (1 903) Amortisation of day-one fair value 38 – – (81) (81) Balance at end of the year 4 499 22 925 673 28 097 Maturity analysis 4 499 22 925 673 28 097 Non-current 4 224 21 262 592 26 078 Current 275 1 663 81 2 019 Company Balance at beginning of the year 4 510 22 182 754 27 446 Transfers of property, plant and equipment from customers 45 – – 45 Transfers from payments received in advance 25.1 206 2 384 – 2 590 Income recognised 37 (262) (1 641) – (1 903) Amortisation of day-one fair value 38 – – (81) (81) Balance at end of the year 4 499 22 925 673 28 097 Maturity analysis 4 499 22 925 673 28 097 Non-current 4 224 21 262 592 26 078 Current 275 1 663 81 2 019 107 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 26. Employee benefit obligations Post- Pension Bonus Leave Total employment benefits medical benefits Note Rm Rm Rm Rm Rm 2024 Group Balance at beginning of the year 17 728 – 450 2 308 20 486 Recognised in profit or loss Employee benefit expense – raised 396 1 952 1 051 987 4 386 Finance cost 40 2 338 82 – – 2 420 Recognised in other comprehensive income Remeasurement of benefits (1 252) 627 – – (625) Cash paid (836) (2 661) (1 024) (921) (5 442) Balance at end of the year 18 374 – 477 2 374 21 225 Maturity analysis 18 374 – 477 2 374 21 225 Non-current 17 448 – – – 17 448 Current 926 – 477 2 374 3 777 Company Balance at beginning of the year 17 378 – 394 2 073 19 845 Recognised in profit or loss Employee benefit expense – raised 395 1 689 740 909 3 733 Finance cost 40 2 293 82 – – 2 375 Recognised in other comprehensive income Remeasurement of benefits (1 228) 627 – – (601) Cash paid (815) (2 398) (715) (843) (4 771) Disposal of business 12 (885) – (44) (286) (1 215) Balance at end of the year 17 138 – 375 1 853 19 366 Maturity analysis 17 138 – 375 1 853 19 366 Non-current 16 236 – – – 16 236 Current 902 – 375 1 853 3 130 2023 Group Balance at beginning of the year 17 153 – 430 2 271 19 854 Recognised in profit or loss Employee benefit expense – raised 371 2 067 583 1 007 4 028 Finance cost 40 2 058 98 – – 2 156 Recognised in other comprehensive income Remeasurement of benefits (1 097) 336 – – (761) Cash paid (757) (2 501) (563) (970) (4 791) Balance at end of the year 17 728 – 450 2 308 20 486 Maturity analysis 17 728 – 450 2 308 20 486 Non-current 16 902 – – – 16 902 Current 826 – 450 2 308 3 584 Company Balance at beginning of the year 16 798 – 375 2 023 19 196 Recognised in profit or loss Employee benefit expense – raised 369 1 814 426 931 3 540 Finance cost 40 2 016 98 – – 2 114 Recognised in other comprehensive income Remeasurement of benefits (1 069) 336 – – (733) Cash paid (736) (2 248) (407) (881) (4 272) Balance at end of the year 17 378 – 394 2 073 19 845 Maturity analysis 17 378 – 394 2 073 19 845 Non-current 16 573 – – – 16 573 Current 805 – 394 2 073 3 272 Refer to note 4 for relevant critical accounting estimates and assumptions. 108 26.1 Post-employment medical benefits Group Company 2024 2023 2024 2023 Rm Rm Rm Rm Actuarial gain Financial assumptions 1 134 1 204 1 136 1 185 Experience adjustments 118 (107) 92 (116) 1 252 1 097 1 228 1 069 Expected maturity analysis of undiscounted benefits Non-current 792 379 455 911 716 252 452 372 Between one and two years 1 018 900 989 877 Between two and five years 3 932 3 443 3 785 3 356 After five years 787 429 451 568 711 478 448 139 Current 926 826 902 805 793 305 456 737 717 154 453 177 The group expects to pay R926 million and the company R902 million in contributions to this plan in the 2025 financial year. The increase in the medical inflation assumption resulted in higher undiscounted benefits. Refer to note 4.2 for the principal actuarial assumptions used and a sensitivity analysis. 26.2 Pension benefits Movement reconciliation Group and company 2024 2023 Fund Asset Fund Net asset/ Fund Asset Fund Net asset/ assets ceiling obligations (liability) assets ceiling obligations (liability) adjustment adjustment Rm Rm Rm Rm Rm Rm Rm Rm Asset/(liability) at beginning of the year 183 154 (74 530) (108 624) – 176 855 (70 049) (106 806) – Recognised in profit or loss Employee benefit expense – – (1 952) (1 952) – – (2 067) (2 067) Finance income/(cost) 23 933 (9 838) (14 177) (82) 21 015 (8 407) (12 706) (98) Recognised in other comprehensive income Remeasurement of benefits (5 883) 4 007 1 249 (627) (11 231) 3 926 6 969 (336) Return on plan assets in excess of finance cost (5 883) – – (5 883) (11 231) – – (11 231) Adjustment to asset ceiling – 4 007 – 4 007 – 3 926 – 3 926 Actuarial gain – – 1 249 1 249 – – 6 969 6 969 Payments received by the fund 4 154 – (1 493) 2 661 3 917 – (1 416) 2 501 Employer funded 2 661 – – 2 661 2 501 – – 2 501 Member funded 1 493 – (1 493) – 1 416 – (1 416) – Payments made by the fund (7 848) – 7 848 – (7 402) – 7 402 – Benefit and pension payments (7 040) – 7 040 – (6 713) – 6 713 – Fund management costs (378) – 378 – (345) – 345 – Net transfers (from)/to the fund (430) – 430 – (344) – 344 – Asset/(liability) at end of the year 197 510 (80 361) (117 149) – 183 154 (74 530) (108 624) – 109 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 26. Employee benefit obligations (continued) 26.2 Pension benefits (continued) Fund assets composition Group and company 2024 2023 Domestic International Total Domestic International Total Rm Rm Rm Rm Rm Rm Equities 72 735 48 778 121 513 73 127 37 370 110 497 Bonds 34 482 6 922 41 404 33 626 5 809 39 435 Issued by Eskom 2 148 – 2 148 2 465 – 2 465 Other 32 334 6 922 39 256 31 161 5 809 36 970 Property 11 058 – 11 058 11 091 – 11 091 Cash 2 256 3 332 5 588 1 975 1 751 3 726 Hedge funds 1 787 – 1 787 1 486 – 1 486 Collective investment schemes – 16 161 16 161 – 16 919 16 919 122 318 75 193 197 511 121 305 61 849 183 154 Group and company 2024 2023 Rm Rm Actuarial gain Financial assumptions 425 5 922 Experience adjustments 824 1 047 1 249 6 969 Expected maturity analysis of undiscounted benefits Non-current 2 872 110 1 739 253 Between one and two years 7 680 6 679 Between two and five years 27 009 23 055 After five years 2 837 421 1 709 519 Current 6 958 6 104 2 879 068 1 745 357 The group expects to pay R3 107 million and the company R2 370 million in contributions to this plan in the 2025 financial year. The increase in the long-term price and future salary inflation assumptions resulted in higher undiscounted benefits. Refer to note 4.3 for the principal actuarial assumptions used and a sensitivity analysis. 26.3 Bonus The bonus comprises of an accrual for a thirteenth cheque generally paid in November. Managerial employees can choose to spread the payment over the course of the year instead of receiving the full amount in November. 110 27. Provisions Power station-related Mine-related Compensation Other Total environmental restoration closure, events Nuclear plant Other pollution generating control and plant rehabilitation Note Rm Rm Rm Rm Rm Rm 2024 Group Balance at beginning of the year 21 824 15 863 13 113 4 043 1 214 56 057 Recognised in profit or loss (192) 470 (1 074) 702 4 040 3 946 Raised 421 2 124 156 702 4 057 7 460 Reversed (284) (1 198) (305) – (17) (1 804) Change in discount rate (329) (456) (925) – – (1 710) Capitalised to property, plant and equipment 8 (289) (1 988) – (492) – (2 769) Raised – 18 – 2 412 – 2 430 Reversed (24) (1 893) – (2 904) – (4 821) Change in discount rate (265) (113) – – – (378) Capitalised to future fuel supplies 10 – – 382 – – 382 Raised – – 814 – – 814 Reversed – – (392) – – (392) Change in discount rate – – (40) – – (40) Capitalised to inventories 13 98 – (185) – – (87) Raised 98 – – – – 98 Reversed – – (185) – – (185) Finance cost 40 2 296 1 741 1 351 – 900 6 288 Cash paid (58) – (307) (729) (837) (1 931) Balance at end of the year 23 679 16 086 13 280 3 524 5 317 61 886 Maturity analysis 23 679 16 086 13 280 3 524 5 317 61 886 Non-current 23 153 16 086 13 055 – 267 52 561 Current 526 – 225 3 524 5 050 9 325 Company Balance at beginning of the year 21 824 15 863 13 113 4 043 1 130 55 973 Recognised in profit or loss (192) 470 (1 074) 702 3 946 3 852 Raised 421 2 124 156 702 3 963 7 366 Reversed (284) (1 198) (305) – (17) (1 804) Change in discount rate (329) (456) (925) – – (1 710) Capitalised to property, plant and equipment 8 (289) (1 988) – (492) – (2 769) Raised – 18 – 2 412 – 2 430 Reversed (24) (1 893) – (2 904) – (4 821) Change in discount rate (265) (113) – – – (378) Capitalised to future fuel supplies 10 – – 382 – – 382 Raised – – 814 – – 814 Reversed – – (392) – – (392) Change in discount rate – – (40) – – (40) Capitalised to inventories 13 98 – (185) – – (87) Raised 98 – – – – 98 Reversed – – (185) – – (185) Finance cost 40 2 296 1 741 1 351 – 901 6 289 Cash paid (58) – (307) (729) (779) (1 873) Disposal of business 12 – – – (15) (14) (29) Balance at end of the year 23 679 16 086 13 280 3 509 5 184 61 738 Maturity analysis 23 679 16 086 13 280 3 509 5 184 61 738 Non-current 23 153 16 086 13 055 – 267 52 561 Current 526 – 225 3 509 4 917 9 177 111 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 27. Provisions (continued) Power station-related Mine-related Compensation Other Total environmental restoration closure, events Nuclear plant Other pollution generating control and plant rehabilitation Note Rm Rm Rm Rm Rm Rm 2023 Group Balance at beginning of the year 18 269 16 293 15 303 7 204 1 132 58 201 Recognised in profit or loss 2 3281 (720)1 (427)1 (285) 916 1 812 Raised 2 7741 6511 8001 811 1 144 6 180 Reversed – (628)1 (46)1 (1 096) (228) (1 998) Change in discount rate (446) (743) (1 181) – – (2 370) Capitalised to property, plant and equipment 8 (619)1 (1 378)1 – (56) – (2 053) Raised – 1 761 – 2 050 – 2 126 Reversed (455)1 (1 043)1 – (2 106) – (3 604) Change in discount rate (164) (411) – – – (575) Capitalised to future fuel supplies 10 – – (2 293)1 – – (2 293) Raised – – 141 1 – – 141 Reversed – – (1 906)1 – – (1 906) Change in discount rate – – (528) – – (528) Capitalised to inventories 13 88 – (258) – – (170) Raised 88 – 21 – – 109 Reversed – – (279) – – (279) Finance cost 40 1 922 1 668 1 455 – 16 5 061 Transfers – – (300) – – (300) Cash paid (164) – (367) (2 820) (850) (4 201) Balance at end of the year 21 824 15 863 13 113 4 043 1 214 56 057 Maturity analysis 21 824 15 863 13 113 4 043 1 214 56 057 Non-current 21 323 15 827 12 875 – 118 50 143 Current 501 36 238 4 043 1 096 5 914 Company Balance at beginning of the year 18 269 16 293 15 303 7 204 982 58 051 Recognised in profit or loss 2 3281 (720)1 (427)1 (285) 934 1 830 Raised 2 7741 6511 8001 811 1 141 6 177 Reversed – (628)1 (46)1 (1 096) (207) (1 977) Change in discount rate (446) (743) (1 181) – – (2 370) Capitalised to property, plant and equipment 8 (619)1 (1 378)1 – (56) – (2 053) Raised –1 761 – 2 050 – 2 126 Reversed (455)1 (1 043)1 – (2 106) – (3 604) Change in discount rate (164) (411) – – – (575) Capitalised to future fuel supplies 10 – – (2 293)1 – – (2 293) Raised – – 141 1 – – 141 Reversed – – (1 906)1 – – (1 906) Change in discount rate – – (528) – – (528) Capitalised to inventories 13 88 – (258) – – (170) Raised 88 – 21 – – 109 Reversed – – (279) – – (279) Finance cost 40 1 922 1 668 1 455 – 15 5 060 Transfers – – (300) – – (300) Cash paid (164) – (367) (2 820) (801) (4 152) Balance at end of the year 21 824 15 863 13 113 4 043 1 130 55 973 Maturity analysis 21 824 15 863 13 113 4 043 1 130 55 973 Non-current 21 323 15 827 12 875 – 116 50 141 Current 501 36 238 4 043 1 014 5 832 Refer to note 4.5 for relevant critical accounting estimates and assumptions for the power station-related environmental restoration and mine-related closure, pollution control and rehabilitation related provisions and note 44.2 for compensation events. 1. Refer to note 48. 112 28. Lease liabilities 2024 2023 Gross Future Carrying Gross Future Carrying payables finance value payables finance value charges charges Rm Rm Rm Rm Rm Rm Group Non-current 9 794 (3 241) 6 553 11 543 (4 128) 7 415 Between one and five years 8 488 (3 154) 5 334 8 527 (3 742) 4 785 After five years 1 306 (87) 1 219 3 016 (386) 2 630 Current 1 750 (900) 850 1 859 (1 148) 711 11 544 (4 141) 7 403 13 402 (5 276) 8 126 Company Non-current 359 (107) 252 11 542 (4 128) 7 414 Between one and five years 324 (105) 219 8 527 (3 742) 4 785 After five years 35 (2) 33 3 015 (386) 2 629 Current 108 (47) 61 1 773 (1 147) 626 467 (154) 313 13 315 (5 275) 8 040 Group Company 2024 2023 2024 2023 Note Rm Rm Rm Rm Movement reconciliation Balance at beginning of the year 8 126 8 603 8 040 8 602 Additions 8 216 6 19 Disposals (11) (6) (7) (6) Finance costs 40 1 142 1 267 1 135 1 244 Cash paid (1 862) (1 954) (1 772) (1 819) Capital (721) (687) (638) (575) Finance costs (1 141) (1 267) (1 134) (1 244) Disposal of business 12 – – (7 089) – Balance at end of the year 7 403 8 126 313 8 040 Refer to note 36 for short-term and low-value lease expenses. 29. Trade and other payables Financial instruments 47 912 42 817 39 703 44 894 Trade and other payables 31 555 28 491 23 891 28 476 Accruals 8 926 7 593 8 381 9 685 Deposits 7 431 6 733 7 431 6 733 Non-financial instruments 2 016 1 971 1 959 1 914 VAT 1 437 1 398 1 380 1 341 Environmental levy 579 573 579 573 49 928 44 788 41 662 46 808 Maturity analysis 49 928 44 788 41 662 46 808 Non-current 264 524 159 203 Current 49 664 44 264 41 503 46 605 30. Loan from shareholder Balance at beginning of the year – – – – Amounts advanced 76 000 – 76 000 – Converted to equity (44 000) – (44 000) – Balance at end of the year 32 000 – 32 000 – Maturity analysis Current 32 000 – 32 000 – The Minister of Finance approved the conversion of R16 billion on 13 December 2023 and R28 billion on 20 March 2024 of the loan to equity. Shares for the conversion to equity were issued on 22 April 2024. Refer to note 47. 113 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued Group Company 2024 2023 2024 2023 Note Rm Rm Rm Rm 31. Revenue Redistributors (metropolitan and municipal customers) 115 460 103 475 115 460 103 475 Invoiced to customers 124 302 111 414 124 302 111 414 Amounts not meeting collectability criteria 20 (17 081) (15 421) (17 081) (15 421) Recognised on a cash received basis 20 8 239 7 482 8 239 7 482 Residential 7 615 7 016 7 615 7 016 Invoiced to customers 7 671 7 288 7 671 7 288 Amounts not meeting collectability criteria 20 (164) (353) (164) (353) Recognised on a cash received basis 20 108 81 108 81 Industrial 61 367 53 269 61 367 53 269 Mining 47 923 39 958 47 923 39 958 Commercial 20 900 17 622 20 900 17 622 Agricultural 13 858 11 660 13 858 11 660 International 11 457 10 699 11 457 10 699 Rail 3 835 3 374 3 835 3 374 Public lighting 317 279 317 279 Post-paid electricity sales 282 732 247 352 282 732 247 352 Prepaid electricity sales 11 329 10 485 11 329 10 485 Total electricity sales 294 061 257 837 294 061 257 837 Connections 1 273 1 242 1 273 1 242 Other 480 464 480 464 295 814 259 543 295 814 259 543 Sales of electricity to local customers are included in the distribution operating segment. International sales are included in the transmission segment. Other revenue consists of reconnection fees and ad hoc sundry revenue. Connections occur mainly within the transmission and distribution operating segments. 32. Other income Insurance proceeds 31 1 425 762 3 339 Insurance premiums – 6 – – Services income 22 483 – – Management fee income – – 146 156 Operating lease income 277 274 207 190 Dividend income 74 93 889 161 Other1 891 461 1 042 528 1 295 2 742 3 046 4 374 33. Primary energy Own generation costs 117 873 108 5832 117 873 108 5832 International electricity purchases 8 081 6 471 8 081 6 471 Independent power producers 47 775 41 765 47 775 41 765 173 729 156 819 173 729 156 819 Generation costs relate to the cost of coal (including logistics), uranium, water and liquid fuels that are used in the generation of electricity. Eskom uses a combination of short-, medium- and long-term agreements with suppliers for coal purchases and long-term agreements with the Department of Water and Sanitation to reimburse the department for the cost incurred in supplying water to Eskom. 1. Includes a recovery of R500 million from a supplier in 2024. Refer to note 47. 2. Refer to note 48. 114 Group Company 2024 2023 2024 2023 Note Rm Rm Rm Rm 34. Employee benefit expense Salaries 27 083 25 438 24 387 22 821 Overtime 3 029 2 509 2 505 2 021 Post-employment medical benefits 396 371 395 369 Pension benefits 1 952 2 069 1 689 1 814 Annual bonus1 1 470 1 368 1 276 1 215 Production bonus2 439 35 322 31 Leave 986 1 007 908 931 Direct costs of employment 35 355 32 797 31 482 29 202 Direct training and development 136 90 117 76 Temporary and contract staff costs 484 675 301 268 Other staff costs 1 124 724 1 070 624 Gross employee benefit expense 37 099 34 286 32 970 30 170 Capitalised to property, plant and equipment (2 003) (1 965) (2 003) (1 965) 35 096 32 321 30 967 28 205 35. Net impairment and write down/(reversal of write down) of assets 35.1 Financial assets Loans receivable 234 9 416 – Finance lease receivables (2) (1) (2) (1) Trade and other receivables 5 2 800 1 023 2 695 1 058 Treasury investments 4 – 4 – Insurance investments 14 10 – – 3 050 1 041 3 113 1 057 Bad debts recovered – trade and other receivables (33) (15) (33) (15) 3 017 1 026 3 080 1 042 35.2 Other assets Inventories 13 (277) 815 (279) 808 Trade and other receivables 693 341 693 341 416 1 156 414 1 149 3 433 2 182 3 494 2 191 36. Other expenses Managerial, technical and other fees 837 869 812 835 Lease expense 803 869 195 187 Short term 752 812 139 131 Low value 51 57 56 56 Auditors’ remuneration3 293 290 265 260 Audit of financial statements 286 284 259 254 Other assurance and related services 6 5 6 5 Regulatory related services 1 1 – 1 Net loss on disposals and write-offs of property, plant and equipment and intangible assets 275 3 414 203 3 281 Repairs and maintenance, transport and other expenses 39 233 30 956 4 46 462 36 7114 41 441 36 398 47 937 41 274 37. Depreciation and amortisation expense Depreciation of property, plant and equipment 8 34 959 33 416 4 35 031 33 2924 Amortisation of intangible assets 9 17 166 16 19 Contract liabilities and deferred income recognised (government grant) 25.2 (1 737) (1 641) (1 737) (1 641) 33 239 31 941 33 310 31 670 1. The annual bonus represents a thirteenth cheque. Refer to note 26.3. 2. The production bonus is self-funded and rewards employees for improved efficiency, operational productivity and performance in the production environment. 3. Enhanced disclosure for fees paid to the auditors is presented in line with the International Ethics Standards Board for Accountants Code Disclosure Requirements. 4. Refer to note 48. 115 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued Group Company 2024 2023 2024 2023 Note Rm Rm Rm Rm 38. Net fair value and foreign exchange gain/(loss) Profit/(loss) on items carried at fair value 15 387 29 512 15 404 29 570 Insurance investments (21) (59) – – Derivatives held for risk management 17 13 242 29 606 13 238 29 605 Embedded derivatives 16 1 699 (116) 1 699 (116) Deferred income 25 467 81 467 81 (Loss)/gain on foreign currency translation of items carried at amortised cost (12 777) (30 527) (12 770) (30 523) Cash and cash equivalents 13 37 13 37 Trade and other payables (33) (230) (26) (226) Debt securities and borrowings (12 757) (30 334) (12 757) (30 334) Amounts recycled to profit or loss from cash flow hedge reserve 34 730 34 730 Amortisation of effective portion of terminated cash flow hedges (3) 3 (3) 3 Ineffective portion of cash flow hedges 37 727 37 727 2 644 (285) 2 668 (223) 39. Finance income Treasury investments 26 – 26 – Insurance investments 1 535 1 059 – – Loans receivable 928 746 486 354 Finance lease receivables 28 32 28 32 Trade and other receivables 1 232 739 1 419 851 Invoiced to customers 990 4 155 1 177 4 267 Amounts not meeting collectability criteria 20 242 (3 416) 242 (3 416) Cash and cash equivalents 1 110 789 1 030 725 4 859 3 365 2 989 1 962 Cash interest included in finance income comprises: Insurance investments 1 380 1 014 – – Loans receivable 928 746 468 311 Finance lease receivables 28 32 28 32 Trade and other receivables 412 462 412 462 Cash and cash equivalents 1 110 789 1 030 725 3 858 3 043 1 938 1 530 40. Finance cost Debt securities and borrowings 37 263 33 744 37 644 33 874 Eskom bonds 14 683 15 528 15 126 15 711 Commercial paper 87 75 – 4 Eurorand zero coupon bonds 917 810 917 810 Foreign bonds 5 077 5 021 5 077 5 021 Development financing institutions 11 649 8 841 11 649 8 841 Export credit facilities 2 652 1 078 2 652 1 078 Other loans 2 198 2 391 2 223 2 409 Derivatives held for risk management 3 705 5 147 3 705 5 147 Employee benefit obligations 26 2 420 2 156 2 375 2 114 Provisions 27 6 288 5 061 6 289 5 060 Lease liabilities 28 1 142 1 267 1 135 1 244 Trade and other payables 511 464 512 462 Gross finance cost 51 329 47 839 51 660 47 901 Capitalised to property, plant and equipment 8 (8 081) (7 459) (8 081) (7 459) 43 248 40 380 43 579 40 442 Cash interest included in finance cost comprises: Debt securities and borrowings 30 184 26 425 30 500 26 578 Derivatives held for risk management 3 929 5 379 3 929 5 379 Lease liabilities 1 140 1 267 1 134 1 244 Trade and other payables 4 107 4 108 35 257 33 178 35 567 33 309 116 41. Income tax Group Company 2024 2023 2024 2023 Note Rm Rm Rm Rm Recognised in profit or loss Current tax 1 204 903 – – Current year 1 282 965 – – Over provided in prior years (78) (62) – – Deferred tax 14 28 342 (9 404)1 28 585 (8 588)1 (Reversal)/raised of temporary differences (862) 3941 (696) 1 2841 (Reversal)/raised of temporary differences (1 254) 62 1 (1 089) 8581 Under provided in prior years 392 332 393 426 Tax losses (7 442) (9 798) (7 365) (9 872) (Reversal)/raised of temporary differences (7 063) (9 458) (6 987) (9 435) Over provided in prior years (379) (340) (378) (437) Derecognition of deferred tax asset 36 646 – 36 646 – 29 546 (8 501) 28 585 (8 588) Reconciliation between standard and effective tax rate: R million Taxation income at standard rate (6 877) (9 338)1 (7 695) (9 435)1 Non-taxable income (369) (394) (590) (409) Government grants (322) (290) (322) (290) Dividend income (18) (24) (240) (43) Incentive allowances (29) (80) (28) (76) Expenses not deductible for tax purposes 211 1 304 209 1 267 Non-deductible capital expenditure 2 183 1 284 181 1 247 Donations 28 20 28 20 Prior period (over)/under provision (65) (73) 15 (11) Derecognition of deferred tax asset3 36 646 – 36 646 – Taxation expense/(income) per the income statement 29 546 (8 501) 28 585 (8 588) % Taxation income at standard rate 27.00 27.00 27.00 27.00 Non-taxable income 1.44 1.131 2.07 1.181 Government grants 1.26 0.831 1.13 0.841 Dividend income 0.07 0.071 0.84 0.121 Incentive allowances 0.11 0.231 0.10 0.221 Expenses not deductible for tax purposes (0.83) (3.76)1 (0.73) (3.63)1 Non-deductible capital expenditure2 (0.72) (3.70)1 (0.63) (3.57)1 Donations (0.11) (0.06)1 (0.10) (0.06)1 Adjustments to current tax of prior periods 0.26 0.211 (0.05) 0.031 Derecognition of deferred tax asset3 (143.88) – (128.59) – Taxation (expense)/income per the income statement (116.01) 24.58 (100.30) 24.58 1. Refer to note 48. 2. Non-deductible capital expenditure includes expenditure of a capital nature and not incurred in the production of income. 3. Deferred tax assets not recognised related to the deferred tax balance previously recognised on unused tax losses raised through the income statement. Refer to note 14. 117 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 41. Income tax (continued) 2024 2023 Before tax Tax Net of tax Before tax Tax Net of tax Rm Rm Rm Rm Rm Rm Recognised in other comprehensive income Group Cash flow hedges (730) 197 (533) 717 (194) 523 Net change in fair value (493) 133 (360) 1 567 (423) 1 144 Net amount transferred to profit or loss (34) 9 (25) (730) 197 (533) Net amount transferred to initial carrying amount of hedged items (203) 55 (148) (120) 32 (88) Foreign currency translation differences 6 – 6 33 – 33 Remeasurement of benefits 625 (169) 456 761 (205) 556 (99) 28 (71) 1 511 (399) 1 112 Company Cash flow hedges (730) 197 (533) 717 (194) 523 Net change in fair value (493) 133 (360) 1 567 (423) 1 144 Net amount transferred to profit or loss (34) 9 (25) (730) 197 (533) Net amount transferred to initial carrying amount of hedged items (203) 55 (148) (120) 32 (88) Remeasurement of benefits 601 (164) 437 733 (198) 535 (129) 33 (96) 1 450 (392) 1 058 42. Cash generated from operations Group Company 2024 2023 2024 2023 Rm Rm Rm Rm Loss before tax (25 469) (34 583)1 (28 499) (34 945)1 Adjustments for: 79 563 78 872 80 331 79 436 Depreciation and amortisation expense 33 239 31 9411 33 310 31 6701 Depreciation expense – primary energy 12 12 12 12 Impairment and write down of assets (excluding bad debts recovered) 3 466 2 197 3 527 2 206 Net fair value (loss)/gain on financial instruments (2 644) 285 (2 668) 223 Net loss on disposals and write-offs of property, plant and equipment 275 3 414 203 3 281 Transfer of assets from non-electricity purchasing customers (590) (583) (590) (583) Dividend income (74) (93) (889) (161) Increase in employee benefit obligations 4 386 4 028 3 733 3 540 Increase in provisions 3 946 1 8121 3 852 1 8301 Decrease in contract liabilities and deferred income (282) (262) (282) (262) Payments made in advance recognised in profit or loss 326 98 314 96 Payments received in advance recognised in profit or loss (781) (899) (781) (896) Finance income (4 859) (3 365) (2 989) (1 962) Finance cost 43 248 40 380 43 579 40 442 Share of profit of equity-accounted investees (105) (93) – – 54 094 44 289 51 832 44 491 Changes in working capital: (13 579) (2 320) (11 920) (3 666) Increase in payments made in advance (811) (367) (742) (332) Increase in inventories (3 498) (1 048) (3 500) (1 097) Increase in trade and other receivables (11 788) (4 269) (10 840) (5 396) Increase in trade and other payables 4 481 5 411 4 466 4 661 Expenditure incurred on employee benefit obligations (5 442) (4 791) (4 771) (4 272) Expenditure incurred on provisions (1 796) (2 301) (1 738) (2 252) Increase in payments received in advance 5 275 5 045 5 205 5 022 40 515 41 969 39 912 40 825 1. Refer to note 48. 118 43. Net debt reconciliation The net debt reconciliation includes the changes arising from financing activities. Debt Loan from Lease Financial Derivatives Payments Cash and Net debt securities shareholder3 liabilities4 trading held for risk made in cash and liabilities management5 advance 6 equivalents7 borrowings2 Rm Rm Rm Rm Rm Rm Rm Rm Group Balance at 31 March 2022 396 294 – 8 603 2 903 (778) (15 885) 389 139 Net cash (decrease)/increase (9 507) – (687) (2) 4 894 (369) 8 439 2 768 Net fair value and foreign exchange losses/(gains) 30 334 – – – (30 580) – (37) (283) Foreign currency translation – – – – – – (33) (33) Other movements 6 808 8 – 210 – (231) 455 – 7 242 Balance at 31 March 2023 423 929 – 8 126 – (25 014) (692) (7 516) 398 833 Net cash (decrease)/increase (31 032) 76 000 (721) – 10 992 (426) (16 050) 38 763 Net fair value and foreign exchange losses/(gains) 12 757 – – – (12 057) – (13) 687 Foreign currency translation – – – – – – (6) (6) Other movements 6 5468 (44 000) (2) – (226) 465 – (37 217) Balance at 31 March 2024 412 200 32 000 7 403 – (26 305) (653) (23 585) 401 060 Company Balance at 31 March 2022 398 066 – 8 602 2 903 (778) (14 218) 392 577 Net cash (decrease)/increase (6 807) – (575) (2) 4 894 (369) 8 423 5 564 Net fair value and foreign exchange losses/(gains) 30 334 – – – (30 580) – (37) (283) Other movements 6 7848 – 13 – (231) 455 – 7 021 Balance at 31 March 2023 428 377 – 8 040 – (25 014) (692) (5 832) 404 879 Net cash (decrease)/increase (30 989) 76 000 (638) – 10 992 (426) (17 120) 37 819 Net fair value and foreign exchange losses/(gains) 12 757 – – – (12 057) – (13) 687 Disposal of business – – (7 089) – (27) (23) – (7 139) Other movements 10 140 8 (44 000) – – (199) 488 – (33 571) Balance at 31 March 2024 420 285 32 000 313 – (26 305) (653) (22 965) 402 675 Financing activities excludes cash and cash equivalents. 44. Financial guarantees, contingent liabilities and assets 44.1 Financial guarantees EFC loans to group employees EFC has granted loans (secured by mortgage bonds on the properties) to qualifying employees of the group. Eskom has issued guarantees to EFC to the extent to which the loan values of employees exceed the current value of the mortgage security. Eskom’s guarantee exposure is governed by the default probability of EFC, which is influenced by the risk of significant fluctuations in interest rates that might cause default on repayments. The risk-adjusted credit exposure of EFC is calculated by applying a rating agency’s annual default probabilities. Group Company 2024 2023 2024 2023 Rm Rm Rm Rm Financial guarantee – – 206 227 44.2 Contingent liabilities Legal claims There are legal claims in process against Eskom as a result of disputes with various parties. Based on the evidence available, there is no present obligation relating to these claims. The claims are disclosed as a contingent liability and amounted to 6 563 3 561 Compensation events The final settlement of open compensation claims is generally far below the amount claimed by contractors. The adjudication rulings are mostly in favour of Eskom, resulting in no additional expenditure being incurred. Eskom recognises a provision based on the best estimate of the potential expenditure required to settle open compensation claims. 1. Refer to note 48. 2. Refer to note 24. 3. Refer to note 30. 4. Refer to note 28. 5. Refer to note 17 (hedge exposure covering debt securities and borrowings). 6. Refer to note 19 (securing debt raised). 7. Refer to note 22. 8. Mainly constitutes interest accrual. 119 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 44. Financial guarantees, contingent liabilities and assets (continued) 44.2 Contingent liabilities (continued) Compensation events (continued) There are uncertainties relating to the finalisation of open compensation events which are subject to a contractual adjudication process where the outcome could be different to management’s assessment of the probability of an outflow of resources and best estimate of the expenditure. The potential financial impact can therefore not be precisely determined due to the ongoing nature of the negotiations and the complexities involved. Eskom is actively engaging with the relevant parties to resolve matters in line with the contractual agreements. The group continuously monitors the developments related to these contingencies and will recognise the liabilities in the financial statements when it becomes probable that an outflow of resources will be required and the amount can be reasonably estimated. The estimated potential contingent liabilities at 31 March 2024 arising from compensation events were R6 683 million (2023: R4 640 million) considering the historical outcomes on similar matters. Claims from customers Some electricity customers occasionally submit claims against Eskom because of billing disputes. These claims are subject to a dispute investigations process of which the outcome is uncertain and the potential financial impact cannot be reliably determined. Non-technical energy losses The Eskom online vending system environment was compromised resulting in the creation of illicit prepaid electricity tokens for Eskom and those municipalities that make use of Eskom’s online vending platform. When an illicit token is loaded into a prepaid meter, the token will be accepted and update the meter with the available credit kilowatt hours. There is a cost associated with delivering electricity against the credit kilowatt hours for customers using illicit tokens. This results in non-technical losses for delivery against illicit tokens used and will also result in future non-technical losses for unused illicit tokens, as no corresponding revenue will be received. Refer to note 51.3 for the current non-technical losses experienced. The potential obligations emanating from the exposure that illicit tokens can be used in the future cannot be reliably measured because of the high level of uncertainty around the completeness of the number of illicit prepaid electricity tokens created as well as the number of tokens already utilised and those that remain compatible with Eskom meters after the key revision standard rollover (KRN 1 change to KRN 2). 44.3 Contingent assets There are certain negotiation processes underway by the SIU for the recovery of payments by Eskom arising from state capture. Further details are not currently available as Eskom is reliant on the process as controlled by the SIU. The outcome of these processes will be assessed once the details are made available to Eskom. 45. Commitments Group Company 2024 2023 2024 2023 Rm Rm Rm Rm 45.1 Capital expenditure Contracted capital expenditure 28 999 29 328 23 712 29 232 Within one year 17 417 17 958 16 949 17 863 One to five years 11 275 11 365 6 763 11 365 After five years 307 5 – 4 Capital expenditure excludes finance costs capitalised and foreign currency fluctuations. The capital expenditure will be financed through drawdowns from existing project related loan agreements and internally generated funds. The capital programme will be reviewed and reprioritised by management in line with the funds available. 45.2 Leases As lessee The future minimum lease payments payable under non-cancellable leases are: Within one year 646 195 31 58 Short-term leases 614 137 1 1 Low-value leases 32 58 30 57 One to five years Low-value leases 5 34 5 29 Total 651 229 36 87 Short-term leases 614 137 1 1 Low-value leases 37 92 35 86 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 the statement of financial position and income statement. As lessor The future minimum lease payments receivable under non-cancellable operating leases are: 247 274 175 195 Within one year 153 146 90 74 One to five years 88 119 79 112 After five years 6 9 6 9 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. 120 46. Related-party transactions and balances Eskom (and its subsidiaries) are classified as schedule 2 public entities in terms of the PFMA. Eskom is part of the national sphere of government and its related parties in that sphere include 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. Related parties include subsidiaries, associates and joint ventures of the group and post-employment benefit plans for the benefit of 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 directors and key management personnel is included in note 49 and government guarantees issued to Eskom in note 5.3.2. Group Company 2024 2023 2024 2023 Rm Rm Rm Rm Transactions Sales of goods and services 15 353 13 447 16 539 17 526 National departments 1 654 1 404 1 654 1 404 Public entities 8 764 7 366 8 736 7 344 Subsidiaries, associates and joint ventures 4 935 4 677 6 149 8 778 Government grant funding received for electrification National departments 3 059 3 120 3 059 3 120 Purchases of goods and services 28 186 30 023 42 592 43 034 Constitutional institutions 12 9 12 9 National departments 1 807 1 875 1 807 1 875 Public entities 23 579 25 363 22 344 24 384 Subsidiaries, associates and joint ventures 127 275 16 031 14 517 Eskom Pension and Provident Fund 2 661 2 501 2 398 2 249 Bad debts expense 4 5 4 5 National departments 1 – 1 – Public entities 1 5 1 5 Subsidiaries, associates and joint ventures 2 – 2 – Net fair value and foreign exchange loss Subsidiaries, associates and joint ventures – – (4) (1) Finance income 126 99 612 453 National departments 11 8 11 8 Public entities 115 91 115 91 Subsidiaries, associates and joint ventures – – 486 354 Finance cost1 9 144 9 238 9 612 9 443 National departments 18 9 18 9 Public entities 8 895 8 951 8 895 8 951 Subsidiaries, associates and joint ventures – – 468 205 Eskom Pension and Provident Fund 231 278 231 278 Dividend income Subsidiaries, associates and joint ventures – – 888 161 Lease income 12 11 16 14 National departments 1 2 1 2 Public entities 11 9 11 9 Subsidiaries, associates and joint ventures – – 4 3 Lease expenses 8 10 12 12 Public entities 8 10 8 10 Subsidiaries, associates and joint ventures – – 4 2 Environmental levy Public entities 6 817 7 033 6 817 7 033 1. Bonds are bearer instruments and it is therefore unknown if the initial counterparty still holds the bonds. Transactions in the secondary market where Eskom is not the counterparty are therefore excluded. 121 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 46. Related-party transactions and balances (continued) Group Company 2024 2023 2024 2023 Rm Rm Rm Rm Outstanding balances (due by related parties) Receivables and amounts owed by related parties 2 507 1 877 5 202 6 893 National departments 212 131 203 131 Public entities 1 899 1 322 1 598 1 239 Subsidiaries, associates and joint ventures 396 424 3 401 5 523 Loans receivable Subsidiaries, associates and joint ventures1 – – 39 847 5 681 Total due by related parties 2 507 1 877 45 049 12 574 Outstanding balances (due to related parties) Debt securities and borrowings 121 892 111 930 130 755 117 308 National departments – 53 – 53 Public entities 119 744 109 412 119 744 109 412 Subsidiaries, associates and joint ventures2 – – 8 863 5 378 Eskom Pension and Provident Fund 2 148 2 465 2 148 2 465 Loan from shareholder National departments 32 000 – 32 000 – Payables and amounts owed to related parties 3 450 5 140 6 740 8 326 Constitutional institutions 9 6 – 6 National departments 323 356 323 356 Public entities 2 791 4 462 2 674 4 059 Subsidiaries, associates and joint ventures 9 9 3 463 3 598 Eskom Pension and Provident Fund 318 307 280 307 Payments received in advance 1 760 1 761 1 773 1 775 National departments 1 760 1 761 1 760 1 761 Subsidiaries, associates and joint ventures – – 13 14 Derivative liabilities held for risk management Subsidiaries, associates and joint ventures – – – 1 Total due to related parties 159 102 118 831 171 268 127 410 Equity Capital and reserves National departments 44 000 – 44 000 – Commitments Eskom does not have any material commitments with its related parties. 47. Events after the reporting date The following significant events occurred after 31 March 2024: Changes in Exco The following changes occurred in Exco: • Mr ML Bala was appointed as the acting group executive human resources effective from 24 June 2024. • Ms PB Mngomezulu was appointed as group executive corporate services effective from 1 November 2024. The role incorporates procurement, legal as well as communications and stakeholder management functions. • Ms NY Hadebe was appointed as group executive strategy and sustainability effective from 1 November 2024. • Mr RA Crookes was appointed as group executive group capital effective from 1 November 2024. • Mr LM de Villiers was appointed as chief technology and information officer effective from 1 November 2024 (appointed on a three-year fixed term contract). • Mr AE Seema was appointed as group executive strategic delivery unit effective from 1 December 2024. • Mr J Mthembu was appointed as group executive legal and compliance effective from 1 May 2024. He resigned as a member of Exco on 31 October 2024 with the appointment of the group executive corporate services. • Ms J Sankar resigned as a member of Exco on 31 October 2024 with the appointment of the group executive corporate services. • Ms FS Burn resigned as a member of Exco on 31 October 2024 with the appointment of the chief technology and information officer. • Mr HS Vezi acted as group executive legal and compliance from 1 April 2024 until 30 April 2024. • Ms NN Sithole acted as group executive government and regulatory affairs until 31 October 2024. • Ms EM Pule group executive human resources resigned on 31 July 2024. • The fixed-term contract of Mr V Tuku group executive transformation management officer expired on 30 June 2024. Debt relief The Eskom Debt Relief Amendment Act was enacted on 8 April 2024 to provide for the payment of interest by Eskom on amounts advanced as a loan at the rate determined by the Minister of Finance (91-day Treasury Bill) and power to the Minister to reduce the amount of the annual Eskom requirement in the event of non-compliance with the conditions (limited to five percent of the total amount allocated for the applicable financial year). The payment of interest is effective prospectively starting with the first disbursement of R8 billion received on 28 June 2024 in the 2025 financial year as communicated by the Minister of Finance. 1. The effective interest rate on the loans to subsidiaries is 7.15% (2023: 7.91%). 2. Refer to note 24 for the effective interest rate and maturity date relating to intercompany instruments. 122 The Minister of Finance approved the conversion to equity of the outstanding loan balance of R32 billion at 31 March 2024 on 29 July 2024 and the R8 billion received in the 2025 financial year on 21 October 2024. Authorisation and issue of shares The Department of Public Enterprises approved an amendment to the Memorandum of Incorporation to increase the authorised share capital to 500 billion ordinary shares on 18 April 2024. Shares to the value of R44 billion were issued on 22 April 2024 for the loan amounts that were approved for conversion to equity by the Minister of Finance prior to the end of the financial year. Plant performance Commercial operation was achieved for Kusile unit 5 on 30 June 2024 contributing an additional 799MW to the national grid. Licences to operate solar photovoltaic power plants NERSA issued two licences to operate solar photovoltaic generation facilities on 29 October 2024 for Sere and Lethabo solar photovoltaic power plants in the Western Cape and Free State. Funds recovered by the SIU Eskom recovered an amount of R500 million (excluding VAT) on 25 April 2024 through a collaborative effort with the SIU stemming from a settlement agreement between the SIU and SAP on the validity of two contracts awarded by Eskom to the service provider in 2016. A special tribunal order dated 20 March 2024 declared that the two contracts are constitutionally invalid and therefore set aside. Diesel rebate from SARS Eskom and SARS resolved the dispute relating to previously disallowed claims for fuel levy refunds on 18 October 2024 resulting in a net amount of R9.2 billion payable to Eskom. Legal separation NTCSA commenced trading on 1 July 2024 in terms of the legal merger agreement concluded between Eskom and NTCSA. Refer to note 12. Eskom and NTCSA signed an equity subscription agreement on 28 June 2024 to allow for the allocation of R3.8 billion to NTCSA relating to debt relief received by Eskom from the government to discharge indebtedness incurred by Eskom in connection with the transmission assets that were transferred from Eskom to NTCSA on 1 July 2024. Electricity Regulation Amendment Act The Electricity Regulation Amendment Act, 38 of 2024, was enacted on 20 August 2024. The Act provides for NERSA to consider the application and issue of licences, new generation capacity and electricity infrastructure. The Act also provides for the establishment of transmission system operator to provide an open market platform that will allow for competitive electricity trading. NTCSA will fulfil the role of the transmission system operator in the interim from the effective date of the Act until the transmission system operator is established and must apply for the relevant licences to carry out the function for a period not exceeding five years. The commencement date of the Act was gazetted on 18 December 2024 to be 1 January 2025. EFC disposal An updated strategy for the disposal of EFC was approved by the investment and finance committee on 23 April 2024. A request for proposal was issued on 1 May 2024 with the preferred bidder approved by the investment and finance committee on 19 June 2024. A binding offer was received from African Bank Limited on 15 October 2024 and approved by the board on 25 October 2024, subject to PFMA approval. Approval for the transaction also needs to be obtained from the Competition Commission, Prudential Authority and the South African Reserve Bank. Payment arrangement with City of Tshwane metropolitan municipality Eskom and City of Tshwane concluded a payment arrangement for the settlement of R6.7 billion overdue debt over a five-year period on 26 November 2024. Interest will be suppressed for the duration of the payment arrangement, subject to settlement of current amounts receivable. Municipal debt write off National Treasury instructed Eskom on 16 December 2024 to write off one-third of the overdue ringfenced debt in terms of the municipal debt relief programme for five municipalities to the value of R3.0 billion within 30 days, even though these municipalities have not fully complied with the conditions of the municipal debt relief programme at the close of their first cycle. National Treasury also confirmed that where these municipalities were not maintaining their current accounts, the shortfall of R3.5 billion should be settled in four instalments from January 2025 to April 2025, failing which National Treasury will consider the removal of the municipality’s participation in the municipal debt relief programme. 48. Restatement of comparatives Certain changes in the measurement of power station-related environmental restoration and mine-related closure, pollution control and rehabilitation provisions were incorrectly credited to profit or loss instead of deducted from the cost of the related generating plant and future fuel supplies assets in terms of IFRIC 1. The 2023 statement of financial position and income statement have been restated to correct the error as follows: Group Company Previously Adjustments Restated Previously Adjustments Restated reported reported Rm Rm Rm Rm Rm Rm Statements of financial position at 31 March 2023 Assets Non-current 705 964 (2 143) 703 821 708 523 (2 143) 706 380 Property, plant and equipment 669 398 (1 059) 668 339 671 483 (1 059) 670 424 Future fuel supplies 7 167 (1 877) 5 290 7 167 (1 877) 5 290 Inventories 12 209 – 12 209 12 209 – 12 209 Deferred tax 17 190 793 17 983 17 664 793 18 457 Equity Capital and reserves 236 087 (2 143) 233 944 215 635 (2 143) 213 492 Income statements for the year ended 31 March 2023 Primary energy (154 942) (1 877) (156 819) (154 942) (1 877) (156 819) Other expenses (34 795) (1 603) (36 398) (39 671) (1 603) (41 274) Depreciation and amortisation expense (32 485) 544 (31 941) (32 214) 544 (31 670) Loss before tax (31 647) (2 936) (34 583) (32 009) (2 936) (34 945) Income tax 7 708 793 8 501 7 795 793 8 588 Loss for the year (23 939) (2 143) (26 082) (24 214) (2 143) (26 357) 123 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 48. Restatement of comparatives (continued) The impacted notes to the annual financial statements have been updated where relevant because of the restatements, including where a movement reconciliation has been presented. The restatements also resulted in various restatements in the capital management, segment reporting and provisions disclosures. The restatement had no impact on the statement of cash flows outside of the note disclosure relating to cash generated from operations with no overall impact on cash generated from operating activities. 49. Remuneration of directors and executives The background to the remuneration of directors and executives and an overview of the main provisions of the remuneration policy is included in the remuneration and benefits section in the integrated report. The details of the board (governing body) and executive management remuneration are included in this note. The details regarding the appointments, resignations and other changes in roles of directors during the year are included in the directors’ report. 49.1 Executive directors and management The remuneration of the group chief executive and the chief financial officer (executive directors) and Exco members (executive management) are disclosed below. The members of Exco are regarded as Eskom’s prescribed officers. The group chief executive has a fixed-term contract. The chief financial officer was appointed as a permanent employee with effect from 1 January 2024 (on fixed-term contract previously). The executive management have permanent contracts based on Eskom’s standard conditions of service, except for one Exco member who is on a fixed-term contract. The emoluments for the executive directors and management were as follows: 2024 2023 Name Salary Other Total Salary Other Total payments remuneration payments remuneration earned and earned and cash paid cash paid R’000 R’000 R’000 R’000 R’000 R’000 Executive directors 8 877 299 9 176 11 522 1 065 12 587 DL Marokane 750 3 753 – – – AM de Ruyter – – – 6 453 457 6 910 C Cassim 5 377 209 5 586 4 900 608 5 508 JM Buys 2 750 87 2 837 169 – 169 Executive management 25 345 2 566 27 911 23 883 885 24 768 JA Oberholzer 458 1 038 1 496 5 496 127 5 623 ML Bala 2 831 132 2 963 – – – FS Burn 3 765 120 3 885 3 519 134 3 653 M Govender 775 180 955 3 100 84 3 184 D Jackson 238 10 248 – – – W Madonsela 750 28 778 – – – N Minyuku 258 107 365 3 100 157 3 257 S Nassiep 435 115 550 – – – BJ Nxumalo 2 831 216 3 047 – – – EM Pule 3 523 145 3 668 3 339 224 3 563 J Sankar 2 641 102 2 743 2 468 157 2 625 SM Scheppers 2 831 192 3 023 – – – NN Sithole 1 148 13 1 161 – – – V Tuku 2 861 168 3 029 2 861 2 2 863 34 222 2 865 37 087 35 405 1 950 37 355 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. Other payments Other payments include accumulated leave paid out, sign-on bonuses, long service awards and expenditure related to telephone, security services, operating vehicle, professional subscriptions as well as spouse funeral and dreaded disease cover. 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 Long-term incentive scheme The board reinstated the long-term performance incentive scheme that rewards the Exco members in cash for meeting organisational objectives measured over a three-year period effective from 1 April 2023. Performance awards with a vesting period of three years from the date of grant are awarded to Exco members at the beginning of a financial year. The vesting of the performance awards are dependent on the scheme participant remaining employed by Eskom throughout the vesting period. The award lapses if employment ceases during the vesting period (other than for permitted reasons). The performance awards are linked to gatekeeper conditions and key performance indicators that are aligned with the Eskom Corporate Plan and shareholder compact and include both financial and non-financial targets. Awards only vest if the key performance indicator targets are met. Potential vesting percentages range from 0% to 100%. Each measure has a threshold and a stretch target with an expected (on target) vesting of 50%. The final vesting percentage is reduced with the corresponding weight of the gatekeeper conditions should one or more of the conditions not be met. 124 The gatekeeper conditions with a weight of 25% per condition were as follows: • unplanned load losses below 14 000MW • cash from operations of at least R55 700 million • lost-time injury rate below 0.30 • unqualified IFRS audit report excluding PFMA The value of each performance award is deemed to be R1 at grant date and a money market rate is used to determine the value at reporting date. The award payment is recommended by the Human Capital and Remuneration Committee to the board for approval at the end of the vesting period. The board retains discretion to adjust the vesting percentages even if targets are met. A total of 16 191 510 performance awards were granted to Exco members on 1 April 2023 (grant 13). The vesting values of the outstanding performance awards at 31 March 2024 were as follows: Name Outstanding Performance Performance performance awards vesting on awards payable on awards vesting 31 March 2026 31 August 2026 on 31 March 2026 at a rate of 50% at R1.31 per share Number Number R’000 C Cassim 6 000 000 3 000 000 3 930 ML Bala 3 397 170 1 698 585 2 225 BJ Nxumalo 3 397 170 1 698 585 2 225 SM Scheppers 3 397 170 1 698 585 2 225 16 191 510 8 095 755 10 605 Housing loans Housing loans to Exco members were as follows: 2024 2023 R’000 R’000 C Cassim 2 792 2 906 ML Bala 2 358 – J Sankar 3 204 4 004 NN Sithole 101 – 8 455 6 910 Home loan balances are disclosed when an individual is in the role of an executive director or management at financial year end. The interest rate on the loans from EFC at 31 March 2024 was 10% (2023: 9%). The loans are repayable over a maximum period of 30 years. The terms and conditions applicable to ex-employees are applied on resignation. 49.2 Non-executive directors Non-executive directors receive a fixed fee and are reimbursed for out-of-pocket expenses incurred in fulfilling their duties. The fees paid were as follows: 2024 2023 R’000 R’000 M Nyati 1 358 445 PM Makwana 933 799 RDB Crompton 676 724 FBB Gany 1 081 459 LL Goqwana 754 296 CR le Roux 1 061 400 APZ Mafuleka 820 314 MW Makgoba – 799 BCE Makhubela – 341 B Mavuso – 296 L Mkhabela 823 366 PE Molokwane – 355 TH Mongalo – 361 TL Mthombeni 849 348 B Ntshalintshali 873 393 T Ramano 1 018 393 CB Vilakazi 881 366 C Von Eck 1 058 462 12 185 7 917 125 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 50. New standards and interpretations 50.1 Standards, interpretations and amendments to published standards that are not yet effective The following new standards, interpretations and amendments to existing standards have been published that are applicable for future 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 which is the financial period beginning on or after the effective date. Topic Summary of requirements Impact Supplier finance The amendments introduce additional disclosure requirements for companies that No impact as there are arrangements – amendments enter into supplier finance arrangements. currently no supplier finance to IAS 7 Statement of Cash arrangements. Flows and IFRS 7 The amendment to IAS 7 describes the characteristics of a supplier finance (1 January 2024) arrangement and requires entities to provide qualitative and quantitative information about its supplier finance arrangements. The amendment to IFRS 7 added supplier finance arrangements as an example within the requirements to disclose information about an entity’s exposure to concentration of liquidity risk. These amendments have to be applied retrospectively. Lease liability in a sale and The amendments impact how a seller-lessee accounts for variable lease payments No impact as there are leaseback – amendment to that arise in a sale and leaseback transaction by specifying that a seller-lessee currently no sale and IFRS 16 Leases measures the lease liability arising from a sale and leaseback transaction in such a leaseback transactions. (1 January 2024) way that it does not recognise any amount of the gain or loss that relates to the retained right-of-use asset. These amendments have to be applied retrospectively. Classification of liabilities as The amendments clarify the requirements of determining if a liability is current or No impact as there are current or non-current and non-current. The amendments clarify: currently no financial liabilities non-current liabilities with • what is meant by a right to defer settlement with a right to defer covenants – amendments • that a right to defer must exist at the end of the reporting period settlement. to IAS 1 Presentation of • that classification is unaffected by the likelihood that an entity will exercise its Financial Statements deferral right (1 January 2024) • that only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification These amendments have to be applied retrospectively. Lack of exchangeability – The amendments specify how to assess whether a currency is exchangeable and No impact on the group as all amendments to IAS 21 The how to determine the exchange rate when it is not. The amendments clarify: foreign currency transactions Effects of Changes in Foreign • when a currency is exchangeable into another currency are exchangeable. Exchange Rates • how a company estimates a spot rate when a currency lacks exchangeability (1 January 2025) • the disclosure requirements for users to understand the impact of the currency not being exchangeable These amendments have to be applied prospectively. IFRS 18 Presentation and IFRS 18 will replace IAS 1 while carrying forward many of the requirements in IAS 1 The group is assessing the Disclosure in Financial and introduces new requirements relating to: impact of these presentation Statements • presentation of specified categories and defined subtotals in the statement of requirements and will be (1 January 2027) profit or loss adopted as required. • disclosures on management-defined performance measures in the notes to the financial statements • improved aggregation and disaggregation Some of the requirements in IAS 1 moved to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and IFRS 7. Sale or contribution of The amendments address the conflict between the guidance on consolidation and No impact as the group is assets between an investor equity accounting when a parent loses control of a subsidiary in a transaction with currently not disposing of any and its associate or joint an associate or joint venture. The amendments require that the full gain to be investments in associates or venture – amendments to recognised when the assets are transferred meet the definition of a business under joint ventures. IFRS 10 and IAS 28 IFRS 3. Investments in Associates and Joint Ventures (optional adoption, effective date deferred indefinitely) 126 50.2 Standards, interpretations and amendments to published standards that are effective and applicable to the group Topic Summary of requirements Impact IFRS 17 Insurance Contracts IFRS 17 introduced one accounting model for all insurance The adoption of IFRS 17 did not have any material and amendments to IFRS 17 contracts in all jurisdictions that apply IFRS Accounting financial or disclosure impact on the group and only (1 January 2023) Standards. impacted the financial statements of the Escap subsidiary as the insurance activities undertaken by IFRS 17 requires an entity to measure insurance contracts Escap are self-insurance arrangements for the group. using updated estimates and assumptions that reflect the The reinsurance receivables after consolidation in the timing of cash flows and take into account any uncertainty group is measured as a financial asset in terms of IFRS 9. relating to insurance contracts. The financial statements of an entity reflect the time value of money of estimated payments required to settle incurred claims. Insurance contracts are measured only on the obligations created by the contracts. An entity is required to recognise profits as an insurance service is delivered, rather than on receipt of premiums. Disclosure of accounting The amendments aim to help entities provide accounting No material impact. The group continues to consider policies – amendments to policy disclosures that are more useful by replacing the materiality and disclosed accounting policies for IAS 1 and IFRS Practice requirement for entities to disclose their significant transactions that have a material impact. statement 2 Making accounting policies with a requirement to disclose their Materiality Judgements material accounting policies. (1 January 2023) The practice statement provides guidance and examples on how entities apply the concept of materiality in making decisions about accounting policy disclosures. Definition of accounting The amendments introduced a definition of accounting No impact as the group applies the definitions where estimate – amendments estimates by clarifying the distinction between changes in applicable. to IAS 8 an accounting estimate, changes in accounting policies and (1 January 2023) the correction of errors. The use of measurement techniques and inputs to develop accounting estimates were also clarified. Deferred tax related to The amendments provide a further exception from the No impact as the group recognises a deferred tax assets and liabilities arising initial recognition exemption where an entity cannot apply asset and a deferred tax liability for temporary from a single transaction – the initial recognition exemption for transactions that give differences arising on initial recognition of leases and amendments to rise to equal taxable and deductible temporary differences. decommissioning provisions. IAS 12 Income Taxes As a result, a deferred tax asset and a deferred tax liability (1 January 2023) will have to be recognised for temporary differences arising on the initial recognition. The amendments apply retrospectively. 51. Information required by the Public Finance Management Act Section 55(2)(b)(i) of the PFMA requires that the particulars of any irregular expenditure, any fruitless and wasteful expenditure as well as material losses due to criminal conduct be disclosed in the annual financial statements and annual report (integrated report). The National Treasury Instruction No. 4 of 2022/23 on the PFMA Compliance and Reporting Framework was applied in this regard when compiling the disclosure in the annual financial statements and integrated report. The instruction applies to all departments, trading entities, constitutional institutions and public entities listed in Schedules 2 and 3 to the PFMA. The instruction requires that detailed information be reported in the integrated report and only expenditure relating to the current and comparative financial years be reported in the annual financial statements. The instruction further requires reporting inclusive of VAT. Eskom has historically reported all amounts excluding VAT and has continued to do so in the current year, due to the impracticability of recalculating amounts, particularly on opening balances and multi-year contracts that continued to incur expenditure in the current and comparative years. The group is required to report quarterly to National Treasury on current and historical irregular expenditure and fruitless and wasteful expenditure that has not been fully addressed. 51.1 Irregular expenditure Irregular expenditure is defined as expenditure, other than unauthorised expenditure, incurred in contravention of or that is not in accordance with a requirement of any applicable legislation. The scope includes transgressions of any laws and regulations regardless of whether or not the expenditure was justified from a business perspective, value was received, the breaches were deliberate or accidental, or the breaches happened unknowingly or in good faith. Irregular expenditure is incurred when the related transaction is recognised in terms of IFRS Accounting Standards. The irregular expenditure is removed from the note through a process of condonation by the relevant authority, removal, recovery or write-off. 127 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 51. Information required by the Public Finance Management Act (continued) 51.1 Irregular expenditure (continued) 2024 2023 Current Previously Prior year Restated year reported errors Note Rm Rm Rm Rm Group PFMA 1 159 975 1 291 2 266 Use of sole source (a) 12 108 (3) 105 Tender processes not adhered to and insufficient delegation of authority (b) 1 130 729 1 297 2 026 Modifications exceeding allowed amounts (c) 17 138 (3) 135 PPPFA 239 257 208 465 Incorrect tender process applied (d) – 2 – 2 Tax clearance certificates (e) 239 142 207 349 Designated sectors (f ) – 113 1 114 CIDB regulations Contracts awarded without following CIDB requirements (g) 15 47 16 63 Various commercial requirements Breach of more than one legislative requirement (h) 3 272 3 751 958 4 709 Other 53 – 45 45 4 738 5 030 2 518 7 548 Company PFMA 764 653 828 1 481 Use of sole source (a) – 55 (3) 52 Tender processes not adhered to and insufficient delegation of authority (b) 747 460 834 1 294 Modifications exceeding allowed amounts (c) 17 138 (3) 135 PPPFA 116 245 11 256 Tax clearance certificates (e) 116 142 10 152 Designated sectors (f ) – 103 1 104 CIDB regulations Contracts awarded without following CIDB requirements (g) 2 39 8 47 Various commercial requirements Breach of more than one legislative requirement (h) 3 267 3 744 406 4 150 4 149 4 681 1 253 5 934 (a) Use of sole source State-owned entities are required to procure goods and services in a manner that is fair, equitable, transparent, competitive and cost-effective. Expenditure was incurred on awards which did not meet the National Treasury requirements for limited bidding where awards were incorrectly allocated to predetermined suppliers. The irregular expenditure reported in the current year also includes cost incurred in 2024 on non-compliant contracts from prior years. Sole source requests are scrutinised to confirm compliance with criteria before approval through the relevant governance processes. The requirement to obtain National Treasury approval for these transactions has since been repealed through the PFMA Supply Chain Management National Treasury Instruction No. 3 of 2021/22, effective 1 April 2022. All procurement through other means are reported to National Treasury within 14 days of transaction approval. (b) Tender processes not adhered to and insufficient delegation of authority Irregular expenditure was incurred where incorrect tender processes were followed in a manner that is not fair, equitable, transparent, competitive and cost-effective and/or the transactions were executed without appropriate approvals. (c) Modifications exceeding allowed amounts National Treasury required that their approval be obtained for any modification made during 1 May 2016 to 1 April 2022 to an original contract where the value of the modification was more than 20% or R20 million for construction-related goods, works or services and 15% or R15 million for all other goods or services. The group did not initially comply with this requirement, predominately due to a misinterpretation of Instruction No. 3 of 2016/17. The requirement to obtain National Treasury approval for these transactions has since been repealed through the PFMA Supply Chain Management National Treasury Instruction No. 3. Expansions and variations of contracts are reported to National Treasury on a monthly basis. (d) Incorrect tender process applied The Preferential Procurement Policy Framework Act, 5 of 2000 (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. The controls continue to be effective as the number of findings in this category has decreased. 128 (e) Tax clearance certificates The PPPFA regulations stipulate that suppliers must be compliant with SARS regulations. Internal processes require that the tax status of all successful tenderers is confirmed to be compliant prior to concluding a contract. This continues to be a focus area. (f) Designated sectors 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 meet the stipulated minimum threshold for local production and content will be considered. Contracts were awarded to suppliers despite having declared a local content threshold that was below the required stipulated threshold as per the Department of Trade and Industry list of designated materials. Internal processes make it mandatory for commercial practitioners to indicate whether the transaction has designated elements or not. Eskom has not transgressed in this category in the current financial year. (g) Contracts awarded without following CIDB requirements The group did not always comply with the Construction Industry Development Board (CIDB) regulations regarding the advertising of tenders, grading of contractors and publishing of awards. The irregular expenditure incurred in 2024 relates to one new matter and two matters where the non-compliance occurred in prior years. (h) Breach of more than one legislative requirement Transgression of more than one legislative requirement was identified in certain instances. Continuous improvements are made to processes to address breaches. Expenditure of R41 million incurred in the current year relates to new matters. The remaining amount relates to existing multi-year contracts that will continue to attract irregular expenditure until condoned, of which R2.7 billion can be attributed to an isolated incident that took place in 2023 due to the non-application of the requirements of the National Industrial Participation Programme. 51.2 Fruitless and wasteful expenditure Fruitless and wasteful expenditure is expenditure made in vain that could have been avoided had reasonable care been exercised. Fruitless and wasteful expenditure is reported in the annual financial statements when it is confirmed. 2024 2023 Current Previously Adjustments Restated year reported Rm Rm Rm Rm Group Project management – 102 (63) 39 Procurement and contract management – – 2 2 Other 1 3 – 3 1 105 (61) 44 Company Project management – 102 (63) 39 Procurement and contract management – – 2 2 Other 1 2 – 2 1 104 (61) 43 The group experienced 12 (2023: 29 restated) and the company seven (2023: 14 restated) incidents of fruitless and wasteful expenditure during the year. Overpayments of R102 million on Kusile power station contracts that were incurred and confirmed in 2023 were reduced by R64 million following calculations performed by internal and external parties as the amount originally disclosed was based on professional judgement. 129 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 51. Information required by the Public Finance Management Act (continued) 51.3 Criminal conduct Material losses caused by criminal conduct and any disciplinary, civil or criminal action taken in respect of such losses are reported in terms of the significance and materiality framework as agreed upon with the shareholder representative. Incidents that exceeded the materiality threshold individually or as a type of closely related items are disclosed. Group Company Note 2024 2023 2024 2023 Losses incurred (Rm) Theft of conductors, cabling and network-related equipment (a) 120 197 120 197 Estimated non-technical energy losses (b) 6 441 5 607 6 441 5 607 Fraud and corruption (c) 64 81 64 80 Malicious damage to property (a) 67 122 67 122 Common theft (a) 26 – 14 – Attempted theft (a) – 25 – 25 6 718 6 032 6 706 6 031 Losses recovered (Rm) Theft of conductors, cabling and network-related equipment (a) 3 9 3 9 Estimated non-technical energy losses (b) 229 225 229 225 Fraud and corruption (c) 1 – 1 – Malicious damage to property (a) 13 – 13 – Common theft (a) 2 – 2 – Attempted theft (a) – 1 – 1 248 235 248 235 Number of criminal incidents where direct financial losses were incurred Theft of conductors, cabling and network-related equipment (a) 2 380 2 428 2 379 2 427 Fraud and corruption (c) 2 16 2 – Malicious damage to property (a) 238 294 238 294 Common theft (a) 274 – 246 – Attempted theft (a) – 74 – 74 2 894 2 812 2 865 2 795 Total number of criminal incidents Theft of conductors, cabling and network-related equipment (a) 2 417 2 522 2 415 2 519 Fraud and corruption (c) 26 56 26 36 Malicious damage to property (a) 263 342 262 342 Common theft (a) 293 – 264 – Attempted theft (a) – 116 – 116 2 999 3 036 2 967 3 013 Number of arrests Theft of conductors, cabling and network-related equipment (a) 130 167 130 167 Estimated non-technical energy losses (b) 22 39 22 39 Fraud and corruption (c) 7 3 7 3 Malicious damage to property (a) 12 26 12 26 Common theft (a) 35 – 35 – Attempted theft (a) – 59 – 59 206 294 206 294 The total number of criminal incidents includes some incidents where a financial loss was prevented through early detection or no direct financial loss can be established. This reflects the extent of crime impacting the organisation. (a) Theft of network-related equipment, malicious damage to property, common and attempted theft Theft of network-related equipment includes theft of cable (including airdac cable), batteries, tower members and transformers. Unlawful and intentional damage to property belonging to another is reported as malicious damage to property. Vandalism is the action involving deliberate destruction of or damage to public or private property. Damage towards any property without permission of the owner is reported as vandalism. Common theft consists of the unlawful appropriation of moveable property belonging to another with intent to deprive the owner permanently of the property. Property includes laptops, tools, cellphones, equipment, air-conditioners and all other items not included in the Eskom list of essential infrastructure or security crime categories. The losses incurred in this category were below the materiality threshold in 2024. Attempted theft is defined as an attempted crime or unlawful action, which is an unsuccessful effort to commit crime or carry out the action, ie an attempt to steal something but not succeeding or being prevented. The losses incurred in this category were below the materiality threshold in 2024. 130 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 SAPS, including: • realigning of security contracts (scope and resources) and optimisation of deployment • improving of the Eskom asset disposal process and strategies • focusing on asset management and protection – researching and implementation of innovative solutions, ie unique marking and tracking capabilities • implementing policy and legislative changes to address scrap and market regulation • introducing integrated, intelligent and smart security technologies and systems to reduce dependence on the human factor such as use of drones, intelligent cameras and alarm systems • implementing focused strategies and projects on revenue losses – metering, vending, tampering, disruptive operations, etc. • minimising breaches that allow easy access to sites and assets by improving housekeeping, appropriate storing of material and equipment with well-functioning delay and deterring solutions to prevent or minimise impact • deploying robust security systems that can detect and prevent crime and provide evidence that can be used for disciplinary or criminal processes • ensuring consistent and continuous screening and vetting of contractors and staff to prevent and minimise insider threat involvement and collusion • making arrests and working with relevant role players to build strong cases and dockets leading to convictions (b) Estimated non-technical energy losses Non-technical energy losses relate to losses due to electricity theft through illegal connections, tampering and bypassing of electricity meters as well as the purchase of electricity tokens from unregistered or illegal vendors. The management of non-technical losses focuses on ensuring that all energy supplied is accounted, including initiatives to minimise non-technical energy losses. Non-technical energy losses are determined by applying a scientific approach to measure total energy losses as the difference between energy produced and energy sold. Technical energy losses are derived based on known factors of the electrical grid such as conductor resistance, transformer and equipment losses. The residual of losses is attributed to non-technical losses and occur over a 24-hour period and is therefore seen to be baseload (coal-fired) orientated as the power stations are designed to respond to consumption patterns. The measurement of losses is therefore based on the variable cost of coal-fired stations that include coal and water usage as well as environmental levy costs. Other coal production costs are excluded as they are not directly related to energy sent out. The production cost of peaking plant, including OCGTs, are excluded as they are normally only operated during periods of peak demand. The reported losses represent the estimated cost of non-technical energy lost. Total energy losses were as follows: 2024 2023 % GWh % GWh Technical 2.71 5 242 2.93 5 755 Non-technical 7.21 13 924 6.81 13 396 Eskom invoiced R307 million (2023: R346 million) of revenue relating to non-technical energy losses during the year, of which R229 million (2023: R225 million) has been received. There is a risk that non-technical energy losses could increase in the future because of the recent investigations that uncovered the bulk generation of illegal prepaid tokens on Eskom’s online vending system. The matter is currently under forensic investigation and has been handed over to the relevant investigative authorities including the SAPS. Refer to note 44.2. (c) Fraud and corruption Eskom concluded 26 (2023: 56) investigations into fraud during the year. The internal control measures in the affected areas have been reviewed and enhancements recommended to the accountable line managers for implementation. This includes controls, disciplinary, criminal and civil proceedings against those involved. 52. Reportable irregularities and matters under investigation 52.1 Reportable irregularities The external auditors raised certain reportable irregularities in terms of section 45 of the Auditing Profession Act, 26 of 2005. Progress was made in clearing these reportable irregularities. The table below reflects the status of the reportable irregularities at 31 March 2024. The discussion focused on items that were open at the previous year end and new items identified in the current year. 131 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 52. Reportable irregularities and matters under investigation (continued) 52.1 Reportable irregularities (continued) Description Response Status 1. Eskom failed to effect corrective • The continued implementation of the generation recovery plan led to a significant Open, pending action for identified non- improvement in the condition and reliability of the coal-fired power stations. implementation compliance to the NEMA, • An integrated approach, consisting of improved governance, performance management, of action items National Water Act, 36 of 1998 skills development and detailed operational plans, has been instituted to address risks and outcome of (NWA) and National and root causes of incidents leading to environmental non-compliance. court case Environmental Management: • Incidents of non-compliance are reported to the authorities and investigations are Air Quality Act, 39 of 2004 undertaken to ensure that appropriate corrective and preventative measures are put (NEM: AQA) at multiple power in place. The risks relating to the non-compliances are appropriately reported and stations, specif ically the tracked at the relevant management and committee levels. Progress of all open actions following: is tracked per power station and reported internally and to the relevant authorities. • section 30 of NEMA • No criminal charges have been received following the referral for criminal investigation • section 19, 20, 21 and 22 at Tutuka power station. The matters raised in the compliance notice (water use licence of NWA audit findings) are being addressed and progress has been made with addressing the • section 51 of NEM: AQA root causes of non-compliance. A key action includes the amendment of the water use licence which was submitted to the Department of Water and Sanitation in September Notices have been levied by 2023 and is currently in the last stage of the application process. the authorities for some of • The implementation of a water improvement plan which aims to address the root these non-compliances, causes that resulted in unlawful water overflows continues. resulting in a risk of sanctions from the authorities as well as • The criminal case against Eskom in respect of the atmospheric emission licence non- referral to the National compliance at Kendal power station between April 2015 and April 2019 is ongoing. Prosecuting Authority for The matter commenced trial on 1 November 2023 where Eskom pleaded not criminal investigation. guilty. The matter was adjourned to March 2024, whereafter it was postponed to November 2024. The emission recovery plan agreed to as a condition of the atmospheric These breaches lead the emission licence compliance directive issued in 2019 continues to be implemented at auditors to believe the non- Kendal power station. compliance with NEMA, NWA • The implementation of an air quality plan continues that include key objectives to: and NEM: AQA are breaches – Minimise the impact of Eskom’s emissions on human health and the natural of the fiduciary duties of the environment. directors of the company. – Maintain Eskom's licence to operate by ensuring compliance with air quality Reported: 2021–2024 legislation, including power station atmospheric emission licences and minimum emission standards. – Minimise financial and legal liabilities associated with emissions and non-compliance to legislation. – Support Eskom's Just Energy Transition with regards to a transition from the existing dependence on fossil fuels towards a mix of energy sources for electricity generation. 132 Description Response Status 2. Cer tain duties relating to • Executive support and commitment in place to enhance and centralise the forensic Open, pending investigations have not been investigation function. finalisation of fulfilled including: • The forensic staff headcount is being increased to address the delay in initiating and forensic backlog • Contravention with the finalising investigations and enable a quicker response to identified incidents of fraud, and disciplinary requirements of National corruption and financial irregularities. inquiries Treasury regulation section • Increased the use of the forensic panel to assist with addressing the backlog in forensic 33.1.2 as there were delays cases. within the investigative • A dedicated project management office was created to execute on recommendations functions of the organisation from investigations. in initiating and finalising • Processes and relationships with law enforcement agencies have been strengthened. forensic investigations and allegations of misconduct of individuals in key roles. • Management did not meet its fiduciary duty requirements as delays in investigations will impact Eskom’s ability to mitigate any possible future exposures to financial losses and effective consequence management. • The accounting authority was, as a result, not in a position to confirm that all relevant matters are reported in terms of section 34(1) of Prevention and Combating of Corrupt Activities Act, 12 of 2004 (PRECCA). Reported: 2022–2024 3. Certain financial records were • Management acknowledged that there are significant internal control deficiencies Open, pending not complete or accurately in the PFMA reporting process and continue to take steps as a key focus area to addressing of maintained in line with strengthen governance, improve processes and procedures, enhance compliance with PFMA reporting legislative requirements of the relevant regulations and foster a culture of accountability and transparency within the challenges PFMA and Companies Act, organisation. including: • A reporting system is being developed to automate and streamline the PFMA reporting process. • Incomplete registers relating to required PFMA • Accountability mechanisms are being established by Exco to track and escalate PFMA disclosure which resulted in disclosure deficiencies. scope limitations relating to • The role and accountability of business in the PFMA reporting process will be reviewed information not provided by to ensure that it is clearly defined with enhanced management and reporting processes. management to the auditors. Reliance on business to identify non-compliance (including procurement irregularities) • Inadequate management is critical. Managers must actively oversee controls and reporting of PFMA information. action to address PFMA It will be re-confirmed that it is the responsibility of the respective divisional and disclosure deficiencies subsidiary boards to oversee this process. identified in the prior period. • Alignment and collaboration between cross-functional teams will be enhanced to • Multiple non-compliances of improve control. PFMA (section 49, 51 and 55) and the Companies Act (section 28, 29 and 93). • The inaccurate and incomplete financial record keeping is a material breach of the fiduciary duties of management. Reported: 2022–2024 133 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Notes to the financial statements continued 52. Reportable irregularities and matters under investigation (continued) 52.1 Reportable irregularities (continued) Description Response Status 4. Investigations into alleged • Management is in the process of developing a plan to address the shortcomings in the Open, pending financial misconduct relating to consequence management process. implementation instances of irregular, fruitless • A focus area will be to strengthen the culture around accountability and implementation of improvements and wasteful expenditure and of effective policies as well as responding consistently and fairly to incidences of non- performing the necessary compliance regardless of the position or status of an employee within the organisation. disciplinary procedures and • Recruitment processes are in progress to obtain additional resources to capacitate the consequence management was PFMA and loss control function. not done timeously in line with • Group executives have committed to increase the number of PFMA champions within the PFMA (sections 51(1)(e)(iii) divisions and to develop action plans which must be monitored and reported to and 55(1)(a)) and related executive committees to improve PFMA compliance. treasury regulations (paragraph 31.1.1 and 33.1.2). This includes: • There is alignment between the people relations and loss control functions that the relevant line management will be engaged to confirm any concerns with a preliminary • Conducting investigations report before it is issued to avoid any disagreement with findings and possible impact into instances of irregular on disciplinary actions. and fruitless and wasteful expenditure to determine • The loss control function will copy the people relations department when final reports if disciplinary steps needed are issued to line management and provide the department with a monthly consolidated to be taken against liable report to assist with monitoring. officials. • The PFMA procedure has been reviewed while the disciplinary procedures for • Taking disciplinary actions bargaining and managerial staff have been amended. Condonation process awareness against any official(s) who sessions have commenced. made or permitted irregular • Continuous training and master classes are conducted on the Eskom disciplinary and and fruitless and wasteful grievance procedures to enhance capacity building. expenditure based on the • A work instruction on the requirements for compiling a financial misconduct report outcome of investigations. was developed to strengthen governance. • Providing supporting • A panel of external case disciplinary chairpersons and case presenters have been documentation to confirm appointed to assist with disciplinary procedures. that disciplinary steps were • Monthly reporting will be done on the status of PFMA cases to enhance monitoring taken against all the officials and escalation. Financial misconduct reports are presented quarterly to Exco with an who made or permitted annual report submitted to the Auditor General of South Africa and National Treasury. irregular and fruitless and • Quarterly feedback on the status and progress of consequence management, including wasteful expenditure PFMA consequence management, will be provided to Exco and relevant board based on the outcome of committees. investigations. • Providing evidence to confirm that recommendations of completed disciplinary hearings were implemented. • Conducting investigations into alleged financial misconduct within 30 days of the incidents being reported. Reported: 2022–2024 5. Management did not discharge • It has been challenging in recent years for Eskom to meet the deadline for complete and Open, pending their fiduciary duty as they accurate draft annual financial statements by 31 May due to the size and complexity of implementation failed to ensure that the entity’s the group’s operations, as well as the material risks and challenges that Eskom is facing, of improvements complete and accurate financial including the impact of ongoing investigations into the challenge of criminality. statements were submitted to • The extent and effort to address the PFMA reporting challenges also impacts on the National Treasury and the practicality of meeting the May reporting deadline. auditors on 31 May 2024, as • Additional financially skilled resources are required to deal with the complex and required by PFMA section 55. stressful challenges of Eskom’s current operating environment. The need for identified The same matter was identified additional financial resources will be addressed, particularly expert technical and in prior years which highlights process control monitoring skills. that there are failures within • The finance business partnering matrix will be improved and aligned. the financial reporting controls which have not been rectified • Review and discipline around reporting will be strengthened to ensure timeous and and put in place as required by complete submissions, including a focused hard-close before year end. PFMA section 51. Reported: 2022–2024 134 Description Response Status 6. A procurement contract was • A disciplinary process was completed and concluded that there was no conflict of Closed awarded to a close family interest. member (related party) of a • The matter has been reported in terms of PRECCA requirements. member of management of the • No further action required from a disciplinary perspective. company. This conflict of interest contravened PFMA sections 50(3)(a) and 51(1)(b) (ii), PRECCA provision 17 and Public Service regulations clause 91. Reported: 2023 7. Management has not complied • The incorrect reporting in past submissions have been investigated. The process Open, pending with section 17(2) of the Powers, was impacted by the short notice and turnaround period of information requests, finalisation of Privileges and Immunities of even though the submitted information was clearly indicated as being based on draft reporting to Parliaments and Provincial information at the time of submitting. SCOPA Legislatures Act, 4 of 2004 • A register and history of submitted information have been implemented. regarding misleading information • Information with supporting evidence are signed-off by the relevant divisional and provided to the Standing group management before submission. Committee on Public Accounts • Information is reviewed for accuracy by internal audit before submission. (SCOPA). Management omitted to cor r ec t the • The process to provide feedback to SCOPA via Eskom’s shareholder representative misrepresentations made. to clarify incorrect reporting is in progress. The previous shareholder representative unfortunately did not finalise the matter with the chair of SCOPA. Reported: 2023 8. Certain prescribed officers of • The standard offer programme and emergency generation programme were approved Open, pending the group have not complied by the board investment and finance committee subject to the fulfilment of certain finalisation of with Section 76 (3)(c) of the conditions which transmission management confirmed at the time were concluded. feedback Companies Act resulting in a The gap occurred during implementation where due processes were not fulfilled. material breach in fiduciary • A reconciliation agreement has been concluded and recovery of revenue is underway duty and a potential material with a substantial amount already recovered. financial loss to the entity. This • The necessary consequence management actions to be taken are being addressed. includes: • A standard offer programme contract was concluded without a reconciliation agreement. This resulted in only the supply side of the contract being in effect, with no allowance for the billing of revenue. The contract lacks commercial substance. • The contract was changed to an emergency generation programme contract at less favourable conditions to the group without an addendum to the end-user distributor agreement and therefore revenue could still not be recovered. Reported: 2024 52.2 Matters under investigation There are currently various internal and external investigations being conducted into alleged fraud and malfeasance by current and former Eskom employees as well as external parties. Eskom is working with relevant authorities regarding these matters. 135 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Appendix – abbreviations, acronyms and definitions Accounting, audit and other financial terms CGU Cash Generating Unit DRC Depreciated Replacement Cost EBITDA Profit before depreciation and amortisation expense and net fair value and foreign exchange (loss)/gain IAS® International Accounting Standard/(s) IFRIC® International Financial Reporting Interpretations Committee IFRS® Accounting Standards International Financial Reporting Standards as issued by the International Accounting Standards Board ISA International Standards on Auditing PPI Producer Price Index R Rand Rm Rand millions VAT Value Added Tax Accounting standards and interpretations IAS 1 Presentation of Financial Statements IAS 7 Statement of Cash Flows IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 12 Income Taxes IAS 16 Property, Plant and Equipment IAS 19 Employee Benefits IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 28 Investments in Associates and Joint Ventures IAS 36 Impairment of Assets IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 18 Transfers of Assets from Customers IFRS 3 Business Combinations IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations IFRS 7 Financial Instruments: Disclosures IFRS 8 Operating Segments IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases IFRS 17 Insurance Contracts IFRS 18 Presentation and Disclosure in Financial Statements IFRS practice statement 2 Making Materiality Judgements Currencies EUR Euro GBP Pound sterling (United Kingdom) JPY Japanese yen NOK Norwegian krone SEK Swedish krona USD United States dollar ZAR South African rand Entities EFC Eskom Finance Company SOC Ltd EPPF Eskom Pension and Provident Fund Escap Escap SOC Ltd Eskom Eskom Holdings SOC Ltd Eskom Uganda Eskom Uganda Ltd Group Eskom Holdings SOC Ltd and its subsidiaries Motraco Mozambique Transmission Company SARL NEDCSA National Electricity Distribution Company South Africa SOC Ltd NTCSA National Transmission Company South Africa SOC Ltd Nqaba Nqaba Finance 1 (RF) Ltd Rotek Eskom Rotek Industries SOC Ltd 136 Legislation Companies Act Companies Act, 71 of 2008 Insurance Act Insurance Act, 18 of 2017 King IV TM Report on Corporate Governance for South Africa NEMA National Environmental Management Act, 107 of 1998 NWA National Water Act, 36 of 1998 NEM: AQA National Environment Management: Air Quality Act, 39 of 2004 PAA Public Audit Act, 25 of 2004 PFMA Public Finance Management Act, 1 of 1999 PPPFA Preferential Procurement Policy Framework Act, 5 of 2000 PRECCA Prevention and Combating of Corrupt Activities Act, 12 of 2004 Measures GWh Gigawatt hour kg Kilogram km Kilometre kWh Kilowatt hour kWhSO Kilowatt hour Sent Out ℓ Litre Mt Million tons MVA Mega volt ampere MW Megawatt MWh Megawatt hour MWhSO Megawatt hour Sent Out TWh Terawatt hour Other Board Board of Directors B-BBEE Broad-Based Black Economic Empowerment CA(SA) Chartered Accountant of South Africa CIDB Construction Industry Development Board CSI Corporate social investment DFFE Department of Forestry, Fisheries and Environment DMRE Department of Mineral Resources and Energy DPE Department of Public Enterprises DPME Department of Planning, Monitoring and Evaluation EAF Energy Availability Factor EUF Energy Utilisation Factor Exco Executive Committee IPP Independent Power Producer JET Just Energy Transition KPI Key Performance Indicator KRN Key Revision Number MTBPS Medium-term Budget Policy Statement MYPD Multi-Year Price Determination NERSA National Energy Regulator of South Africa NNR National Nuclear Regulator OCGT Open Cycle Gas Turbine OCLF Other Capacity Loss Factor RAB Regulatory Asset Base RCA Regulatory Clearing Account SALGA South African Local Government Association SAPS South African Police Service SARETEC South African Renewable Energy Technology Centre SARS South African Revenue Services SCOPA Standing Committee on Public Accounts SIU Special Investigations Unit TMPS Total Measured Procurement Spend UCLF Unplanned Capacity Loss Factor Zondo Commission Judicial Commission of Inquiry into Allegations of State Capture 137 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2024 Appendix – abbreviations, acronyms and definitions Definitions Cash interest cover ratio Net cash flows from operating activities divided by the aggregate of interest paid and received from financing activities EBITDA Revenue plus other income minus primary energy, employee benefit expense, impairment of financial assets, impairment of other assets and other expenses EBITDA margin EBITDA divided by revenue Free funds from operations Net cash flows from operating activities minus cash flows from changes in working capital Liquid assets Treasury investments plus cash and cash equivalents Net debt Debt securities and borrowings plus lease liabilities minus financial trading assets plus financial trading liabilities plus derivative liabilities held for risk management (used to hedge other items of net debt) minus derivative assets held for risk management (used to hedge other items of net debt) minus payments made in advance (used to secure borrowings raised) minus cash and cash equivalents Net debt service cover Net cash flows from operating activities divided by the aggregate of debt repaid and interest paid and received from financing activities Net profit margin Net profit divided by revenue Working capital current assets Inventories plus payments made in advance (current portion) plus trade and other receivables (current portion) plus taxation asset Working capital current liabilities Trade and other payables (current portion) plus payments received in advance (current portion) plus provisions (current portion) plus employee benefit obligations (current portion) plus taxation liability Working capital ratio Working capital current assets divided by working capital current liabilities Refer to the integrated report for definitions relating to the shareholder compact key performance indicators. 138 Company information Eskom Holdings SOC Ltd Incorporated in the Republic of South Africa Registration number 2002/015527/30 Registered office Eskom Megawatt Park 2 Maxwell Drive Sunninghill Sandton 2157 PO Box 1091 Johannesburg 2000 Switchboard +27 11 800 8111 Customer call centre 08600 ESKOM or 08600 37566 Debt sponsor Nedbank Corporate and Investment Banking, a division of Nedbank Limited JSE alpha code BIESKM For more information Investor relations Lerato Mashinini InvestorRelations@eskom.co.za Media enquiries Daphne Mokwena MediaDesk@eskom.co.za Group Chief Financial Officer Calib Cassim OfficeoftheCFO@eskom.co.za Queries or feedback on our reports IRfeedback@eskom.co.za Our suite of reports covering our integrated results for 2024 is available at https://www.eskom.co.za/investors/integrated-results/ 139 www.eskom.co.za