Contents IFC About this report 2 Performance at a glance 4 Our business and strategy 5 Chairman’s statement 7 Our business model 17 Stakeholder engagement and material matters 21 Our strategy 24 Integrating risk and resilience Integrated report 28 Our group structure 31 March 2016 Our leadership 30 Board profiles 32 Exco profiles 34 Operating performance 35 Chief Executive’s review 39 Revenue and customer sustainability 44 Operational sustainability 55 Sustainable asset creation 63 Environmental and climate change sustainability 70 Safety and security 73 Building a sustainable skills base 76 Transformation and social sustainability 81 Financial review 82 Chief Financial Officer’s report 84 Value added statement 85 Condensed annual financial statements 89 Key accounting policies, significant judgements and estimates 91 Financial sustainability 99 Our governance 100 Governance Framework 101 King III application 102 Board of Directors and committees 103 Executive Management Committee 104 Remuneration and benefits 106 Ethics in Eskom 107 Assurance and controls 108 IT governance 109 Supplementary information 109 Fact sheets available online 110 Abbreviations 111 Glossary of terms 113 Independent sustainability assurance report 116 GRI G4 indicator table 120 Statistical tables 126 Customer information 128 Plant information 131 Benchmarking information 136 Environmental implications of using or saving electricity 137 Leadership activities 148 Contact details Eskom Holdings SOC Ltd III Navigation icons About this report The following navigation icons are used throughout this report to link material matters, risks, key performance indicators and performance to Unless otherwise stated, the information in this Assurance approach sustainability dimensions and strategy: report refers to the performance of the group, Board responsibility and approval Our combined assurance model distinguishes three which includes the business of Eskom Holdings lines of defence, namely review by management, The Board is accountable for the integrity and completeness of the integrated report and any supplementary SOC Ltd, operating in South Africa, and its major Financial sustainability together with internal and external assurance, information, assisted by the Audit and Risk Committee and the Social, Ethics and Sustainability Committee. operating subsidiaries. in order to optimise governance oversight, risk The Board has applied its collective mind to the preparation and presentation of the integrated report and management and control. The Audit and Risk has concluded that it is presented in accordance with the International Framework. Our group structure and information on our subsidiaries are Revenue and customer provided on pages 28 Committee and Board rely on combined assurance sustainability The Board, considering the completeness of the material items dealt with and the reliability of information in forming their view of the adequacy of our risk presented, based on the combined assurance process followed, approved the 2016 integrated report, management and internal controls. annual financial statements and supplementary information on 31 May 2016: Although the report as a whole has not been Operational sustainability Forward-looking statements externally assured, those sustainability KPIs Certain statements in this report regarding contained in the shareholder compact and reported Eskom’s business operations may constitute on in this report were subject to external assurance, forward-looking statements. These include and have received reasonable assurance. The entire Sustainable asset creation Dr Baldwin Ngubane Ms Chwayita Mabude Ms Chwayita Mabude all statements other than statements of report has been internally assured by our Assurance Chairman Acting Chairman: Audit and Risk Chairman: Social, Ethics and historical fact, including those regarding and Forensic Department. Committee Sustainability Committee the financial position, business strategy, Environmental and climate management plans and objectives for future The independent sustainability assurance report can be found on change sustainability operations. Forward-looking statements pages 113 to 115 constitute our current expectations based on reasonable assumptions, data or Furthermore, the consolidated annual financial Safety and security This integrated report is based on the principles The content is further guided by legal and regulatory methods that may be incorrect or imprecise statements have been audited by the group’s contained in the International Integrated Reporting requirements, such as the Companies Act, 2008 and and that may be incapable of being realised, independent auditors, SizweNtsalubaGobodo Inc. Framework (the International Framework) the King Code on Corporate Governance in South and as such, are not intended to be a who issued an unmodified opinion. Building a sustainable published by the International Integrated Reporting Africa (King III), as well as global best practice. This guarantee of future results. Actual results skills base Council (IIRC). focuses on value creation report also contains some GRI G4 disclosures. could differ materially from those projected Refer to pages 11 to 13 of the annual financial statements for the over the short, medium and long term, guided by in any forward-looking statements due to audit opinion the six capitals set out in the International The GRI G4 indicator table is available as a fact sheet at the back various events, risks, uncertainties and Transformation and social Framework, thereby ensuring that all resources, and of this report other factors. Eskom neither intends to nor sustainability how they interact with one another, are considered. assumes any obligation to update or revise takes account of the impact of the internal Reporting boundary and frameworks any forward-looking statements, whether and external environment on the company’s value This integrated report reviews our economic, technical, as a result of new information, future events Building a solid reputation creation process; the connectivity between strategy, operational, social and environmental performance for or otherwise. governance, performance and future outlook; the the year from 1 April 2015 to 31 March 2016, with two impact of the organisation’s activities on the six years’ comparative information and short- and medium- capitals; and the trade-offs that influence value term future targets being presented. It follows our 2015 Request for feedback creation over time. integrated report. Material events up to the date of We welcome your feedback on the usefulness of approval have been included. Our suite of reports Basis of preparation this report and ways in which we could improve our Our integrated report should be read in conjunction Our 2016 suite of reports comprises the following, all of which are available online: Our integrated report seeks to provide a balanced report in future, to ensure that it continues to provide with our full set of group annual financial statements and transparent assessment of how we create value, Integrated report and fact sheets relevant information. Please send any suggestions to for a comprehensive overview of our financial considering both qualitative and quantitative matters IRfeedback@eskom.co.za performance. The integrated report, which provides an overview of our performance, is prepared that are material to our operations and strategic in accordance with the IIRC’s International Framework, and subject to combined objectives, which may influence our stakeholders’ Our group annual financial statements are available online at assurance. Supplementary information, pertinent to interested stakeholders, is available decision-making. Matters important to stakeholders Supplementary Additional www.eskom.co.za/IR2016 at the back of the report; additional fact sheets are available online are determined through extensive consultation with information available information can be in a fact sheet found in this report a wide range of stakeholders and consideration of the concerns they raised, taking into account our This report examines our performance in relation Annual financial statements strategic objectives, evaluation of risk and our value to the sustainability dimensions which underpin Information Refers to GRI The consolidated financial statements of Eskom Holdings SOC Ltd have been prepared is available on chain. Material matters are those that are both of our strategy, taking into account our operating disclosure in accordance with International Financial Reporting Standards (IFRS) as well as the our website high concern to stakeholders and which could have environment, our long-term goals, the risks that requirements of the Public Finance Management Act, 1999 and Companies Act, 2008, and a significant impact on our ability to create value. might prevent us from achieving those goals and audited by our independent auditors A list of abbreviations and glossary of terms are the measures put in place to treat those risks. It available at the back of this report (pages 110 to 112) Our stakeholder engagement process and the determination of considers the impact of other entities – for example material matters are set out on pages 17 to 20 customers, suppliers, employees and communities – Foundation report on our ability to create value, as well as our impact The Eskom Development Foundation NPC (the Foundation) is responsible for the Throughout this integrated report, performance This is our primary report to stakeholders, and on them. We believe that the information presented coordination and execution of our corporate social investment activities in support of our against target is indicated as follows: is comparable to that of prior years, with no business imperatives. The report details the operations and activities of the Foundation although it is aimed at providers of financial capital, it provides information of interest to all stakeholders. significant restatements, unless otherwise indicated. for the 2015/16 year Actual performance met or exceeded target We aim to address mainly material matters, both www.eskom.co.za Actual performance almost met target Refer to our business model on pages 8 to 9 for more detail on (within a 5% threshold) positive and negative, either in this integrated report our operations or the supplementary information. Actual performance did not meet target SC Indicates that a key performance indicator is included in the shareholder compact Eskom Holdings SOC Ltd 1 Performance at a glance Plant performance and capacity Financial sustainability 80 20 50 5 50 000 25 200 000 20 40 4 40 000 20 75 15 150 000 15 30 3 30 000 15 70 10 100 000 10 20 2 20 000 10 65 5 50 000 5 10 1 10 000 5 60 0 0 0 0 0 2013/14 2014/15 2015/16 2015/16 target 0 0 2013/14 2014/15 2015/16 2015/16 target 2013/14 2014/15 2015/16 2015/16 Target 2013/14 2014/15 2015/16 2015/16 target Generation performance Network performance Profitability Controlling costs and savings, R million EAF, % PCLF, % SAIDI, hours System minutes lost, minutes Free funds from operations, R million Operating EBITDA margin, % Primary energy costs Other operating expenses UCLF, % SAIFI, events Operating EBITDA, R million Employee benefit expense BPP savings Deprecitation and amortisation This indicates the availability and performance of This shows how well our network plant is An indication of our revenue adequacy and the Illustrates the growth in our significant costs and our generating plant performing profitability of our operations the results of our costs savings drive 5 000 12 500 20 3 12 500 4 000 10 000 10 000 15 2 3 000 7 500 Load shedding required 7 500 on 79 occasions 10 to 8 August 2015 2 000 5 000 5 000 No load shedding 1 since August, except for 5 1 000 2 500 2 hours and 20 minutes 2 500 on 14 September 2015, and load curtailment of key customers 0 0 on 9 October 2015 0 0 0 2013/14 2014/15 2015/16 2015/16 target 2013/14 2014/15 2015/16 2013/14 2014/15 2015/16 2015/16 target OCGT usage Arrear debt, R million Solvency ratios Total municipal debt Total Soweto debt FFO as % of gross debt Interest cover (including interest) (excluding interest) Debt service cover Production, GWh Expenditure, R million Gross debt/EBITDA Municipal arrear debt Soweto arrear debt Debt/equity ration An indication of the extent to which the system Provides an overview of how well we’re Gives an overview of our solvency is constrained managing the collection of customer debt Shows the capacity we’re adding to the grid, to enable future growth Shows how well we’re managing our liquidity Demonstrates the progress on our funding plan Equity injection of 345.8km transmission 350MW RE-IPP RCA of R11.2 billion External funding of capacity and 335MW Liquid assets increased R23 billion and Medupi Unit 6 Ingula Units 3 and 4 lines constructed and awarded for R85.5 billion secured commissioned synchronised peaker capacity by R21.3 billion to conversion to equity 2 435MVA substation 2016/17 only for 2015/16 and 2016/17 connected to the grid R38.7 billion of R60 billion capacity commissioned (an increase of 9.4%) (excluding equity) shareholder loan 2 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 3 Chairman’s statement Our business and strategy In the distress recovery and stabilisation phases, we are focusing on core issues, such as plant 5 Chairman’s statement performance, minimising the risk of load shedding, 7 Our business model Our business and strategy maintaining our liquidity position and improving 17 Stakeholder engagement and material financial performance. In order to give effect to matters our strategy and deliver on our mandate, we aim 21 Our strategy to ensure that the organisation is sustainable along 24 Integrated risk and resilience a number of distinct dimensions; these collectively 28 Our group structure aim to stabilise and sustain the business in the short, medium and long term. We remain focused on the core areas of financial sustainability, revenue and customer sustainability, operational sustainability Steady progress in our turnaround strategy and sustainable asset creation. Eskom’s key role is to assist in lowering the cost of We will no longer be a constraint to South Africa’s doing business in South Africa, in accordance with growth. Our Corporate Plan for the five years to the Strategic Intent Statement by the Department of 2020/21 aims to re-establish Eskom as a catalyst Public Enterprises (DPE), thereby enabling economic for growth. The Corporate Plan will drive ongoing growth and security of supply through providing improvement in our operational and financial electricity in an efficient and sustainable manner. We sustainability, while stimulating economic growth remain focused on ensuring security and reliability and driving socio-economic development. We of electricity supply to the country, together with recognise the need for fundamental operational guaranteeing Eskom’s financial sustainability. change if we are to provide an affordable, sustainable electricity supply to all South Africans. We have experienced several challenges over the last five years, such as declining or stagnant electricity The Corporate Plan is grounded in the “design- sales in the key industrial, mining and commercial to-cost” paradigm which is underpinned by two segments. Plant availability has deteriorated in maxims, namely cost optimisation and moderate recent years, requiring the use of the expensive price increases. Achieving this paradigm shift will open-cycle gas turbines (OCGTs) to meet demand, require us to: negatively impacting on financial performance. While • Drive a turnaround in Generation performance by we are working to build additional capacity, the cost increasing plant availability (EAF) to 80% by 2020/21 to complete the new build programme is escalating. • Deliver the new build programme within the Our coal cost has been rising faster than inflation, latest schedule, by completing Ingula by 2017, coupled with a continued increase in employee Medupi by 2020 and Kusile by 2022; and optimise costs due to a rise in headcount. The balance sheet the capital portfolio through prioritisation based and funding is under pressure due to credit ratings on our core business downgrades, as well as regulatory uncertainty and • Ensure revenue certainty through the RCA the unsustainable electricity price path. regulatory mechanism and preparation for MYPD 4 Added to that, South African output growth has • Direct a cost containment effort focused on primary been slowing steadily. GDP growth of 1.3% was energy, manpower and other external spend to achieved in 2015, the lowest since 2009; this as the ensure long-term sustainability of the business economy struggled to cope with a sharp decline • Stretch the balance sheet in the short term, while in commodity prices, combined with a slowdown establishing long-term stability in China, one of South Africa’s biggest export • Ensure regulatory and legal compliance in order markets, and the worst drought in more than a to maintain our licence to operate and promote a century. Recent forecasts suggest GDP growth of sustainable business, including environmental and 0.6% for 2016, with slightly higher GDP growth of N–1 grid compliance 1.2% forecast for 2017. By way of comparison, South • Deliver on Government’s strategic objectives by Africa’s annual growth has averaged 3% since 1994. meeting targets on transformation, facilitating the entry of independent power producers (IPPs) and As reported before, the impact of the lower other key initiatives than requested MYPD 3 revenue determination required significant changes to the business, leading to the development of a new strategy to ensure Our strategy aims to deliver an electricity our sustainability in a changing environment. The price path that supports economic growth strategy centred on distress recovery, stabilising and improves our financial and business the business in the short term, re-energising the sustainability. We will no longer be a business over the medium term and growing the constraint to South Africa’s growth and will business in the long term. deliver a stable electricity supply at a price that catalyses economic growth for the country. Eskom Holdings SOC Ltd 5 Chairman’s statement Our business model continued We have maximised all available levers in order to For more on the implications of COP 21, refer to the information Our mandate, vision and mission Vision and mission deliver a plan that will guarantee improved financial Our vision statement is “Sustainable power for a block on page 68 Eskom Holdings SOC Ltd is South Africa’s primary health and sustainability in the long term. We have better future”. Our mission is to provide sustainable electricity supplier and is a state-owned company Our business and strategy developed a sustainable capital investment plan that electricity solutions to assist the economy to grow prioritises projects closely aligned to our strategic In addition, the country’s nuclear programme (SOC) as defined in the Companies Act, 2008. The is targeting 9 600MW of additional capacity by company is wholly owned by the South African and to improve the quality of life of people in South objectives, including the new build programme, the recovery of the generation asset base, and 2030; the Department of Energy has indicated that Government, through the Department of Public Africa and the region. the completion of environmental projects and Eskom will serve as the owner and operator of this Enterprises (DPE). We generate approximately long delayed investments in our transmission and nuclear capacity. Developments in the country and 90% of the electricity used in South Africa, and distribution grid. Eskom is more than just an electricity provider the region around natural gas will create further approximately 40% of the electricity used on the – we touch the lives of all our consumers, we opportunities to diversify the country’s energy African continent. We have taken full advantage of the equity injections uplift communities, create jobs, develop skills, mix. Under Government’s Operation Phakisa, it is by the shareholder and the conversion of the Mandate invest in youth development, ignite industries shareholder loan to equity, and are fully exploiting expected that the natural gas sector will offer South Our mandate, which is aligned to the Strategic and entrepreneurship. We are more than just the balance sheet to obtain external funding. Africa the opportunity to meet its power generation Intent Statement issued by DPE in August 2015, is electricity. Consequently, we have no other option but to needs in the next decade. seek a moderate price increase per year, as well to provide electricity in an efficient and sustainable as certainty around the long-term price trajectory, Update on the Board enquiry manner; this includes the generation, transmission, The report following the Denton’s enquiry was distribution and sale thereof. Eskom is a critical Our business model in order to achieve our financial objectives. Our aspiration is to smooth the impact of potential price finalised and shared with the Minister of Public and strategic contributor to Government’s goal of According to the IIRC’s International increases on the economy over a longer period, as Enterprises. The report proved that there was ensuring security of electricity supply to the country, Framework, a company’s business model is its opposed to creating shorter term price shocks. no misconduct, corruption or fraud on the part and enabling economic growth and prosperity. “system of transforming inputs through its business of any Eskom employee, although it did highlight activities into outputs and outcomes that aims to Outlook We also play a developmental role and will promote fulfil the organisation’s strategic purposes and create some process weaknesses. The recommendations South Africa has experienced several years of tight were used to strengthen the current Turnaround transformation, economic development and broad- value over the short, medium and long term”. This electricity supply, with operating reserve margins Strategy. The majority of the recommendations based black economic empowerment through our system is affected by internal and external factors, well below the targeted 15% of demand. Over the activities. We further support relevant national which together make up the company’s operating have been noted as closed, while the remainder will next five years, this picture is expected to change initiatives as outlined in the New Growth Path, the environment. be closed during the coming financial year. significantly, with a number of key themes shaping National Development Plan (NDP), etc. the electricity market landscape. Following their suspension in March 2015, As a result of the slowdown in the economy, Mr Tshediso Matona, former Chief Executive, demand for electricity in South Africa is expected resigned effective 31 May 2015; Mr Dan Marokane to increase by around 1% per year. This weak and Ms Tsholofelo Molefe both agreed to part ways demand outlook is reinforced by the global decline with Eskom, effective from 1 June and 30 June 2015 in commodity prices, together with challenges in respectively. Following the finalisation of the South Africa’s competitiveness in several energy- enquiry, Mr Matshela Koko was reinstated. intensive sectors, such as gold mining and steel manufacturing. Given low demand growth in the Appreciation short term and the risk of underutilised assets in I wish to thank Mr Romeo Kumalo and Ms Mariam the future, we are exploring several options to ensure long-term demand growth, such as nuclear, Cassim who recently resigned as directors to gas, utility-scale renewables projects, coal, smart give undivided attention to their other business metering and regional opportunities. commitments and projects. They have served diligently as members of the Board and its The South African power sector is ramping up subcommittees. We wish them both all the best in capacity as we make progress on the new build their endeavours. programme, as well as adding new capacity from IPPs to the grid, mainly from renewables. The new I wish to extend a note of appreciation to Exco for its build programme will add 8 600MW of new capacity tremendous efforts in turning around Eskom. Also by 2020/21. Furthermore, we have signed 65 power to our shareholder representative, the Honourable purchase agreements with IPPs, for RE-IPP bid Minister Lynne Brown, who continues to guide us on windows 1 to 4.5, which will add 4 900MW of IPP our path to sustainable growth. capacity to the grid by 2020/21. The transmission grid will be expanded by a further 4 084km, while The Board remains dedicated to fulfilling Eskom’s an additional one million new customer connections mandate, by growing the economy and improving will be made through the electrification programme. the lives of our people through a sustainable We strive for universal access to electricity by 2025. electricity industry. South Africa’s energy mix is expected to shift considerably towards renewables over the next two decades. Although coal will remain a core part of the country’s energy mix for the foreseeable future, South Africa will have to diversify toward Dr Baldwin Ngubane lower carbon emitting energy sources under its Chairman agreements at the United Nations COP 21 climate The upper Bedford Dam is feeding directly to headrace 3 and 4, the upper waterway channel which feeds water to the turbines at Ingula. change conference in 2015. (Photo: Du Toit Malherbe) 6 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 7 Our business model 50Hz Wind RENEWABLE Water Agriculture Wind turbines Hydro Rail Solar Mining Operating performance IPPs Distribution line NON-RENEWABLE High-voltage transmission line Nuclear plant Substation Coal mine Industrial Commercial DIESEL DIESEL Municipalities DIESEL DIESEL DIESEL Residential OCGT Coal-fired plant Substation PRIMARY ENERGY POWER GENERATION TRANSMISSION DISTRIBUTION CUSTOMERS INPUTS PROCESS OUTPUTS CUSTOMERS NON-RENEWABLE 114.8Mt Coal burnt RENEWABLE 58 days Coal stock POWER GENERATION 2.41 System minutes lost <1 238 599GWh Electricity DISTRIBUTION TRANSMISSION available for distribution 214 487GWh Total sales 1 247.8Mℓ Liquid fuel burnt Energy availability (EAF) 71.07% Interruption frequency (SAIFI) 32.6Mt Ash produced 20.5 events 41.8% Municipalities 5.6% Residential 314 685Mℓ Raw water used Planned maintenance (PCLF) 12.99% 215.6Mt CO2 emissions Interruption duration (SAIDI) 23.4% Industrial 4.7% Commercial 28 Power stations 78.4kt Particulate emissions Unplanned losses (UCLF) 14.91% 38.6 hours 14.3% Mining 2.7% Agriculture 377 287km Power lines 8.59% Total energy losses 0.29 LTIR 6.3% International 1.2% Rail 47 978 Group employees 214.9MW Demand savings Capital expenditure R57.4 billion ENERGY FLOW OUTCOMES Electricity available for distribution (GWh) Electricity demand (GWh) Operating EBITDA R32 billion Medupi Unit 6 commissioned Operating EBITDA margin 19.77% Ingula Units 3 and 4 synchronised Generation (including OCGTs) 219 979 Local sales 201 022 Pumping (4 046) International sales 13 465 Cost of electricity R640.03/MWh 345.8km Transmission lines installed Own generation 215 933 External sales 214 487 External funding raised R85.5 billion Electrification 158 016 households connected IPP purchases 9 033 Technical and other losses 19 895 Interest cover 0.55 CSI committed spend R103.6 million International purchases 9 703 Internal use 590 Debt/equity ratio 1.67 84.04% Local sourcing in new build Wheeling1 3 930 Wheeling1 3 930 Debt service cover ratio 1.07 81.65% B-BBEE compliant spend Unaccounted (303) Available for distribution 238 599 FFO as % of total debt 10.98% Racial equity in senior management 61.06% Total demand 238 599 Learners – engineers (895), technicians (415), Gender equity in senior management 28.13% The detailed energy flow diagram is available as a fact sheet online 1. Refers to the buying and selling of electricity from/to international artisans (1 955) customers without the power being available to the South African grid. 1 311 employees with disabilities 8 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 9 Our business model continued Our operating environment During 2015/16, we sold 214 487GWh of electricity Shareholder mandate The electricity supply industry in South Africa to a total of 5 688 640 customers: As discussed, our mandate is to provide electricity We are vertically integrated across a value chain consists of the generation, transmission, distribution that supplies electricity to both South Africa and the in an efficient and sustainable manner, while also Our business and strategy Category Number supporting Government’s developmental initiatives. and sale of electricity, as well as the importing and Southern African Development Community (SADC) exporting thereof. Eskom is a key player in the region. The Southern African Power Pool (SAPP) Redistributors and/or municipalities 801 Our annual Corporate Plan outlines our strategic industry, as we operate most of the base-load and is made up of South Africa, Botswana, Lesotho, Commercial 50 816 Industrial 2 733 and operational direction and captures the necessary peaking capacity, although the role played by IPPs Mozambique, Namibia, Swaziland, Zambia and financial, operational and resource plans to support Mining 1 013 is expanding. Zimbabwe, connected through an integrated grid. this direction. It gives effect to our medium-term Agricultural 82 450 We purchase electricity from electricity generating strategic objectives, while the annual shareholder Rail 509 facilities beyond the country’s borders, and sell compact sets out annual key performance indicators Types of generating plant Residential 5 550 307 electricity to SADC countries, in terms of various International 11 (KPIs) in support of our mandate and strategic Base-load plant agreement schemes. objectives. The Corporate Plan and shareholder Base-load stations are meant to operate on Total 5 688 640 IPPs have been invited to participate in the industry compact are submitted to the Minister of Public a constant basis, except when shut down through a renewable energy programme, split into Enterprises (the Minister) for approval before the for maintenance. The output of individual For electricity sales by customer segment, both volumes and a number of bid windows, run by the Department start of each financial year. The latest approved units can be adjusted based on demand, but revenue, refer to the fact sheet at the back of this report of Energy (DoE), given its commitment to liberalise plan spans the five-year period from 1 April 2016 to the units cannot be shut down or started up the market and encourage private and public sector 31 March 2021. rapidly. Our base-load plant comprises coal- As indicated, we produce approximately 90% of fired stations and nuclear. growth. Potential players were shortlisted by DoE; the electricity used in South Africa. The balance is Performance against the shareholder compact is set out in we have signed power purchase agreements (PPAs) produced by IPPs and municipalities. The electricity the director’s report, which is contained in the annual financial Peaking plant with successful bidders to supply energy into the produced by municipalities, together with that we statements, available online Peaking stations operate when demand is high, national grid, which is owned by Eskom. We perform supply to them, is distributed to their customers in and can be started up rapidly. Our peaking grid planning and construct lines under specific their areas of supply. All shareholder compact KPIs are however included in the statistical stations use water or diesel to operate. licensing criteria, conforming to the National Grid tables, available as a fact sheet at the back of this report Code. Energy output of 219 979GWh was supplied from Self-dispatchable generation the following primary energy sources: Integrated Resource Plan 2010-2030 This is plant such as wind farms, which can only Nature of our business and customer base generate electricity when the wind is blowing; We operate 28 power stations, with a total nominal Primary energy source GWh The IRP 2010 sets out South Africa’s long-term solar photovoltaic is another example. capacity of 42 810MW, comprising 36 441MW of energy needs and discusses the generating capacity, Coal-fired stations 199 888 technologies, timing and costs associated with coal-fired stations, 1 860MW of nuclear power, Nuclear power 12 237 2 409MW of gas-fired, 600MW hydro and 1 400MW meeting that need. DoE has issued a draft update of Open-cycle gas turbines (OCGTs) 3 936 The electricity market is regulated by NERSA, South pumped storage stations, as well as the 100MW the IRP for public comment, which reflects the effect Hydro stations 688 Africa’s energy regulator, in terms of the National Sere Wind Farm. It includes four small hydroelectric of the sustained lower than anticipated economic Pumped storage stations 2 919 Energy Regulatory Act, 2004. NERSA issues stations, which are installed and operational, but Wind 311 growth on projected electricity demand, as well as licences, regulates all price increases, provides not considered for capacity management purposes, changes in the committed build programme. Public Total 219 979 comment on the update has been gathered. DoE is national grid codes, etc. and Unit 6 of Medupi Power Station, which was commissioned on 23 August 2015, adding nominal consulting with other Government departments and The National Nuclear Regulator (NNR) ensures capacity of 720MW to the national grid. Although Eskom’s energy wheel is expected to submit the approved updated plan to that individuals, society and the environment are Units 3 and 4 of Ingula, of 333MW each, have been Our energy flow diagram, or energy wheel, shows Cabinet for promulgation during 2016. adequately protected against radiological hazards synchronised to the grid, these have not yet been the volume of electricity that flowed from local and associated with the use of nuclear technology, international power stations and IPPs to Eskom’s The revision will have important implications for commissioned and are therefore not included in Eskom, particularly around the shift in South Africa’s regulating Koeberg, our nuclear power station. the total. We maintain approximately 377 287km distribution and export points during the past two years, including energy losses incurred in reaching energy mix over the next 15 to 20 years towards Given existing infrastructure and the local availability of power lines and substations with a cumulative lower carbon emitting energy sources, to meet capacity of about 244 637MVA. our customers. of low cost coal, coal-powered electricity generation agreements made at the United Nations’ COP 21 is expected to remain the dominant technology in climate change conference in December 2015. Further information on our power stations, power lines and The energy flow diagram is available online as a fact sheet, although the medium term, but the overall contribution of a summarised version is included in our business model on page 8 The IRP is also expected to affect our generation substation capacities is available as a fact sheet at the back of this coal is expected to decrease in the longer term due plant life extension decisions, with Generation set report to the increasing relevance of other fuel sources External factors influencing our business to complete a full review of its asset base and life such as renewables, gas and nuclear. Gas presents a extension strategy. The IRP is expected to provide We are also building new power stations and We are affected by a number of key external significant growth opportunity in the long term, with clear guidance on the opportunities from greater high-voltage power lines to meet South Africa’s factors, which form the framework within which we both Government and private investors showing regional development and electricity imports growing energy demand. Our capacity expansion operate. These are the shareholder mandate, DoE’s increasing interest. Nuclear is being considered as a outlined in the NDP. programme is expected to be completed in 2022. Integrated Resource Plan 2010-2030 (IRP 2010), the viable power source because of its ability to provide To enable us to meet demand and create the space macroeconomic climate and relevant legislation and base-load power at lower levelised operating costs, for plant maintenance while new generating capacity regulations. with low carbon emissions. is being built, we continue to run a range of demand management and energy efficiency programmes. 10 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 11 Our business model continued Macroeconomic climate The adverse economic climate further has the Systems, policies and procedures The electricity that we produce is a major driver of According to the world economic outlook published potential to impact non-payment by customers, as Every aspect of our operations, from safety to the the economy – just over 3% of the country’s gross by the IMF in April 2016, global growth, estimated at well as illegal connections and theft of electricity and efficiency of our power stations to the experience Our business and strategy domestic product can be attributed to the electricity, 3.1% in 2015, is projected at 3.2% in 2016 and 3.5% in equipment, all of which have a technical and financial of our customers, is underpinned by systems. gas and water cluster. Infrastructure investment has 2017. The improvement in global activity is projected impact on our ability to ensure security of supply Standardised processes, policies and procedures not kept pace with economic growth, resulting in an to be more gradual than previously anticipated, and remain sustainable. have been developed for all aspects of the business electricity supply situation which is constrained in especially in emerging markets and developing and are updated regularly to ensure good governance Legislation and regulations the short to medium term. The updated IRP 2010 is economies, where growth rates are expected to and efficiency improvements. Furthermore, we use predicated on electricity demand growth of 3% per remain 2% below the average of the past decade. We are subject to numerous laws and regulations a number of key performance indicators to measure year to 2030, although this could more realistically concerning our operations, including conditions business performance. average 1% per year to 2026. The decoupling of Oil prices have declined markedly since relating to tariffs, expansion activities, environmental energy demand and GDP growth has been observed September 2015, and futures markets are suggesting compliance, as well as regulatory and licence We have achieved ISO 9001:2008 certification. both locally and internationally. only modest price increases in 2016 and 2017. conditions, such as water usage and atmospheric Furthermore, we have implemented ISO Prices of other commodities, especially metals, emissions, which govern our operations. Our 14001:2004, OHSAS 18001:2007, ISO 31000:2009 The NDP remains the guiding document for have also fallen. Headline inflation has broadly licensing conditions place strict limits on plant and AA1000 in specific divisions or business units, to economic growth, but without sustainable and moved sideways in most countries, but is likely to emissions to reduce the country’s current and regulate environmental management, occupational sufficient electricity capacity, further economic soften. Mixed inflation outlooks in emerging market future environmental footprint. health and safety, risk management and stakeholder growth will be stunted. As the base-load player in economies reflect the conflicting implications of engagement respectively. the market, we are directly responsible for helping weak domestic demand and lower commodity Legislation that influences our governance includes the Electricity Regulation Act, 2006; Companies Technology to increase GDP growth. This requires increased prices against pronounced currency depreciations capacity to support future expected demand. over the past year. Act, 2008; Public Finance Management Act (PFMA), Technology is a key enabler of our business We are building capacity to ensure that South 1999; National Environmental Management Act, and includes telecommunications, information Africa’s future energy needs are met. We expect Risks to the global outlook remain skewed to the 1998; National Water Act, 1998; Preferential technology, research and innovation. We research surplus capacity in South Africa over the next downside and relate to ongoing adjustments in Procurement Policy Framework Act (PPPFA), 2000; ways to improve our processes and technologies as five years, as our plant performance continues to the global economy: a generalised slowdown in Promotion of Access to Information Act (PAIA), well as reduce our impact on the environment, and recover, additional capacity is commissioned, and emerging market economies, China’s rebalancing, 2000; Promotion of Administrative Justice Act invest in pilot projects to investigate the feasibility approximately 4 900MW of contracted capacity lower commodity prices, and a gradual exit from (PAJA), 2000; Occupational Health and Safety Act, of larger scale rollout. These technologies include from IPPs is connected. accommodative monetary conditions in the United 1993; and Employment Equity Act, 1998. The King new methods for generating electricity, such as the States. If these key challenges are not successfully Code on Corporate Governance in South Africa concentrated solar power (CSP) plant in Upington, Opportunities for electricity sales growth depend managed, global growth could be disrupted. (King III), Protocol on Corporate Governance in the and smart grid technology. on increased capacity availability, together with Public Sector and various international guidelines decisions on new markets. Furthermore, global The IMF lowered its economic growth forecast for direct us regarding best practice in governance and Our value chain climate change policy and lower carbon technology South Africa, adjusting its projection to 0.6% in 2016 reporting. Our value chain consists of core operations, trends, together with smart technologies, will and 1.2% in 2017 due to weak commodity prices and supported by a number of support and strategic impact the South African energy market and our lower export prices, elevated policy uncertainty, Our declaration in terms of Section 32 of PAIA is available online functions. We are committed to providing and business model. The rise of IPPs in the South African tighter monetary and fiscal policy together with as a fact sheet; comprehensive disclosure in the integrated report is maintaining a safe, healthy working environment for market creates uncertainty about our future role higher borrowing costs; this is even lower than restricted by the nature, volume and complexity of PAIA requests, together with the percentage of refusals all employees and contractors; safety remains a key in the energy sector and fuels new market options. forecasts by National Treasury. focus area within our operations. However, we will play a critical role in ensuring Annual average inflation of 4.6% was recorded in Our internal operating environment that new capacity is developed and delivered 2015, although expectations for 2016 and 2017 are Our operating and financial performance during 2015/6 is set out in The internal cornerstones of our business are to the public via the national grid. Adapting and higher, with expectations well above 6% in 2016 “Operating performance” and “Financial review” on pages 34 to 80 leadership and governance, supported by our values; and 81 to 98 respectively internalising lessons from changing global markets and 2017; inflation has already increased to 6.3% our systems, policies and procedures; as well as and regulatory environments is critical to ensure a in March 2016. The South African Reserve Bank’s technology. Core operations smooth evolution of the electricity sector. medium-term inflation expectations are around the top of the target range of 3% to 6%. The risk Leadership and governance guided by our Our core operations include the generation, Outlook for growth and inflation values transmission, distribution and sale of electricity. The of positive inflation shocks feeding into higher South Africa’s growth has slowed steadily since 2011. Eskom’s Board is responsible for governing the primary energy resources that our power stations expectations remains very high. After growth of 3.2% in 2011, GDP growth has been company and providing strategic direction, while need to operate – coal, liquid fuels, uranium and decelerating, with moderate growth of 2.2% for both Electricity sales in key segments, such as industrial, the Executive Management Committee (Exco) is water – must be sufficient, delivered on time at 2012 and 2013, and a disappointing 1.5% in 2014. GDP mining and commercial sales, are relatively stagnant, responsible for implementing the strategy. There optimal cost, and be of the required quality. growth of 1.3% was achieved in 2015, below the South either at or nearing a 15-year low. Prices of a number of is a clear distinction of roles and responsibilities African Reserve Bank’s expectations of 1.5% and the alternative technologies are declining and consumers between the Board and Exco. lowest since 2009, but in line with the outlook by are increasingly defecting from the grid, negatively the International Monetary Fund (IMF); this as the impacting our revenue and business model. In response Refer to “Our governance” on pages 102 to 104 for further economy struggled to cope with a sharp decline in to recent price increases and supply concerns, information on the activities of our Board and Exco. Our leadership commodity prices, combined with a slowdown in customers are improving energy efficiency and making and governance is underpinned by our values, which are noted on China, South Africa’s biggest export market, and page 106 their own generation decisions. Businesses continue the worst drought in more than a century. These to experience limited expansion opportunities, while growth rates are in stark contrast with the 5.4% households remain under pressure, due to high growth described in the NDP as the rate necessary levels of debt and unemployment, coupled with the for meaningful progress against unemployment and negative impact of higher inflation and interest rates poverty. on disposable income. 12 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 13 Our business model continued Coal is procured in terms of long-term fixed-price Strong partnerships with Government, suppliers Finance Balancing the power system at 50Hz and cost-plus contracts, as well as medium- and and contractors are vital in meeting current and Our funding model consists of equity in the form Electrical energy cannot be stored in large short-term contracts. Fixed-price mines produce future electricity needs. This group includes various of equity investment by the shareholder, retained Our business and strategy quantities and must be generated at the exact both export-quality coal and Eskom-quality coal. government departments, water authorities, coal earnings and debt funding, with strong Government moment when it is needed by consumers. At a Cost-plus contracts are long-term agreements mines, IPPs, SAPP members, original equipment support. Our credit rating is affected by our own national level, electricity is generated primarily whereby a mine’s coal reserves are dedicated to manufacturers (OEMs) and contractors working on financial position as well as the credit rating of the by using energy sources such as coal, water Eskom; the coal cost covers the mine’s full capital the capacity expansion programme. Sovereign. At 31 March 2016, our equity totalled or diesel to drive a rotating generator. All investment, its operating cost and a return on R180.6 billion, of which R83 billion is attributable to generators connected together and producing investment. share capital and the rest to retained earnings, while Strategic partnerships electricity for the national grid turn at the lenders had provided funding of R322.7 billion in Generating electricity requires a significant We enter into strategic partnerships and same speed of 50Hz, known as synchronous the form of debt securities and borrowings. Of the amount of water and also results in waste, such alliances to achieve a greater impact than we speed. It is important to keep the frequency of R83 billion provided by the shareholder, R60 billion as atmospheric and particulate emissions, ash could generate alone. Some examples are: the system within a specified range of 49.50- relates to the conversion of the equity loan, with and nuclear waste, thereby negatively impacting 50.50Hz. Large electrical turbine/generator South Africa has to reduce greenhouse gas the balance of R23 billion provided as a cash equity the environment. We aim to minimise our impact units are designed to operate within a emissions. We will contribute by diversifying injection during 2015/16. by reducing fresh-water usage and atmospheric narrow range of rotating speed because of emissions by transitioning to a cleaner energy mix, our energy mix and partnering with players in NERSA determines our revenue requirement the enormous mechanical forces experienced including renewable energy, provided mainly by IPPs. relevant sectors, as well as through lobbying based on multi-year price determination (MYPD) by the turbines and generator. To protect and advocacy with government departments applications we submit. The third revenue the turbine/generator from damage, the We supply to industrial, mining, commercial, and other stakeholders. To ensure that all application, MYPD 3, is currently in effect and generating unit will automatically disconnect agricultural and directly to a number of residential necessary environmental approvals and covers the five-year period from 1 April 2013 to itself from the power system if the frequency customers in South Africa, as well as a number of servitudes are in place, we partner with the 31 March 2018. We have submitted two regulatory falls outside the safe operating limits. If not international customers in the SADC region. We Presidential Infrastructure Coordinating clearing account (RCA) applications, in respect of properly managed, this could lead to cascade supply to redistributors (municipalities and metros), Commission (PICC) and relevant government MYPD 2 and the first year of MYPD 3, and have tripping of other generators which could who in turn redistribute electricity under licence to departments to expedite the process. We been awarded additional revenue amounting to eventually lead to the complete collapse of businesses and residential customers within their are also partnering with SADC countries to R7.8 billion in 2015/16 and R11.2 billion in 2016/17 the national grid. areas of supply. develop new capacity to increase electricity respectively. Through our Southern African Energy Unit, we imports into South Africa. This speed can easily be measured using the Workforce frequency of the power system, which is import electricity from Lesotho, Mozambique, We focus on building collaborative used to control the balance of power being Namibia and Zambia, and sell electricity to Our skilled workforce executes our core relationships with unions to ensure stability generated and consumed at any given moment. Botswana, Lesotho, Mozambique, Namibia, operations and provides support services such both on new build sites and in the operating National Control carefully monitors and Swaziland, Zambia and Zimbabwe, on either firm or as human resources management, information business. controls the frequency of the power system unfirm agreements. technology services, procurement, research, etc. so that it remains close to the design value We are improving our construction and At 31 March 2016, we had 47 978 employees, of 50Hz. For example, if there is an excess Capacity expansion programme related capabilities (people, systems, comprising both permanent staff and full-time of electricity being generated compared to Our capacity expansion programme, started processes and tools) by actively driving contractors, consisting of 42 767 Eskom employees that being consumed by customers, the speed in 2005, aims to expand our generation and knowledge, skill and technology transfer and 5 211 Eskom Rotek Industries employees. Of of the generators will rise, resulting in the transmission capacity. This programme will increase through industry partnerships. Engineering these, approximately 84% are covered by collective frequency of the power system increasing. our generating capacity by 17 384MW by 2022, skills will be developed through the Eskom bargaining agreements. Conversely, if there is not enough electricity and includes one pumped storage and two coal- Power Plant Engineering Institute, which We have a rigorous transformation programme in being generated at any time to meet customer fired power stations, as well as a 100MW wind will partner with leading local universities, place to ensure equity in the workplace, and have demand, the speed of the generators will facility, which was completed in 2014/15. It also focusing on MSc and PhD programmes on put in place skills development programmes to train reduce, resulting in the frequency falling. To involves strengthening and substantially extending power plant challenges. engineers, technicians and artisans to meet our ensure a perfect balance between supply and the Transmission grid by expanding high-voltage To address the outstanding debt in future need for skilled workers. Our employees demand, the frequency must stay within the transmission lines by 9 756km and substation municipalities, we actively engage both receive required training on an ongoing basis. range, ideally close to 50Hz, which is done by capacity by 42 470MVA. We have delivered 7 031MW, 6 162km and 32 090MVA to date. national and provincial government (National adjusting the amount of generated electricity For further information on our workforce and employment equity, Treasury, DPE and COGTA) to obtain buy- to match the customer demand, as often as Stakeholders and partnerships refer to “Building a sustainable skills base” and “Transformation and in to payment improvement initiatives. social sustainability – Improving internal transformation” on pages once every four seconds. Base-load stations Our primary partners are our customers, both Furthermore, we partner with SALGA to 73 to 75 and 80 respectively that are online will change their output, while locally and beyond South Africa’s borders. Our resolve distribution industry issues. peaking plant will be brought onto the system customers are important partners in assisting us as required. If there is insufficient capacity in ensuring security of supply, through demand available to meet the expected demand, The quality of our relationships with stakeholders management and energy efficiency programmes, National Control will disconnect customers is very important to us and is therefore constantly such as televised Power Alerts, the integrated from the national grid, either automatically monitored and enhanced. demand management (IDM) programme and 49M or through manual load shedding, to a level energy efficiency campaign. where the balance can be maintained. This is Refer to “Stakeholder engagement and material matters” on pages only done as a last resort to prevent cascade 17 to 20 for further information tripping of generators which could lead to a national blackout. 14 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 15 Our business model Stakeholder engagement and material matters continued Procurement Corporate social investment and To successfully deliver on our mandate and Our interaction with stakeholders Our procurement and supply chain management transformation corporate strategy, we need to ensure effective We define our stakeholders as those groups is led by the Chief Procurement Officer. We have The Foundation administers our corporate social stakeholder management. Our objectives for that affect, and/or are affected by, our activities, Our business and strategy adopted a centre-led approach to our procurement investment (CSI) activities. We are leveraging stakeholder engagement are to ensure alignment products or services and associated performance. and supply chain management activities, with the capacity expansion programme to reduce and a collaborative approach amongst stakeholders This includes people who are actively involved the policy framework and strategic sourcing unemployment, improve the country’s skills pool, on key strategic objectives. Our aim is to build in our programmes and projects, and individuals being guided from the centre, whilst execution is stimulate the local economy and increase economic enduring, trusting and value-adding relationships and groups whose interests may be positively or managed at various sites. Project Sourcing provides equity by supporting broad-based black economic with our stakeholders. negatively influenced due to project execution or specialised support to the new build projects, whilst empowerment (B-BBEE). completion. During the year, we engaged with the The Board has delegated the management of Strategic Sourcing seeks to maximise total cost following stakeholder groups: We have been implementing DoE’s Integrated stakeholder relationships to Exco, with oversight by of ownership by placing key strategic contracts National Electrification Programme in our the Social, Ethics and Sustainability Committee. across our value chain. Special emphasis is placed on supplier development and localisation in line licensed areas of supply since April 2001. Since with shareholder aspirations of transforming the commencement of our electrification programme supply base whilst industrialising key supply in 1991, we have electrified more than 4.8 million sectors. Significant attention is given to minimising households within our supply areas. procurement risk by optimising governance across Employees Regulators Government Parliament Key customers Business and Employees, National Energy Public Enterprises, Public Enterprises, Top key customers, all procurement transactions. industry Executive Forum, Regulator (NERSA), Water and Minerals and industrial, mining Financial institutions, Exco, Board National Nuclear Environmental Affairs, Energy, Water and commercial, investors – local and Regulator (NNR) National Treasury, Environmental Affairs, municipalities, During 2015/16, we placed a total of 2 892 contracts international, BUSA, the dti, GCIS, Public Trade Industry, NCOP, agricultural, residential, with 1 656 suppliers. Our total procurement spend SACCI, Chamber of Commerce Works, Cooperative Government and Select Committee Energy Intensive User Group (EIUG) on Finance, Select (including primary energy) amounted to R169.8 billion and Industry SA, Traditional Affairs Committee on Public Association of (COGTA), SA Enterprises and Labour, for the year. Municipal Electricity Local Government Provincial and Local Undertakings, industry Association (SALGA) Government, Standing experts Committees Oversight and ICT Suppliers Organised International Media Financial markets Civil society Capacity expansion labour relations South African, African Lenders, e.g. World NGOs and CBOs, contractors, Fuel NUM, NUMSA, Multi-lateral and international Bank, ratings agencies, SANGOC, WWF, suppliers, original Solidariteit, institutions, media analysts, International Consumer Forum equipment manufacturers Cosatu cooperation Monetary Fund (IMF), agreements, South African Reserve international Bank (SARB) corporations, international memberships (e.g. WEF, CIGRE), foreign representations Our approach to stakeholder relations is guided We operate within a complex stakeholder by the principles of King III, to ensure that the landscape, consisting of multiple stakeholder legitimate needs, interests and material concerns of groups with differing needs and objectives, who key stakeholders are identified and considered, and are engaged through multiple engagement agents their expectations managed, both ethically and in and touch points. Engagements focus on sharing compliance with best practice. All engagements are key information, improving new and existing based on a commitment to adhere to the underlying relationships and creating partnerships to ensure principles of accountability, inclusivity, materiality, support in addressing our challenges. responsiveness and completeness. We engage these stakeholders in the following ways: • One-on-one meetings and teleconferencing • Interviews • Presentations and Q&A • Training interventions • Collective bargaining • Partnerships with key stakeholders • Industry task teams • Development programmes • Reports to stakeholders • Special publications and articles • Social media • Eskom website • Media briefings • Site visits • Public hearings • Roadshows • Open days • Workshops • Employee engagements • Conferences and forums • Wellness campaigns Learners from Monument Primary School in Ladysmith enjoy a walk as part of the Ingula Water Week Programme. 16 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 17 Stakeholder engagement and material matters continued Engagements occur on a regular basis through Focus areas for future engagements Stakeholder materiality matrix various platforms, in many instances monthly or at • Continue to engage with stakeholders on material Impact on Eskom least quarterly. Our engagements with stakeholders matters affecting our business Lower High Our business and strategy are carefully planned in terms of scope and the • Persist with engagements with stakeholders to Impact of load shedding and load curtailment on Regulatory environment and MYPD methodology, High High engagement approach, as well as the intended identify sustainable solutions towards municipal customers, both direct and indirect and certainty around the electricity price path  outcome of the interaction. The Stakeholder debt collection, including working with national Customer dissatisfaction with service delivery Financial performance and going concern status, Relations Department sets the stakeholder and provincial stakeholders such as Cooperative Installation of split/prepaid meters considering Government financial support engagement plan, and reports progress to Exco and Governance and Traditional Affairs (COGTA) and Technical performance of Transmission and Liquidity position and cost management strategy Board on a quarterly basis. National Treasury, to manage the arrear debt and Distribution plant, including Grid Code compliance Funding plan and funding alternatives, combined and the Transmission Development Plan with the impact of credit ratings downgrades Some business units, such as Treasury, have direct municipal financial recovery process Coal sourcing and containing coal costs, together Impact of increased electricity prices on customers access to their respective stakeholder groups and • Formation of a stakeholder panel, to feed into with migrating coal volumes from road to rail and the economy, coupled with the impact of consistently engage with stakeholders as part corporate decision-making in a way that is aligned Water scarcity and future water infrastructure declining sales volumes on Eskom  of their investor relations activities. Similarly, to our business model Arrear customer debt (mainly municipalities and Business continuity and disaster management Transmission Division, through the Top Customer • We intend to perform stakeholder relationship Soweto) and customer disconnections Employee salaries and benefits Department, continually engages with key industrial assessments, to determine the status of each Security of supply and system capacity, given the Transformation through employment and impact of international sales/purchases, availability customers, partly to contract demand reduction relationship, perform impact assessments and put procurement equity, as well as supplier of coal, OCGT usage, plant breakdowns and over critical hours, assisting in reducing load over in place response plans where needed Level of importance to stakeholders development and localisation emissions limitations, together with progress on critical times. Electrification connection challenges installing new capacity and connection of IPPs to Material stakeholder matters External interference in Eskom’s operations NEW the grid No engagements were conducted specifically as part Technical performance of Generation plant, Matters of concern to stakeholders are determined Eskom’s business model and structure of the of the process of preparing the integrated report. including the maintenance backlog through extensive consultation with and electricity supply industry, including possible consideration of issues raised by stakeholders. private participation in Eskom NEW New build project delays and the escalating cost to Stakeholder support is crucial for the successful completion, including the impact of labour unrest implementation of our strategy. As a part of the Material matters are those that are both of Governance and transparency of tender process and contract management  Environmental performance, such as emissions, strategy, there are critical areas on which we need importance to stakeholders and that could have water use and contraventions, compromising our a substantial impact on our business, with the Changes in and stability of leadership  to align with key stakeholders, in particular: licence to operate  • We require continued collaboration with potential to significantly affect the achievement Government and government entities, as of our strategic objectives and consequently, our Probability of a national blackout  Impact of energy losses, theft of equipment and well as their support across areas of financial ability to create value. Environmental impact of nuclear power generation illegal connections on supply to customers sustainability, environmental compliance, and and nuclear waste management Energy efficiency programmes and incentives We strive to address the impact of stakeholder decisions on energy mix, for future provision of Socio-economic contribution and corporate social Future decommissioning of existing Generation matters on our ability to create value, within the investment plant NEW electricity and enablement of economic growth context of our sustainability dimensions and risk Access to information NEW New capacity post Kusile in terms of the IRP 2010, • Future price increases need to take into account management strategies, in our integrated report. including nuclear Remuneration of directors and executives  both the needs of South African citizens and our Sale of non-core assets NEW financial health, with any required trade-offs The majority of the material matters described in the 2015 integrated report remain relevant, even Energy mix and reducing our carbon footprint by being made explicitly and transparently procuring renewable energy, mainly from IPPs, and • In order to achieve a Generation plant though the level of importance to stakeholders through retrofits to existing stations performance ratio of 80:10:10 (80% energy or impact on Eskom may have changed. Where Climate change and the impact of carbon tax availability, 10% planned maintenance and 10% items have increased in overall importance, it has Safety of the workplace, employees, contractors unplanned maintenance) within five years, short- been indicated with , while a decrease in overall and the public term adjustments will be necessary to ensure importance is denoted by . Some new issues have Shortage of skills and retention of skilled long-term improvement in electricity generation been raised, while other issues have been combined employees, and the impact of vacancies where considered more meaningful. • Stakeholders’ understanding and support are needed to drive cost savings and increased Our Integrated Report Steering Committee The full list of matters raised by stakeholders, grouped according to our sustainability dimensions and indicating which matters were raised by which productivity, particularly in manpower, assessed and prioritised the concerns identified stakeholder groups, is available online as a fact sheet procurement of primary energy, capital project through the stakeholder engagement process. execution and customer service The stakeholder materiality matrix that follows We consider all matters raised by stakeholders, although not all have been addressed in this report. The following compares the importance to stakeholders of table sets out the material matters, found in the top right quadrant of the preceding stakeholder materiality matrix, matters raised to the impact on Eskom. together with an indication of our response thereto, the associated risks, as well as where in the integrated report the matter is discussed in more detail. Our enterprise-level risks, with their associated risk rating, treatment strategy and relevant key performance indicators, are set out on pages 25 to 27 18 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 19 Stakeholder engagement and material matters Our strategy continued Further discussed in Our strategic context Material matter Response Associated risk this report Our overall strategic direction is aligned to DPE’s inflation. Our manpower costs also continued to Strategic Intent Statement, which has set the rise at a rate significantly higher than that assumed Our business and strategy Regulatory environment and Engaging with various Financial sustainability Financial sustainability – MYPD methodology, and stakeholders on applications Electricity price increases Update on revenue following five strategic objectives: in the MYPD 3 revenue application, largely driven by certainty around the electricity submitted to NERSA and declining sales, and applications submitted to an increase in employee numbers. price path Engagements with NERSA outstanding debt increasing NERSA • Achieving and ensuring security and reliability of to clarify methodology Page 95 electricity supply Given the scale of our capital and operating spend, • Achieving and ensuring the financial sustainability we are under social and industry pressure to build Financial performance and going Engaging with various Financial sustainability Financial sustainability – CFO concern status, considering stakeholders on measures report; Financial results of of Eskom local capacity in the sector, by signing supplier Government financial support to improve financial operations • Reducing our carbon footprint development and localisation (SD&L) agreements sustainability Page 82; 92 • Implementing cost containment measures and PPAs with IPPs to meet demand requirements Liquidity position and cost Sharing our liquidity Liquidity Financial sustainability – • Supporting and aligning with Government’s and diversify our energy mix. management strategy management and cost Electricity price increases Financial results of strategic initiatives, such as facilitating the savings strategies with a and declining sales, and operations; Liquidity Our income statement and balance sheet are also wide range of stakeholders outstanding debt increasing Page 92; 96 introduction of IPPs, regional integration of the under pressure – credit ratings downgrades have Lack of adequate skills energy sector, driving industrialisation as well resulted in increased borrowing rates. Funding plan and funding Engaging with financial Financial sustainability Financial sustainability – as the transformation of the economy and the alternatives, combined with the markets and ratings agencies Credit ratings and solvency; procurement landscape Stabilise, re-energise, grow impact of credit ratings Funding activities downgrades Page 96; 97 In addition, we have received guidance from the The impact of the lower than requested MYPD 3 shareholder on a number of long-term objectives, revenue determination required significant changes Impact of increased electricity Engaging with various Electricity price increases Financial sustainability which are addressed by our Corporate Plan: to the business, so we developed a new strategy to prices on customers and the stakeholders prior to and declining sales, and Page 91 economy, coupled with the submitting a revenue or outstanding debt increasing Revenue and customer • Clarify Eskom’s role in long-term capacity ensure our sustainability in a changing environment. effect on Eskom of declining RCA application sustainability – Revenue and development, as well as our role of single buyer, The strategy was built on the Integrated Delivery sales volumes debtor management given increasing market liberalisation and the Plan that outlined the key trade-offs and risks we Page 40 introduction of IPPs would face, and the implications for our business Arrear customer debt (mainly Regular engagements, Liquidity Revenue and customer model. As reported in our 2015 integrated report, • Investigate opportunities to move to a cleaner municipalities and Soweto) and particularly with National Electricity price increases sustainability – Revenue and we launched a Turnaround Plan in response to these customer disconnections Treasury, COGTA and and declining sales, and debtor management energy mix, given the potential impact of carbon challenges, which centred on the following stages: municipalities, on managing outstanding debt increasing Page 40 taxes on the electricity price municipal arrear debt, and • Conduct distress recovery during the past • Accelerate the use of new technologies and curtailing load during peak financial year through quick, high impact initiatives periods innovation to stop the bleeding caused by the downturn in Installation of split/prepaid • Explore regional integration opportunities, financial performance meters specifically within the SADC region • Stabilise the business by implementing Security of supply and system System status briefings and Technical performance of Operational sustainability capacity, given the impact of engagements with top the generating plant Page 44 Following the past three years of financial and sustainable performance enhancement initiatives international sales/purchases, customers, as well as Network performance Sustainable asset creation – operational challenges, our strategic context is over the next two financial years availability of coal, OCGT usage, Parliamentary presentations Inadequate supplies of Delivering capacity expansion influenced by a number of key developments. As • Re-energise the business over the medium term plant breakdowns and emissions primary energy Page 56 mentioned earlier, declining or stagnant electricity limitations, together with New build programme risk by redefining the business model and strategy, progress on installing new sales in key segments are shaping the long-term renewing our capabilities and culture, and driving capacity and connection of IPPs outlook for the electricity sector. Industrial, mining a step change in performance to the grid and commercial sales are at or nearing a 15-year low, • Grow the business in the long term by leveraging Technical performance of System status briefings and Technical performance of Operational sustainability – and customers are improving their energy efficiency improved capabilities to strengthen our position Generation plant, including the engagements with top the generating plant Generation performance and making their own generation decisions. in the industry maintenance backlog customers and suppliers Page 47 Recent operational and strategic uncertainty In the distress recovery and stabilisation phases, New build project delays and the System status briefings and New build programme risk Sustainable asset creation – regarding our current coal fleet will require us to we are focusing on core issues, such as plant escalating cost to completion, engagements with top Safety of the workplace Delivering capacity expansion including the impact of labour customers and suppliers, Lack of adequate skills Page 56 make critical decisions over the next year or two. performance, minimising the risk of load shedding, unrest financial markets and Energy availability (EAF) has decreased from 82% in maintaining our liquidity position and improving various Government 2011/12 to 71% in 2015/16, but has started to show financial performance. departments, as well as an improvement. A portion of the Generation fleet Parliamentary presentations will reach the end of its design life over the next 10 to Strategic areas of focus Environmental performance, such Engaging with DEA and Environmental performance Environmental and climate 15 years, requiring decisions about life extensions; our as emissions, water use and Department of Water and change sustainability – Generation fleet renewal strategy will address this Our strategy aims to deliver an electricity contraventions, compromising Sanitation (DWS), as well as Reducing our environmental our licence to operate environmental groups, to footprint concern. Furthermore, diesel costs for the year were price path that supports economic growth address concerns Page 63 much higher than planned, at R8.7 billion compared and improves our financial and business to a budgeted R2.9 billion, owing to increased OCGT sustainability. We will no longer be a usage to ease the constrained system; OCGT usage constraint to South Africa’s growth and will decreased significantly towards the end of the year. deliver a stable electricity supply at a price that Our operating costs have been rising faster than catalyses economic growth for the country. the electricity price and revenue. Our coal costs, which account for approximately 30% of operating Over the next three to five years, we will launch a set expenses, have been rising at 17% per year over of strategic programmes that fall into six areas, which the last six years, which is significantly higher than are aligned to the material matters discussed earlier. 20 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 21 Our strategy continued savings across all external spend areas; and optimising Our sustainability dimensions 1. Ensure long-term revenue certainty manpower costs, through a reduction in headcount 2. Increase our generation availability and to 36 768 by 2020/21, mainly through attrition, Our business and strategy capacity, and avoid load shedding early retirements and possible voluntary separation 3. Optimise our capital portfolio through packages. These savings will be offset by higher prioritisation based on our core business depreciation costs, created by capitalising about 4. Drive cost efficiencies to support a long-term R300 billion in assets, as well as higher finance costs due Revenue and customer Financial sustainability Operational sustainability Sustainable asset creation electricity price path to higher borrowing rates, growth in debt and lower sustainability 5. Deliver a funding plan that leverages the full interest being capitalised as assets are commercialised. Environmental and climate Building a sustainable Transformation and social Building a solid Eskom balance sheet 5. D  eliver a funding plan that leverages the full change sustainability skills base sustainability reputation 6. Streamline our governance to increase Eskom balance sheet accountability across the business Our strategy will stabilise and then optimise our Safety and security financial ratios and obtain funding for strategic 1. Ensure long-term revenue certainty projects by delivering the overall funding plan, while We are confronted by significant challenges along all of the core sustainability dimensions. As the dimensions We need long-term revenue certainty and stability strengthening key financial indicators, and by selling are very closely integrated, any adverse shift in one dimension inadvertently influences another. This requires to ensure our financial sustainability and to reassure non-core assets. trade-offs between competing priorities in an appropriate manner – the need to do maintenance, manage financial lenders that they will earn a return on their constraints, reduce our environmental impact and ensure our sustainability in the longer term. We cannot do this 6. Streamline our governance to increase investment. To achieve this, we will apply for additional on our own and we rely on partnerships with all stakeholders to help us succeed. accountability across the business expenditure prudently incurred and revenue variances Changes will be introduced to improve speed and during past years of the MYPD 3 period, using the autonomy, by driving large-scale capability building, Trade-offs between resources RCA mechanism. We will submit RCA applications for combined with clear consequence management As part of our normal business we have to make trade-offs between different resources. For instance, 2014/15 and 2015/16, being the second and third years where targets are not achieved. during the first half of the year we experienced significant capacity shortages. In order to balance and of MYPD 3. Based on the principles and precedents set protect the power system, we applied demand management practices and operated OCGTs to reduce load in the NERSA RCA decision for 2013/14, indications In addition to the abovementioned programmes, we shedding, but at great financial expense. are the submissions will amount to approximately will ensure regulatory and legal compliance in order R19 billion and R22 billion respectively. to maintain our licence to operate and promote a Implementation of the emissions reduction programme is impacted by financial and capacity constraints. sustainable business, including N–1 grid compliance Retrofit installations require outages of 120 to 150 days per unit, which will only be available once the Once discussions with NERSA have been finalised, and environmental compliance, as well as deliver on operating reserve margin is adequate. If we fail to execute the programme as planned, we will be non- a decision will be made regarding the new revenue Government’s strategic objectives by meeting current compliant with emission licences, an offence that could result in our licence to operate being revoked. application. Our aspiration is to smooth the impact of targets on transformation, IPPs and other key initiatives. potential price increases on the economy over a longer Government introduced the IPP programme to increase capacity in the electricity sector. However, period, as opposed to creating shorter term price shocks. Achieving our targets is dependent on a number the growing IPP capacity will impact our cost structures and could affect our business model and the of clear enablers, such as effective stakeholder sustainability of our operations. 2. I ncrease our generation availability and management, and reviewing and refining our capacity, and avoid load shedding Outstanding debt by municipalities continued to increase. Where municipalities renege on payment, operating model. disconnection of supply is the last resort; we need to consider the risks and impact on customers. We will implement key initiatives to improve EAF to 80% by 2020/21, through improving maintenance Sustainability dimensions in support of our effectiveness, with a maintenance target (planned and strategy Our sustainability dimensions are aligned to the six capitals in the International Framework. Our sustainability unplanned) of 11 500MW in summer and 8 500MW in In order to give effect to our strategy and deliver on dimensions are integrated and incorporate all aspects of our business and the value that we create over time. The winter, which is managed through Tetris, our flexible our mandate, we aim to ensure that the organisation table below depicts the link between the six capitals and our sustainability dimensions. outage schedule optimisation tool. We will also roll is sustainable along eight distinct dimensions, as set out a programme to reduce boiler tube failures, and out in our 2015 integrated report; these collectively Six capitals prioritise coal efficiency to reduce load losses and costs. aim to stabilise and sustain the business in the short, Social and medium and long term. We remain focused on the Sustainability dimensions Financial Manufactured Intellectual Human relationship Natural We will deliver Medupi and Kusile according to core areas of financial sustainability, revenue and schedule and Ingula within an accelerated schedule, customer sustainability, operational sustainability Financial sustainability and connect IPPs to the grid on schedule. and sustainable asset creation, supported by Revenue and customer We will work to minimise load shedding, improve enablers such as human resources and stakeholder sustainability the maintenance schedule with planned maintenance engagement. Operational sustainability of 4 500MW, use supply levers such as OCGTs Additional sustainability elements that will be prudently, and further implement integrated Sustainable asset creation covered in the strategy include the prioritisation demand management solutions. of safety practices, consideration of our impact on Environmental and climate change sustainability 3. O ptimise our capital portfolio through the environment, and promotion of localisation of prioritisation based on our core business our suppliers. We will also seek further growth Safety and security We will prioritise capital for Generation refurbishment opportunities to mitigate the risks to financial Building a sustainable skills base and outages, new build and major environmental, sustainability over the short and medium term. Transmission and regulatory compliance investments. These include demand stimulation, increasing Transformation and social access to growth across the country’s borders and sustainability 4. D  rive cost efficiencies to support a long-term developing capacity in new generation technologies Building a solid reputation electricity price path where feasible. We will seek growth opportunities We aim to do this through lowering coal cost in our non-regulated businesses through our escalation to 8% to 12% per year; commercial subsidiary, Eskom Enterprises. 22 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 23 Integrating risk and resilience Risk speaks to the effect of uncertainty on outcomes The enterprise level risks, plotted on the Eskom Risk Matrix based Divisional executives are accountable for site- and therefore, successful risk management depends on their risk rating, are shown on page 27, together with the prior level emergency preparedness, the continuity of Examples of disaster risks which could be year and target risk ratings on clearly defined, time-based objectives. The aim is caused by us are a nuclear incident, national their critical business operations, and readiness of Our business and strategy not to identify every risk facing an organisation, but blackout or severe supply/demand constraint. the division for identified disasters at a national, to identify those that are most significant to its ability An enterprise risk profile gives Exco and Board a provincial and local level. Disaster risks which would impact our to achieve and realise its core business strategy and robust and holistic top-down view of key risks operations are, for example, nation-wide objectives supporting value creation and sustainability. facing our organisation. This makes it possible to We are required to comply with the relevant industrial action; a cyber-attack or catastrophic manage those risks strategically, increasing the provisions of the Disaster Management Act, 2002 system failure; a solar or geomagnetic storm; a We have implemented a risk monitoring system likelihood that our objectives will be achieved. and the associated National Disaster Management national liquid fuel crisis or national drought; a to respond appropriately to all significant risks. Enterprise risks are one or a combination of the Framework, and are focusing on improving the pandemic; terrorism or political instability; and Risk monitoring is done at departmental, regional, following: processes around this requirement. Our integrated economic or financial collapse. operating unit and subsidiary level, and is reported • Risks emanating from external factors and/or emergency response structures are in place at a upwards to our centralised Risk and Resilience enterprise events posing strategic challenges national, provincial and divisional level, and we are Department. Identified risks are consolidated into which may affect our ability to achieve our Our inherent risks require effective emergency enhancing these through implementing international integrated risk reports and are reviewed by Exco objectives; climate change is an example preparedness, business continuity management good practices in incident command. National and and the Audit and Risk Committee (ARC), mainly • Risks associated with our ability to develop and and disaster readiness. These are being reviewed provincial exercises are executed by the Risk and focusing on Priority 1 risks, namely those risks where execute strategy, achieve strategic objectives and and enhanced at divisional, provincial and national Resilience Department. We continue to address both the likelihood of occurrence and potential build and protect value level through the Enterprise Resilience Programme. shortcomings identified; the improved response impact on our business are considered high. Risk Inherent risks are continuously reviewed with a in our recent national blackout readiness exercise • Business risks that occur across multiple divisions treatment plans are in place and managed within our particular focus on the effectiveness of our treatment bears this out. We are also an active member of the that, when integrated and aggregated, become approved appetite and tolerance framework. The plans. National disaster priorities have been allocated National Disaster Management Advisory Forum. significant and impact our objectives target risk ratings reflected later set out the rating to specific Exco members as sponsors to oversee our in terms of our appetite and tolerance framework. • A single business risk may be material enough to Our enterprise-level risks readiness for such incidents, and to ensure coordinated impact on our objectives as a whole and as such planning with national structures. Provincial Resilience The following table details the enterprise risks and Our Board, through ARC, manages our risk and may be reported as a corporate risk Teams are accountable for our capability to respond to provides the associated risk rating on the Eskom Risk resilience in order to provide greater security for our The business risk profile gives Exco and Board an disasters in an integrated manner at a provincial level, Matrix, with a reference to the associated material employees, our customers and other stakeholders. all-inclusive bottom-up view of key risks facing the through coordinated planning with provincial disaster matters, as well as the treatment strategy and the key They evaluate the risk landscape to determine the divisions, and a view of the level of effectiveness in management structures. performance indicators used to monitor performance. enterprise risk and business risk profiles. Enterprise risks reported to ARC are identified by divisions the management of those risks, in order to increase through a review of Priority 1 risks, based on criteria the likelihood that divisional and company objectives Risk Associated Key performance related to likelihood and impact of risks, and plotted are achieved. Enterprise risk rating material matters Treatment strategy indicators on the Eskom Risk Matrix. Financial sustainability Enterprise resilience 1. L ack of adequate price 6E Regulatory • Funding plan and funding • Financial ratios increases may impact financial environment and strategy • Credit metrics sustainability, thereby affecting electricity price path • Insurance and risk financing The ability to New state credit ratings and our ability to Financial strategy secure funding, as well as the performance and • Capex optimisation process Deliberately evolve cost of borrowing going concern • Stakeholder engagement Anticipate, identify Operate under Respond rapidly Recover rapidly to a higher state of Funding plan and • Refer to note 5 in the annual Internal/ stress without to contain the in a coordinated resilience in alternatives financial statements for more and adapt rapidly to manner response to external threats, vulnerability failure for impact (severity/ information on our financial extended periods duration) of an changes in the environment and opportunities of time environment, near risk management policies incident/threat misses, incidents 2. Revenue shortfall and increasing 5E Liquidity position • Funding plan and funding • Liquidity ratios Time primary energy costs, especially and cost strategy • Daily cash diesel, may affect liquidity, management • Cost efficiency drive position leading to insufficient funds strategy • Regulatory strategy • Monthly cash flow being available to meet financial Arrear customer forecast obligations, negatively impacting debt • Cost savings operations and the new build achieved Our Enterprise Resilience Programme addresses involving Eskom’s buildings, assets and equipment, programme those risks inherent to our operations that IT and operational systems, technologies, human Revenue and customer sustainability would have a significant consequence should resources, or third party suppliers they materialise. These generally are not listed as 3. E lectricity price increases and 5E Regulatory • Electricity marketing strategy • Arrear debt as a • Disaster risks with a potentially significant supply constraints leading to environment and • Regulatory strategy percentage of Priority 1 risks on the risk register because of the impact on the country (people, the environment declining sales, resulting in electricity price path • Demand forecasting revenue perceived adequacy of the controls and therefore and the economy) at a national, provincial or reduced revenue, whilst Liquidity position • IDM programme • Average debtors their perceived low likelihood. These risks are local level. These risks by their nature require outstanding debt from and cost • Load curtailment agreements days addressed in two broad categories: municipalities and Soweto management with large customers • Top 20 defaulting coordinated planning with the country’s disaster continues to increase strategy • Collection of outstanding municipalities • Business continuity risks which relate to structures, sector departments and related Arrear customer customer debt • Eskom KeyCare the continuity of critical products and services stakeholders. These risks may either be caused debt • Installation of split meters and and Enhanced in the event of a disruption to the time-critical by Eskom or may impact Eskom Impact of increased conversion to prepaid meters MaxiCare electricity prices and • Disconnection and load • Demand reduction processes that deliver these, due to incidents declining sales curtailing of defaulting programmes volumes municipalities 24 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 25 Integrating risk and resilience continued Risk Associated Key performance Risk Associated Key performance Enterprise risk rating material matters Treatment strategy indicators Enterprise risk rating material matters Treatment strategy indicators Our business and strategy Operational sustainability Safety and security 4. T  echnical performance of the 5D Security of supply • Generation Sustainability • EAF 9. S afety of the workplace, 5E New build project • Safety strategy, including our • Number of generating plant, with and system capacity Strategy • PCLF employees, contractors and the delays and the Zero Harm initiative, taking fatalities constrained space for Technical • Generation fleet renewal • UCLF public due to exposure to our escalating cost to account of our life-saving rules • Near misses maintenance, thereby increasing performance of strategy • Maintenance product or operations completion • Vehicle safety plan • Lost-time the maintenance backlog and Generation plant • Asset management strategies backlog • Safety inspections incidents threatening security of • Public engagements • LTIR electricity supply • Security strategy, including integrated crime-prevention 5. N  etwork performance may be 5D Security of supply • Asset management strategies • System minutes plan and security drive to impaired, leading to the loss of and system capacity • Security strategy lost for events protect employees, supply to customers. • Strategic framework for IPP <1 minute contractors and infrastructure Contributing factors are integration • SAIDI insufficient capital investment in • SAIFI Building a sustainable skills base network strengthening and • IPPs connected to refurbishment due to financial the grid 10. L ack of adequate skills to 4D Liquidity position • Human resources strategy • Number of constraints; theft of electricity • Deemed energy support Eskom’s technology- and cost • Succession planning technical learners and equipment; ageing network payments intensive operations in certain management • Skills development initiatives • Learner plant; equipment failure; and areas of the business, either strategy and skills transfer throughput network unavailability. Delayed through shortage of skills or New build project • Training through Eskom • Training spend as grid connection of IPPs adds to inability to retain skills delays and the Academy of Learning and a percentage of the risk escalating cost to learner programmes gross employee completion benefits 6. Inadequate supplies of primary 5E Security of supply • Primary energy sourcing and • Coal stock days energy (coal, liquid fuel and and system capacity pricing strategies • Water water), in terms of either • Water strategy consumption The diagrams below compare the current risk ratings of the abovementioned enterprise risks to the previous year volumes or quality, may impact • Conversion of OCGTs to dual end, as well as to the target ratings. security of supply. This is fuel (diesel and gas) exacerbated by the lack of funding allocated for Enterprise risks at 31 March 2016 Enterprise risks at 31 March 2015 recapitalisation required at cost-plus mines 6 1 8 6 4 1 2 Sustainable asset creation 7. N  ew build programme risk such 5D Security of supply • Monitoring by the Board • Generation 1 2 4 5 2 3 6 3 as schedule delays due to and system capacity Recovery and Build capacity installed 5 4 5 industrial action, safety New build project Programme Review • Transmission lines 7 6 9 7 9 5 8 incidents, contractor delays and the Committee and transmission 5 6 performance and skills, as well escalating cost to • Medupi Improvement Centre, capacity installed as lack of funds and project cost completion and commercial and contract • Generation 3 7 Consequences Consequences 4 10 4 10 escalations, could place further management expansion capacity 8 pressure on the constrained • Kusile contractor and milestones power system. The risk is schedule management (Medupi, Kusile exacerbated by late capacity • Integrated mega project risk and Ingula) 9 10 3 3 allocations under IRP 2010 management • Monitoring labour environment • Strike prevention mechanisms 2 2 • Environmental scanning Environmental and climate change sustainability 8. E nvironmental performance 6E Environmental • Environmental compliance • Specific water 1 1 pertaining to emissions and performance programme usage water usage compromising our compromising our • Air quality, water and waste • Relative A B C D E A B C D E reputation and licence to licence to operate standards particulate <1% >1% >20% >50% 99% <1% >1% >20% >50% 99% operate • Climate change strategy emissions • Stakeholder management and • Operational Likelihood Likelihood advocacy strategy Health Dashboard environmental 1 Risk rating 1 Target risk rating contraventions Our key risks continue to relate to our ability to sustain operations and our financial performance. We face critical challenges regarding poor quality of coal, use of diesel, the current state of our generating assets, delays in commissioning new plant, performance of maintenance and adequacy of a skilled workforce. 26 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 27 Our group structure Legal structure The EPPF had 45 392 in-service members, 33 401 pensioners and 1 710 suspended pensioners at 31 March 2015. Our head office is based in Johannesburg, and we have operations across South Africa. We maintain a small office The EPPF is an independent legal entity, governed by a Board of Trustees, and is not part of the Eskom group. in London, primarily for quality control of equipment being manufactured for the capacity expansion programme; Our business and strategy However, the EPPF plays a key role in creating value for Eskom’s employees, both current and retired. the office is in the process of being closed down. Furthermore, Eskom Enterprises SOC Ltd (EE) has a subsidiary in Uganda. Operating structure Our group structure (only major operating subsidiaries are shown) Our operating structure comprises line functions that operate the business, service functions that service those operations and strategic functions that develop the enterprise. Members of Exco are assigned to take accountability for each of the areas. Eskom Holdings SOC Ltd Line functions Service functions Strategic functions Eskom Pension and Provident Fund Eskom Enterprises Eskom Finance Eskom Development Generation Group Finance Group Sustainability Escap SOC Ltd SOC Ltd Company SOC Ltd Foundation NPC Transmission Human Resources Strategy and Risk Management Distribution Group Commercial Corporate Affairs Eskom Rotek Industries SOC Ltd Eskom Uganda Limited Pebble Bed Modular Reactor SOC Ltd South Dunes Coal Terminal Company SOC Ltd Customer Services Group Technology Regulation and Legal Group Capital Group IT The Eskom group consists of the Eskom business Escap SOC Ltd For Exco portfolios, refer to pages 32 to 33 and a number of operating subsidiaries (wholly Eskom’s wholly owned insurance captive company owned, unless otherwise indicated), including: manages and insures the business risk of Eskom Contribution to financial performance and our subsidiaries, excluding nuclear and aviation Eskom Enterprises SOC Ltd group As mentioned earlier, the Eskom group consists of the Eskom business and a number of operating subsidiaries. liabilities. EE functions as an investment holding company. Each of the companies contributes to the financial performance and position as follows, with the Eskom business Through its subsidiary, Eskom Rotek Industries Eskom Finance Company SOC Ltd (EFC) being by far the most significant. SOC Ltd (ERI), it provides lifecycle and technical EFC was established in 1990 to enable Eskom’s support, plant maintenance and support for the employees to have access to home loan finance Eskom Eliminations Eskom capacity expansion programme to Eskom’s line R million company EE group Escap EFC Foundation and other group whilst optimising home ownership costs for both divisions. ERI was formed on 26 May 2015 through Eskom and its employees. DPE and the Investment Revenue 163 395 8 678 3 162 818 – (12 658) 163 395 the amalgamation of Rotek Industries SOC Ltd and and Finance Committee have mandated the disposal Operating EBITDA 30 088 340 1 641 159 3 (264) 31 967 Roshcon SOC Ltd. of EFC. However, consultation with organised Net profit after tax 2 602 249 1 532 119 – 115 4 617 labour and managerial staff is required before the Total assets 654 180 6 902 13 145 8 870 77 (22 489) 660 685 Eskom Uganda Limited operates in Uganda; it Request for Proposal can be released to the market. Total liabilities 481 866 2 502 10 185 8 058 77 (22 566) 480 122 undertakes the operation and maintenance of It has been classified as held-for-sale in the balance two hydroelectric power generating stations at Capital expenditure1 59 472 373 – – – (361) 59 484 sheet, as it meets the IFRS requirements. Nalubaale and Kiira in Uganda under a 20-year 1. The company and group figures include DoE-funded capital expenditure of R2.2 billion. concession arrangement with Uganda Electricity Eskom Development Foundation NPC Generation Company Limited, which is linked to a The Foundation is a non-profit company that power purchase agreement concluded with Uganda manages our corporate social investment in support For our segment disclosure, refer to note 7 in the annual financial statements Electricity Transmission Company Limited. The of our transformation objective. The Foundation concession arrangement ends in December 2023. supports socio-economic development programmes Pebble Bed Modular Reactor SOC Ltd (PBMR) by targeting primarily communities where we created intellectual property (IP) over the period operate; these include enterprise development of its operation. No additional expenditure was in the economic sector, and in the social sector, incurred to enhance the IP in recent years. PBMR is education, health care, energy and the environment, currently in a state of care and maintenance in order rural school infrastructure development and to preserve the IP created. welfare. EE holds a 75% interest in South Dunes Coal Eskom Pension and Provident Fund Terminal Company SOC Ltd (SDCT), of which The Eskom Pension and Provident Fund (EPPF) is 25% is held directly and 50% indirectly through a defined benefit pension fund that is registered Golang Coal SOC Ltd (Golang). SDCT participated as a self-administered pension fund in terms of in the Phase V expansion of the Richards Bay Coal the Pension Funds Act, 1956 and approved as a Terminal (RBCT), the single largest export coal pension fund in terms of the Income Tax Act, 1962. terminal in the world. Participation in RBCT entitles The EPPF is the second largest pension fund in the its shareholders the right to export coal. SDCT country in terms of assets, with a market value reduced its shareholding in RBCT from 6.68% to of over R118 billion at 31 March 2015. It provides 4.45%; Eskom’s effective export entitlement has not retirement, withdrawal and disability benefits to its changed however, due to the increased shareholding members, as well as death benefits for its in-service in SDCT. members, pensioners and deferred pensioners, which are paid to their qualifying beneficiaries. Ingula is connected to the national grid by 400kV Transmission lines. (Photo: Janet du Plooy) 28 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 29 Board of Directors at 31 March 2016 Dr Ben Ngubane (74) Mr Brian Molefe (49) Mr Anoj Singh (42) Chairman Group Chief Executive Group Chief Financial Independent Executive director Officer non-executive Executive director P&G RBP P&G RBP SES RBP Ms Nazia Carrim (35) Ms Mariam Cassim (34) Mr Zethembe Khoza (57) Ms Venete Klein (57) Independent Independent Independent Independent non-executive non-executive non-executive non-executive P&G RBP SES TC ARC SES IFC P&G SES TC ARC IFC P&G SES Mr Romeo Kumalo (44) Mr Giovanni Leonardi (55) Ms Chwayita Mabude (46) Ms Viroshini Naidoo (43) Independent Independent Independent Independent non-executive non-executive non-executive non-executive ARC IFC RBP P&G ARC P&G SES TC ARC RBP TC Dr Pat Naidoo (55) Mr Mark Pamensky (43) Ms Suzanne Daniels (46) Independent Independent Company Secretary non-executive non-executive IFC RBP SES IFC ARC Audit and Risk Committee IFC Investment and Finance Committee Further information, such as the qualifications and significant directorships of Board members, is provided  as a fact sheet at the back of this report P&G People and Governance Committee RBP B oard Recovery and Build Programme Committee  Ages are shown at 31 March 2016. SES Social, Ethics and Sustainability Committee TC Board Tender Committee  Mr Romeo Kumalo and Ms Mariam Cassim resigned as directors subsequent to year end.  Denotes chairmanship of a committee  Board of Directors: Gender and racial equity Black White 30 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 31 Executive Management Committee at 31 March 2016 Mr Brian Molefe (49) Mr Anoj Singh (42) Group Chief Executive Group Chief Financial Years in Eskom: 1 Officer Years in Eskom: 1 Appointed to Exco in April 2015 Appointed to Exco in August 2015 P&G RBP SES RBP Mr Thava Govender (48) Mr Matshela Koko (47) Mr Abram Masango (47) Ms Ayanda Noah (49) Group Executive: Group Executive: Group Executive: Group Executive: Transmission and Generation and Technology Group Capital Customer Services Sustainability Years in Eskom: 19 Years in Eskom: 19 Years in Eskom: 24 Years in Eskom: 25 Appointed to Exco in Appointed to Exco in Appointed to Exco in Appointed to Exco in December 2014 October 2015 June 2007 September 2010 Mr Mongezi Ntsokolo (55) Ms Elsie Pule (48) Group Executive: Group Executive: Distribution Human Resources (acting) Years in Eskom: 25 Years in Eskom: 18 Appointed to Exco in Appointed to Exco in October 2003 November 2014 P&G People and Governance Committee RBP B  oard Recovery and Build Programme Committee Further information, such as the qualifications and significant directorships of members of Exco, is  provided in a fact sheet at the back of this report SES Social, Ethics and Sustainability Committee  Ages are shown at 31 March 2016. Ms Elsie Pule was appointed as Group Executive: Human Resources in May 2016. Executive Management Committee: Gender and racial equity Black White 32 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 33 Chief Executive’s review Operating performance and load curtailment of key customers on 9 October 2015. Our operating challenges are being 35 Chief Executive’s review addressed by the addition of new capacity and the 39 Revenue and customer sustainability drive to improve plant availability (EAF) to 80% 44 Operational sustainability by 2020/21. Generation has developed risk-based 55 Sustainable asset creation criteria for prioritising capital allocation for outages, 63 Environmental and climate change maintenance and refurbishment under our current sustainability constraints. 70 Safety and security 73 Building a sustainable skills base The group achieved a net profit after tax of 76 Transformation and social sustainability R4.6 billion for the year ended 31 March 2016 (March 2015: R0.2 billion, restated), with operating EBITDA (earnings before interest, taxation, depreciation and amortisation and before fair value adjustments on financial instruments and embedded Success for Eskom means success for the derivatives) of R32 billion increasing significantly Operating performance whole of South Africa and a better life for all (March 2015: R23.3 billion). The operating EBITDA margin improved to 19.77% (March 2015: 15.90%). Eskom is on a sound operational and financial footing Financial performance improved against the previous compared to a year ago. The Board and Government’s year, and most indices trended positively, due to confirmation of key leadership appointments is improved operating results, as well as the conversion welcomed, and most executive appointments have to equity of the subordinated Government loan and been finalised. A new Exco structure was approved the equity injection of R23 billion. Operating results and new Exco committees launched, to drive improved due to the 12.69% electricity price increase accountability and better manage the business. granted by NERSA, coupled with stringent cost With new leadership and intensified staff containment measures. engagements, we have stabilised the organisation. The Chief Financial Officer’s report on pages 82 to 83 further Despite the challenges we face, we continue making discusses our financial performance progress in the technical and operational areas of the business. Through our robust improvement plan, we However, safety performance remains a concern, have risen to the challenge of completing necessary particularly in light of the number of fatalities maintenance of our ageing power stations, while and serious injuries suffered by employees and delivering on our new build projects, which will add contractors. capacity to the grid in the future. The commissioning of Medupi Unit 6 was a Revenue and customer sustainability momentous occasion, showcasing our commitment Eskom KeyCare and Top Customer KeyCare scores to fulfilling our mandate of ensuring a reliable have declined, although remaining above target. electricity supply to South Africa and enabling Enhanced MaxiCare perception survey scores economic growth. With the help of our investors, remained above target, but declined significantly we are creating the bright future that South Africa across all segments towards the end of the year. deserves, through social, economic and regional CustomerCare scores improved over the last development. Our investment in generation and quarter and exceeded target. transmission infrastructure is a catalyst for economic Total municipal arrear debt (including interest) has growth and development. increased further to R6 billion at 31 March 2016 Another significant achievement is the synchronisation (March 2015: R5 billion). The top 20 defaulting of Units 3 and 4 of Ingula in March 2016, ahead of municipalities contributed R4.8 billion at the scheduled target in the 2016/17 financial year. The 31 March 2016, constituting 80% of total municipal Sere Wind Farm continues to add capacity to the arrear debt. Soweto arrear debt (excluding interest) grid, while diversifying our energy mix. increased to R4.7 billion at year end (March 2015: R4 billion). Plant availability improved from a monthly average of 67.84% in April 2015 to 74.21% in March 2016. The rollout of smart prepaid meters is progressing As a result, the reliance on OCGTs reduced well, with 17 527 conventional meters in Soweto considerably, with the load factor well below 6% and 3 026 in Kagiso being converted to prepaid during the last quarter of the year. The likelihood of at 31 March 2016. A total of 5 992 smart meters load shedding during the winter is very low. were installed in Sandton and Midrand, while the conversion to prepaid will resume in July 2016. Following the success of our maintenance plan, we have delivered on our focus areas for the past year, with no load shedding since 8 August 2015, other than 2 hours and 20 minutes on 14 September 2015 Eskom Holdings SOC Ltd 35 Chief Executive’s review continued Operational sustainability Environmental and climate change While the annual average performance of Generation peaking plant will be commissioned during 2016/17, sustainability has been lower than the target of 74.10%, with together with an additional 1 030MW under the Water performance of 1.44ℓ/kWhSO for the year We committed R103.6 million to corporate EAF of 71.07% for the year (March 2015: 73.73%), RE-IPP Programme. Renewable IPPs delivered an is worse than the 1.38ℓ/kWhSO achieved in social investment during the year (March 2015: there has been a turnaround in the Generation average load factor of 30.7% during the year. the previous year, and the annual target of R115.5 million), impacting 302 736 beneficiaries performance during the last six months, with plant 1.39ℓ/kWhSO. Particulate emissions performance (March 2015: 323 882). We achieved a total of availability showing steady improvement. The target Demand savings of 214.9MW for the year (March 2015: was 0.36kg/MWhSO for the year, slightly better 158 016 electrification connections for the year was exceeded in February and March 2016, and EAF 171.5MW) were recorded against a target of 187MW, (March 2015: 159 853), albeit below the 194 374 than 0.37kg/MWhSO in the previous year but worse averaged 73.51% in the fourth quarter. Unplanned achieved in the industrial, residential and commercial target. than the annual target of 0.35kg/MWhSO. breakdowns improved from an average of 16.15% in sectors. A total of 1 696 120 CFLs were installed in April 2015 to 11.48% in March 2016, due to a focus KwaZulu-Natal, Eastern Cape, Western Cape and Sere Wind Farm achieved energy production of Outlook the Free State by 31 March 2016. 311GWh for the year, at a load factor of 34.10%, The delivery of the outcomes targeted in the on reducing partial load losses, as well as previous with average annual availability of 97.67%. Under Corporate Plan will be supported by our ability planned maintenance starting to bear fruit. Sustainable asset creation our solar photovoltaic (PV) programme at existing to stimulate long-term demand; streamline our The system status improved due to the Medupi Unit 6 has been feeding power into the grid administration buildings, power stations and governance to deliver operational and cost-efficiency since commercial operation on 23 August 2015; transmission substations, the 400kWp photovoltaic Operating performance commissioning of Medupi Unit 6, coupled with initiatives as well as increased accountability across lower demand, improvement in plant performance various performance and optimisation tests facility at Rosherville was transferred to commercial the business; and delivering a R327 billion funding and increased production from IPPs. Strategies have since been completed. Ingula Units 3 and 4 operation in September 2015; the project was plan by increasing international borrowing and are in place to address system constraints; further were synchronised to the grid on 3 March and completed within budget. The solar PV projects at balance sheet optimisation initiatives. easing is expected as Ingula, Medupi and Kusile are 25 March 2016 respectively. A total of 345.8km the Bellville and Sunilaws offices, with total capacity progressively commissioned, coupled with further transmission lines were installed against a target of of 360kWp for own consumption, were transferred By connecting IPPs up to bid window 4.5 and increased production from IPPs. 341km, and 2 435MVA transmission transformer to commercial operation during March 2016. delivering on the new build programme, while capacity installed and commissioned against a target also improving the performance of the existing Coal stock at 58 days (March 2015: 51 days) was We have adopted a phased and prioritised approach generation fleet, South Africa will soon have of 2 120MVA. higher than the target of 37 days, mainly due to to emissions reduction, considering the remaining sufficient power generation capacity to meet future Medupi Unit 5 has achieved various milestones in life of power stations and the impact of our coal- demand and stimulate economic growth. excess stock at Medupi and Lethabo Power Stations; support of commercial operation by the first half of fired power stations on ambient air quality, although normalised coal stock days are 36. A total of 13.6Mt 2018. Satisfactory progress is maintained on Units 4 capex required to implement the 2020 Minimum We have optimised our capital portfolio to meet an coal was transported by rail (March 2015: 12.6Mt), to 1. The labour situation at Medupi is stable, with Emissions Standards is significant, and would affordable spend level of R339 billion over the next achieving the target for the year, as a result of no indications of possible disruptions. require an estimated additional 10% increase in the five years. The portfolio of prioritised projects has various interventions implemented at Grootvlei, electricity price. been optimised to achieve N–1 grid compliance and Majuba and Tutuka Power Stations. Kusile continues to achieve set milestones, on the Environmental Minimum Standards. Furthermore, path to commercial operation of Unit 1 by the Other sustainability dimensions the expansion in generating capacity, both our It is important to note that we are no longer under second half of 2018. Good progress is also being the threat of a coal cliff over the next five years. Despite our commitment to safety, we sadly own and from IPPs, requires significant investment made on Units 2 to 6. Scarcity of jobs nationally experienced an increase in both employee and in our transmission network. Based on available We have identified coal sources for all of our power and in Mpumalanga Province creates instability in stations and have put in place a plan to establish coal contractor fatalities. Four employee fatalities were funds, we anticipate that it will take seven years to communities surrounding Kusile. The continual recorded during the year (March 2015: three), resolve all network constraints and achieve N–1 contracts to minimise coal cost escalations. emergence of disgruntled groups has led to three due to motor vehicle accidents and one due grid compliance, to maintain levels of redundancy Transmission achieved a best ever reported disruption to transport services to and from site; to an electrical contact incident. We also suffered required by the Grid Code. We have also prioritised performance for system minutes lost <1 of 2.41 the N4 was closed temporarily on 11 April 2016. 13 contractor fatalities during the year (March 2015: new build completion, critical maintenance of (March 2015: 2.85) against a target of 3.80. Although Commercial operation of Ingula Units 3 and 4 seven). Despite this, LTIR of 0.29 (March 2015: 0.36) existing assets and regulatory compliance, while also the system average interruption frequency index is planned for the 2016/17 financial year, with met the target of 0.31. meeting Government’s specific strategic objectives, (SAIFI) and system average interruption duration commercial operation of Units 2 and 1 targeted for such as IPP connections and electrification. The Eskom group headcount at 31 March 2016 is index (SAIDI) performed better than target, the second half of 2017. The demobilisation of local We will optimise our operating costs over the 47 978 (March 2015: 46 490), consisting of 42 767 network performance shows a declining trend. labour is being managed through engagement with next five years, ensuring that primary energy cost Eskom employees and 5 211 Eskom Rotek Industries Nevertheless, Transmission and Distribution line various stakeholders to avoid negative outcomes. employees. Neither racial nor gender employment escalation for own production stabilises at 8% to losses performed better than target. equity targets were achieved due to the limited 12% a year, while focusing on reducing external We received correspondence from DoE in Spending on OCGTs reduced from almost R1.2 billion December 2015 reconfirming our role as owner and opportunities to recruit, although the disability spend on other major commodities by at least 10%. in April 2015 to R25 million in March 2016. A total operator of the nuclear new build fleet. The Board target has been exceeded. We will allocate resources to ensure that we deliver provided its support to continue critical nuclear on our mandate, considering our funding envelope of R8.7 billion was spent producing 3 936GWh from Our group’s attributable procurement spend with programme development activities. and market constraints. OCGTs for the year (March 2015: R9.5 billion spent B-BBEE compliant vendors and black women- producing 3 709GWh). Furthermore, we purchased owned vendors exceeded the target for the year. Our efficiency and financial targets can be achieved The most advanced of our gas strategy initiatives 9 033GWh from IPPs at a cost of R15.4 billion is the conversion of the OCGTs to dual fuel. The Procurement spend remains below the annual only through a comprehensive effort that also (March 2015: 6 022GWh at a cost of R9.5 billion), at conversion is expected to be completed during the target for black-owned vendors, black youth- optimises our manpower base. We will optimise an average cost of 171c/kWh. upcoming major outage windows at Ankerlig and owned vendors, companies owned by people manpower costs by reducing company employee Gourikwa during 2017. Gas sourcing activities are with disabilities, qualifying small enterprises and numbers to 36 768 by 2020/21. We will employ At 31 March 2016, total IPP capacity of 3 392MW a number of levers to meet the targets, mainly under way. exempted micro enterprises, as the majority of was available to the system, including renewable focusing on attrition, early retirement and possible these have low value contracts, and spend with IPPs of 2 145MW, the Dedisa IPP peaker of 335MW these suppliers is small relative to our total spend. voluntary separation packages. and short-term IPPs of 912MW. The 670MW Avon 36 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 37 Chief Executive’s review Operating performance continued Revenue and customer sustainability Conclusion We will continue with a rigorous programme of It is my pleasure to acknowledge the hard work of all planned maintenance without implementing load Eskom employees. We have turned a corner on the shedding, while also minimising the use of OCGTs. road to sustainable and reliable energy generation in Our Generation Sustainability Strategy aims for South Africa, and this is due, in large part, to their 80% plant availability, 10% planned maintenance commitment and hard work. and 10% unplanned maintenance over the medium term. We manage scheduled maintenance through We are on a journey to stabilise and re-energise our the Tetris planning tool, by scheduling outages based business for longer term sustainability and growth. on forecast demand and maintenance requirements. We approach the coming year with optimism and we We have a strict maintenance target – both planned are setting aggressive goals for progress. We need and unplanned – of 11 500MW in summer and all our people to commit to our strategy and roll up 8 500MW in winter. Furthermore, we remain focused their sleeves to make it happen through disciplined on delivering our capital expansion programme on execution. Through one ordinary act after another, schedule, which will go a long way towards meeting we can overcome our challenges and seize the many opportunities unique to this era. Let us work hard Operating performance electricity demand and alleviating the need for load shedding. We will continue to utilise our new build to create value for our customers and for society, projects as a catalyst to support Government’s thereby ensuring success and a better life for all. initiative to create jobs, alleviate poverty and build skills. Going forward, we remain focused on minimising load shedding, increasing maintenance, accelerating the new build programme, energising our workforce, Brian Molefe and implementing key safety improvements, as well Group Chief Executive as operational efficiencies and cost containment measures. In carrying out our quest for excellence, we must pursue our value of Zero Harm to put an end to injuries and fatalities. HIGHLIGHTS CHALLENGES • Increased focus by contact centres on service • IT system challenges and insufficient levels contributed to an improvement in resources are impacting call centre service CustomerCare scores, which improved levels markedly over the last quarter • Eighteen new defaulting municipalities, reflecting no arrears in February 2016, are now overdue • Ongoing management of energy protection and revenue losses PROGRESS LOWLIGHTS • Eskom KeyCare and Enhanced MaxiCare • Total municipal arrear debt increased scores exceeded target due to continual significantly since prior year, mainly in the customer engagements and customer service Free State municipalities improvement initiatives, although declining • Residential debt, particularly Soweto, over the last quarter of the year continues to escalate • Payment agreements have been signed with • Numerous instances of load shedding during 60 defaulting municipalities, including 19 of the first four months of the year negatively the top 20 defaulters impacted all customer segments • Nine defaulting municipalities settled their arrears in full during December 2015; another 16 municipalities, who did not have payment arrangements in place, settled their arrears in full during March 2016 • Both Transmission and Distribution energy losses are better than target President Jacob Zuma recently paid a visit to our head office at Megawatt Park. 38 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 39 Revenue and customer sustainability continued We aspire to consistently satisfy our customers Customer service performance Key debt management indicators at 31 March 2016 with the level of service they receive. In order We employ a range of statistical perception and Target Target Target Actual Actual Actual Target to measure this, we focus on customer service interaction-based customer surveys, conducted by Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? performance using a number of metrics, as well as independent research organisations, to measure our Arrear debt as % of revenue, % 1.09 1.22 1.68 1.14 2.17 1.10 revenue and debtor management, primarily through customers’ satisfaction with our service: the average number of debtors days and arrear debt Debtors days – municipalities, average • Eskom KeyCare and Top Customer KeyCare 61.58 60.99 n/a 42.93 47.58 32.67 as percentage of revenue. debtors days2 measure the satisfaction of our large industrial Debtors days – large power top Looking back on 2015 customers. Top Customer KeyCare index customers excluding disputes, average 15.18 15.32 14.50 15.51 16.84 14.53 measures those areas over which the Top debtors days Last year, we said we would accelerate debt Debtors days – other large power users Customer Department has direct control 16.55 16.55 16.50 16.24 17.02 16.85 collection in the municipal, residential, and other (<100GWh p.a.), average debtors days large and small customer segments, in order to • Enhanced MaxiCare evaluates the satisfaction of Debtors days – small power users our residential, small and medium-sized 42.83 47.70 46.00 48.24 49.06 50.17 improve our financial sustainability. Debt collection (excluding Soweto), average debtors days in the municipal and residential segments remains a customers on a perception, rather than 1. Debtors days are based on amounts billed, and therefore shown before accounting adjustments relating to IAS 18. significant challenge, although the rollout of smart transactional basis 2. No specific target was set for the 2015/16 year, as the focus was on managing overdue debt. prepaid meters is assisting in improving revenue • CustomerCare assesses the satisfaction of Operating performance recovery. customers on a transactional basis, based on We continue to apply the IAS 18 principle of not Total municipal arrear debt (including interest) at recent interaction with our contact centres and recognising revenue if it is deemed not collectible 31 March 2016 has increased to R6 billion, compared Management of energy protection and revenue the resolution of service requests at the date of sale, although we continue to bill to R5 billion at 31 March 2015. The top 20 defaulting losses, through Operation Khanyisa and other customers. This resulted in external revenue and municipalities contributed R4.8 billion to municipal initiatives, is ongoing. debtors of R1.5 billion not being recognised during arrear debt, or approximately 80% of the total 2015/16, and R2.1 billion cumulatively. arrears. Furthermore, 82% of the municipal arrear Target Target Target Actual Actual Actual Target debt is concentrated in the Free State, Mpumalanga Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Arrear debt and North West municipalities, contributing 47%, Eskom KeyCare, index SC 104.0 104.0 102.0 104.3 108.7 108.7 24% and 11% respectively. At year end, 11 of the top Arrear debt refers only to overdue amounts, 20 defaulting municipalities had total overdue debt Top Customer KeyCare, index 104.0 107.2 110.5 110.8 excluding interest, and not the total amount due. greater than R100 million each. Enhanced MaxiCare, index SC 93.7 93.7 93.7 96.5 99.8 92.7 CustomerCare, index 8.2 8.2 8.2 8.4 8.0 8.3 Municipal and Soweto arrear debt at 31 March 2016 Eskom KeyCare and Top Customer KeyCare CustomerCare scores ended the year above target. Actual Actual Actual showed a decline over the year, largely due to Increased focus by our contact centres on service R million 2015/16 2014/15 2013/14 issues surrounding quality of supply; reliability and levels contributed to the improvement, as well as Municipal debt availability of supply; and Eskom not adhering to the fact that queries which are resolved immediately the notified dates and times of planned outages. Total municipal debt (including interest) 11 325 9 849 6 928 now form part of the study. Customers requested that planned maintenance Municipal arrear debt (>15 days) 6 005 4 953 2 593 schedules be made available in advance, and urged Revenue and debtor management Percentage arrear debt to total debt 53% 50% 37% us to share more of our long-term plans as well as We make every effort to ensure that customers Soweto debt improve our communication. The price of electricity pay their accounts on time. We constantly monitor Total Soweto debt (excluding interest) 4 746 4 182 3 622 remains a major concern to customers. payments and are willing to enter into reasonable Soweto arrear debt (>30 days) 4 678 4 022 3 442 payment arrangements that take into account Top Customer account executives continue to defaulting customers’ circumstances. Considerable Average Soweto payment level 18% 16% 16% engage with customers to maintain relationships, effort also goes into building stronger relationships share important information and detect service- with these customers. Disconnection of supply related issues. We announced during April 2015 that we had of those are partially honouring their agreements. remains a last resort. notified the top 20 defaulting municipalities across None of the Free State municipalities are servicing The Enhanced MaxiCare perception survey score the country that we would be interrupting their their payment arrangements; the top three accounts declined across all segments. The most common Customers are increasingly experiencing adverse market conditions, negatively impacting revenue bulk electricity supply, should they not settle account for more than R2.3 billion of the total complaints relate to how well we inform customers and debtors days. Furthermore, three key industrial their accounts or make payment arrangements by outstanding debt. We are in litigation with two Free about planned electricity interruptions, and how customers are under business rescue. 5 June 2015, as we could no longer continue supplying State municipalities; there is thus no urgency to well we keep to the notified dates and times; and electricty without receiving payment in return. To settle overdue debt. Provincial Treasury is assisting the number of power surges and voltage dips in the date, we have signed 60 payment agreements with in negotiating new payment arrangements. electricity supply impacting customers. The decline defaulting municipalities, therefore they will not have may have been influenced by customer reaction In order to manage the problem, we enforce our their bulk electricity supply interrupted; adherence to the MYPD RCA application, and not by actual revenue management policy and procedures, such to these agreements is closely monitored. Six service delivery quality. MaxiCare has proven in the as issuing disconnection letters, and conform to the payment arrangements have been fulfilled. Of the past to be sensitive to major issues such as price relevant legal and regulatory requirements (such 54 remaining, only eight are being honoured and six increases and load shedding, even when core service as PFMA, MFMA and PAJA) should no corrective partially honoured. Forty payment arrangements delivery performance and quality did not decline. action be taken. We may have to reconsider load are not being honoured. management interventions in light of the increasing Of the top 20 defaulting municipalities, 19 have arrear municipal debt and numerous defaults against signed payment agreements, although only three payment arrangements. 40 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 41 Revenue and customer sustainability continued • Increasing debt collection from businesses by A large number of meter audits covering large stepping up disconnections, entering into and small power users and prepaid customers payment arrangements for arrears and installing were completed during 2015/16. This resulted in split prepaid meters R372 million being billed to large and small power customers to recover revenue unbilled owing Soweto split prepaid metering rollout to meter tampers, faulty or vandalised metering Soweto has approximately 180 000 customers, 80% installations or customers not correctly loaded on of whom are on the conventionally billed metering the system. Fines of R33 million were also realised system (post-paid) and the remainder on the prepaid from prepaid customers who had tampered with their metering system. The plan is to convert all meters electricity meters. A total of 3 565 tipoffs regarding to split prepaid meters by 2019/20. electricity theft were received from the public. The programme started off slowly due to numerous Other interventions include those discussed earlier community protest actions. Nonetheless, at under “Residential revenue management”. Those 31 March 2016, a total of 17 527 meters of previously interventions are supported by Operation Khanyisa, post-paid customers were converted to prepaid in the social marketing campaign, which promotes the Operating performance Soweto, representing 44% of the initial target of legal use of electricity by customers. 39 794 customers. Due to community unrest, the strategy was changed to complete installation of Future focus areas smart meters in steel enclosures before conversion • Provide timely customer query resolution to prepaid. A total of 3 026 meters were also through primary touch points such as Top converted in Kagiso. Customer account executives, contact centres Since inception, the conversion of meters to prepaid and customer service hubs has improved revenue collected by R61 million. • Optimal recovery of revenue from large power Furthermore, conversions have resulted in an users and municipalities increase in revenue billed from R0.2 million per • Manage residential arrear debt through the month in July 2014 to R4 million in March 2016, as deployment of appropriate prepayment solutions demand is now being metered, as well as a drop in • Deter energy theft by increasing penalties for energy demand, due to customers now having to pay meter tampering and fraud for their consumption. • Reduce overall energy losses by educating Smart prepaid metering rollout in Sandton and customers on efficient energy use and encouraging Midrand them to report theft and fraud We lose a significant amount of revenue due to illegal connections and ghost vending. Operation Khanyisa promotes the legal use of electricity by customers. In May 2015, we made a strategic decision to convert our post-paid residential customers to We have issued notices of intent to start the COGTA, to find amicable solutions for electricity prepaid, starting with Sandton and Midrand. The PAJA process to 52 defaulting municipalities. Four payment defaults. Municipalities have been project plans to convert 33 885 single-phase and municipalities in the Eastern Cape were switched off requested to honour their current accounts first three-phase post-paid customers in these areas. on 22 December 2015 and only reconnected after and then settle arrears. National Treasury indicated At 31 March 2016, a total of 5 992 meters were agreement was reached on formalising their payment that it will continue to withhold the equitable share installed; conversions to prepaid will resume in arrangements; a further five municipalities in the of the defaulting municipalities. July 2016, once the upgrade of the Online Vending Northern Cape were temporarily disconnected System to cater for prepaid recovery of network on 29 January 2016. This was followed by inter- Residential revenue management charges is complete. The project is targeted for ministerial interactions with a view to working with In Gauteng, we have embarked on an Eskom completion by the end of the 2016/17 financial year. the municipalities to develop sustainable payment Operational Efficiency Service Level Improvement arrangements. Follow-up sessions were held with Programme (EOESLIP, previously branded Switch Energy losses these municipalities and Provincial COGTA, and Ova!) focusing mainly on Soweto, Kagiso and other During the year, total energy losses were 8.59% payment arrangements proposed. However, very problematic areas, as well as Midrand and Sandton. (March 2015: 8.79%). Non-technical losses due few of these municipalities have signed these new The programme comprises several initiatives: to illegal connections and electricity theft in agreements. • Decreasing energy losses by removing illegal Distribution were estimated at between 1.61% and connections, conducting meter audits, rectifying 2.57% (or between 3 467GWh and 5 546GWh). The interruption of supply is the initial step to faulty or tampered meters and curbing ghost Both Transmission and Distribution energy losses ensure payment of overdue accounts. Disconnection vending by introducing new supply group codes performed better than target, at 2.61% and 6.43% of supply remains the last resort, but where respectively (March 2015: 2.53% and 6.78%). • Installing split smart prepaid meters within municipalities renege on payment, we will initiate protective enclosures to prevent tampering, as disconnection of the electricity supply in line with well as bulk meters on supplies to hostels and the PAJA process, until the debt is paid in full. entering into supply agreements with the owners Nevertheless, we continue to engage on this issue with all municipalities, as well as local and national • Improving payment levels by stepping up government stakeholders, such as Provincial disconnections for customers not honouring Premiers, National and Provincial Treasury and their current accounts 42 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 43 Operating performance Operational sustainability Operational sustainability focuses on security of The commissioning of Medupi Unit 6, coupled supply, as well as balancing the supply and demand of with lower demand, improvement in Generation electricity. Security of supply remains a key concern, performance and increased production from IPPs, with the focus on improving the generation plant contributed to the improved system status. There health, as well as the ability to generate sufficient was a continued focus on the maintenance and electricity, together with energy purchases from refurbishment of the transmission and distribution IPPs to meet our customers’ expectations while network, in addition to network strengthening containing costs. This calls for an integrated towards the achievement of N–1 Grid Code perspective on demand management and energy compliance and the integration of new generation conservation. It is enabled by the Generation sources. Sustainability Strategy, while complying with environmental and regulatory requirements. Deemed energy payments were made during the year, due to delays in grid connection of two projects Looking back on 2015 and a network failure at a substation taking power from the IPP. We continue to implement our IDM There has been a reduction in coal quality related load projects and to pursue options to reduce demand in losses during the year. Coal needed for commissioning Operating performance times of supply constraints. at Kusile has been contracted, while negotiations for the longer term supply continue. The contract for Securing our resource requirements the supply of limestone is expected to be signed in 2016. Investment decisions are yet to be made Our aim is to safely and sustainably source, procure on the major colliery life extension and expansions, and deliver the necessary amounts of primary energy although some capital has been allocated to fund – coal, nuclear fuel, liquid fuels, diesel, water and capital expenditure. The bulk water requirements for limestone – of the required quality to our power our coal-fired power stations have been secured until stations, at the right time and at optimal cost. 31 March 2017, allowing time for a new water supply agreement to be negotiated with DWS. Target Target Target Actual Actual Actual Target Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Coal burnt, Mt1, 2 n/a n/a 121.87 114.81 119.18 122.42 Coal purchased, Mt1 n/a n/a 125.84 118.70 121.67 121.98 HIGHLIGHTS CHALLENGES Coal stock days 37 37 37 58 51 44 Road-to-rail migration (additional tonnage 72.5 14.4 13.6 13.6 12.6 11.6 • No load shedding since 8 August 2015, • Declining coal quality requires coal washing transported on rail), Mt SC, 3 except for 2 hours and 20 minutes on and mixing to ensure that coal meets 14 September 2015; the prognosis for load specifications 1. Future targets are dependent on system requirements. shedding in the coming winter is very low • Increasing labour and community unrest at 2. The 2015/16 figure excludes 314t coal burnt during the commissioning of Medupi Unit 6. • Tetris planning tool has assisted in optimising collieries impacts coal production 3. The 2020/21 target is the cumulative target over the next five years. the scheduling of outages • Road conditions on the coal haulage • Medupi Unit 6 has been in commercial network are deteriorating Securing our coal requirements operation since August 2015 • The El Niño weather pattern has resulted The significantly higher than targeted stock days Negotiations continue between Eskom and Exxaro • Excellent transmission network performance in low dam levels and water supply risks • Renewable IPP capacity of 2 145MW for Eskom is largely due to more coal than required being to minimise any future impact of delays in the (March 2015: 1 795MW) added since • Generation operates in an environment delivered to Lethabo and Medupi Power Stations. construction of the Medupi Power Station on the inception of tight supply constraints and a fleet that Lethabo is supplied by a cost-plus mine, where there take-or-pay contract. A number of possible options requires ongoing maintenance and midlife is no financial benefit in reducing the coal production. are being explored including, but not limited to, refurbishment The high coal stock level at Medupi is caused by us additional stockpiling capacity and the transfer of PROGRESS • SAIDI and SAIFI technical measures are taking delivery of coal in terms of the take-or-pay Medupi coal to other Mpumalanga power stations. showing a worsening trend, although better than target coal supply contract, even though the commissioning • Adequate stockpiles of coarse coal enabled of units at Medupi has been delayed. Excluding these, Almost all the cost-plus mines require significant • Network risks persist, with ageing assets improved coal handling during the rainy and vulnerabilities due to network the normalised coal stock days is 36, in line with the investment or recapitalisation in order to increase season production and/or maintain existing production, unfirmness. Funding constraints could • Some capital has been allocated to fund much target of 37 days. Only Tutuka Power Station was impact future system performance slightly below its minimum stock level at year end. placing further strain on our financial resources. needed capital expenditure at cost-plus mines Lower production is expected from these mines • Coal stock days at all power stations, except Tutuka, were maintained above minimum In the year to 31 March 2016, coal-fired stations until the collieries can be recapitalised. Although levels LOWLIGHTS generated 7 300GWh less than budget, resulting production at some cost-plus mines has reduced, • Partial load losses, particularly those related in 7 059kt less coal than budget being burnt. This we still pay all the operating and ongoing capital to coal quality, continue to decrease • Tight operating reserve margins and insufficient plant availability still required enabled us to use less of the expensive short- and requirements to sustain the current operations of • Performance of UCLF has improved medium-term coal sources than budgeted. Coal these collieries, resulting in an increase in the cost some outages to be rescheduled compared to prior year, although still worse than target usage was underspent by R5.7 billion during the year, per ton of coal. • A total of 15 backlog outages have either offsetting the overspend on OCGTs. commenced or been completed For further discussion of OCGT usage, refer to page 51 44 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 45 Operational sustainability continued The Optimum Colliery has been through a business for a new water supply agreement to be negotiated rescue process and has since been sold; the new with the Department of Water and Sanitation (DWS), owners will take over the operations and are once the revised National Water Pricing Strategy is honouring the contract for its remainder. gazetted. The Arnot Colliery has been closed down nine years The deteriorating quality of raw water from DWS ahead of schedule, following the expiry of Exxaro’s water sources requires collective action by DWS contract in December 2015. The early closure and water users, including Eskom, to protect water has resulted in an accelerated mine rehabilitation resources and deal with polluters. Treatment plans provision of R1.9 billion raised during the current are currently being implemented to manage this risk. year. Since January 2016, seven other companies have been supplying coal to Arnot Power Station in the As a result of the prevailing low rainfall due to the normal course of business. A long-term coal supply El Niño weather pattern and decreasing dam levels, contract will be concluded in due course. water supply risks have emerged for our coal-fired stations in the Vaal River system and the hydro Implementing coal haulage and the road-to-rail migration plan stations on the Orange River system. Emergency Operating performance generation at our Orange River hydro stations has The rail service met the planned target of coal delivered by rail. The poor reliability of the rail tippler been stopped since October 2015, and no emergency system at Majuba Power Station has been resolved. water releases are planned for 2016/17. We are The Tutuka, Camden and Grootvlei rail operations developing contingency water supply plans. have improved significantly and are ramping up steadily. DWS has asked us to use the Drakensberg Pumped The order in which power stations are used is determined by a least-cost merit order despatch approach, based on the incremental fuel cost. Approximately 1 500 independent coal haulier trucks Storage Scheme to pump water from the Thukela We burnt 114.81Mt of coal during the year. transport coal to our power stations daily. Road River system over the Drakensberg to supplement conditions in Mpumalanga continue to deteriorate the Vaal River system. However, the pumping will under this load, and road authorities are struggling only be undertaken when our Systems Operator Securing our nuclear fuel requirements to attend to the required road maintenance. Safety deems it appropriate, having due regard to the The existing contracts for the supply of nuclear fuel is allocated to South Africa. We continue to support performance for the year was disappointing, as system load. fabrication services and the delivery of fabricated DoE in its negotiations with the DRC. We have there was one Eskom contractor fatality and nuclear fuel to Koeberg Nuclear Power Station are completed and submitted studies on the possible 13 public fatalities related to the road transport of DWS has commissioned the water supply sufficient to cover Koeberg’s demand until 2021/22. transmission solution. coal (March 2015: three contractor and six public augmentation infrastructure, to transfer water The existing contracts for uranium and enriched fatalities). In order to reduce the risks associated with from one water system to another to support the uranium to be used as feed for the abovementioned Generation performance such a large operation, we continue to apply our coal requirements of our existing and new coal-fired fuel fabrications are sufficient for Koeberg’s demand We aim to optimally operate and maintain our transport safety interventions. power stations, with the exception of the Mokolo until the end of 2017. Normal commercial processes electricity generating assets for the duration of their Crocodile Water Augmentation Project (MCWAP) will be followed to enter into appropriate contracts economic life. We operate 28 base-load, peaking Coal supply strategy Phase 2. We have engaged with DWS to resolve for the supply of nuclear fuel to Koeberg. The and renewable power stations with a total nominal Due to our recent capital constraints, it has not been water plant health issues and to ensure that plant contracting and pricing strategy will depend on the capacity of 42 810MW, including Medupi Unit 6, with possible to implement the Emerging Miner Fund. We outages to facilitate water transfers take place market and policies applicable at that time. a nominal capacity of 720MW. are however advancing the Emerging Miner Strategy timeously. by procuring from black-owned suppliers. See note 10 on future fuel supplies and note 20 on inventories in We are committed to accomplishing the overarching Mokolo Crocodile Water Augmentation Project the annual financial statements for further information on nuclear goals of meeting the country’s demand and also Kusile coal and limestone contracting status Phase 2 fuel balances improving the performance of Generation. Coal for commissioning purposes at Kusile Power The MCWAP Phase 2 is to provide the necessary Station has been contracted and is being delivered. Progress on regional gas and hydro projects We will fulfil our commitment whilst avoiding load water capacity for the coal mines required to support The coal is being used for the preparation of the Mozambican projects shedding and still conducting regular maintenance on our Waterberg coal supply strategy. The project stockpile base. Negotiations for the longer term coal the Generation fleet to sustain improved performance. comprises a pipeline to be constructed from the Mozambique’s new 100MW gas-fired Gigawatt Power supply continue. Crocodile River at Thabazimbi. Excess water exists Station was commissioned in December 2015 and is Generation Sustainability Strategy Limestone from the Northern Cape will be used in the Crocodile River catchment area due to the adding much needed capacity to the region. Until recently, we have deferred some outages as in Kusile’s flue gas desulphurisation (FGD) plant, to high return flows from treated effluent from sewerage a result of capacity constraints. Since August 2015, While we remain interested in pursuing hydro, gas reduce sulphur oxide emissions. Negotiations for the treatment works in Gauteng. The project delivery the extent of unplanned breakdowns has improved and transmission projects in Mozambique, including limestone supply to Kusile have been concluded and date is the second half of 2022, to support Medupi and new capacity has been added. This has enabled the Gasnosu project reported on previously, further the long-term contract is expected to be signed once Power Station with the water required for its FGD us to adopt a revised maintenance strategy, which direction is awaited from the Ministry of Mineral the commissioning dates at Kusile have been fixed. technology retrofits. aims to perform all required maintenance, whilst Resources and Energy in Mozambique as to which In order to facilitate Kusile’s need for limestone, adhering to the strict maintenance target (planned Water for future power stations projects it wishes to pursue and what role is envisaged delivery on a short-term contract commenced in and unplanned) of 11 500MW in summer and for South Africa, and particularly Eskom. February 2016. The development of new power stations beyond 8 500MW in winter. We are implementing a number our current new build programme will need to take Grand Inga Hydro Project of key initiatives that will help ensure sustainable Securing our water requirements into account the availability and quality of water The governments of South Africa and the Democratic performance. Our coal-fired power stations have an authorised resources, climate change impacts and lead times for Republic of Congo (DRC) signed a treaty for the bulk water abstraction licence. The bulk water the development of new water supply infrastructure. establishment of a 4 800MW hydroelectric station requirements for our coal-fired power stations have on the Congo River in the DRC, of which 2 500MW been secured until 31 March 2017. This allows time 46 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 47 Operational sustainability continued The 80:10:10 strategy strives for 80% plant availability decision making regarding the prioritisation of Post-outage UCLF (EAF) by 2020/21, requiring unplanned losses (UCLF maintenance and rescheduling outages to minimise Post-outage UCLF is measured up to 60 days after a for the rebuilding of Silo 20, the reinforcement of and OCLF) to be limited to 10% on average, while the risk of load shedding. unit has returned from planned maintenance. Post- Silos 10 and 30 and the reinstatement of the coal performing an average of 10% planned maintenance outage UCLF was 23.17% for the year (March 2015: conveyor system has been awarded. Detail design and (PCLF). Additional capacity coming online through Generation technical performance 17.74%). This contributes 1.25% to the total UCLF of construction activities are under way. The permanent the new build programme will enable more planned Generation’s technical operations are assessed in 14.91%, which is spread across the categories in the coal handling plant is expected to be completed by maintenance and midlife refurbishments. terms of the following: preceding graphs, depending on the reason. A number the end of 2016. The claim for the physical damage • Energy availability factor (EAF), which measures of initiatives are being implemented to improve post- was completed and settled. We aim to execute 441 outages, including 35 backlog plant availability and takes account of planned and outage UCLF performance. outages, over the next five years, which will unplanned unavailability, and energy losses not Koeberg performance significantly improve the integrity of our asset base under the control of plant management (OCLF) Maintenance plan and backlog Koeberg Unit 1 returned to service on 2 June 2015, and lead to long-term recovery of plant availability. • Unplanned capability loss factor (UCLF), which A total of 69 outages have been completed during slightly later than planned, after a refuelling and We have improved our outage scheduling using measures unplanned energy losses resulting from the year or are in execution at year end; it includes 10-year maintenance outage. Koeberg Unit 2 shut the Tetris planning tool. It provides a graphical equipment failures and other plant conditions 15 outages that were part of the backlog at the down for its refuelling and 10-year maintenance representation of the maintenance schedule and the • Planned capability loss factor (PCLF), which beginning of the financial year. outage on 31 August 2015, and returned to service on measures energy losses because of planned 8 December 2015. The unit had remained online for Operating performance capacity outlook. This allows for more informed Eleven outages had to be deferred due to delays in shutdowns during the period 470 days since returning to service from its previous contract negotiations, non-availability of specialised refuelling outage. spares and capacity constraints. One of these has Target Target Target Actual Actual Actual Target commenced execution as scheduled in April 2016, Steam Generator Replacement Project Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? while the remaining 10 outages are scheduled to start The Koeberg Steam Generator Replacement Project EAF, % SC 80.00 72.00 74.10 71.07 73.73 75.13 by the end of December 2016. addresses ageing steam generators, the replacement UCLF, % SC 8.90 16.90 13.90 14.91 15.22 12.61 of which is timed to allow a life extension programme We are making good progress in reducing the for the plant. Manufacturing is progressing at SENPEC, PCLF, % 10.00 10.00 10.60 12.99 9.91 10.50 maintenance backlog. During the year, eight backlog the Chinese manufacturer. The last of the forgings at 1. Medupi Unit 6 performance is still being excluded from the performance above. outages were completed, while seven are in execution, Japan Steel Works are forecast for completion by leaving a total of 35 backlog outages. Of these, 34 are December 2016. At Creusot Forge in France, quality EAF has improved from a monthly average of The main contributors to the system UCLF of 14.91% scheduled for 2016/17 and one for 2017/18. heat treatment of some intermediate shells has been 67.84% in April 2015 to 74.21% in March 2016. This for the year to 31 March 2016 (March 2015: 15.22%) Update on significant events completed; forging and rough machining of conical improvement in EAF is indicative of the turnaround were as follows: shells is in progress. Steam generator tube production Duvha Unit 3 over-pressurisation incident in Generation’s performance. The target for EAF in 1.47 (1.37) at Sandvik in Sweden is nearing completion and is 2015/16 was 74.10%. This target was exceeded in On 30 March 2014, we experienced an over- expected to be complete by the end of August 2016. February and March 2016. pressurisation incident in the boiler of Unit 3 at We are aiming for installation during the refuelling 1.28 (1.27) Duvha Power Station, taking the 575MW unit out of outages in 2018. service. This continues to have a material impact on Merit order 5.44 (5.64) UCLF, contributing 1.37% to the system total. For benchmarking relating to our nuclear and coal-fired power We apply a least-cost merit order despatch 1.37 (1.37) 2015/16 The incident investigation report was issued and stations, refer to the fact sheet at the back of this report approach, based on the incremental fuel (2014/15) the recommendations from the report are being cost, to select the order in which power stations are used. It starts with nuclear as the 0.69 (0.95) addressed; the learnings have been shared with other cheapest, then various groupings of coal-fired power stations. A final decision was made to proceed power stations, based on their coal cost, and with a cash insurance settlement in order to replace lastly OCGTs. 2.18 (2.54) the boiler; negotiations are under way to conclude on 2.48 (2.08) the settlement amount. The merit order is used in conjunction with the system energy requirements, fuel The letter of commitment for the construction Breakdown of system UCLF, % contract for a new boiler has been accepted by Eskom constraints and generation plant production constraints to determine the optimised, least- and the supplier, paving the way for site establishment Outage slips cost production plan. Other full load losses and mobilisation. The contract is expected to be Unit trips Boiler tube failures Duvha Unit 3 incident Partial load losses awarded in mid-2016. Demolition of the damaged Other major or significant incidents property will commence in the coming year, whilst Unplanned breakdowns (UCLF) have also improved the detailed design of the new boiler is finalised. from a monthly average of 16.15% in April 2015 to It is envisaged that the unit will be commercially 11.48% in March 2016, due to a focus on reducing Plant utilisation (EUF) for the year to 31 March 2016 operational in 2020. partial load losses and improvements due to previous was 82.69% for all stations, compared to 83.42% in the previous year. The utilisation of coal-fired power Collapse of the Majuba coal silo planned maintenance. stations was 92.66% (March 2015: 93.02%); Koeberg Following the collapse of the coal silo at Majuba Although our efforts have helped to improve system Nuclear Power Station was 99.19% (March 2015: Power Station on 1 November 2014, construction of performance, it is important to note that the system 99.47%) and the peaking stations 20.26% (March 2015: a coal silo interim solution was completed, replacing remains constrained. Strategies are in place to 20.63%). Eskom’s EUF is approximately 20% above the temporary mobile equipment with conveyor belts address system constraints. Pressure on the system the international norm, indicating the high levels running from the permanent stockpiles to the boilers, is expected to ease further as Medupi, Ingula and at which we are operating our plant, in order to to ensure greater efficiency in the coal handling We are conducting regular maintenance on our Generation fleet to Kusile are progressively commissioned, combined maintain security of supply. process. The contract for a permanent solution sustain improved performance. with further increased production from IPPs. 48 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 49 Operational sustainability continued Transmission and Distribution performance In order to balance and protect the power system, we customers had to be curtailed on 9 October 2015, Transmission plans, operates and maintains our transmission assets, while our Distribution network relays electricity have to apply demand management practices, which when five generating units tripped or had to be taken from the high-voltage transmission network to customers, including municipalities that manage their own distribution include supply and demand side options. Supply side off load. networks. options focus on increasing electricity supply, including utilising our OCGTs and pumped storage schemes, The reduction in load shedding since August can be Target Target Target Actual Actual Actual Target as well as supply by IPPs and international power attributed to Medupi Unit 6 going into commercial Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? imports. Demand side options, which are contingent operation on 23 August 2015, adding nominal capacity upon the support of customers, focus on reducing of 720MW to the national grid, the implementation Number of system minutes lost <1 minute, minutes SC, 1 3.80 3.80 3.80 2.41 2.85 3.05 demand, and include demand response programmes of the Generation maintenance strategy, lower than Number of major incidents >1 minute, which utilise interruptible load agreements, demand expected demand, increased supply from IPPs and 2 2 2 1 2 – number side management, energy efficiency initiatives and the other interventions. No load shedding is currently “5pm to 9pm” demand reduction campaign aimed forecast for 2016/17. Additional generation capacity is System average interruption frequency 20.0 20.0 21.0 20.5 19.7 20.2 planned to be commissioned by both Eskom and IPPs index (SAIFI), eventsSC mainly at residential customers, as well as higher System average interruption duration index winter tariffs. in the coming financial year. However, the system 39.0 39.0 41.0 38.6 36.2 37.0 (SAIDI), hoursSC remains vulnerable to incidents of simultaneous high The System Operator places great focus on risk demand and high unplanned outages or partial load Operating performance 1. One system minute is equivalent to interrupting the entire South Africa at maximum demand for one minute. management to protect the stability of the power losses. system. The various defence systems in place are Transmission achieved a best ever reported For benchmarking relating to Transmission and Distribution, refer to frequently tested to ensure their effective response Use of open-cycle gas turbines performance for system minutes lost <1 of 2.41 against the fact sheet at the back of this report capability to prevent a major system event. Production by the diesel powered OCGTs a target of 3.80, as well as the best ever reported has decreased significantly from August 2015 to performance of 1.51 line faults per 100km. This was Equipment theft Power system emergency declarations and March 2016 due to more Generation capacity supported by a high level of maintenance execution, The theft of steel members from transmission towers, load shedding being available, lower demand, as well as increased as well as improved transmission plant availability. as well as cable theft and vandalism of distribution From 1 April to 8 August 2015, a total of 79 load production by IPPs. OCGT production for the eight There was one major incident at Witkop Substation network equipment is an ongoing occurrence. reductions were required, particularly over evening months from August 2015 to March 2016 (since load in Limpopo Province, resulting in the supply to Treatment actions include upgrading security at peaks. Since then, we have had no load shedding, shedding has ceased) totalled 1 539GWh, compared Polokwane and surrounding areas being interrupted several high risk and critical Transmission substation apart from one incident on 14 September 2015, to production of 2 397GWh for the four months for approximately 100 minutes. Performance risks still sites, patrols to prevent incidents on sensitive when a low frequency event led to load shedding from April to July 2015 (during regular load shedding). remain, with ageing assets and vulnerabilities due to installations, installation of monitoring devices, and for 2 hours and 20 minutes. In addition, load to key network unfirmness. the development and piloting of technology solutions for lattice towers. Target Target Target Actual Actual Actual Target Although SAIFI and SAIDI performed better than Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? target, there is a worsening trend in distribution Managing supply and demand OCGT production, GWh1 n/a n/a 1 180 3 936 3 709 3 621 network performance. We remain focused on Role of the System Operator OCGT diesel usage, R million1 n/a n/a 2 885 8 690 9 546 10 561 Distribution sustainability through refurbishment, The System Operator provides an integrative function reliability improvements and addressing maintenance 1. Future targets are dependent on system requirements. for the operation and risk management of the backlogs. The sustained performance of the interconnected power system by balancing supply and Expenditure on OCGTs amounted to R8.7 billion (March 2015: R9.5 billion), against an original budget of R2.9 billion. Distribution network is at risk given the prevailing demand in real time, trading energy internationally A revised budget of R9 billion was approved by the Board during the year. resourcing constraints, which could lead to an and buying energy from IPPs, all of which enable us inability to maintain network performance within to supply electricity to our customers in accordance regulatory norms. with our mandate. 1 500 1 250 1 000 750 -98% 500 250 0 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 OCGT monthly usage and cost for 2015/16 Energy sent out, GWh Cost, R million The HV yard at Medupi assists in evacuating energy sent out by Unit 6 to the national grid. 50 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 51 Operational sustainability continued Independent power producers (IPPs) IPPs contracted and connected (by province) We acknowledge the role that IPPs play in the South Most of the short- and medium-term IPP contracts African electricity market and remain committed to that were due to expire at the end of March 2016 facilitating their entry. have been renewed for another two years. Limpopo DoE launched the RE-IPP Programme in 2011, which Energy capacity and purchases Polokwane called for 3 725MW of renewable energy technologies. The following table summarises the IPP capacity 60 58 Capacity under existing signed agreements is expected available and the actual energy procured under various to be in commercial operation by the end of 2018. IPP programmes for the year to 31 March 2016. Power purchase agreements (PPAs) were concluded with successful bidders. We have received assurance Rustenburg Pretoria Mpumalanga eMalahleni from NERSA that these PPA costs will be treated as a North West 13 Johannesburg pass-through for revenue regulation purposes. Gauteng 7 Target Target Target Actual Actual Actual Target Northern Cape Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Operating performance 78 121 Free State KwaZulu-Natal Total capacity, MW1 n/a n/a 3 454 3 392 2 606 1 677 300 651 200 Upington DIESEL Richards Bay Total energy purchases, GWh 20 000 13 000 10 850 9 033 6 022 3 671 Kimberley 4 670 Bloemfontein Total spent on energy, R million1 n/a n/a 18 425 15 446 9 454 3 228 10 592 74 200 IFRIC 4 reallocation, R million n/a n/a – (340) – 38 Durban Total spent after reallocation, R million n/a n/a 18 425 15 106 9 454 3 266 Weighted average cost, c/kWh1, 2 n/a n/a 170 171 157 88 433 577 1. Future targets are dependent on system requirements and availability of IPP capacity. 2. The weighted average cost has been calculated on the total energy cost before the IFRIC 4 reallocation. Eastern Cape 70 We entered into a PPA with the Dedisa IPP gas Projects with signed PPAs are in various stages of DIESEL 75 335 peaker. For accounting purposes, the capacity charge construction. 59 319 East London is treated as an arrangement that contains a lease in To date, we have contracted for 3 901MW of terms of IFRIC 4. The lease has been assessed as a Cape Town Western Cape renewable IPP capacity (March 2015: 3 887MW), Port Elizabeth finance lease and is accounted for under property, while RE-IPP capacity of 2 145MW (March 2015: Mossel Bay plant and equipment at a value of R3.5 billion. 1 795MW) has been connected to the grid. Renewable The IPP cost for Dedisa under primary energy has IPPs achieved an average load factor of 30.7% during been reduced by R340 million, and depreciation of the year (March 2015: 30.9%), while the weighted Connected 2 480MW Contracted, not yet connected 2 426MW Total contracted 4 906MW R135 million and interest of R302 million charged to average cost amounted to 171c/kWh (March 2015: the income statement. Hydro Wind Concentrated solar Solar PV Landfill gas Diesel Town 217c/kWh). DIESEL During the peak demand hour in 2015, renewable IPPs We expect 1 030MW from the RE-IPPP Programme were producing at 24% of their total capacity, with to be commissioned during 2016/17, including wind generating at 52% of capacity, but none from 504MW wind, 510MW solar PV, 4MW hydro Cross-border sales and purchases of electricity solar photovoltaic (PV), as the peak hour occurred and 11MW landfill. Under the DoE gas peaker The drought affecting the Southern African region exporting of electricity when the domestic supply- during the evening. Deemed energy payments of programme, the 670MW from Avon should be in continues, resulting in reduced hydroelectric capacity demand balance is constrained. We have ensured R24 million were made during the year (March 2015: commercial operation during the year. Furthermore, available in the DRC, Zambia and Zimbabwe. This that sales contracts with SAPP trading partners are the contracts awarded under bid windows 3.5, 4 and provides us with a market for additional electricity sufficiently flexible to allow us to restrict supply during R129 million), due to delays in grid connection for 4.5 are expected to be concluded during the year sales. Non-firm sales are being made to Zambia and emergency situations in South Africa. two projects and a network failure at a substation (as well as the remaining 16MW contract under Zimbabwe. Supply from Hidroeléctrica de Cahora taking power from the IPP, which resulted in 24 hours With the growing anticipation of surplus capacity in the bid window 3), together with the co-generation Bassa (HCB) in Mozambique has not been affected by of lost generation. Furthermore, a compensation the prevailing drought. coming years, we are focusing on the SADC region as programme. payment of R12 million was required for a delay in one of the possible future markets. Engagements with the issuing of the grid compliance certificate for one Successive bid windows of the RE-IPP Programme We are providing support to the region to the extent utilities and mining houses active in the region have IPP. These amounts are included in the total spent have seen reductions in the cost of renewable energy, possible, but given the domestic constraints, support commenced, to test the appetite for longer term firm on energy. such that it is now competitive compared to the cost is mainly limited to off-peak hours. We are aware power supply agreements. of new coal-fired generation. of our responsibility to South Africa regarding the IPPs contracted and connected Target Target Target Actual Actual Actual Target Connected Contracted not Total GWh 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? MW to date yet connected contracted International sales 12 024 11 918 11 750 13 465 12 000 12 378 RE-IPP Programme 2 145 1 756 3 901 DoE Peaker Programme 335 670 1 005 International purchases1 n/a n/a 9 885 9 703 10 731 9 425 Net sales1 n/a n/a 1 865 3 762 1 269 2 953 Long-term IPPs 2 480 2 426 4 906 Short-term IPPs 912 – 912 1. Future targets are dependent on system requirements. Total 3 392 2 426 5 818 52 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 53 Operational sustainability Operating performance continued Sustainable asset creation Integrated demand management Integrated demand management (IDM) plays a key role in assisting us to balance power supply and demand during periods of constraint. Demand side management interventions encourage customers to use electricity more efficiently, thereby contributing to security of supply in the short to medium term. Demand management costs Target Target Target Actual Actual Actual Target R million 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Total energy efficiency demand side n/a n/a 1 017 413 656 1 314 management Power buybacks n/a n/a – – – 87 Demand response n/a n/a 312 248 309 262 Total (excluding transfer pricing) n/a n/a 1 329 661 965 1 663 1. Future targets are dependent on system requirements. Operating performance Verified demand side management and internal energy efficiency savings Target Target Target Actual Actual Actual Target Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Demand savings (evening peak), MW 126.0 196.0 187.0 214.9 171.5 409.6 Internal energy efficiency, GWh n/a n/a 1.2 1.7 10.4 19.4 IDM programmes were put on hold for the first three Future focus areas months of the financial year, but have since resumed. • Collaborate with cost-plus mines to increase IDM runs a number of programmes to manage volumes through capital expansion demand and improve energy efficiency. The Demand • Employ competitive bidding to improve the Response Programme has a combined certified pricing of medium-term coal contracts capacity of 1 466MW of dispatchable load (March • Develop contingency water-supply plans for the 2015: 1 356MW), which can be reduced for short prevailing drought, and ensure an adequate water intervals to restore system security, if requested by HIGHLIGHTS CHALLENGES supply, improved water conservation, as well as the System Operator. The compact fluorescent light better management and usage of water resources (CFL) sustainability programme has installed a total • Commercial operation of Medupi Unit 6 on • Contractor productivity at Medupi and • Improve EAF to enable increased maintenance 23 August 2015, adding 794MW installed Kusile remains a concern, requiring of 1 696 120 CFLs since the project commenced without the risk of load shedding capacity continual management attention to ensure in November 2015. A total of 10 million CFLs will • Manage planned maintenance throughout the • Ingula Units 3 and 4 of 333MW each that progress is sustained be rolled out in phases, with a second phase being Generation fleet, through the use of a risk-based synchronised in March 2016, earlier than • Completion of databooks (technical implemented in 2016/17 and 2017/18. Our Power outage selection system and the dynamic Tetris expected specifications) remains a significant issue at Alert and “5pm to 9pm” campaigns continue to tool, to balance demand and planned maintenance • A total of 345.8km of transmission lines Medupi, together with boiler insulation and reduce power demand during the evening peak. constructed and 2 435MVA substation cladding • Implement the Generation fleet renewal capacity commissioned, exceeding the annual strategy, which is based on the economic target viability of power stations as opposed to age- • Borutho Substation was finally commissioned based decommissioning during March 2016, after experiencing delays due to outage restrictions • Strengthen the transmission backbone towards attainment of N–1 compliance • Achieve an acceptable balance between customer service, network reliability and social PROGRESS LOWLIGHTS responsibility within constrained budgets, while also creating capacity for future customer growth • Chemical clean piping installation of • Contractor fatalities experienced at Kusile the Medupi Unit 5 boiler completed, in and in Power Delivery Projects, on the • Connect new IPP generators and load customers preparation for chemical cleaning and first Hendrina-Gumeni line to the grid oil- and coal fires, leading to boiler blow • Pursue demand management with a focus on through energy efficiency, to provide the necessary peak • Kusile project achieved all milestones except demand reduction one during the past year • Considerable attention focused on new build site stability, following worker unrest and demonstrations early in the year, with a recommitment to the labour partnership agreements 54 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 55 Sustainable asset creation continued Our capital expansion strategy focuses on new build Delivering capacity expansion Capital expenditure (excluding capitalised borrowing costs) per division projects, infrastructure upgrades and conversions We started the capacity expansion programme in Target Actual Actual Actual aimed at generation sustainability, environmental 2005, to build new power stations and increase high- Division, R million 2015/16 2015/16 2014/15 2013/14 compliance, transmission strengthening, IPP and voltage transmission power lines and transformer Group Capital 33 456 33 799 31 691 33 475 customer connections, as well as asset maintenance capacity to meet South Africa’s rising demand for Generation 8 831 11 440 10 555 10 326 and replacement projects. We strive to deliver electricity, and also to diversify our energy mix. The Transmission 934 998 1 121 1 516 projects on time, within budget and to the desired programme, which started with the return-to-service Distribution 6 293 5 490 6 073 10 265 quality. (RTS) programme and is currently expected to be Subtotal 49 514 51 727 49 440 55 582 Looking back on 2015 completed by 2022, will increase installed generation Future fuel 2 187 2 114 1 651 2 675 capacity by 17 384MW, transmission lines by 9 756km The biggest commitment we made last year was to and substation capacity by 42 470MVA. Eskom Enterprises 2 052 373 439 453 drive significant performance improvements by all Other areas including intergroup eliminations 3 736 3 138 1 547 1 093 principal contractors at the Kusile project, in order Since inception, we have increased installed Total Eskom group-funded capital expenditure1 57 489 57 352 53 077 59 803 to claw back schedule on all six units. The project generation capacity by 7 031MW, mainly through achieved all milestones during the past year, only the RTS programme and most recently, Medupi 1. Capital expenditure includes additions to property, plant and equipment, intangible assets and future fuel, but excludes construction stock and capitalised borrowing costs. missing the commissioning of the diesel generator in Unit 6; transmission lines by 6 162km and substation Operating performance December 2015. Unit 1 is on track for commercial capacity by 32 090MVA. The programme has operation by the second half of 2018, somewhat later cost R289.5 billion to date (excluding capitalised Medupi Power Station than previously indicated. At Medupi, commercial borrowing costs). At a ceremony held on site on 30 August 2015, Unit 6 Security plans were put in place for accommodation operation of Unit 5 is expected by the first half of 2018. was officially opened by the President of the Republic areas, consisting of early warnings and direct Ongoing schedule delays and insufficient time for protection. Plant protection has been tightened of South Africa, with the Minister of Public Enterprises Following the labour unrest at Medupi early in the front end planning have impacted the total cost of considerably, with no compromise to access, in attendance. Medupi Unit 6 has now been in financial year, stability has returned to the site. projects, specifically Medupi and Kusile. The Board increased patrols, more effective supervision of approved revised business cases, thereby increasing operation, feeding power into the grid, since formal Managing the new build projects within the existing guards, improved response capability and upgraded capital allocations remains a challenge. the available amounts to R145 billion for Medupi and handover to Generation Division on 23 August 2015. control room management, with effective monitoring R161.4 billion for Kusile (previously R105 billion and Various performance and optimisation tests have of closed-circuit television (CCTV). R118.5 billion respectively). since been completed satisfactorily. Full back-energisation of Unit 5 was achieved on Labour unrest occurred during April and May 2015. schedule on 1 December 2015, providing the power Target Target Target Actual Actual Actual Target The disciplinary process following the unprotected Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? supply for critical future activities like commissioning strike action was finalised and contractor employees the boiler feed pumps and performing the draught Generation capacity installed and who were not dismissed returned to work. We group test runs; the factory acceptance tests (FAT) commissioned (commercial operation), 8 602 666 794 794 100 120 MW SC, 1, 2 worked with contractors to rebuild relationships were completed on 16 December 2015. The Unit 5 Generation capacity installed: Ingula Unit 3 with the respective labour unions, through regular boiler was officially registered as a pressure vessel n/a n/a Yes Yes n/a n/a and 4 first synchronisation in quarter 4 SC labour partnership forum meetings. All parties agreed on 14 March 2016. The draught group run milestone, Generation capacity milestones (Medupi, 30.00 30.00 30.00 3.08 59.56 48.90 on steps to re-establish the partnership agreement dry fires and installation of the chemical clean piping Kusile and Ingula), days delay were all achieved in March 2016, in preparation for forums. The labour situation is stable, with no Transmission lines installed, km SC, 2 2 390.0 525.0 341.0 345.8 318.6 810.9 indications of possible disruptions. chemical cleaning and first oil- and coal fires, leading to Transmission capacity installed and 10 555 1 800 2 120 2 435 2 090 3 790 commissioned, MVA SC, 2 1. The target for 2015/16 refers to the commercial operation of Medupi Unit 6, while the 2016/17 target refers to Units 3 and 4 of Ingula. 2. The 2020/21 target is the cumulative capacity to be commissioned and/or installed over the next five years. Commercial operation of Medupi Unit 6 was achieved The positive performance on capacity milestones on 23 August 2015 in line with commitments to is due to a number of milestones being achieved accelerate delivery of all current new build projects. either on time or ahead of schedule, such as This marks the first new unit commissioned under the synchronisation of Ingula Units 3 and 4; the our capacity expansion programme and the first since completion of the Kusile Unit 1 draught group run by April 2001, delivering nominal capacity of 720MW the end of March 2016; and the earlier than planned (compared to installed capacity of 794MW) to the achievement of the Medupi Unit 5 boiler hydro test national grid, although the schedule was impacted by and back-energisation. low productivity due to labour unrest. Support was provided to National Control to maintain the stability The construction of transmission lines and substation of the grid during times of constrained supply. capacity commissioned exceeded target, mainly due to successful schedule management by our project The shareholder compact target of first managers and contractor performance exceeding synchronisation of Units 3 and 4 at Ingula during the expectations. final quarter of this financial year was achieved. Completion of the Medupi water treatment plant was a key milestone leading up to synchronisation and commissioning of Unit 6. Matimba Power Station is visible in the background. 56 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 57 Sustainable asset creation continued boiler blow through, the next critical commissioning Commercial operation of Unit 5 is currently planned milestone. The focus remains on the boiler insulation for the first half of 2018, with the final unit expected and cladding, which has been identified as the principal to be in commercial operation by the first half of bottleneck to achieving significant milestones, and 2020. The cumulative cost incurred on the project is without which the unit cannot be operated safely. We R93.9 billion (March 2015: R84.7 billion) against the have provided in-depth assistance and guidance to revised budget of R145 billion. All amounts exclude the boiler contractor to increase manpower strength capitalised borrowing costs. in the areas of supervisors, planners and insulators. Kusile Power Station Satisfactory progress is being maintained on Units 4 Sadly, the Kusile project experienced a tragic to 1, although schedule pressure on Unit 5 has contractor fatality involving a crane collapse during caused some contractors to pull resources from August 2015. The investigation into the incident later units to achieve scheduled milestone dates on has been concluded. Lessons learnt are being Unit 5. The risk that work may be further delayed incorporated into operations on site. by industrial action is currently considered very low, and manpower levels are back to planned levels The Unit 1 recovery plans, namely working six Operating performance following the year-end break. The integrated master full days per week, with additional crews working schedule has been finalised, providing planning and night shift across critical packages, have contributed construction guideline dates for critical activities for significantly to the current project performance. Units 3 and 4 of Ingula Pumped Storage Scheme were synchronised to the national grid in March 2016, with commercial operation of these units being all five remaining units. planned for the 2016/17 financial year. (Photo: Heidi Pieterse) The project achieved a number of significant milestones Implementation of site-wide productivity since April 2015, achieving all planned milestones enhancements continues to produce satisfactory during the year, only missing the commissioning of The project received the main and auxiliary boiler The project continues to achieve set milestones, on results. Daily planning and tracking of actual the diesel generator in December 2015. Milestones regulation certificate of registration in January 2016, track for Unit 1 commercial operation by the second performance against plan has been enhanced, with achieved include the boiler reheater hydro test, while limestone needed for the FGD plant was half of 2018. Good progress is also being made on various plans implemented to improve the daily turbine air-cooled condenser leak test and super delivered in February 2016. Units 2 to 6, with the final unit expected to be in production rate. However, contractor productivity heater hydro test of Unit 1. Further areas of significant commercial operation by the second half of 2022. Integration of the new control and instrumentation remains a concern, and continual management progress during the year include the Unit 1 stator (C&I) contractor required streamlined execution, The cumulative cost incurred on the project is attention is required to ensure that progress is coolant system flush that was successfully completed; primarily through completion of designs, delivery of R95.1 billion (March 2015: R78.7 billion) against the sustained. Although there has been an improvement, commencement of Unit 6 boiler steel erection; as well equipment and providing access. The C&I contractor revised budget of R161.4 billion. All amounts exclude performance remains below the required rate; this as starting the pre-setting of fan blades and shrouds started installation in June 2015 and the detail design capitalised borrowing costs. is impacting the achievement of the “first fires” for all units, in preparation for fan testing. Progress on freeze on the balance of plant was concluded in milestone. A revised resource plan is required to Unit 2 is also positive, with the air-cooled condenser Ingula Pumped Storage Scheme September 2015. determine the impact. condensate tank building structure being completed, Watering of the upper and lower waterways was turbine lube oil piping starting in August 2015, and Significant progress in fostering collaboration achieved in December 2015. Units 3 and 4 were In addition, cost escalations resulting from extension the generator stator being transported and set into between Eskom, contractors and organised labour synchronised on 3 March and 25 March 2016 of time and strike settlements are a key concern, position on 23 September 2015. Commissioning was achieved through the Site Partnership Forum. respectively, exceeding the scheduled target of as these impact the schedule and total project of the auxiliary cooling tower was completed. The The Kusile safety and production bonus has been synchronising the units in the 2016/17 financial year. cost. Nonetheless, the planned date for commercial sewerage plant was also commissioned. aligned to that of Medupi and the rules finalised. The operation of Unit 5 is achievable, provided that the intention is to ensure the project achieves key safety risk mitigation strategies are successfully implemented. measures and production milestones that support Ingula Unit 3 was successfully synchronised Unit 1 commercial operation according to plan. to the national grid on 3 March 2016 and performed excellently for over a month. However, the project is experiencing an increase However, an unfortunate incident occurred in contractor claims, both in volume and value. We on 6 April 2016 when the unit faulted are taking an active role in ensuring that claims are and was damaged during commissioning settled on a global basis in the most efficient manner, and optimisation by the contractor. A full with minimal impact on progress and without creating investigation to evaluate the extent of the work stoppages. damage is under way. The unit will be repaired, Also of concern is that the scarcity of jobs nationally, ready for commercial operation before the end and in Mpumalanga Province in particular, is causing of the 2016/17 financial year. stability issues in the surrounding communities, while project recruitment has peaked at nearly 16 500 The lower Braamhoek Dam is feeding directly into workers. Continual emergence of disgruntled groups the tailrace – the lower waterway channel conveying within the surrounding communities has led to some water away from the turbines – without restrictions, disruption to transport services to and from site, with and the upper Bedford Dam is feeding directly to the N4 being closed temporarily on 11 April 2016. An headrace 3 and 4 – the upper waterway channel intensive stakeholder management plan is in place to feeding water to the turbines – without restrictions. manage external stability and security issues. External The underground refuge bay has been completed; stability teams have been appointed to ensure that this is a special underground station for use in issues are dealt with in a manner that limits and/or emergencies, where workers can shelter until it is The Kusile project continues to achieve set milestones, on track for commercial operation of Unit 1 by the second half of 2018. Good progress is also being made on Units 2 to 6. eliminates the impact on the project. safe to return or until they are rescued. 58 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 59 Sustainable asset creation continued Commercial operation of Units 3 and 4 is planned Power lines and substation capacity Funds available for Transmission strengthening for the 2016/17 financial year, with commercial During the year, we installed 345.8km of high-voltage projects are currently limited, which will extend the operation of Units 2 and 1 targeted for the second transmission lines and commissioned substation time taken to meet network reliability requirements half of 2017. Work on the critical path is being closely capacity of 2 435MVA under the new build programme, and may constrain our ability to connect customers. monitored to ensure that key dates and associated bringing the total since inception of the capacity Renewables projects milestones on the accelerated schedule are not at risk expansion programme to 6 162km transmission lines of being delayed. The demobilisation of local labour We have been granted environmental authorisation and 32 090MVA substation capacity. is being managed through engagement with various for the establishment of the 300MW Kleinzee Wind stakeholders, to avoid negative outcomes. Sadly, a fatality occurred on the Hendrina-Gumeni line Farm – which is proposed to comprise a cluster of up on 3 August 2015, when a contractor fell to the ground to 200 wind turbines – and associated infrastructure The Department of Mineral Resources has licensed while clamping conductors. The investigation into the on a site approximately 6km south of the mining town the use of platforms for the entire length of the incident has been concluded. The associated procedure of Kleinzee in the Nama Khoi Local Municipality in inclined high-pressure shafts, following the multiple is being updated to incorporate lessons learnt. the Northern Cape. Additional prospective wind fatality incident in October 2013. farm sites have been identified in the Western A key risk in achieving the transmission strengthening and Eastern Cape regions. These are undergoing The cumulative cost incurred on the project is project remains the time required to obtain further investigation to verify resource availability and Operating performance R26.8 billion (March 2015: R22.8 billion) against a environmental approvals, securing land and obtaining levelised cost of energy estimations. budget of R25.9 billion. The project budget will require water-use licences required during line construction revision prior to project completion, after conclusion from the Department of Water Affairs. The 326kWp Mkondeni solar PV rooftop system of the legal reviews of contract-related disputes. All will be in commercial operation during the first half amounts exclude capitalised borrowing costs. of 2016/17, slightly later than previously anticipated. The business case for the 8MW ground-mounted PV plant at Grootvlei Power Station was approved. The Our Transmission projects at 31 March 2016 commercial process has commenced but will only be finalised once funds are made available. The concentrated solar power (CSP) project has advanced, with the two bids received being evaluated. Polokwane A strategy to provide distributed generation solutions to industrial and commercial customers across South Construction of the Bothaville 765kV line in progress. Africa, in response to envisaged rapid expansion of Pretoria the local distributed generation market, was approved by Exco and the Social, Ethics and Sustainability Investing in appropriate technologies Committee. We spent R396 million on research projects, Johannesburg testing and development work during the year Future new build (March 2015: R138 million), of which R77 million was Nuclear spent specifically on research projects. The Majuba We received correspondence from DoE in Underground Coal Gasification project is purposely Upington December 2015, including a Section 34 determination reducing scope as a result of capital constraints Kimberley Richards Bay under the Electricity Regulation Act, 2006, and the decision to scale back on the project. The reconfirming our role as owner and operator of the related water-use licence is still in the application Bloemfontein 9 600MW new build nuclear fleet. DoE was endorsed phase, as it has been for more than two years. We Durban as the procuring agency in terms of the Section 34 have submitted various requests to speed up the determination gazetted on 21 December 2015. We review of the application, although delays in obtaining need to work with DoE to define our responsibilities environmental permits remain a challenge. during the procurement process. Other projects include coal DNA characterisation, The Board provided its support in September 2015 large-scale battery energy storage, high-voltage to continue critical nuclear programme development direct current (HVDC) test facilities, and biomass activities. torrefaction. East London Gas strategy Cape Town Port Elizabeth The conversion of the OCGTs to dual fuel is the most Mossel Bay advanced of our gas initiatives. The ERA for phase 1 was approved in February 2016. The conversion will be completed during the upcoming major outage windows at Ankerlig and Gourikwa during 2017. Gas Existing Interconnection substation Nuclear power station sourcing activities are under way. Not yet complete Town Future gas station Possible future grid system Future renewables Gas power station Future hydroelectric power station Renewables Future substation Future thermal power station Thermal power station Hydroelectric power station Future interconnection substation 60 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 61 Operating performance Sustainable asset creation continued Environmental and climate Some examples of future projects are: Future focus areas change sustainability We remain committed to our principle of Zero • Water utilisation efficiency at power stations: • Completion of Medupi Unit 4 boiler hydro test Harm to the environment, while operating under utilising eutectic freeze technologies to improve during the first half of the 2016/17 financial year complex and evolving environmental requirements. water treatment techniques and thus reduce Environmental compliance impacts operational • Commercial operation of two Ingula units during overall water consumption sustainability and is critical to maintaining our licence 2016/17, and commercial operation of the final • Low hanging conductor test site: the ability to to operate, thereby supporting security of supply. two units by the second half of 2017 identify low-hanging power line conductors is • Commercial operation of Medupi Unit 5 by the Looking back on 2015 critical for safety and operational reasons. The first half of 2018 and Kusile Unit 1 by the second site will test a variety of techniques that will be The implementation of emissions reduction retrofit half of 2018 programmes has commenced with the fabric filter used to identify such a condition • Construction of 525km transmission lines and plant retrofit at Grootvlei Unit 3. Moreover, we have • HVDC test site: large transmission grid expansion commissioning of 1 800MVA transformer capacity over long distances and within constrained successfully completed our air quality offset pilot during the 2016/17 financial year project at KwaZamokuhle, as part of our air quality servitudes requires HVDC to be considered as an • Dual-fuel conversion of the Gourikwa and offset plan for the Highveld power stations, required option. The test site will give us the ability to test Ankerlig gas turbines, although the project is in terms of the response to the Minimum Emission line hardware and configurations for reliability and outage dependent Standards postponement applications. Operating performance safety • Fireside corrosion online monitor: fireside Overall our performance on particulate emissions corrosion is a primary cause of boiler failure; this and water usage has deteriorated, mainly due to project will develop analysis techniques to maintenance issues, poor operating practices and measure corrosion and predict failure discipline, as well as financial and capacity constraints. • Coal DNA implementation: this project will HIGHLIGHTS We have completed our assessment of available enable us to identify coal based on its chemical • Completed construction of the fabric filter emissions reduction technology in the electricity composition down to a molecular level. This is plant retrofit at Grootvlei Unit 3; emissions sector. Reducing our pending carbon tax and essential in coal handling and coal quality performance has already improved carbon budget liability remains a concern until management, and will lead to better control over significantly we are allocated additional lower carbon emitting coal contracts • Air quality offset pilot project at technologies through the IRP process, and until we • Online coal quality analyser: this will give us the KwaZamokuhle successfully completed have clarity on the life extension of coal-fired plant. ability to measure coal characteristics in real time and feed the results into a model that determines • Public participation process for the declaration of the Ingula Nature Reserve Reducing our environmental footprint the impact of the coal which is en route to the was completed in December 2015 Our environmental performance is assessed in boiler on plant performance, slagging, ashing and various ways, including relative particulate emissions, emissions specific water consumption, being water usage by all PROGRESS commissioned power stations, as well as the number of environmental legal contraventions. • Retained our ISO 14001 certification at Generation, Group Capital, Transmission, Refer to the fact sheet at the back of this report for information on Primary Energy, Eskom Rotek Industries and the environmental impact of using or saving electricity Sustainability Systems, with the certification of Distribution well under way • Support provided to the official Government delegation at COP 21 CHALLENGES • Delays in obtaining water-use licences for power stations and power lines are affecting operations • Financial and capacity constraints are forcing the rescheduling of critical environmental projects LOWLIGHTS • Water usage at coal-fired stations is high due to numerous system leaks as well as dry and hot conditions associated with the El Niño weather pattern We installed 345.8km of high-voltage transmission lines under the new build programme during the year, bringing the total since inception of the programme to 6 162km. 62 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 63 Environmental and climate change sustainability continued Target Target Target Actual Actual Actual Target Six power stations are not complying with the Ashing facilities Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? requirement to measure and report on verified gaseous We submitted exemption applications to allow for emissions data, and no extensions have been granted a period of four to six years after authorisation Relative particulate emissions, kg/MWh 0.30 0.37 0.35 0.36 0.37 0.35 by the authorities. Work to meet the requirements to install the water linings at the Majuba, Kendal, sent out SC Specific water consumption, ℓ/kWh sent is ongoing. We remain committed to compliance and Tutuka and Matimba dry-ashing facilities. Exemptions 1.33 1.38 1.39 1.44 1.38 1.35 will engage with DEA and other relevant stakeholders to allow continued ashing without installing a barrier out SC, 1 Net raw water consumption, million litres2 n/a n/a n/a 314 685 313 078 317 052 where any further challenges arise. system at the Kendal and Tutuka ashing facilities have Environmental legal contraventions in since been obtained. Decisions on the exemption terms of the Operational Health 1 1 1 1 1 2 NEMA Section 30 performance applications for the Majuba and Matimba ashing Dashboard, number3 The AELs state that high atmospheric emissions from facilities are expected soon. power stations need to be reported in terms of 1. The volume of water consumed per unit of generated power from commissioned power stations, although Medupi performance is still excluded. Section 30 of the National Environmental Management Environmental authorisation work to ensure sufficient 2. Future targets are dependent on system requirements. 3. In defined circumstances where the management of an environmental legal contravention indicates specific management issues or failings, it is recorded Act, 1998 (NEMA). During the year, there were ashing space and compliance with environmental on the Eskom Operational Health Dashboard. 59 high emission incidents reported under Section 30 requirements regarding ash disposal at coal-fired (March 2015: 41); and power stations have operated power stations is ongoing. Integrated Environmental Provisions for environmental restoration and rehabilitation under Section 30 for 6.6% of the time, which is higher Authorisations have been received for the Camden, Operating performance We provide for the estimated decommissioning cost of nuclear plant, including the rehabilitation of the associated than the 3% reported during the previous financial Hendrina, Kendal, Majuba and Tutuka ashing facilities. land, as well as for the management of nuclear fuel assemblies and radioactive waste. Provision is also made for year. The main reasons are the poor availability of The environmental impact assessment for the Kriel the decommissioning of other generating plant and the rehabilitation of the associated land. Furthermore, where a dust handling plant, poor electrostatic precipitator ashing facility is under way. constructive or contractual obligation exists to pay coal suppliers from cost-plus mines, provision is made for the performance and SO3 plant problems. Actions to estimated cost of closure at the end of the life of the mine, together with pollution control and rehabilitation of the land. address these issues have been identified. The utilisation of our ash has increased from 7.35% in the prior year to 8.32% during the current year, The following provisions for environmental rehabilitation and restoration have been raised: The authorities are concerned about the high number largely due to the implementation of our ash utilisation of incidents reported and have visited stations to strategy, which focuses on the development of Actual Actual Actual investigate issues and obtain evidence that action has existing ash markets, in particular the brickmaking and R million 2015/16 2014/15 2013/14 indeed been taken to mitigate the high emissions, such cement industries. Key to increasing the utilisation of Power station-related environmental restoration – nuclear plant 12 677 10 982 9 331 as repairs, maintenance and outages. Of the 59 high ash is the development of new ash markets in the Power station-related environmental restoration – other power plant 8 339 7 705 6 942 emission incidents reported, 24 were reported by agricultural sector, as well as the application of ash in Mine-related closure, pollution control and rehabilitation 8 580 5 465 4 366 Kendal Power Station. There is a risk that the mine backfilling and road stabilisation. Furthermore, Environmental Management Inspectorate may take the strategy will address both internal logistical Total environmental provisions 29 596 24 152 20 639 compliance action against Kendal. constraints and external legislative constraints. Refer to note 29 in the annual financial statements for more stations, to improve ambient air quality (specifically information on environmental provisions particulate matter levels) in communities close to our power stations. Reducing particulate and gaseous emissions The pilot study on air quality offsets carried out Our poor emissions performance, against both prior at KwaZamokuhle in Mpumalanga was successfully year and target, can be attributed to delays in completed during the winter of 2015. Since then, we implementing required maintenance due to postponed have developed a programme to roll out offsets over a outages, as well as poor operating practices at wider area, estimated at more than R4 billion over the several power stations. Initiatives aimed at improving next nine years. It includes providing insulation and emissions performance include focused interventions switching out the coal stoves for clean burning liquid to support stations on emissions management and petroleum gas (LPG) appliances in around 40 000 low emission-related outages (where capacity and finances income homes. Initial public consultation on the plan permit). has been completed; the plan was submitted to DEA and licensing authorities for approval in April 2016. Information on gaseous emissions is available in the statistical tables at the back of the report We have adopted a phased and prioritised approach to emissions reduction, considering the remaining life of Atmospheric emission licences (AELs) power stations and the impact of our coal-fired power Compliance with the 2020 Minimum Emission stations on ambient air quality. One unit of the Grootvlei Standards requires the installation of fabric filter fabric filter retrofit has been completed, while project plants and low NOx burners at most coal-fired development and design for Tutuka and Kriel Power power stations, and flue gas desulphurisation (FGD) Stations’ fabric filter plant retrofits is progressing well. at all coal-fired power stations. The DEA decision Upgrades are also planned to improve the efficiency of on the Minimum Emission Standards postponement the electrostatic precipitators at Duvha, Lethabo, Kendal applications allows power stations to continue and Matla Power Stations. Development for low NOx operating from 1 April 2015, but is contingent on burner retrofits at Tutuka, Majuba and Matla Power the execution of an emissions reduction programme Stations, and the FGD retrofit at Medupi Power Station, at nine power stations by 2025, and implementing is under way. air quality offset programmes for all Highveld power Ash at Kendal is loaded into trucks, as part of our ash utilisation strategy, which focuses on developing existing ash markets, particularly the brickmaking and cement industries. 64 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 65 Environmental and climate change sustainability continued Reducing water consumption • Integrating biodiversity aspects into all renewables Specific water usage by power stations for the year projects to 31 March 2016 was significantly worse than target • Development of partnerships to reduce negative and prior year. Operational inefficiencies, system interactions between electrical infrastructure and leaks and poor water management practices, and wildlife the hot and dry conditions being experienced as • Vegetation management, and game management a result of the prevailing drought, are the primary on Eskom properties factors affecting water performance. Initiatives • Initiating relevant research projects to resolve aimed at improving water performance have been specific operational requirements linked to identified and include implementing projects which biodiversity conservation do not require capex; more systematic approaches to address water leaks, ash and oil spillages; and the resuscitation of the Water Management Task Teams. Eskom and vulture interactions: Understanding the environmental and Collieries decanting mine-affected water business impacts The Kilbarchan Colliery, a closed-down colliery South Africa is home to nine vulture species, Operating performance owned by one of our subsidiaries, is decanting of which six are under threat of extinction. mine-affected water. The pilot water treatment plant Vultures are one of the most high-risk bird authorised by DWS is still operational on site and will groups, as their large wingspans and heavy continue until the interim water treatment plant is bodies make them vulnerable to electrocution constructed. Tenders for the interim water treatment on pylons and collision with power lines. plant are being evaluated. Vultures can potentially touch two live lines Bird guards are one of the mitigation measures installed on our pylons, to decrease the mortality of vultures and other bird species due to our infrastructure. simultaneously, resulting in electrocution as Reducing environmental legal contraventions well as causing the electricity supply to trip. One Operational Health Dashboard contravention Investing in renewable energy Our strategic partnership with the Endangered We continue to deliver on our commitment to mix to lower carbon emitting technologies, energy was declared for the cutting of a tree without a Wildlife Trust (EWT) is continually researching environmental sustainability and reducing our carbon efficiency and green financing measures, as well as permit in KwaZulu-Natal. This is a breach of the new methodologies to decrease the mortality footprint with purchases of renewable energy from adapting to climate change. National Forests Act, 1998 and a repeat of a similar of vultures due to our infrastructure. Power IPPs. Renewable energy sources include wind, legal contravention during the previous year. line design has progressed in the last two solar power, biomass, landfill gas and small hydro We have been working closely with DEA to develop The total number of environmental legal decades, requiring all new power lines to have technologies. a national climate adaptation strategy. Nevertheless, contraventions stabilised at 20, against 20 (restated) in a bird-friendly design. we remain under pressure to transition to a lower Our 100MW Sere Wind Farm is in commercial carbon electricity mix and reduce emissions. Although 2014/15. There were 13 water-related contraventions Other proactive projects already in progress operation, and continues to add capacity to the grid, this is perceived to be solely our responsibility, we (pipeline leaks, spills and sewerage spills), two cases include: while diversifying our energy mix. Sere Wind Farm of cutting trees without the necessary approvals, • Bird sensitivity maps developed between are dependent on energy regulations governing the achieved energy production of 311GWh for the three cases of failure to obtain or comply with other the EWT and Eskom will be used to allocation of new build, the single buyer model, year, at a load factor of 34.10%, with average annual required authorisations, and two cases of exceeding identify and mitigate high-risk areas of availability 97.67%. The first annual maintenance electricity planning and price regulation. atmospheric emissions limits. electrocutions and collisions in South programme commenced on 1 August 2015; all This poses a challenge, but also represents a great Africa. Distribution Division’s strategy for 46 turbines were serviced by mid-November 2015. opportunity for us to influence our future business Six compliance matters remain open from previous reducing bird electrocutions will utilise model. To this end, a mature national discussion is years. Five await closure by the authorities; the sixth Under our solar PV programme at existing these baseline maps to guide proactive matter is the Dreunberg-Ruigtevallei 132kV Distribution administration buildings, power stations and needed on the country’s view of the future electricity implementation of mitigation measures, line in the Eastern Cape, where we commenced transmission substations, the 400kWp solar PV energy mix, and its relation to climate policy, along such as bird flight diverters construction without an environmental authorisation. facility at Rosherville was transferred to commercial with our country’s other imperatives. • The Karoo and North West Research operation in September 2015; the project was DEA issued us with an administrative fine of R1 million Projects aim to determine the effectiveness completed within budget. During March 2016, the in March 2016. DEA and the National Prosecuting of mitigation measures installed on our solar PV projects at the Bellville and Sunilaws offices, We received the Green Grand Prix Award in Authority have initiated a forensic investigation into pylons and Transmission and Distribution the matter. with total capacity of 360kWp for own consumption, the 2015 Sunday Times Top Brands Awards power lines respectively were transferred to commercial operation. for our efforts to preserve the environment Biodiversity • The Limpopo Vulture Tracking Project and harness the country’s natural resources, The public participation process for the declaration assists in monitoring vulture ranges and For further information on renewable IPPs and renewables projects, through environmentally friendly initiatives in of the Ingula Nature Reserve associated with the locations refer to pages 52 and 61 the following areas: Ingula Pumped Storage Scheme was completed in The partnership has further formalised the • The 100MW Sere Wind Farm, near December 2015. The Board is required to approve the The Public-Private Partnerships (PPP) model to Vredendal in the Western Cape reporting and investigation of any wildlife progress the solar augmentation project at four declaration agreement and the management plan, after incident. Reporting is the key to obtaining • Solar photovoltaic plants for our own power stations through the definition and execution which the documents will be submitted to the MECs information and implementing appropriate consumption at Kendal and Lethabo Power phases is being finalised. for KwaZulu-Natal and Free State for final approval. mitigation measures. Stations We have developed a land and biodiversity policy Climate change • Developing a diversified energy mix which Members of the public can report any which assists us with complying with legislation, and wildlife fatalities linked to electrical infrastructure Climate change strategy includes wind, solar, hydro, pumped integrating and managing biodiversity impacts across to wep@ewt.org.za, @EWTEskom, We reported on our climate change strategy last storage, a nuclear power station and coal- the entire business and value chain. It covers: www.facebook.com/EndangeredWildlifeTrust year. In brief, it focuses on diversifying our energy fired power stations • Compliance with biodiversity legislation or 0860 111 535 66 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 67 Environmental and climate change sustainability March 2015 continued Operation Khanyisa is in full swing Operation Khanyisa is an Eskom-led national The recent United Nations COP 21 climate change than 2ºC by 2050, by ensuring that greenhouse gas partnership campaign aimed at fighting conference resulted in the Paris Agreement, emissions peak at 40Gt and then start to reduce which will drive towards a low carbon future (current global emissions are estimated at 36Gt). electricity theft in South Africa. Electricity theft is and ensure that funding is made available to assist Developed countries should no longer invest in a serious crime that causes R4.2 bn in revenue vulnerable developing countries in adapting to fossil fuels while developing countries must retard losses to Eskom. Dealing with electricity thieves, a changing climate. The overarching purpose is this growth rate; both must invest in lower or educating and mobilising customers across all stated as follows: “Recognising that climate change non-carbon emitting technologies. This speaks 4.2billion sectors, partners, stakeholders, contractors and Rand represents an urgent and potentially irreversible directly to a global carbon budget, which devolves threat to human societies and the planet and thus to national carbon budgets. This process is already Eskom Guardians, and recovering revenue due requires the widest possible cooperation by all under way in South Africa. to Eskom, is therefore a key strategic focus. Revenue loss suffered by Eskom due to electricity theft countries, and their participation in an effective and appropriate international response, with a view to The implications for the country very much mirror accelerating the reduction of global greenhouse the implications for Eskom, given the country’s gas emissions.” reliance on fossil fuels for its primary energy needs. Winning the war against electricity theft South Africa will be expected to demonstrate Operating performance The Paris Agreement is a legally binding document. its aspirations to transition to a lower carbon Reformed Community Revenue Recovered Successful Raid All countries have accepted that they are bound economy and will be pressurised to do so by this From June 2013 | Limpopo January 2015 | Nationwide January 2015 | Vereeniging to fulfil the purpose of the Agreement, albeit in international process. We continue to pursue a different ways. Portions of the agreement, such as more diverse energy mix with the objective of the provision of finance, are however voluntary. reducing our relative emissions and subsequently The principle of differentiation is applied; this reducing absolute emissions, thereby also reducing 137 000 customers A man found guilty of A woman arrested for means that developed nations must continue to our vulnerability to the impacts of climate change. buying electricity legally providing electricity theft sale of illegal prepaid take the lead, although developing nations must services to farmers across 3 electricity vouchers, = R34 million unlocked in The Paris Agreement also brings opportunities. provinces was sentenced to (ghost vending). make a contribution, depending on their national monthly revenue We will continue to pursue carbon credits for = R8 million tamper fines 7 years in prison. 2 laptop computers, 18 cell circumstances and respective capabilities. phones, R100 000 in cash our lower carbon emitting technologies through and reconnection fees issued 6 farmers implicated, jointly and lists of electricity meter Of significance is the agreement by all countries to carbon markets as well as investigate green funds = 1 million illegal prepaid paid R5 million to Eskom in numbers were seized in the a common global goal, namely to ensure that the available for projects that promote emissions fines and revenue recovered. raid. This case is ongoing. units cleared off meters. average temperature does not increase by more reduction. Customer Compliance Campaign Carbon budgeting Future focus areas Operation Khanyisa is currently rolling out a new Customer Compliance Approach DEA is setting carbon budgets per economic sector • Reduction in particulate emissions and water use (CCA). The CCA combines audits, investigations and prosecution, customer education to reduce greenhouse gas emissions, and has in the short term, and moving towards full and engagement, and supporting communications in one integrated team on the ground. requested emissions data from 2016 to 2020. The environmental compliance over the long term budgets will only become mandatory from 2020. Phased implementation is taking place in the Free State, North West, Limpopo and • Large-scale rollout of air quality offsets in This will be a pilot phase with companies receiving Mpumalanga in hot spot areas, using a localised approach and working closely with the Mpumalanga and the Vaal regions a carbon budget, without financial penalties for non- Operating Units, local government and other stakeholders. Positive results as follows: • Implementation of the greenhouse gas reporting compliance. However, reporting against the budget process and the preparation of pollution prevention plans will be mandatory. We are in the process of rolling out R 7,4 R 2,8 R 3,9 7 58arrests million million million ghost vending, in fines issued revenue loss fines and employees illegal connections, our greenhouse gas reporting procedure to all power prevented reconnections fees suspended tampering/bypassing stations, based on the carbon budget set by DEA for 2016 to 2020. 34 1,4 R 8,7 There appears to be misalignment between National cases opened million 2 286 106 million ghost vending households businesses fraudulent receipts or on court roll units cleared disconnected disconnected quantified Treasury’s carbon tax process and DEA’s carbon budget process. The implementation of the carbon tax and the carbon budget will both result in an increase How can you get involved? in the electricity price, in an attempt to reduce G. HIN Report electricity thieves! – no matter who emissions by influencing consumption. We have had I G HT T fs R f the suspected electricity thief is. Include as several consultations with DEA, National Treasury THE ur tip-o heft and BUSA to discuss challenges and possible solutions. DO yo i t yt much detail as possible, like the name and n d r i c Given the complexity and number of stakeholders Se e lect g to description of the person(s) involved, a rdin usly affected, this process is expected to take some time rega o n ymo 32211 physical address and/or description of the to resolve. an ne: e Li place, or the meter number/pole number, etc. Crim 1/SMS) (R For more info visit operationkhanyisa.co.za | powernews.co.za | Ops Khanyisa | @Op_Khanyisa | 68 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 69 Operating performance Safety and security Our safety performance remains a concern, Target Target Target Actual Actual Actual Target particularly in light of the number of fatalities and Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? serious injuries suffered by employees, contractors Fatalities (employees and contractors), and the public. Safety improvement initiatives aim number – – – 17 10 23 to instil responsible behaviour across Eskom, leading Fatalities (public), number 1 – – – 25 27 33 towards Zero Harm – an Eskom value, which forms the foundation of all our operations. Employee lost-time injury rate, index SC 0.30 0.30 0.31 0.29 0.36 0.31 Zero Harm means that no operating condition or 1. After investigation by the Distribution KwaZulu-Natal Operating Unit, one incident was found not to be a public recordable fatality, reducing the urgency of service justifies exposing anyone to risk number of public fatalities at 31 March 2015 from 28 to 27. as a result of exposure to our business or causing them injury, or damage to the environment. It implies Regrettably, despite our commitment to safety, 2 (0) sustaining a work environment which supports the we experienced an increase in both employee and health and safety of all people, and involves building contractor fatalities. We suffered four employee 1 (0) 5 (4) strong relationships with contractors, the community fatalities (March 2015: three) and 13 contractor and our supply chain, as well as enhancing the employee fatalities (March 2015: seven). The causes Operating performance organisation in a sustainable way. of fatalities are shown alongside. 2 (1) 2015/16 Exco sets the direction for Zero Harm and is (2014/15) committed to caring for and protecting all people In memoriam exposed to our operations, through the belief that any Our sincere condolences to the families, friends workplace injury or disease is preventable. and colleagues of the following people who lost 2 (3) PROGRESS their lives in the line of duty: 3 (1) Looking back on 2015 2 (1) • The LTIR target was met The implementation and monitoring of compliance Employees • Our public safety programme, which Mr Ntavhanyeni Samuel Managa educates the public about the dangers of with the 2014 Construction Regulations is ongoing. Causes of employee and contractor fatalities, Mr Ntokozo Richard Ndhlovu number the unsafe use of electricity, and initiatives We complete safety, health and environmental to improve employee driver safety, continue Mr Patrick Ndhlovu Vehicle accidents Falls from heights • A contractor induction pack has been evaluations on all new supplier registrations to ensure that suppliers have adequate safety processes in place. Mr Hermanus Johannes van Aardt Electrical contact Assault/gunshot introduced to ensure that contractors are Caught between or under objects Contact with heat made aware of our broad-based safety Furthermore, we have created a contractor induction Contractors Struck by or against an object requirements pack, which aims to educate contractors about our • Crime decreased by 28% in terms of value Mr Juan-Perrie Botes safety practices. against prior year Mr Leonard Dimba Focus on safety Mr Musa Joshua Hlatshwako Safety programmes Our safety performance is assessed in terms of the Mr Batsho Piet Masemola In response to recent fatalities and serious injuries, CHALLENGES number of fatalities among employees and contractors, Mr King Sipho Masina we have embarked on a leadership intervention to as well as the lost-time injury rate (LTIR), which is a engage with all senior leaders in the organisation, Mr Sindisile Mayoyo • Smaller contractors may struggle to comply proportional representation of the occurrence of to ensure that they understand their roles and Mr Veli Lucas Mazibuko responsibilities in creating a safety culture. In addition, with the 2014 Construction Regulations, lost-time injuries per 200 000 working hours over a risking a delay in projects Mr Thokozani Vincent Mbhele a project is being piloted in Transmission Division, period of 12 months. • Our facilities are vulnerable to vandalism Mr Albert Makhaza Mbuyane North West Grid for rollout across Eskom, aimed and theft due to high demand for non- at developing a programme to empower supervisors A total of 202 lost-time injuries (LTIs) including Mr Songezo Njokweni ferrous metals occupational diseases was reported in 2015/16 Mr Mthetho Ntakumba with the practical skills and knowledge necessary to (March 2015: 261). Excluding occupational diseases, ensure a safe work environment. Mr Hulisani Ramulongo 188 LTIs were reported in 2015/16 (March 2015: LOWLIGHTS 224). From 1 April 2016, the calculation of LTIR will Mr Burgert Frederik Janse van Vuuren Safety culture surveys – which assess site culture exclude occupational disease (noise-induced hearing relating to safety issues, such as adherence to safety • Fatalities, including public fatalities related loss) incidents. If calculated on that basis in the current rules, and the extent to which supervisors and to electrical contact, remain unacceptably year, the reported figure would have been 0.27. managers set an appropriate example and share high lessons learnt from other incidents – were conducted in the Generation Peaking and Distribution Eastern Cape Operating Unit environments, with the results and recommendations being shared with senior management. 70 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 71 Operating performance Safety and security continued Building a sustainable We have introduced several initiatives to enhance therefore no current unacceptable nuclear risk due to skills base The focus is on driving a culture of performance vehicle and driver safety, including: the design or operation of Koeberg Nuclear Power and creating a productive workforce, which includes • Easter holiday vehicle safety campaign held in Station. However, additional improvements to further building a strong learner pipeline. In order to sustain collaboration with Arrive Alive reduce the risk have been identified through the our business, we aim to recruit, develop and retain assessment of the Fukushima Daiichi incident, coupled appropriately skilled, committed, engaged and • Installation of DriveCam event recorders in our with operational experience. accountable employees. vehicle fleet, allowing continuous monitoring of driver behaviour; deviations are reported to and The interaction between relevant oversight Looking back on 2015 addressed by senior management organisations and line management is continuously • Vehicle safety reviews monitored by the related governance and nuclear The targets set for closing competency gaps and oversight bodies; there is adequate evidence that leadership behavioural change were achieved during • We dedicated the period 16 November to these organisations are having a positive impact on the past year. Nevertheless, this remains a high 4 December 2015 to road safety awareness, with nuclear safety and our efficiency. priority focus; targets have been set until 2020/21. specific emphasis on defensive driving, in support of the international road safety campaign “Decade The Koeberg units continue to be operated safely, Following the labour unrest at Medupi during of Action” with solid technical performance demonstrated by 2015, the parties have recommitted to the labour long periods of continuous operation. partnership agreement principles with worker unrest Operating performance and demonstrations stabilised. Update on the Ingula Pumped Storage Security construction site incident Building strong skills In addition to being a popular mark for economic As reported previously, the investigation into Despite the challenges facing the organisation, it has crime in general, we find ourselves in the distressing the cause of the tragic incident at Ingula been a successful year for skills development. The position of being a preferred target of organised on 31 October 2013, which resulted in the crime syndicates. We are losing a significant amount HIGHLIGHTS learner pipeline has been maintained at a level which untimely deaths of six contractors, has been is more than adequate to meet the future demand for of revenue due to illegal connections and ghost concluded. We are still awaiting a response • Exceeded shareholder targets for engineering core, critical and scarce skills, as well as the needs of vending. In addition, undue strain on the network from the Department of Mineral Resources and artisan learners the organisation due to normal attrition. and our supply capacity constitute a significant threat in terms of Section 72 of the Mine Health and • Partnered with the Department of Women to our operations. in the Presidency and Uweso Consulting to Safety Act, 1996. Our learner pipeline is one of the critical development expose 55 girls interested in pursuing careers There has been a general decrease in crime compared in the STEM fields (science, technology, areas that not only supports the country’s socio- to last year. Criminal incidents relating to copper theft engineering and maths) to job shadowing economic contribution, but also sustains our supply Contractor management are decreasing, attributable to a decrease in demand • Two Eskom training centres were accredited of skills. A total of 8.2% of the total Eskom staff An analysis of contractor incidents was conducted for copper, and more effective policing resulting in 2015/16 complement consists of learners, against a target of in the arrest of a number of crime syndicates. The • Agreements signed with tertiary institutions 8%, and 1 370 learner artisans were permanently in order to determine immediate causes of incidents aimed at supporting and facilitating academic as well as formulate more effective contractor safety decrease in the value of incidents is due to the qualifications appointed (March 2015: 1 752), against a target of action plans. Improvement and mitigation measures decrease in conductor theft and losses of earthing, • Ranked in the top five among 131 companies 1 250. Furthermore, RI 228 million was spent on have been implemented. and a decrease in transformer theft and possession at the Inaugural Employment Equity Awards training and development. of suspected stolen property. hosted by the Department of Labour Ongoing emphasis is placed on the implementation of the Construction Regulations 2014 compliance Losses due to conductor theft, cabling and related PROGRESS roadmap. Continual inspections are under way at equipment during the year totalled R85 million, sites. Inspection teams regularly follow up on closing involving 5 161 incidents (March 2015: R102 million • Significant progress made on learner out findings emanating from these inspections. and 5 680 incidents). Actions to combat these losses throughput, although target was not met are managed by the Eskom Network Equipment due challenges in funding the appointment of Public safety education trainees Crime Committee, in collaboration with other We hosted our annual National Electricity Safety affected state-owned enterprises and the South • National Skills Fund has approved R174 million Week from 17 to 23 August 2015. The focus African Police Services. The combined effort resulted for artisan training, although it will be received was on electricity safety and the public’s role in in three tranches in 229 arrests (March 2015: 297 arrests). • Successfully concluded discussions with using electricity safely, thereby reducing injuries organised labour on the Employment Equity and fatalities. Moreover, ongoing school, crèche A Security Division, with the aim of improving the Plan and Report and community visits; agricultural and community operational effectiveness of Eskom’s security function leader forums; consultations with commercial and through a centralised security operating model, was large power users as well as media campaigns are recently approved by Exco. A Security Programme CHALLENGES organised, reaching close to four million people Office was established to implement this initiative. during the year under review. In addition, we are in • Headcount exceeded the Corporate Plan continuous discussions with the Department of Basic Future focus areas target, due to appointment of trainees and temporary staff to align to the Labour Education to incorporate electricity safety into the • Review and realignment of the existing public Relations Act, 1998 school curriculum. safety plan to ensure the effective implementation • Sickness absenteeism numbers are increasing Nuclear safety across divisions and operating/business units The Koeberg plant design and resultant assessment of • Development and implementation of the OHS LOWLIGHTS risk to the public are better than the recommended Inspection Plan based on findings emanating from international standards and well within licensing limits. the monthly contractor incident data analysis • Labour action at Medupi led to an extended Operational practices at Koeberg are not challenging work stoppage during April and May 2015, thereby delaying progress on the project the design boundaries or assumptions, and there is 72 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 73 Building a sustainable skills base continued Target Target Target Actual Actual Actual Target The reconciliation of our headcount is shown below: Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? The South African Human Rights Commission Number of employees 2015/16 announced Eskom as the winner of the Golden Engineering learners 285 456 521 895 1 315 1 962 Headcount at 1 April 2015 46 490 Key Award for “Most Responsive Public Technician learners 475 760 869 415 826 815 Add: Appointments 3 723 Body”, as voted for by the media, political Artisan learners 1 045 1 673 1 912 1 955 1 752 2 383 Less: Resignations (1 212) parties and Chapter 9 institutions. The awards Learner throughput or qualifying SC, 1, 2 1 250 – 1 200 1 108 424 n/a Deaths in service (222) are held annually, recognising Government Dismissals (128) departments, deputy information officers Training spend as % of gross employee Retirements (582) 5.00 5.00 5.00 4.45 6.18 7.87 and private institutions for best practice in benefit costsSC Separation packages (78) nurturing positive sentiment to openness, and 1. This was a new measure effective from 1 April 2014. The measure is a cumulative year-to-date assessment of learners completing their studies, and Other (13) setting up enabling organisational systems and follows a three-year cycle in future. 2. The 2020/21 target is the cumulative figure targeted over the next five years. Headcount at 31 March 2016 47 978 procedures that promote compliance with the provisions of the Promotion of Access to We have signed agreements with the South African Training The breakdown of our workforce at 31 March 2016 Information Act, 2000 (PAIA). Institute of Electrical Engineering, Mangosuthu The EAL is mandated to close competency gaps by according to age categories is shown below. PAIA is a component of anti-corruption Operating performance University of Technology and Durban University of coordinating, integrating and addressing all learning Age distribution of workforce Number % legislation which enables individuals and Technology, with the aim to support and facilitate needs of employees, as well as enhancing performance communities to request information from public academic qualifications despite our financial challenges. throughout our company, by focusing on business 18 to 20 2 0.00 bodies and private institutions. It is especially These agreements will facilitate our contribution to the needs and catering for all facets of learning operations 20 to 29 7 498 15.63 important in the area of service delivery and National Skills Accord through providing on-the-job and the learning value chain. 30 to 39 19 293 40.21 the enforcement of socio-economic rights. experience for young people. Furthermore, the Eskom 40 to 49 9 413 19.62 Academy of Learning (EAL) established a successful Primarily as a result of the robust cost-savings drive, 50 to 59 9 120 19.01 partnership with the SA National Intelligence Services training spend is below target. This has resulted in Over 60 2 652 5.53 – a total of 180 National Key Point security officers the underutilisation of the EAL’s training facilities; Future focus areas Total 47 978 100.00 completed their compliance training. The EAL is now plans are being developed to increase utilisation. • Continue advancing learning and development also registered with SASSETA (Safety Security Sector The Line Construction Training Centre in Uitenhage, aimed at addressing the competency gaps as well Education and Training Authority), which will assist Eastern Cape and Artisan Training Centre at Coastal Employee relations as developing skills for specific requirements, with adequate regulation of the discipline. Network Centre were accredited in 2015/16. The factor that posed the greatest risk to labour despite the current financial constraints Regarding our high priority welding training initiative, stability at new build sites was the reimplementation • Intensify leadership development to drive culture a total of 119 learners have completed their trade and operation of partnership structures that collapsed change from the top down Among our external programmes that support tests and qualified on national and international level, after the strike at Medupi, which was followed the access and success goal of the National while 18 learners qualified on international level only, by disciplinary action instituted against contractor Skills Development Strategy is the Maths and contributing to our commitment to train artisans for employees. Labour relations have since improved. Science Programme that sponsors 20 schools the country. across all nine provinces. Matric pass rates The workgroups established subsequent to the 2014 for these two subjects improved in most of Headcount Central Bargaining Forum negotiations to consider these schools. Schools funded by us recorded The Eskom group headcount at 31 March 2016 was the pension fund, medical aid, housing and recognition a number of significant achievements: 47 978 (March 2015: 46 490), which includes both agreements, as well as disciplinary and grievance • A matric learner at Mbilwi Secondary permanent staff and full-time contractors, consisting procedures, are progressing. Due to the work of the School in Venda, Limpopo became the top of 42 767 Eskom employees and 5 211 Eskom Rotek medical aid workgroup, two additional medical aids national maths and science learner, scoring Industries employees (March 2015: 41 787 and 4 703 were added to the basket of recognised medical aids. 100% in both subjects respectively). • Thengwe Secondary School in Venda was An Employee Relations Indaba involving management voted the top school in Limpopo Based on the recently approved Corporate Plan, and organised labour was held in September 2015, • Umso Secondary School in Northern Cape Human Resources has reviewed the workforce plan, where all parties committed to abide by the provisions was recognised as the most improved mainly focusing on retention of critical workforce of the recognition agreement and to fully participate school in the province segments (i.e. core, critical and scarce skills) across the in all relevant structures. • Oval North High School in Mitchells Plain, business, while reducing non-essential positions. The Income differentials Western Cape achieved an overall matric plan also caters for the operations and maintenance of the new build stations. We are targeting a reduction The Income Differentials workgroup is now chaired pass rate of 95.1% by the Group Executive: Human Resources. The in the Eskom company workforce to 36 768 by The programme was established in 2003; our 2020/21 in terms of our strategy. workgroup has recommenced to resolve income strategy was to double the number of learners differential demands, with both management and who passed mathematics and science, and also The staff turnover rate in our workforce during the trade unions participating and reporting through the We contribute to the National Skills Accord by providing on-the-job increase the number of girl learners in these past year was approximately 5%. recognised participative structures. experience for young people, facilitated by agreements with the South subjects. We provide educator development African Institute of Electrical Engineering, Mangosuthu University of Technology and Durban University of Technology. support programmes; winter schools for learners; constant monitoring of progress; as well as resources, such as salaries for additional teachers required by the school, books, study material, electronic instruments, computers and the like. 74 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 75 Operating performance Transformation and social sustainability Eskom plays a critical role in skills development and Although we did not meet the shareholder economic empowerment. We aim to transform target, we are still delivering on the DoE gazetted society through our supplier localisation drive, as well electrification connections. A national performance as corporate social investment (CSI) in community centre, established to monitor progress and resolve education, health and developmental projects. challenges as they arise, has realised immediate Our most direct contribution to transformation is success, achieving 100 000 connections in the last through the rollout of Government’s electrification four months of the year. Steps will be implemented programme. to manage and measure performance through this centre on a weekly basis. We also aim to improve Looking back on 2015 the contracting process and project management, Last year we said we would drive focused and including general skills and resources, in this area. heightened efforts on strategic industrialisation in We have completed our tool to measure the value partnership with the dti and other stakeholders, of our socio-economic development activities. Our particularly in the procurement of transformers; efforts to find innovative funding solutions for our this initiative is ongoing, due to the long lead times CSI spend are ongoing. involved. Operating performance Maximising our socio-economic contribution Target Target Target Actual Actual Actual Target Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Corporate social investment committed, 953.6 225.3 98.6 103.6 115.5 132.9 R million1 Corporate social investment, number of 1 810 000 400 000 300 000 302 736 323 882 357 443 beneficiaries1 Total electrification connections, number1, 2 1 010 000 160 000 194 374 158 016 159 853 201 788 1. The 2020/21 targets are the cumulative figures targeted over the next five years. 2. The reporting boundary for the number of connections was changed in March 2014, to exclude farm worker connections. A total of 296 farm worker connections were also completed during the year, resulting in a total of 158 312 connections being achieved. Corporate social investment HIGHLIGHTS CHALLENGES The Eskom Development Foundation (the Foundation) fulfils our CSI mandate to promote We established the Eskom Contractor • Achieved third place in the 2015 Sunday • Financial constraints leading to the deferral transformation and social sustainability, through Academy as part of our enterprise Times Top Brands Awards community and reprioritisation of pipelined CSI upliftment category initiatives initiatives to develop small and medium enterprises, development programme to support skills • Finalists in our Business Investment • Underrepresentation of women in various education, health, food security, community development, which enhances job creation Competition and Simama Ranta School workforce segments remains a concern, development, energy and the environment. and contributes to the alleviation of poverty. Entrepreneurial Competition finalists given limited recruitment opportunities During the year, our CSI activities impacted A total of 148 students from all provinces exhibited at the annual Business 302 736 beneficiaries, with a committed spend of Entrepreneurship and Franchise Expo participated in the 2015/16 Contractor R103.6 million (March 2015: 323 882 beneficiaries Academy Programme. Graduation ceremonies • Social Return on Investment assessment on Medupi shows that 80% of projects selected and committed spend of R115.5 million). However, took place during March 2016, celebrating 144 are generating a positive return financial constraints have resulted in the Foundation emerging contractors and suppliers being • A total of 621 existing and potential having to reprioritise and defer pipelined initiatives. trained. suppliers, mainly electrical contractors in the BO, BWO, BYO and BPLwD categories, have The Foundation donated 139 bicycles to Hlomisa The Contractor Academy started as a pilot been developed countrywide Primary School and Mpophomo Intermediate programme in 2008 and has since grown • All contractual media and communications School in the Free State, and also sponsored the significantly. To date, we have completed spend was allocated to black-owned suppliers, a first for a state-owned enterprise participation of our then acting Chief Executive 73 academies and almost 1 000 contractors in the 702 CEO Sleep-Out during June 2015, in have been successfully trained. Over the last support of Boys and Girls Town. three years, we trained 518 contractors from PROGRESS LOWLIGHTS all nine provinces, with the youth accounting for approximately 60% of participants. To date a sum of R2.4 million has been invested • Spend with black-owned, black youth-owned, • Procurement spend remains significantly and black women-owned suppliers shows below target for a number of supplier in infrastructure development for NST improvement from last year categories Majadibodu Crèche in Mokuruanyane Village Several school infrastructure projects have also • We signed a Memorandum of Understanding in Lephalale, with Medupi Power Station been completed. The annual Eskom Expo for Young for renewables with the Department of Project and Impulse International providing Scientists International Science Fair took place on Small Business Development (DSBD) and R2.2 million and R200 000 respectively. 8 and 9 October 2015. the dti, with the objective of identifying both emerging and established black industrialists The landscaping, water purification system and SMMEs within the focus areas and jungle gym were handed over on For more information on our CSI initiatives, please refer to the 12 August 2015, as part of our CSI initiatives. Foundation’s report for the 2015/16 year, which is available online 76 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 77 Transformation and social sustainability continued Implementation of our Socio-economic Electrification Procurement equity performance Development (SED) Strategy The Government-funded electrification programme, Target Target Target Actual Actual Actual Target We undertook a Sustainable Development Value through the DoE, continues to connect previously Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Assessment, to provide us with an independent disadvantaged households in our licensed areas of Company assessment of the value of our sustainable supply. The majority of the electrification programme development activities, by estimating the economic is now being implemented in more remote and deep Local content contracted (Eskom-wide), %SC 75.00 65.00 65.00 75.22 25.13 40.80 value created through our operations and new build rural areas, where the construction of network Local content contracted (new build), % SC 60.00 50.00 65.00 84.04 33.62 54.60 programme. It determined the extent to which infrastructure is challenging, more expensive and on Job creation, number – – 8 317 23 169 25 875 25 181 our activities contribute towards South Africa’s difficult terrain. Group development agenda, and societal value creation as a whole. The Social Return on Investment The shortfall compared to target in the total Procurement from B-BBEE compliant (SROI) assessment of the Medupi Project has been connections is due to various reasons, including suppliers, % of total measured 85.00 80.00 80.00 81.65 89.39 91.80 procurement spend (TMPS) completed. Results show that 80% of projects but not limited to delays in finalising designs, the Procurement from black-owned (BO) selected are generating a positive return, with the late start of projects and shortages of material. In suppliers, % of TMPS 45.00 40.00 40.00 33.61 34.41 35.30 social return being greater than the initial investment. some provinces, delays in obtaining approval of the Procurement from black women-owned Integrated Development Plan further delayed the 12.00 12.00 12.00 19.30 6.49 7.50 The assessment indicates that we achieved an overall (BWO) suppliers, % of TMPS Operating performance SROI of R2.36 for every R1 invested in SED projects start of the projects. Procurement from black youth-owned 2.00 2.00 2.00 0.94 0.63 1.00 (BYO) suppliers, % of TMPS around Medupi Power Station. Infrastructure road With the assistance from DoE, we continue to Procurement spend with suppliers owned building projects generated the highest SROI ratio respond to areas where sporadic community service by black people living with disabilities 1.00 1.00 1.00 0.01 0 0 of R3.72; second was health with an SROI of R3.36; delivery unrest has been experienced, to address (BPLwD), % of TMPS education delivered R2.81; enterprise development electrification concerns. Procurement spend with qualifying small 15.00 15.00 15.00 4.62 6.75 15.09 returned R2.05. enterprises (QSE), % of TMPS1 Electrification of grid schools and clinics Procurement spend with exempted micro 15.00 15.00 15.00 5.89 5.78 n/a enterprises (EME), % of TMPS1 Only 12 schools were electrified this year, well short We donated a computer lab and library to of the target of 49 schools. No further schools or Company a community in the Maluti-a-Phofung Local clinics could be electrified as the contract between Acquisition of intellectual property, Municipality in the Free State. Furthermore, 125.00 25.00 40.00 54.00 n/a n/a Eskom and the Department of Basic Education had R million SC, 2, 3 two facilities were launched at the Mohale not been signed. This is expected to be finalised in Skills development, number of people SC, 2, 3 100 20 20 29 n/a n/a Intermediate School in Makeneng Village, the near future, allowing electrification of schools Job creation, number of people SC, 2, 3 150 30 30 54 n/a n/a Phuthaditjhaba, Free State. The launch was to resume. a follow-up to a recent CSI initiative which 1. In the 2013/14 financial year, spend with QSE and EME enterprises was reported as a single number. raised information communication technology Our contribution to supplier 2. These are new measures with effect from 1 April 2015, therefore comparative information is not presented. worth roughly R1.7 million – including 3. The 2020/21 targets are the cumulative figures targeted over the next five years. development computers, a server and printer – which Our attributable spend targets are in line with the We have created 23 169 jobs at 31 March 2016 Technology transfer was donated to the Abantungwa-Kholwa Codes of Good Practice, which prescribe a minimum through the capacity expansion programme at the We have been acquiring intellectual property (IP) Community IT Centre in Ladysmith, KwaZulu- of 50% for the first five years that the Codes are Medupi, Kusile and Ingula new build sites and Power and undertook a transfer of design know-how in Natal. These initiatives were made possible by in effect. To ensure a sustainable contribution to Delivery Projects (March 2015: 25 875). order to stimulate local industrialisation through our IT suppliers. transformation, our contracts with key suppliers knowledge transfer. Particular areas of focus in B-BBEE and BWO attributable spend exceeded the include targets for skills development and job the current financial year include power plant air annual target. The positive performance is due to creation. quality related technology retrofit projects such Eskom’s preference to procure from level 1 to 4 as low NO x burners, FGD plant and fabric filter B-BBEE compliant suppliers. The improvement in plant (FFPs). In-house retrofit design projects are procurement spend with BWO suppliers is due to currently being executed through an on-the-job the application of a new method, which recognises training approach to ensure skills development is procurement spend with suppliers that are 30% effectively established over time. owned by black women in line with the Codes of Good Practice (the previous method recognised suppliers 50% owned by black women). Attributable The Camden Power Station burner retrofit spend on other supplier categories remains below project is in the execution phase. The in- target, as the majority of these vendors have house design capability enabled Eskom to low value contracts and the procurement spend place the fabrication contract with a relatively with these suppliers is small relative to our total small up-and-coming black woman-owned procurement spend. fabrication company, which has now employed Contracts worth R68.3 billion were awarded during 51 additional staff to fabricate the Camden the year (excluding intercompany and subsidiary order. spend). At company level, a total amount of R51.4 billion, or 75.22% of contract value, has been committed to local content. Our acting CIO, Mr Sean Maritz, opens the Abantungwa-Kholwa Community IT Centre in Ladysmith, KwaZulu-Natal, which was made possible by our IT suppliers. 78 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 79 Transformation and social sustainability continued Financial review Improving internal transformation We continue our commitment of cultivating a balanced workforce that will support and further our organisation 82 Chief Financial Officer’s report in the most efficient and effective manner. The Employment Equity Plan ensures that our workforce profile at all 84 Value added statement occupational levels is transformed; it serves as a vehicle with which employment barriers and affirmative action 85 Condensed annual financial statements measures are addressed. 89 Key accounting policies, significant Employment equity performance for the group judgements and estimates 91 Financial sustainability Target Target Target Actual Actual Actual Target Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Employment equity – disability, % 2.50 2.50 2.50 2.73 2.89 2.77 Racial equity in senior management, 88.90 72.00 63.00 61.06 61.70 59.30 % black employees Racial equity in professionals and middle 88.90 78.00 73.00 71.68 71.77 70.60 management, % black employees Gender equity in senior management, 45.70 36.00 32.00 28.13 29.82 28.80 % female employees Gender equity in professionals and middle 45.70 40.00 38.00 35.11 35.29 34.90 management, % female employees Neither racial nor gender employment equity The approved Employment Equity Plan expired targets were achieved. With the reality of limited on 31 March 2016; a new plan which complies opportunities to recruit, meeting the employment with the Employment Equity Act, 1998 is awaiting equity targets continues to pose a challenge. Our final approval. The revised plan ensures that our focus remains on occupational levels that are workforce profile is transformed at all occupational underrepresented. We are committed to achieving levels; it serves as a vehicle with which employment employment equity expectations and are reviewing barriers and affirmative action measures can be various options. addressed. Our total workforce comprises 68% male employees Future focus areas and 32% female employees at all occupational levels. • Drive systematic and sustainable supplier At executive level, there is renewed effort to use development and localisation (SD&L) in a manner all recruitment and promotion opportunities that will not increase the total cost of ownership, available to address employment equity. Efforts thus contributing to commercial cost savings will be put in place to accelerate the development • Coordinate and drive our socio-economic of female employees in professional and middle contribution through ensuring that sustainable management levels to ensure a pool of suitably SD&L objectives are enabled in strategies and qualified women for senior management positions commercial transactions when such opportunities arise. This will be part • Continue focusing on occupational levels that are of the overarching Eskom Women Advancement underrepresented in order to achieve Programme, through which deliberate efforts are employment equity expectations made to develop, prioritise and deploy competent • Create a conducive environment to ensure that female employees in meaningful roles. male and female employees benefit equally, with The overall picture regarding employees with an increased representation of women in disabilities is discouraging, as they are represented leadership positions more at lower occupational levels. There are renewed plans to encourage managers to recruit and promote more employees with disabilities, which includes exposing all managers and employees to disability sensitisation training, aimed at increasing awareness on disability. 80 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 81 Chief Financial Officer’s report Although our MYPD 4 revenue application will be Our funding plan will focus on increasing borrowings been identified, of which R108.5 billion has already based on the design-to-cost principles, above- from a number of sources, including export credit been committed at 31 March 2016; R76.9 billion has inflationary electricity price increases are necessary agencies (ECAs), development financing institutions been drawn down to date. These amounts include to ultimately migrate to cost-reflectivity. We (DFIs), domestic and international bond markets, the R23 billion equity injection received from the anticipate applying for annual increases above and the sale of non-core assets. We are committed shareholder. inflation over the MYPD 4 period. This marks a to maximising the use of all available levers to deliver change from a significantly higher price trajectory, a credible and sustainable funding strategy. Outlook which would have seen electricity price increases Ratings agencies have raised a number of key exceeding 20% per year over the next five years – a Financial results for the year concerns which could result in a further ratings scenario that would be unsustainable for the South For the year ended 31 March 2016, the group downgrade: a Sovereign rating downgrade; a African economy. achieved a net profit after tax of R4.6 billion weakened liquidity position and/or a prolonged A clear distinction will be made between the (March 2015: R0.2 billion, restated). Group state of poor liquidity; free funds from operations revenue requirement to sustain current operations, operating EBITDA (earnings before interest, tax, as a percentage of debt below 5%; and operational and that which is needed for IPPs and new build depreciation and amortisation and before fair value weakness, with costs rising well above the budgeted An affordable electricity price path to projects. However, the impact of the drivers of costs adjustments on financial instruments and embedded targets. We are confident that our financial plan support economic growth and sales, and any other factors that fall outside derivatives) of R32 billion has increased significantly adequately addresses these concerns. our control, is likely to require some adjustments (March 2015: R23.3 billion). The operating EBITDA margin improved to 19.77% (March 2015: 15.90%). Key to the successful delivery of the financial plan Reliable and affordable electricity supply is the through the RCA process. This is largely due to revenue growth as a result of will be the management of profitability and liquidity. foundation for economic growth. We aim to re- Operational cash flow is anticipated to show strong Cost containment measures, coupled with moderate the 12.69% standard tariff increase allowed, and establish Eskom as a catalyst for growth. growth over the next five years. Short-term liquidity price increases, are expected to drive substantial containing cost increases. In recent years, our financial health has deteriorated EBITDA growth. However, our target of increasing will be managed closely by delivering operational and due to an electricity price which is not cost- profitability over the next five years is under threat Group revenue amounted to R163.4 billion cost efficiencies, and ensuring revenue uplift, as well reflective, coupled with above-inflation cost due to significantly increased depreciation costs, (March 2015: R147.7 billion). Sales volumes have as assessing options to rephase debt redemptions increases, coupled with a ratings downgrade to sub- created by capitalising R300 billion in new assets, decreased by 0.8% against the prior year. Primary between 2017/18 and 2020/21. Debt servicing is investment grade and an ambitious capital expansion as well as higher finance costs due to growth in energy costs of R84.7 billion are marginally higher anticipated to increase over the next five years, programme. debt and lower interest capitalised as assets are than the prior year (March 2015: R83.4 billion). driven by increases in interest repayments, as well commercialised. Furthermore, delivery of the new Coal costs have reduced through the use of less as debt repayments as loans mature. In response, we launched the Business Productivity build programme ahead of schedule can realise expensive short- and medium-term coal sources. Programme (BPP) to save R61.9 billion in operating additional savings, while continuous improvement in In addition, cost containment is another key Financial review Spending on IPPs has increased significantly, due and capital costs, as well as working capital, over procurement efficiencies can reap further savings. to higher volumes being produced. The increase in component of our strategy. We have developed five years. We also engaged with the shareholder operating expenditure to R65.6 billion (March 2015: programmes which will deliver long-term sustainable to provide a Government guarantee of R350 billion We have optimised the capital investment plan of savings and/or avoid cost escalation. These include R59.6 billion) is driven largely by an increase in to support funding. During the year under review, R339 billion to prioritise the new build programme, delivering a total-cost-of-ownership (TCO) based employee benefit costs and depreciation. BPP the shareholder loan of R60 billion was converted Generation sustainability, N–1 compliance for the procurement programme on major commodities; savings of R17.5 billion (March 2015: R8.7 billion) to equity, and the shareholder provided a further transmission grid and environmental compliance. limiting the escalation of coal costs to 8% to 12% were achieved against a target of R13.4 billion; equity injection of R23 billion. The capital investment plan includes funding of per year by increasing volumes from cost-plus current cost-plus mines to improve production inception-to-date savings amount to R28.5 billion against a target of R25.9 billion. Group capital mines, and improving the negotiation of other coal Key to strengthening our financial health is achieving and minimise cost increases from these mines. The expenditure amounted to R57.4 billion for the year contracts; and reducing our company headcount an appropriate return on assets through long-term project portfolio will be scrubbed even further in (March 2015: R53.1 billion). to 36 768 by 2020/21, while also supporting revenue certainty, with the price of electricity 2016/17 to release additional capital savings for the productivity through skills-based assessments and ultimately migrating to cost reflectivity, and by existing portfolio. Based on the RCA application of R22.8 billion for targeted hiring programmes. driving cost efficiencies in primary energy and Given the challenges during the previous financial the 2013/14 year, NERSA awarded us additional operating expenses. Our financial plan over the next Given this context, our financial health is expected five years is based on a number of levers, namely year, we are closely managing liquidity, having revenue of R11.2 billion for the 2016/17 year only. to improve slightly in the short term as we complete moderate price increases as well as the optimisation secured facilities which act as committed funding The group’s liquidity position has improved major investments in new and existing capacity and of costs, capital and the balance sheet. The plan was lines. Our strategy is to first stabilise our financial dramatically, from liquid assets of R17.4 billion a year service debt commitments. The five-year plan will based on the design-to-cost principles, to limit the position, and then improve financial sustainability. ago to R38.7 billion at year end, largely due to the create a platform for Eskom to make a step-change growth in costs. During the stabilisation phase, key financial equity injection of R23 billion from the shareholder. in financial health over the remaining five years to indicators will remain at current levels or even We are committed to delivering an affordable The improvement in our liquidity position removed 2025/26, while delivering an affordable electricity weaken, before improving. electricity price path that supports economic the concerns related to our status as a going price path for South Africa. growth, which also restores our financial We will maximise the use of our balance sheet to concern, reported in the prior year. sustainability, by creating revenue certainty for obtain funding by delivering increased profit, driving Given the improvement in operational performance the business and our lenders. We aim to submit a efficiencies, optimising Government guarantees, and sourcing funding more broadly. This leads to and liquidity, key financial metrics all show an revenue application that can provide price certainty a funding target of R327 billion over the next five improvement against the prior year. by applying for a three-year determination and a longer term indicative electricity price path. This years. Over the same period, debt servicing of Funding programme R383 billion will be required. Anoj Singh will smooth the impact of potential price increases The Board approved a borrowing programme of Group Chief Financial Officer on the economy over a longer period of time, as R327 billion for 2016/17 to 2020/21. For 2015/16 opposed to creating shorter term price shocks. and 2016/17, funding sources of R147.9 billion have 82 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 83 Value added statement Condensed annual financial statements for the year ended 31 March 2016 for the year ended 31 March 2016 2016 2015 The group and company financial results set out in Public Audit Act of South Africa, 2008, the General Rm Rm the condensed financial statements which follow Notice issued in terms thereof and International have been extracted from the Eskom Holdings SOC Standards on Auditing; they issued an unmodified Revenue 163 395 147 691 Ltd consolidated annual financial statements for opinion. Other income 2 433 4 493 the year ended 31 March 2016, which have been Less: Primary energy and other operating expenses (104 912) (105 695) prepared in accordance with International Financial The consolidated annual financial statements, which detail the Reporting Standards (IFRS) and in the manner financial performance of the group and company, together with the Value added 60 916 46 489 unmodified audit opinion issued by the independent auditors, are Finance income 3 447 2 996 required by the Companies Act, 2008. available online Wealth created 64 363 49 485 The consolidated annual financial statements have been prepared under the supervision of the Group The financial statements may also be inspected Value distributed 63 961 55 657 Chief Financial Officer, Mr Anoj Singh CA(SA), and at Eskom’s registered office; limited copies are were duly approved by the Board of Directors on available on request. Benefits to employees 32 523 28 918 Social spending to communities 104 116 31 May 2016. Any reference to future performance plans and/ Finance costs to lenders 30 792 26 494 or strategies included in the integrated report has Taxation to Government 542 129 The consolidated annual financial statements have been audited by the group’s independent auditors, not been reviewed or reported on by the group’s Value reinvested in the group to maintain and develop operations 402 (6 172) SizweNtsalubaGobodo Inc. in accordance with the independent auditors. Depreciation and amortisation 16 531 14 115 Borrowing costs capitalised (19 426) (17 389) Employee costs capitalised (3 266) (3 006) Deferred tax 1 946 (92) Net profit 4 617 200 Condensed income statements for the year ended 31 March 2016 Wealth created 64 363 49 485 Group Company Value created per employee Revenue per employee, R million 3.41 3.18 Restated Restated Value added per employee, R million 1.27 1.00 2016 2015 2016 2015 Rm Rm Rm Rm Value added per GWh generated, R million 0.28 0.21 1.34 Financial review Wealth created per employee, R million 1.06 Continuing operations Revenue 163 395 147 691 163 395 147 691 Number of employees and fixed-term contractors 47 978 46 490 Other income 2 390 4 444 2 471 6 645 GWh generated 219 979 226 300 Primary energy (84 728) (83 425) (84 728) (83 425) Net employee benefit expense (29 257) (25 912) (24 721) (22 187) 4 Net impairment loss (1 170) (3 766) (1 159) (3 755) Other expenses (18 663) (15 771) (25 170) (22 083) 13 398 Profit before depreciation and amortisation and net fair value loss 31 967 23 261 30 088 22 886 (operating EBITDA) 12 440 Depreciation and amortisation expense (16 531) (14 115) (16 517) (14 001) 3 Net fair value loss on financial instruments excluding embedded derivatives (1 452) (4 117) (1 492) (4 208) 15 341 14 001 Net fair value gain on embedded derivatives 997 1 310 996 1 310 10 602 Profit before net finance cost 14 981 6 339 13 075 5 987 22 187 Net finance cost (7 919) (6 109) (8 776) (6 769) 9 787 2 Finance income 3 447 2 996 2 667 2 360 20 776 Finance cost (11 366) (9 105) (11 443) (9 129) Share of profit of equity-accounted investees, net of tax 43 49 – – Profit before tax 7 105 279 4 299 (782) 1 Income tax (2 488) (37) (1 697) 160 Profit for the year from continuing operations 4 617 242 2 602 (622) Discontinued operations Profit for the year from discontinued operations – (42) – – 0 Profit for the year 4 617 200 2 602 (622) 5 6 5 6 5 6 5 6 /1 /1 /1 /1 /1 /1 /1 /1 14 15 14 15 14 15 14 15 Attributable to: 20 20 20 20 20 20 20 20 Owner of the company 4 617 200 2 602 (622) R million Refer to note 49 in the consolidated annual financial statements for detail of the restatement of comparatives. Revenue per employee Value added per GWh generated Value added per employee Wealth created per employee 84 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 85 Condensed annual financial statements continued Condensed statements of comprehensive income Condensed statements of financial position for the year ended 31 March 2016 at 31 March 2016 Group Company Group Company Restated Restated Restated Restated 2016 2015 2016 2015 2016 2015 2016 2015 Rm Rm Rm Rm Rm Rm Rm Rm Profit for the year 4 617 200 2 602 (622) Assets Other comprehensive income/(loss) 6 508 (1 155) 6 481 (1 162) Non-current assets 565 475 500 259 566 388 493 387 Items that may be reclassified subsequently to profit or loss 5 903 (501) 5 884 (525) Property, plant and equipment and intangible assets 521 174 458 881 522 228 460 214 Investment in equity-accounted investees 360 348 95 95 Available-for-sale financial assets – net change in fair value (57) (63) (54) (64) Future fuel supplies 10 502 9 079 10 502 9 079 Cash flow hedges – effective portion of changes in fair value 8 829 471 8 829 471 Investment in securities 2 485 2 481 2 485 2 481 Net amount transferred to initial carrying amount of hedged items (603) (1 136) (603) (1 136) Loans receivable 70 8 646 – – Foreign currency translation differences on foreign operations 21 24 – – Derivatives held for risk management 27 600 14 303 27 600 14 303 Income tax thereon (2 287) 203 (2 288) 204 Other assets 3 284 6 521 3 478 7 215 Items that may not be reclassified subsequently to profit or loss 605 (654) 597 (637) Current assets 86 268 57 686 87 644 59 442 Remeasurement of post-employment medical benefits 840 (909) 830 (884) Inventories 17 821 16 033 17 641 15 896 Income tax thereon (235) 255 (233) 247 Investment in securities 7 741 6 015 2 067 2 321 Loans receivable 10 269 6 352 6 553 Total comprehensive income for the year 11 125 (955) 9 083 (1 784) Derivatives held for risk management 2 582 709 2 582 709 Attributable to: Trade and other receivables 21 810 16 856 24 455 18 553 Owner of the company 11 125 (955) 9 083 (1 784) Financial trading assets 3 844 6 322 2 657 5 143 Other assets 4 006 2 619 3 754 2 281 Cash and cash equivalents 28 454 8 863 28 136 7 986 Non-current assets held-for-sale 8 942 – 148 – Condensed statements of changes in equity for the year ended 31 March 2016 Total assets 660 685 557 945 654 180 552 829 Financial review Equity Group Company Capital and reserves attributable to the owner of the company 180 563 117 164 172 314 110 957 Restated Restated Liabilities 2016 2015 2016 2015 Non-current liabilities 404 343 366 146 403 569 364 164 Rm Rm Rm Rm Debt securities and borrowings 306 970 277 458 306 901 275 954 Restated balance at the beginning of the year 117 164 118 119 110 957 113 006 Embedded derivatives 5 410 6 647 5 410 6 646 Previously reported 122 247 119 784 116 040 114 671 Derivatives held for risk management 2 862 2 641 2 862 2 641 Prior year restatements, net of tax (5 083) (1 665) (5 083) (1 665) Deferred tax 21 000 18 154 20 621 17 848 Deferred income 15 516 14 055 15 516 14 055 Total comprehensive income/(loss) for the year 11 125 (955) 9 083 (1 784) Employee benefit obligations 12 405 11 960 12 094 11 665 Share capital issued 23 000 – 23 000 – Provisions 32 841 31 078 32 826 31 039 Converison of subordinated shareholder loan to equity 29 274 – 29 274 – Other liabilities 7 339 4 153 7 339 4 316 Common control transfer – – – (265) Current liabilities 73 971 74 635 78 297 77 708 Balance at the end of the year 180 563 117 164 172 314 110 957 Debt securities and borrowings 15 688 19 976 19 056 22 176 Comprising: Embedded derivatives 1 615 1 375 1 615 1 375 Share capital1 83 000 – 83 000 – Derivatives held for risk management 2 011 2 845 2 024 2 845 Equity reserve – 30 520 – 30 520 Employee benefit obligations 5 190 3 926 4 997 3 661 Cash flow hedge reserve 11 622 5 699 11 622 5 699 Provisions 11 415 9 972 11 198 9 807 Available-for-sale reserve (37) 4 (34) 5 Trade and other payables 32 319 27 984 33 739 29 267 Unrealised fair value reserve (16 712) (8 854) (16 712) (8 854) Financial trading liabilities 1 250 5 499 1 250 5 499 Foreign currency translation reserve 39 18 – – Other liabilities 4 483 3 058 4 418 3 078 Accumulated profit 102 651 89 777 94 438 83 587 Non-current liabilities held-for-sale 1 808 – – – 180 563 117 164 172 314 110 957 Total liabilities 480 122 440 781 481 866 441 872 1. Includes the R23 billion equity injection and the R60 billion shareholder loan converted to equity. Total equity and liabilities 660 685 557 945 654 180 552 829 Refer to note 49 in the consolidated annual financial statements for detail of the restatement of comparatives. Refer to note 49 in the consolidated annual financial statements for detail of the restatement of comparatives. 86 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 87 Condensed annual financial statements Key accounting policies, significant judgements and estimates continued Condensed statements of cash flows Key accounting policies Revenue for the year ended 31 March 2016 Our condensed annual financial statements do not We earn revenue through the sale of electricity include all the information required for full financial to customers. Revenue is recognised when the Group Company electricity is consumed by the customer, but only to statements and should be read in conjunction with Restated Restated the consolidated annual financial statements for the extent that it is considered recoverable. 2016 2015 2016 2015 the year ended 31 March 2016, which have been Rm Rm Rm Rm Capital contributions received from prepared on the going concern basis. customers Cash flows from operating activities Profit/(loss) before tax 7 105 279 4 299 (782) The separate and consolidated annual financial Contributions received in advance from electricity Adjustment for non-cash items 29 904 36 117 30 722 36 879 statements are prepared on the historical cost basis, customers to construct infrastructure dedicated Changes in working capital (2 201) (8 868) (2 305) (10 647) except for certain items that are measured at fair value. to them are recognised as other revenue once the customer is connected to the electricity network. Cash generated from operations 34 808 27 528 32 716 25 450 We have consistently applied the accounting policies Net cash flows from/(to) derivatives held for risk management 643 (751) 622 (751) to all periods presented, except for new or revised Government grants Interest received 2 322 697 2 322 696 statements and interpretations implemented during Government grants received for the creation of Interest paid (11) (10) (11) (10) the year, the impact of which is detailed in the full set electrification assets are first recognised in liabilities Income taxes paid (520) (153) – – of consolidated annual financial statements, as well as deferred income, and thereafter credited to Net cash from operating activities 37 242 27 311 35 649 25 385 as restatements due to a change in the measurement profit or loss within depreciation and amortisation basis of cross-currency swaps classified as derivatives expense on a straight-line basis over the expected Cash flows from investing activities Proceeds from disposal of property, plant and equipment 360 139 302 136 held for risk management, and the classification of useful lives of the related assets. Acquisitions of property, plant and equipment and intangibles (54 175) (52 424) (54 164) (51 204) EFC as held-for-sale. Impairment of non-financial assets Expenditure on future fuel supplies (1 754) (1 999) (1 754) (1 999) Increase in payments made in advance (274) (966) (274) (966) The carrying amounts of property, plant and Expenditure incurred on provisions (3 054) (1 670) (3 054) (1 670) We use a valuation technique in terms of equipment and intangibles are reviewed at each Net cash flows from derivatives held for risk management 771 253 771 253 IFRS to determine the fair value of cross- reporting date to determine if there is any indication Increase in investment in securities and financial trading assets (1 886) (966) – – currency swaps held for risk management. We of impairment, or when events indicate that the Interest received 1 202 1 068 559 465 reviewed the methodology used in arriving at carrying amount may not be recoverable. Servitude Other cash flows from investing activities 220 179 336 193 the fair value of cross currency swaps; this rights, that are considered to have an indefinite useful Net cash used in investing activities (58 590) (56 386) (57 278) (54 792) resulted in a change in the valuation technique life, are not subject to amortisation or depreciation which resulted in a measurement that is but are tested annually for impairment. Financial review Cash flows from financing activities more representative of the fair value of the Debt securities and borrowings raised 41 052 49 500 41 840 50 559 cross-currency swaps. The change resulted in Finance income Payments made in advance to secure debt raised (555) (187) (555) (187) Finance income comprises interest receivable on an improvement in the adjustment for non- Debt securities and borrowings repaid (11 123) (14 429) (11 013) (15 251) loans, advances, trade receivables, finance lease performance risk, particularly credit risk. The Share capital issued 23 000 – 23 000 – fair value credit valuation adjustment (CVA) receivables and income from financial market Net cash flows from/(used in) derivatives held for risk management 11 847 (1 982) 11 847 (1 982) and debit valuation adjustment (DVA) ensured investments, and is recognised as it accrues using the (Decrease)/increase in investment in securities and financial trading assets and liabilities (1 621) 778 (1 621) 778 that the fair value of the cross-currency effective interest rate method. Interest received 1 275 1 449 1 250 1 417 swaps represents the net exposure to the Finance cost Interest paid (22 791) (17 064) (22 944) (17 106) counterparty. Other cash flows from financing activities (157) (111) (99) (163) Finance cost comprises interest payable on As the improvement in the valuation technique borrowings, interest resulting from hedging Net cash from financing activities 40 927 17 954 41 705 18 065 instruments and interest from the unwinding of is relevant to determine the fair value in prior Net increase/(decrease) in cash and cash equivalents 19 579 (11 121) 20 076 (11 342) years, and given the size of the adjustments discount on liabilities. To the extent that assets are Cash and cash equivalents at the beginning of the year 8 863 19 676 7 986 19 044 related to prior years, the prior year financial financed by borrowings, certain borrowing costs are Foreign currency translation 21 24 – – statements have been restated. capitalised to the cost of assets over the period of Effect of movements in exchange rates on cash held 75 284 74 284 construction until the asset is substantially ready for Cash and cash equivalents transferred to non-current assets held-for-sale (84) – – – its intended use. The weighted average of borrowing Cash and cash equivalents at the end of the year 28 454 8 863 28 136 7 986 Certain of our key accounting policies are set out costs applicable to all borrowings is used, unless an below. asset is financed by a specific loan, in which case the specific rate is used. Refer to note 49 in the consolidated annual financial statements for detail of the restatement of comparatives. Refer to note 2 in the consolidated annual financial statements for our significant accounting policies Property, plant and equipment Property, plant and equipment is stated at cost less Determination of fair value accumulated depreciation and impairment losses. Fair values are based on quoted bid prices if available, Land is not depreciated; other assets are depreciated otherwise valuation techniques are used. using the straight-line method to allocate their cost to their residual values over their estimated useful Foreign currency translation lives. Spare parts classified as strategic and critical Foreign currency transactions are translated into spares are treated as property, plant and equipment. rand using the exchange rates prevailing at the date of Repairs and maintenance is charged to profit or loss the transaction. Non-monetary items are measured during the financial period in which it is incurred. at historical cost. Foreign loans are remeasured to spot rate at every reporting date. 88 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 89 Financial review Key accounting policies, significant judgements and estimates continued Financial sustainability Financial assets Embedded derivatives We faced a liquidity challenge due to the continued Non-derivative financial assets are initially We have entered into a number of agreements to use of OCGTs in order to keep the lights on, as recognised at fair value net of any directly supply electricity to electricity-intensive businesses, well as the increased cost of IPPs, coupled with the attributable transaction costs and subsequently where the revenue from these contracts is linked to electricity price and RCA awarded by NERSA being measured per asset category. Thereafter, held- commodity prices, foreign currency rates or foreign lower than requested. Although mostly funded for-trading financial assets are recognised at fair production price indices, giving rise to embedded externally, the costs related to the capital expansion value through profit or loss; loans and receivables derivatives. The fair value of embedded derivatives programme add to the liquidity pressures. Ongoing are measured at amortised cost using the effective is determined by using a forward electricity price construction schedule delays have impacted the interest rate method less accumulated impairment curve to value the host contract, while the derivative total cost of projects, specifically Medupi and losses. contract is valued by using market forecasts of Kusile, necessitating the revision of business cases. future commodity prices, foreign currency exchange Nevertheless, liquidity has improved significantly Financial liabilities rates, interest rate differential, future sales volumes, compared to the prior year. Non-derivative financial liabilities are initially production price and liquidity, model risk and other recognised at fair value net of any directly Total municipal arrear debt (including interest) economic factors. attributable transaction costs. Thereafter, held-for- increased to R6 billion at 31 March 2016 (March 2015: trading financial liabilities are recognised at fair value Post-employment medical benefits R5 billion). A total of 60 payment agreements through profit or loss; those financial liabilities that We recognise a liability for post-employment have been signed with defaulting municipalities, are not held for trading are measured at amortised medical benefits to qualifying retirees, for both in- including 19 of the top 20 defaulting municipalities. cost using the effective interest rate method. service and retired members, based on an actuarial Soweto arrear debt has increased to R4.7 billion valuation performed annually, using the projected (March 2015: R4 billion), with the payment level Embedded derivatives unit credit method. The post-employment medical during the period at 18%. An embedded derivative is an element of a combined benefits plan is unfunded. HIGHLIGHTS The conversion of the subordinated Government instrument that includes a non-derivative host Occasional and service leave • Achieved operating EBITDA of R32 billion loan of R60 billion to equity delivers no additional contract, with the effect that some of the cash flows • BPP savings of R17.5 billion banked cash inflow. It will alleviate the need to repay the of the combined instrument vary in a way similar A liability is recognised for occasional and service • Funding of R85.5 billion (excluding loan in future and remove the need to account to those of a standalone derivative. Embedded leave due to employees, based on an actuarial equity) secured for 2015/16 and 2016/17 for interest thereon. The largest impact is the derivatives are disclosed separately from hedging valuation performed annually. requirements strengthening of our financial position, specifically instruments. Embedded derivatives that are not • Equity injection of R23 billion received, and Provisions for decommissioning, mine closure our debt-to-equity ratio, which will assist in raising separated are effectively accounted for as part of the R60 billion subordinated shareholder and rehabilitation funding in future. Although the R23 billion equity Financial review the hybrid instrument. loan converted to equity Provision is made for the estimated decommissioning injection will ease liquidity pressures in the short Provisions cost of nuclear and other generating plant, as well term, further interventions are required to improve We recognise a provision when we have a present as the management of spent nuclear fuel assemblies CHALLENGES our financial sustainability. legal or constructive obligation as a result of a past and radioactive waste. Provision is also made for event, when an outflow of resources is probable and the estimated mine-related closure, pollution • Stagnating or declining sales in key customer 16 the amount can be reliably estimated. control and rehabilitation costs at the end of the segments life of certain coal mines, where a constructive and • Expenditure on OCGTs of R8.7 billion in 14 Significant judgements and estimates contractual obligation exists to pay coal suppliers. order to ensure security of supply • IPP purchases account for 18% of primary We make judgements, estimates and assumptions energy, although IPPs contribute only 4% 12 Provision for coal-related obligations concerning the future. Due to their nature, the of electricity generated resulting accounting estimates seldom equal the We provide for coal-related obligations which arise • NERSA approved RCA of R11.2 billion 10 actual results. Estimates and judgements are based out of contractual obligations as a result of delays (against application of R22.8 billion), of on historical experience and other factors, including in commissioning of the related power stations, which only R10.3 billion can be recovered 8 which are determined by taking into account the from standard customers expectations of future events that are believed to be reasonable under the circumstances, and are anticipated commissioning dates, future coal prices, 6 evaluated continually. Revisions to accounting coal utilisation and coal stockpiles. LOWLIGHTS estimates are recognised in the period in which they 4 are revised and the future periods they affect. • Arrear customer debt, particularly municipalities and Soweto, continues to The items that follow are those that have a significant escalate 2 risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next 0 financial year. -2 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Critical accounting estimates and assumptions are set out in detail in note 4 in the consolidated annual financial statements Return on assets (ROA), % ROA – historical valuation method Pre-tax nominal WACC ROA – replacement valuation method Pre-tax real WACC 90 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 91 Financial sustainability continued Looking back on 2015 Financial results of operations Primary energy Our efforts to realise the benefits from the BPP The group achieved a net profit after tax of Tariff design Primary energy cost (including coal, water and Programme are ongoing; we exceeded our current R4.6 billion for the year (March 2015: R0.2 billion, We submitted two new tariff options to liquid fuels) increased marginally to R84.7 billion year target. restated), while operating EBITDA of R32 billion NERSA in the 2015/16 financial year, Landlight (March 2015: R83.4 billion). We continued to was achieved by the group (March 2015: 60A and Critical Peak Day Pricing, as well operate the OCGTs at higher than expected levels Our strategy aims to alleviate ratings agencies’ as an amendment to the notified maximum during the first four months of the financial year in R23.3 billion). concerns regarding our highly leveraged financial demand (NMD) rules to accommodate order to ease the strain on electricity supply, and profile, the inadequate electricity price and our generator export capacity. Landlight 60A is to reduce the need for load shedding resulting from Refer to the consolidated annual financial statements available extensive funding requirements, in order to avoid online, which detail the financial performance of the group and a tariff to cater for low-consumption rural continued generating capacity constraints and tight further ratings downgrades and ultimately, regain an company supplies, while Critical Peak Day Pricing is an operating reserve margins. investment grade credit rating. innovative tariff option that can be used in times of supply constraints; it provides very We continue to raise funding for the new build high prices on critical peak days and lower Merit order programme – we met our target for funding in the prices on other days. NERSA has approved We apply a least-cost merit order despatch current year. Landlight 60A and will take Critical Peak approach, based on the incremental fuel Day Pricing through a public consultation process in 2016. More information on Critical cost, to select the order in which power Target Target Target Actual Actual Actual Target stations are used. It starts with nuclear as the Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Peak Day Pricing tariffs can be found at www.eskom.co.za/tariffs cheapest, then various groupings of coal-fired Company power stations, based on their coal cost, and We are investigating new tariff developments lastly OCGTs. Cost of electricity (excluding depreciation), R/MWh SC 942.95 731.36 647.66 640.03 610.43 541.92 such as rationalisation of municipal tariffs, changes to time-of-use ratios, net-billing The merit order is used in conjunction Electricity revenue per kWh (including environmental levy), c/kWh 134.55 85.94 78.32 76.24 67.91 62.82 tariffs, residential time-of-use and short-term with the system energy requirements, fuel pricing products. These tariff options aim to constraints and generation plant production Electricity operating EBITDA margin, % 30.57 16.84 18.93 18.61 15.65 16.15 increase the flexibility for both the customer constraints to determine the optimised, least- Group and Eskom, while taking into account the cost production plan. changing business environment. Tariffs will Operating EBITDA, R million 90 650 30 355 33 432 31 967 23 261 23 586 also be updated to more accurately reflect Operating EBITDA margin, % 31.08 16.92 19.86 19.77 15.90 17.23 time and location, demand, fixed versus During the prior year, we accounted for an Interest cover, ratio 0.90 0.24 0.42 0.55 0.27 0.60 variable costs, as well as the different cost obligation of R7.8 billion due in terms of the Financial review Working capital, ratio 0.77 0.61 0.80 0.83 0.81 0.71 drivers such as energy, Transmission and Medupi take-or-pay coal supply contract, of which Distribution network costs, and retail costs. R1.7 billion was reversed during the current year. 1. Prior year figures have been restated. Furthermore, the early closure of Arnot Colliery has resulted in an accelerated mine rehabilitation Sales and revenue Operating costs provision of R1.9 billion raised during the current Electricity revenue increased by 10.5% Electricity operating costs contained year. Excluding these amounts, primary energy Revenue for the group was R163.4 billion Electricity sales of 214 487GWh for the year 160 000 increased by R8.9 billion year-on-year, an increase (March 2015: R147.7 billion). Electricity revenue of (March 2015: 216 274GWh) were 0.8% lower than of 12%, of which R5.6 billion relates to increased R161.7 billion (March 2015: R146.3 billion) increased last year. This is due to a warmer winter, sluggish purchases from IPPs. 140 000 by R15.4 billion year-on-year, which equates to an economic growth as well as the impact of load The cost of running the OCGTs remains a significant overall increase of 10.5% against the prior year, shedding and load curtailment during the year, which contributor to primary energy cost, amounting lower than the 12.69% standard tariff increase is estimated at 1 064GWh. Smelters closing down 120 000 to R8.7 billion and powering the generation of 88 899 granted, due to a contraction in sales volumes. or reducing production, as well as lower commodity 84 728 3 936GWh during the year (March 2015: R9.6 billion However, when comparing the revenue per kWh prices, also contributed to the reduction in 100 000 83 425 and 3 709GWh). sold, the year-on-year increase is 12.3%, as we electricity sales. However, international sales 69 812 are not able to adjust the prices for international increased, mainly due to the drought in the region Purchases from IPPs amounted to R15.4 billion for 80 000 customers and certain special pricing agreements, curtailing hydro generation in Namibia, Zambia and the year, adding an additional 9 033GWh to the as well as time-of-use customers shifting demand to Zimbabwe due to low water levels in the Gove and energy mix (March 2015: R9.5 billion and 6 022GWh). less expensive periods. Kariba Dams, as well as increased sales to Swaziland. 60 000 Increased production from IPPs contributed to 29 257 29 061 a reduction in volumes required from coal-fired Although NERSA awarded us additional revenue 25 622 25 912 stations, which resulted in a reduction in coal usage. 40 000 of R7.8 billion in the 2015/16 financial year, not all of the additional revenue was earned, due to the 11 937 16 531 17 033 14 115 lower sales volumes, or collectable, highlighted by 20 000 the current increasing debt amongst municipalities. 19 177 15 771 18 663 18 861 0 2013/14 2014/15 2015/16 2015/16 target Operating expenses, R million Primary energy cost Depreciation and amortisation Employee benefit expense Other operating expenses 92 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 93 Financial sustainability continued The graphs set out the breakdown of primary energy Net impairments recognised amounted to Update on revenue applications costs, with the contribution to energy production in R1.2 billion (March 2015: R3.8 billion), largely due submitted to NERSA brackets. to the uncertainty of collecting revenue, as well as We formally retracted the initial 2013/14 Regulatory The major drivers of the RCA balance comprise impairment of property, plant and equipment. The 248 Clearing Account (RCA) submission of R38 billion the underrecovery of revenue linked to lower sales 8 121 (1%) cumulative impairment provision raised for arrear (–) which was submitted in February 2015; we submitted volumes, as well as higher primary energy costs customer debt (excluding interest) was R7.8 billion a revised RCA application for 2013/14 amounting to incurred relating to IPPs, OCGTs and coal in order at 31 March 2016 for all electricity debtors R22.8 billion during November 2015. to meet demand, thereby minimising the need for (March 2015: R7.4 billion). 15 106 load shedding. We believe that the costs were (4%) Maintenance expenditure remains a large prudently incurred. contributor to operating expenditure. The 2015/16 group’s net repairs and maintenance for the year 47 985 (84%) (after capitalisation) amounted to R4.4 billion The RCA process explained 3 660 (4%) (March 2015: R4.9 billion). For any company, including Eskom, to be financial statements. Should there be a difference financially sustainable, its revenue must cover the between the decision and actual costs and 8 690 Other operating expenses, including maintenance, costs incurred for producing the electricity that revenues, the difference is subject to the RCA (2%) amounted to R18.7 billion (March 2015: 918 is generated and distributed to customers. This rules which allow for an under- or overrecovery R15.8 billion). The increase is largely driven by an (5%) is also recognised in the Electricity Regulation of such costs. If the RCA balance is in our favour, increase in insurance premiums. Primary energy cost breakdown, R million Act, 2006 which states that “the regulation of the electricity price will be adjusted upwards; if it (% of energy mix) Depreciation and amortisation increased to revenues must enable an efficient licensee to is in the customers’ favour, the electricity price R16.5 billion (March 2015: R14.1 billion), due to more recover the full cost of its licensed activities, will be adjusted downwards. This process is a Coal IPPs capital projects being transferred to commercial including a reasonable margin or return”. This globally-accepted regulatory principle. Nuclear fuel Environmental levy OGCTs Other operation, the largest of which is Medupi Unit 6. principle is the basis of NERSA’s multi-year pricing determination (MYPD) methodology to The RCA mechanism applies to every elapsed Electricity imports Net fair value loss on financial instruments determine our allowed revenue, which is divided year of the MYPD. It is a means to retrospectively and embedded derivatives into two distinct components. reconcile the variances between the assumptions The net fair value loss for the group on financial upon which NERSA had based its revenue 8 353 310 instruments, excluding embedded derivatives, was The first component addresses the building decision, and the actual outcome, for certain (1%) (–) R1.5 billion (March 2015: R4.1 billion, restated), blocks for the determination of the allowed specified elements. The RCA caters for over- revenue when we make an MYPD application. and underrecoveries, just as the petrol price is Financial review and arose from fair value movements, as well as 9 453 premium and volume variances on forward exchange These include the recovery of primary energy adjusted on a monthly basis; a similar principle (3%) contracts due to the ongoing hedging of interest costs; operating and maintenance costs; invested applies but on an annual basis. Therefore, the and principal repayments on foreign borrowings, capital, including allowing for the repayment of criticism that we are seeking to change the MYPD 3 679 coupled with exchange rate movements. the principal debt (depreciation); and return on decision under the guise of the RCA is not true. (4%) 2014/15 assets, to provide a return on invested capital, 51 554 Changes in the fair value of embedded derivatives including allowing for the payment of interest. The RCA process will take place on elapsed years (84%) continued to impact the group income statement. whether or not a reopening on a future year 9 546 (2%) The net impact for the year was a fair value gain of The second component is a risk management takes place. Any approved recovery of variances R1 billion (March 2015: R1.3 billion), as a result of mechanism to address the risk of excess or takes place by adjusting the electricity price in a 530 the depreciation of the rand against the US dollar, inadequate returns. This is achieved through future year, relative to what was approved in the (6%) an average decrease in aluminium prices since the adjustment of allowed revenue through the MYPD determination. It is inherent to the RCA 31 March 2015, and the unwinding of volumes and RCA. The RCA is a monitoring and tracking process that there would be a delay of at least Primary energy cost breakdown, R million interest. mechanism that compares certain costs and one year between a variance occurring and the (% of energy mix) revenues assumed in NERSA’s MYPD decision revenue adjustment taking place, whether it is an Net finance cost to actual costs prudently incurred by Eskom increase (in Eskom’s favour) or a decrease (in our Coal IPPs Nuclear fuel Environmental levy Gross finance income for the year was R3.4 billion and actual revenues, as reflected in our audited customers’ favour). OGCTs Other for the group (March 2015: R3 billion). Gross finance Electricity imports cost for the group was R30.8 billion (March 2015: R26.5 billion). Borrowing costs capitalised to In response to our RCA application, NERSA allowed As allowed by the MYPD methodology, we will property, plant and equipment amounted to us additional revenue of R11.2 billion for the 2016/17 submit RCA applications for prudently incurred Other operating costs R19.4 billion (March 2015: R17.4 billion), and the year only, although we will only be able to recover costs and revenue variances for 2014/15 and The number of employees in the group (inclusive unwinding of interest included in gross finance cost R10.3 billion from standard tariff customers in 2015/16, being the second and third years of of fixed-term contractors) increased to 47 978 amounted to R4 billion (March 2015: R3.6 billion). 2016/17, an average increase of 9.4%. However, the MYPD 3. Based on the principles and precedents set (March 2015: 46 490). The increase was primarily additional revenue allowed was based on the sales in NERSA’s RCA decision for 2013/14, indications Taxation due to permanent appointment of trainees, as well volumes estimated in the MYPD 3 application, which are the submissions will amount to approximately as the alignment with the Labour Relations Act The effective tax rate for the year was 35% are significantly higher than current sales volumes, R19 billion and R22 billion respectively. We intend amendments, leading to the permanent appointment (March 2015: 13.3%), due to an increase in non- and the full amount will therefore not be recovered. submitting both applications by the end of July 2016. of 743 temporary employees. Net employee benefit deductible expenditure. Due to binding tariffs, we will also not be able to costs for the year amounted to R29.3 billion recover the R983 million awarded by NERSA for (March 2015: R25.9 billion). local and international special pricing agreements (SPAs), as well as certain international utility agreements. 94 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 95 Financial sustainability continued NERSA indicated that we must submit a new an overall stretch of R2.6 billion. The biggest Our credit ratings were downgraded to sub- In the event of a Sovereign downgrade to a sub- MYPD application, based on revised assumptions contributions to date came from the external spend investment grade by both Moody’s and S&P during investment grade, there will be no additional impact and forecasts that reflect recent circumstances. operational and capital expenditure value packages, the previous financial year, with S&P citing concerns on the Government guaranteed debt, but it may Once discussions with NERSA have been finalised, as well as primary energy savings, which include the such as poor operational performance, a weak require engagement with the affected lenders. The a decision will be made regarding the new revenue reduction in coal stockpile days. financial profile due to the lack of cost-reflective impact of a Sovereign downgrade will however application. Nevertheless, we aim to smooth the pricing and the lack of leadership stability. Fitch impact the cost and volume of future funding to be impact of potential price increases on the economy Liquidity also downgraded our local currency and standalone raised given the available Government guarantees to over a longer period, as opposed to creating shorter Cash and cash equivalents increased to R28.5 billion ratings on 11 December 2015. execute our funding plan. term price shocks. at year end (March 2015: R8.9 billion), largely due Since then, credit ratings have remained unchanged, Funding activities to the receipt of the R23 billion equity injection in although Moody’s placed our ratings on review for a terms of the Government support package. Liquid We are still operating in a challenging environment, NERSA is currently reviewing the MYPD possible downgrade on 9 March 2016, driven largely assets, which include investment in securities, including a sub-investment grade credit rating methodology and has circulated a consultation by the weakening of the Sovereign credit profile. increased to R38.7 billion (March 2015: R17.4 billion). and negative credit sentiment, which made the paper for stakeholder comment. Public Subsequently, the outlook was changed to negative, concluding of funding initiatives difficult, as well as hearings will be held in June 2016 with a The group’s net cash inflow from operating activities for but the ratings affirmed, on 9 May 2016. This is increasing the pricing thereof. Notwithstanding decision expected by 30 June 2016. We will the year was R37.2 billion (March 2015: R27.3 billion). driven by the confirmation of South Africa’s Baa2 these challenges, we have successfully managed participate in the process. The working capital ratio remained stable at 0.82 bond and issuer ratings on 6 May 2016. the current liquidity and longer term funding (March 2015: 0.81), while the interest cover ratio requirements, and have satisfactorily implemented Our review of the proposed MYPD Government support remains critical to stabilise improved slightly to 0.58 (March 2015: 0.47). the approved borrowing programme, which remains methodology reflects an intention to transfer credit ratings. significant risk from the consumer to Eskom. Cash flows used in investing activities were focused on funding the balance of the committed Summary of Eskom’s credit ratings at build programme. R58.6 billion for the year (March 2015: R56.4 billion) 31 March 2016 for the group. The capital expenditure cash flows Our borrowing programme relates to the funding Progress on the Business Productivity on property, plant and equipment, intangible assets Standard Fitch: local Rating & Poor’s Moody’s currency of Eskom Holdings SOC Ltd and excludes our Programme and future fuel included in this line item, exclusive subsidiaries. The Board has approved a revised of capitalised borrowing costs, amounted to Foreign currency BB+ Ba1 – borrowing programme of R327 billion, covering the BPP aims to deliver cost savings opportunities R55.9 billion (March 2015: R54.4 billion), mainly due Local currency BB+ Ba1 BBB in order to close the revenue shortfall that period 1 April 2016 to 31 March 2021. to expenditure on the capital expansion programme Standalone ccc+ b3 B– resulted mainly from NERSA’s MYPD 3 revenue and Generation outages. Outlook Negative Negative Stable determination granting an average increase of Financial review 8% per year. Savings opportunities to the value of For detail of capital expenditure incurred, refer to the table on Last rating action Affirmed Affirmed Affirmed R61.9 billion were identified over the five years to page 57 Last action date 9 Dec 2015 9 May 2016 7 Mar 2016 31 March 2018. Net cash inflows from financing activities for the For the year ended 31 March 2016, savings R billion 2016/17 2017/18 2018/19 2019/20 2020/21 Total period were R40.9 billion (March 2015: R18 billion) of R17.5 billion were achieved (March 2015: for the group, and include the equity injection of Domestic bond private placement 10.0 – – – – 10.0 R8.7 billion) against a target of R13.4 billion, a stretch R23 billion. Swap restructuring 1.8 – – – – 1.8 of R4.1 billion. Inception-to-date savings amount Domestic bonds 7.0 8.0 8.0 8.5 10.0 41.5 to R28.5 billion against a target of R25.9 billion, International bonds and loans – 5.5 7.0 12.0 – 24.5 Commercial paper1 6.0 6.0 7.5 8.5 10.0 38.0 Credit ratings and solvency DFI financing 2 33.4 41.4 34.9 32.7 – 142.4 ECA financing3 10.3 5.5 7.8 3.2 – 26.8 Solvency ratios Aspirational options4 – 2.2 2.9 3.5 33.3 41.9 Target Target Target Actual Actual Actual Target Measure and unit 2020/21 2016/17 2015/16 2015/16 2014/15 2013/14 met? Total 68.5 68.6 68.1 68.4 53.3 326.9 Group 1. Gross issuance and redemptions of commercial paper are included in borrowing requirements. 2. DFI financing includes existing and new loans. Free funds from operations (FFO), 100 206 37 605 34 495 39 443 36 179 27 542 3. ECA financing includes existing and new loans. R million 4. Structured products include bank loans, Sukkuks, refinancing structures and swap restructurings. FFO as % of total debt, % 16.36 8.40 9.02 10.98 11.00 9.73 Gross debt/EBITDA, ratio 6.89 15.20 12.46 11.40 16.08 12.41 The volume of debt per category takes into account a The approval of the borrowing plan of R327 billion Debt service cover, ratio 0.87 1.03 0.82 1.07 0.92 1.21 balance of anticipated investor capacity and appetite, was done before NERSA’s decision on the 2013/14 Debt/equity (including long-term market depth, cost, required covenants, tenor, RCA application, which effectively allows maximum 3.77 2.30 2.51 1.67 2.53 2.11 provisions), ratio phasing of liquidity requirements and execution risk. additional revenue of R10.3 billion in 2016/17. The Gearing, % 79.04 69.70 71.51 62.55 71.67 67.85 These elements are dynamic, and domestic funding shortfall of approximately R12.5 billion on our 1. Prior year figures have been restated. in particular has been determined with reference application will be closed by additional cost savings to the historical market capacity of domestic and reprioritising the capital expenditure portfolio. institutional investors, considering collective state entity and sovereign domestic issuance which is typically placed annually. Given the relative value proposition, we will seek to maximise the amount of domestic funding. 96 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 97 Financial sustainability continued Our governance Funding raised during the year is shown in the table below. Progress on the execution of the 2015/16 and 2016/17 borrowing programmes 100 Governance Framework Committed Drawdowns 101 King III application Potential sources, R billion Source to date1 to date2 102 Board of Directors and committees 103 Executive Management Committee Domestic bonds 15.2 8.2 8.2 International bonds and loans 7.6 7.6 7.6 104 Remuneration and benefits Commercial paper and short-term notes 12.3 6.3 6.3 106 Ethics in Eskom Existing and new DFIs 23.7 23.7 10.9 107 Assurance and controls Existing and new ECAs 11.9 11.9 4.7 108 IT governance New domestic bond private placement 20.0 20.0 10.0 Other/new3 26.4 – – Swap restructuring 7.9 7.9 6.2 Shareholder equity 23.0 23.0 23.0 Total 147.9 108.5 76.9 1. Funding raised or signed facilities with milestone drawdowns. 2. Period 1 April 2015 to 31 March 2016. 3. Unsigned ECA and DFI financing. At 31 March 2016, we have secured the full R76.9 billion required for 2015/16, as well as R31.7 billion of the amount required for 2016/17. In order to obtain the balance required, we intend to raise the required borrowings by using a combination of local bonds, commercial paper, international bonds and loans, DFI funding, ECA supported funding, and structured products, which include private placements, balance sheet optimisation structures, notes and loans. The execution of our funding plan will impact our cash flows for many years to come. The anticipated outflows of capital and interest payments on our debt book are shown below. 60 50 40 30 20 10 0 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059 2061 2063 Anticipated capital and interest cashflows (including swaps) of the strategic and trading portfolio at 31 March 2016, R billion Capital Interest Future focus areas • Maintain an appropriate liquidity buffer given operational requirements and the execution of the borrowing programme • Focus on alleviating rating agencies’ concerns regarding our highly leveraged financial profile, inadequate electricity price path and funding requirements • Continue to raise funding for the build programme, both cost effectively and within acceptable levels of risk 98 Integrated report | 31 March 2016 Our governance Ethical leadership forms the foundation of effective responsibilities imposed by the Companies Act, 2008 King III application corporate governance. Integrating sustainability and the Public Finance Management Act, 1999. As a In the spirit of good corporate governance, we endeavour to apply the principles and practices of the King Code concerns with decision-making in an effective manner state-owned company, our purpose is to deliver on on Corporate Governance (King III). As a state-owned company, a few of the principles are not applicable and, in is of utmost importance. the strategic intent mandated by Government and set such instances, we have adopted alternative practices to those recommended by King III. out in our Memorandum of Incorporation. Governance Framework We utilise the web-based Governance Assessment Instrument (GAI) of the Institute of Directors of Southern Africa The Governance Framework, which regulates our (IoDSA) to assess our governance profile. The results of the assessment, based on a chapter view, are summarised Eskom was founded in 1923; the company as it exists relationship with the shareholder and guides the way in the table below. today was incorporated in accordance with the Eskom we do business, is depicted below. Conversion Act, 2001. We adhere to the statutory King III governance register for the year ended 31 March 2016 Governance Framework Applied/ IoDSA Partially applied/ Eskom Holdings SOC Ltd (2002/015527/30) GAI score Not applied Shareholder Chapter 1: Ethical leadership and corporate citizenship AAA Applied Memorandum Department of Public Enterprises Strategic Intent of Incorporation Statement, which Chapter 2: Boards and directors AAA Partially not applied sets out sets out agreed Board of Directors Chapter 3: Audit committees AAA Applied powers of the mandate and shareholder and strategy Chapter 4: The governance of risk AAA Partially not applied the Board ARC IFC Chapter 5: The governance of information technology AAA Applied Investment and Finance Audit and Risk Committee Chapter 6: Compliance with laws, rules, codes and standards AAA Applied Committee Relevant policies Chapter 7: Internal audit AAA Applied and procedures Codes of good Chapter 8: Governing stakeholder relationships AAA Applied governance such P&G People and Governance Board Recovery and Build RBP Chapter 9: Integrated reporting and disclosure AAA Applied as King III and Committee Programme Committee the Protocol Overall score AAA on Corporate Governance in The Corporate AAA Highest application AA High application BB Notable application the Public Sector Plan, which B Moderate application C Application to be improved L Low application Social, Ethics and Sustainability details the basis Board Tender Committee of operations Committee Disclaimer and outlines our The assessment criteria of the web-based tool, the Governance Assessment Instrument (GAI), have been based on the practice recommendations of the purpose, values SES TC King III report. These criteria are intended to assess quantitative aspects of corporate governance only and not qualitative governance. As such, the results and strategic are proposed to serve as an indication of the structures, systems and processes in place and are not intended to include an indication of the governance objectives culture of an entity. Responsible and ethical leadership Relevant The responsibility for the input of data in order to attain a result through the use of this tool is that of the user and the entity in respect of which the user legislation Company subscription has been granted. including the Secretary Electricity Neither the Global Platform for Intellectual Property (Pty) Ltd (TGPIP), nor the IoDSA, as Licensor of the content of the GAI, makes any warranty or Regulation Act, representation as to the accuracy or completeness of either the assessment criteria or the results. Companies Eskom Holdings SOC Ltd The shareholder Act, PFMA, compact, which The full report on Eskom’s King III exceptions and alternative practices is available online as a fact sheet National Treasury Executive Management Exco sets out annual regulations, Committee Our governance key performance regulations of indicators and We welcome the draft King IVTM Report on Corporate Governance for South Africa 2016, which was released for NERSA and the • Capital Committee • People Committee public comment in March 2016. We are busy assessing the impact of the proposed changes on our governance. targets in support National Nuclear • Finance Committee • Regulation, Policy and of our mandate Regulator •N uclear Management Ethics Committee Committee • Risk Committee • Operating Committee The materiality framework sets out the requirements for those matters needing approval in terms of the PFMA and, together with the Delegation of Authority Framework, guides the referral of matters from executive level to committees to Board, and where applicable to DPE and National Treasury One of the essential components of the Governance Board) guides the strategic direction of the group, and Framework is the clarity of roles between the monitors progress in executing the business strategy. shareholder, the Board and the management of The Board ensures that the utility and its subsidiaries Eskom, as provided by the Strategic Intent Statement comply with the requirements of the Companies Act and our shareholder compact with DPE. and PFMA, as well as National Treasury regulations, together with any other legislative requirements Executive authority over the company is vested in and documents within the ambit of the Governance the Minister of Public Enterprises, the Honourable Framework. Ms Lynne Brown, MP. The Board of Directors (the 100 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 101 Our governance continued Board of Directors and committees Induction and orientation of directors Environmental and climate change provided that the shareholder approves. Other group A director on-boarding plan is in place, comprising a sustainability executives are appointed by the Board and are full- Governance of the group and the responsibility for driving good corporate citizenship is vested in a formal induction and site visits for all directors. To • Tutuka fabric filter plant retrofit programme to time employees of Eskom, subject to our conditions unitary board, which is supported by several Board ensure that all directors remain informed, continuous address additional requirements to comply with of service. committees and the Company Secretary. The Board, training and updates are provided on a regular basis. environmental legislation through its committees, provides strategic direction, Time is set aside at each scheduled Board meeting Exco members’ qualifications, significant directorships and to address the training needs of the Board or Transformation and social sustainability appointment dates are available in the fact sheet on leadership while the Group Chief Executive, assisted by the activities at the back of this report individual directors, and to brief directors on any new • Ex gratia payment of 6% of annual salary for all Executive Management Committee (Exco) and its legislation or regulations which may be applicable. middle management and bargaining unit subcommittees, is accountable to the Board for Exco held 18 meetings during the year, four of which implementing the strategy. Board evaluation employees were workshops and five Exco indabas. Company Secretary Two internal Board evaluations were conducted, Board committees one at the request of the shareholder. Feedback on The following Exco subcommittees were constituted The Company Secretary is an officer with a central The effectiveness of the Board is enhanced by the during the year: the outcome of that assessment was submitted to use of six Board committees to which it delegates role in the governance and administration of our the shareholder. Preparations for a full independent • Capital Committee affairs and is key to the efficiency and effectiveness authority without diluting its own accountability. The Board evaluation, which covers the 2015/16 financial • Finance Committee of the Board, providing impartial advice and support Board appoints members to the various committees, year, are under way. • Nuclear Management Committee to the directors. Ms Suzanne Daniels was appointed with due consideration of the necessary skills and Meetings experience required by members of the different • Operating Committee as Company Secretary on 1 October 2015, after the resignation of Mr Malesela Phukubje on Meetings of the Board and its committees are committees. • People Committee 30 September 2015. With over 20 years’ experience scheduled annually in advance. Special meetings are • Regulation, Policy and Ethics Committee convened as and when required to address specific The Audit and Risk Committee and Social, Ethics and in the legal industry, she is suitably qualified to serve • Risk Committee material issues. The Board held six scheduled and Sustainability Committee are statutory committees the Board and its committees in this role. eight special meetings during the year. as prescribed by the Companies Act, 2008. These Changes in Exco in 2015/16 Board constitution and appointments committees fulfil their duties as recommended by The Group Chief Executive announced a new Exco Non-executive directors are appointed to the Board Attendance of Board, Exco and committee meetings is available in King III. structure on 22 October 2015, to stabilise and by the shareholder for a period of three years, the fact sheet on leadership activities at the back of this report strengthen Eskom’s leadership, in order to implement All Board committees are chaired by an independent reviewable annually. The People and Governance the Turnaround Strategy: non-executive director and consist of a majority of Committee assists the shareholder by identifying Key Board decisions • Mr Anoj Singh, Group Chief Financial Officer independent non-executive directors. Committees the necessary skills, qualifications and experience The Board approved the following matters, amongst • Mr Matshela Koko, Group Executive: Generation exercise their authority in accordance with Board- required by the Board to achieve our objectives. others: and Technology approved terms of reference, which define their Changes in Board composition Financial sustainability composition, mandate, roles and responsibilities. • Mr Thava Govender, Group Executive: Dr Baldwin Ngubane was appointed as Chairman of • Issuing share capital for the conversion of the These terms of reference are aligned with the Transmission and Sustainability the Board, after acting as Chairman since March 2015. R60 billion shareholder loan to equity and the Delegation of Authority Framework, legislative • Mr Mongezi Ntsokolo, Group Executive: Mr Brian Molefe was appointed as Group Chief R23 billion equity injection requirements and best practice, and are reviewed Distribution Executive with effect from 25 September 2015, • Approach for the RCA application to NERSA each year. • Ms Ayanda Noah, Group Executive: Customer following his secondment from Transnet since • Turnaround Plan, including the design-to-cost Services 20 April 2015. At the same time, Mr Anoj Singh strategy Deliberations of the committees do not reduce the • Mr Abram Masango, Group Executive: Group was appointed as Chief Financial Officer, following individual and collective responsibilities of directors Capital Revenue and customer sustainability regarding their fiduciary duties and responsibilities. his secondment from Transnet with effect from • Ms Elsie Pule, acting Group Executive: Human 1 August 2015. • Disconnection of non-paying municipalities Directors are required to exercise due care and Resources • Implementation of the prepaid meter strategy judgement in accordance with their statutory Our governance Ms Mariam Cassim and Mr Giovanni Leonardi were obligations. Refer to page 29 for the operating structure of the company appointed as non-executive directors on 25 May 2015. Operational sustainability • Changes to the Primary Energy business strategy, Refer to the fact sheet on leadership activities at the back of this Subsequent to year end, Mr Romeo Kumalo and in order to create a competitive coal market, by report for the mandates and key activities of each of the Board Ms Nonkululeko Veleti, acting Chief Financial Officer, Ms Mariam Cassim resigned as directors, on 12 and creating equal opportunities for emerging mining committees resigned with effect from 31 August 2015. Although 14 April 2016 respectively. companies, and collaborating with Transnet to not a member of Exco, Ms Caroline Henry, Eskom expand the rail network to all coal-fired power Executive Management Committee Treasurer, resigned effective 31 January 2016. Our Refer to pages 30 to 31 for the profiles and committee stations Group Chief Financial Officer assumed the role of memberships of the Board Exco is established by the Group Chief Executive • Ash utilisation strategy Treasurer from 1 February 2016. and assists him in guiding the overall direction of the The Board consists of a majority of independent non- • Generation maintenance strategy, as well as business and exercising executive control in managing Update on the independent enquiry executive directors who possess diverse skills and strategies for the acceleration of the recovery of day-to-day operations. As reported in 2015, the Board announced its experience in the fields of science, engineering, law, Duvha Unit 3 and Majuba Silo 20 decision to conduct an independent enquiry into the finance, economics, accounting and auditing, as well as • Procurement of additional gas capacity Refer to pages 32 to 33 for the profiles and areas of responsibility affairs of Eskom on 12 March 2015 and suspended of Exco members business and enterprise risk management. four executives. Mr Tshediso Matona, former Chief Sustainable asset creation Executive, resigned effective 31 May 2015. Mr Dan • Revised business cases for Medupi and Kusile The Board identifies, evaluates and nominates Qualifications and significant directorships of Board members are Marokane, former Group Executive: Group Capital, available in the fact sheet on leadership activities at the back of • Engagement with the Department of Energy for potential candidates for the positions of Group and Ms Tsholofelo Molefe, former Finance Director, this report (i) funding the renewable energy programmes; Chief Executive and Chief Financial Officer. The both agreed to part ways with Eskom, with effect (ii) the PPAs pursuant to the RE-IPP bid windows shareholder appoints the Group Chief Executive; the from 1 June and 30 June 2015 respectively. 3.5 and 4; and (iii) Eskom’s participation in the Chief Financial Officer is appointed by the Board, nuclear new build programme 102 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 103 Our governance continued In July 2015, Dr Baldwin Ngubane confirmed that, by the Group Chief Executive and approved by the Incentive schemes Exco compacts rely on three elements to determine following the independent enquiry, the Board had People and Governance Committee. Bargaining unit and managerial level bonuses for executives: been advised that no wrongdoing had been found Our short-term incentive scheme aims to align • Qualifiers need to be achieved to qualify for a Non-executive directors against any of the suspended executives. Mr Matshela individual performance with organisational strategic bonus; if not, there will be no bonus Koko, then Group Executive: Group Technology and Remuneration of non-executive directors is objectives, by setting targets for key performance • Modifiers determine the size of the bonus pool Commercial, was reinstated with immediate effect, benchmarked against companies of a similar size, and indicators that contribute to these objectives. All (between 60% and 120%), depending on the while Mr Edwin Mabelane, who had been acting in the is in line with guidelines issued by DPE. Remuneration permanent employees participate in the scheme. achievement of set targets position, returned to his former position of Senior proposals from the People and Governance Committee are submitted to the Board, which makes • Gatekeepers, if not reached, reduce the General Manager: Outages, prior to his appointment Key performance indicators (KPIs) are linked to recommendations to the shareholder. performance score as acting Chief Commercial Officer with effect from our strategic objectives and cascade down from the 28 September 2015. Non-executive directors receive a fixed monthly organisational to the individual level. Employees are Short-term incentives fee and are reimbursed for out-of-pocket expenses contracted to achieve targets for selected KPIs and Short-term incentives reward executives for achieving The report following the investigation was finalised and are rewarded for meeting or exceeding these targets. incurred in fulfilling their duties. set objectives over a 12-month period. Executive shared with the Minister. The recommendations will be The bonus paid to an individual is derived by taking compact KPAs include financial performance, operating used to strengthen the current turnaround strategy. Executive remuneration into consideration the available bonus pool amount, safely, group key priorities and the discretion of the The Group Chief Executive and Chief Financial the respective group or division’s achievement and Group Chief Executive. The weight allocated to each Remuneration and benefits Officer have term contracts. Other group executives the individual’s performance. An on-target bonus person for each of the compact areas will depend on Our approach to remuneration have permanent employment contracts based on equates to 12% of basic salary for bargaining unit the responsibilities of the specific individual. Our approach to remuneration and benefits is our standard conditions of service. None of the employees, 16.67% of pensionable earnings for middle designed to attract and retain skilled, high-performing executives have extended employment contracts or managers and 25% for senior managers. Long-term incentives executives and employees. We aim to remain special termination benefits. No restraints of trade The Board has set performance conditions in line competitive to attract and retain key skills, by providing are in place. The bonus pool is determined by Eskom’s overall with the shareholder compact and Corporate Plan market-related remuneration structures, benefits and performance. The bonus pool is further influenced over a three-year performance period. This covers The employment contracts of executive directors by four factors: qualifiers (for managerial levels) or a conditions of service. Employees are remunerated in financial and non-financial targets, such as ensuring and Exco members are subject to a six-month notice primary bonus driver (for bargaining unit employees), accordance with their job grade, and at least at the Eskom’s business sustainability, ensuring reliability of period. Other executives have to serve one month’s operational modifiers, gatekeepers as well as minimum of the applicable salary scale. We guarantee supply to all South Africans and that South Africa’s notice in terms of our standard conditions of service. a qualitative Exco rating. Key performance areas internal equity through defensible differentials in future power needs are adequately provided for, pay and benefits, and resolve unjustifiable race- and (KPAs) focus on financial sustainability, improved as well as supporting the country’s developmental The Group Chief Executive’s remuneration is gender-based income differentials if they arise. approved by the Board. The People and Governance operations, safety, compliance and the achievement objectives, with an agreed weighting in each category. Committee approves the remuneration of the of new build milestones. International and local benchmarks are considered Chief Financial Officer and other group executives, Awards only vest if, and to the extent that, these in determining executive remuneration, to ensure Managerial levels will qualify for 50% of the on-target targets are met. However, if gatekeeper conditions in accordance with the shareholder-approved bonus if we achieve EBITDA of R29.6 billion, with that executive packages are aligned to those offered framework. Executive remuneration consists of a are not met, the Board may adjust the vesting by companies of similar stature. Market factors are another 50% for load shedding of less than or equal percentages, even though targets have been met. basic salary augmented by short- and long-term to 432 hours for the year. For the bargaining unit, considered, to keep remuneration at levels that will incentives, which is based on organisational as well Potential vesting percentages range from 0% to assist us in retaining key leadership skills. We are EBITDA is a primary bonus driver measured on a 100%, with an expected (on-target) vesting rate of as individual performance, and takes account of sliding scale, with a target of R29.6 billion. Should we mindful of the responsibilities and risks that directors executives’ levels of skills and experience. 50%, based on a threshold and stretch targets for and executives bear, given their broad accountability. achieve the EBITDA target, a 100% on-target bonus each measure. The executive remuneration strategy is reviewed Remuneration of Exco members consists of the will be generated for bargaining unit employees. to align to the DPE Remuneration Guidelines and following: Gatekeepers measure the minimum standard that a The vesting period for award performance shares best practice; the balance between fixed and variable • A guaranteed package based on cost-to- specific KPI is expected to achieve. When gatekeepers is three years from the grant date. At the end of remuneration (short- and long-term incentives) is company, consisting of a fixed cash portion and are not achieved, a maximum 25% penalty will be that period, the People and Governance Committee Our governance reviewed annually. compulsory benefits, such as life cover and applied. The Exco rating is discretionary and can decides on the amounts to be paid, in line with the pension. This is reviewed annually to remain reduce the incentive payable to the bargaining unit percentage of award performance shares that vest, Remuneration structure market-related and managerial level by a maximum of 20%. based on the performance conditions achieved, as Bargaining unit • Short-term incentives, which reward the well as the value of the award performance shares, Executives Bargaining unit employees, being all those below achievement of predetermined performance based on the grant value, which is deemed to be R1 Our formal remuneration plan links executive at grant date, and thereafter escalated at a money middle management, receive a basic salary plus objectives and targets, linked to the shareholder compact, set by the Group Chief Executive. It is remuneration to organisational performance and market rate. benefits. Major benefits include medical aid, a housing calculated as a percentage of pensionable earnings individual contribution. All KPAs and KPIs in the allowance and membership of the Eskom Pension A number of performance shares (award performance shareholder compact are included in the Exco and Provident Fund, as well as a thirteenth cheque. • Long-term incentives, designed to attract, shares) were awarded to Exco members on 1 April performance compacts. Exco compacts are linked Basic salaries and conditions of service are reviewed retain and reward Exco members for achieving to our strategic objectives and focused on the 2013, 2014 and 2015. The long-term incentive vesting annually through a collective bargaining process. organisational objectives set by the shareholder implementation of the Corporate Plan. The People rate for shares awarded on 1 April 2013 and vesting Bargaining unit employees participate in an annual over a period of three years. It is dependent on and Governance Committee reviews the KPAs and on 31 March 2016 was 44.48% (March 2015: 47.06%). short-term incentive scheme. the individual remaining in our employment KPIs of Exco members’ compacts annually to ensure The People and Governance Committee exercised its throughout the vesting period, and lapses if Managerial level alignment with the shareholder compact and the discretion and reduced the vesting rate from 44.48% employment ceases during the vesting period, Managerial level employees are remunerated on Corporate Plan, through company and division- to 34.48% (March 2015: 47.06% to 42.06%). The other than for permitted reasons a cost-to-company basis. The package includes specific targets. Individual performance is reviewed cash value of the shares is payable in June 2016 at pensionable earnings, compulsory benefits and a A market-benchmarked long-term incentive scheme, annually and is based on a performance contract R1.23 per share, based on the money market rate. residual cash component. Managerial employees also approved by the shareholder, has been in place since between group executives and the Group Chief Shares awarded on 1 April 2012 were redeemed participate in an annual short-term incentive scheme, 1 April 2005. Executive. Compacts for all other executives are during the year. consisting of rewards for achieving objectives set aligned with Exco compacts. 104 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 105 Our governance continued Remuneration of directors and group executives Assurance and controls 2015/16 2014/15 Combined assurance Category R000 R000 The combined assurance model assists the Audit and Risk Committee (ARC) and the Board in forming their view Non-executive directors 6 656 9 998 of the adequacy of risk management and internal control in the organisation. The model recognises three lines of Executive directors 30 020 8 056 defence: Other Exco members 38 650 32 556 Total remuneration 75 326 50 610 Assurance over the adequacy of Line management is operational risk management, effective responsible for managing Level 1 Refer to note 50 in the annual financial statements for detailed remuneration information, which includes disclosure of the remuneration of the Operations management and adherence to control processes and risk and performance three highest paid individuals in Eskom, as required by King III specialised review functions delivery against business operational Oversight by Group sustainability objectives Executives Ethics in Eskom Management is The Board and Exco recognise the need to integrate The Board, through the People and Governance Development and maintenance of internal control supported in executing Combined assurance Specialised control functions frameworks and policies, review of suitability and its duties; provides a strategy, governance and sustainability. As a signatory Committee, ensures that the Ethics Management monitoring application Level 2 layer of control over risk to the United Nations Global Compact LEAD Programme is effectively implemented, and receives management initiative, which includes a clause related to anti- quarterly ethics status reports on the ethical culture Risk, resilience and Assurance over the implementation of risk, resilience and compliance management compliance management policies and processes Oversight by Exco, ARC corruption behaviour, as well as to the World and any associated issues. and SESC Economic Forum’s Partnership Against Corruption We maintain a zero tolerance approach to fraud, initiative, we strive to embed these ethical principles. corruption and other forms of economic crime or Assurance over the adequacy and effectiveness of the network of risk Values dishonest activity. We aim to reduce these incidents by: Internal audit management, control and governance processes, including key financial • Continuously fostering ethical standards and controls as represented by management Our values underpin our vision, and guide us in our Independent of raising ethics awareness through training and Level 3 everyday activities and how we do business. management reporting, as well as through the Ethics Advisory Independent reasonable assurance that the financial statements are free from material misstatement and are prepared, in all material respects, in accordance Final oversight by ARC Service Helpdesk. A total of 7 170 employees External audit with IFRS. Provides business insights on internal financial controls and financial were trained on ethics at Eskom reporting Zero Harm • Encouraging whistle-blowing through mechanisms such as the fraud and corruption hotline on 0800 112 722 Integrity • Conducting forensic investigations and taking The integrated report is subject to combined Independent quality assessment of corrective action where applicable assurance. The report is reviewed by internal audit Innovation A detailed forensic report is tabled at the Audit and management and Exco and internally assured The internal audit function is subjected to an Risk Committee quarterly, noting incidents and cases by the Assurance and Forensic Department independent quality review every five years, or relating to fraud, corruption and other economic (A&F), while the shareholder compact KPIs more frequently if required by ARC. The most Sinobuntu (Caring) crimes. The report details the progress on incident are externally assured. Both the Audit and recent review, which was conducted three investigations, trends and observations stemming Risk Committee and the Social, Ethics and years ago, assessed the function as generally from these, as well as losses and recoveries recorded. Sustainability Committee consider the report compliant. The next scheduled review will take Customer satisfaction and recommend its approval to Board. place in 2017/18. A total of 173 investigations were undertaken Our governance during the year, consisting of incidents related to irregularities (91), fraud (48), corruption (32) and Combined assurance assists management in identifying Risk management and internal controls Excellence sexual harassment (2). Thirteen employees were potential assurance shortfalls or duplication in The Board, through ARC, ensures that there is an dismissed during the year as a result of the outcome assurance work, and developing improvement plans effective risk management process in place and that of forensic investigations and disciplinary action; where necessary. The model guides assurance internal controls are effective and adequately reported 13 employees received suspensions without pay; providers to reach consensus on the key risks faced for auditing and regulatory purposes. The combined Code of Ethics 14 resigned and 21 received written and/or verbal by the company, and reduces the likelihood that assurance model provides ARC with an overview of Our Code of Ethics is titled “The Way”, and sets warnings. significant risks remain unidentified. significant risks, as well as the effectiveness of critical out our ethical culture. It provides guidance on the controls to mitigate these risks. expected behaviour of each and every director and The proactive identification of incidents is critical ARC is ultimately responsible for providing oversight employee. Policies regarding managing conflicts of to ensuring that exposure is mitigated and losses over the combined assurance activities and approved Our enterprise risks, with the associated risk rating and treatment interest and governing the declaration of interests prevented or minimised. The number of reported the Combined Assurance Framework to guide these. response, are set out on pages 25 to 27 assist directors and employees to avoid situations incidents has reduced significantly over the last five Operational accountability for combined assurance has where they have, or are perceived to have, a direct years, proving that preventative actions such as fraud been delegated to A&F, which performs our internal or indirect interest that conflicts with the company’s awareness training are starting to show results. audit function, facilitates and coordinates the execution interests. Directors declare all conflicts of interest; of the combined assurance activities and reports back these are adequately raised in meetings and minuted to the committee. ARC receives reports on the status for the record. Employees are required to perform of governance, risk management, compliance and the a declaration of interest annually, or as soon as their adequacy of preventative and corrective controls from circumstances change. the various levels of assurance. 106 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 107 Our governance continued Supplementary information A&F performs bi-annual assessments on the design, implementation and effectiveness of the risk management process, IT controls as well as internal financial and operational internal controls. The outcome of the assessments, 110 Abbreviations based on the results of audit work planned and completed by both internal and external assurance providers, 111 Glossary of terms concluded the following: 113 Independent sustainability assurance report 116 GRI G4 indicator table Risk management Internal Operational process financial controls IT governance IT controls controls 120 Statistical tables: ten years’ information for technical KPIs and five years for non- technical KPIs A risk management Nothing significant Group IT has IT controls are Internal controls are 126 Customer information, such as number of system for identifying, has come to the maintained alignment effective and form partially effective managing and attention of A&F to the IT governance an adequate basis customers, electricity sales and revenue reporting on risk is causing it to believe principles in King III for the preparation Control deficiencies per customer category in place and adequate that the internal of reliable financial were identified financial controls statements relating to the 128 Power station capacities Gaps relating to the governance effectiveness of risk do not form a framework 130 Power lines and substations reasonable basis management have for the preparation components of the 131 Benchmarking information been noted of reliable financial system of internal control, which 136 Environmental implications of using or statements could affect the saving electricity achievement of control objectives 137 Leadership activities, including Board and Exco qualifications and directorships, Board committee mandates and decisions, as well as meeting attendance Interventions designed to address and improve the IT governance control environment have been implemented and 148 Contact details The Board has delegated responsibility of IT benefits are expected to be realised in the medium governance to the acting Chief Information Officer to long term. Improvements are being seen in some within Group IT. Further oversight is provided by areas where these have been implemented. the IT Steering Committee, an advisory committee to ARC, and the IT Oversight Committee, a Fact sheets available online ARC has concluded, based on the information subcommittee of Exco. and explanations given by management and the An independent assessment of IT governance was Assurance and Forensic Department, as well as performed by KPMG Inc. during 2013/14, with a through discussions with the external auditors, • Eskom’s energy flow diagram follow-up performed by A&F during 2015/16. The that the system and process of risk management results indicated that we have made considerable • Full list of stakeholder issues mapped to who and compliance are adequate, and that the progress towards achieving the required maturity raised them internal controls are adequate to ensure that levels for each of the seven principles of King III related • King III checklist noting exceptions or partial the financial records can be relied on for the to IT governance. The assessment also indicated that application preparation of reliable financial statements. we have made progress in addressing several of • Declaration in terms of Section 32 of PAIA the internal audit findings raised previously. Specific improvement was noted in the formal development, Refer to the report of the Audit and Risk Committee on pages 3 approval and implementation of an IT Governance All fact sheets are available on our website, to 4 of the annual financial statements for the full assessment of the www.eskom.co.za/IR2016 internal control environment Framework. Our 100MW Sere Wind Farm continues to add capacity to the grid, while diversifying our energy mix, producing 311GWh for the year. 108 Integrated report | 31 March 2016 Abbreviations Glossary of terms B-BBEE Broad-based black economic empowerment 49M The 49M initiative aims to inspire and rally all South Africans behind a common goal: to save electricity and create a better economic, social and environmental future for all COGTA Department of Cooperative Governance and Traditional Affairs DEA Department of Environmental Affairs Base-load plant Largely coal-fired and nuclear power stations, designed to operate continuously DoE Department of Energy Cost of electricity (excluding Electricity-related costs (primary energy costs, employee benefit costs plus impairment loss depreciation) and other operating expenses) divided by total electricity sales in GWh multiplied by 1 000 DPE Department of Public Enterprises Daily peak Maximum amount of energy demanded by consumers in one day DWS Department of Water and Sanitation Debt/equity including long-term Net financial assets and liabilities plus non-current retirement benefit obligations and EAF Energy availability factor (see glossary) provisions non-current provisions divided by total equity EBITDA Earnings before interest, taxation, depreciation and amortisation Debt service cover ratio Cash generated from operations divided by (net interest paid from financing activities plus EUF Energy utilisation factor (see glossary) debt securities and borrowings repaid) GRI Global Reporting Initiative Decommission To remove a facility (e.g. reactor) from service and either store it safely or dismantle it GW Gigawatt = 1 000 megawatts Demand side management Planning, implementing and monitoring activities to encourage consumers to use electricity GWh Gigawatt-hour = 1 000MWh more efficiently, including both the timing and level of demand IDM Integrated demand management Electricity EBITDA margin Electricity revenue (excluding electricity revenue not recognised due to uncollectability) as a percentage of EBITDA IIRC International Integrated Reporting Council Electricity operating costs per kWh Electricity-related costs (primary energy costs, employee benefit costs, depreciation and IPP Independent power producer (see glossary) amortisation plus impairment loss and other operating expenses) divided by total electricity IRP 2010 Integrated Resource Plan 2010-2030 (updated) sales in kWh multiplied by 100 King III King Code of Corporate Governance in South Africa 2009 Electricity revenue per kWh Electricity revenue (including electricity revenue not recognised due to uncollectability) divided by total kWh sales multiplied by 100 kt Kiloton = 1 000 tons kV Kilovolt Embedded derivative Financial instrument that causes cash flows that would otherwise be required by modifying a contract according to a specified variable such as currency kWh Kilowatt-hour = 1 000 watt-hours (see glossary) Energy availability factor (EAF) Measure of power station availability, taking account of energy losses not under the control LTIR Lost-time injury rate (see glossary) of plant management and internal non-engineering constraints Mℓ Megalitre = 1 million litres Energy efficiency Programmes to reduce energy used by specific end-use devices and systems, typically mSv Millisievert without affecting services provided Mt Million tons Energy utilisation factor (EUF) Ratio of actual electrical energy produced during a period of time divided by the total available energy capacity. It is a measure of the degree to which the available energy capacity MVA Megavolt-ampere of an electricity supply network is utilised. Available energy capacity refers to the capacity MW Megawatt = 1 million watts after all unavailable energy (planned and unplanned energy losses) has been taken into account, and represents the net energy capacity made available to the System Operator or MWh Megawatt-hour = 1 000kWh national grid MYPD Multi-year price determination Forced outage Shutdown of a generating unit, transmission line or other facility for emergency reasons or a NERSA National Energy Regulator of South Africa condition in which generating equipment is unavailable for load due to unanticipated breakdown OCGT Open-cycle gas turbine (see glossary) Free basic electricity Amount of electricity deemed sufficient to provide basic electricity services to a poor OCLF Other capability loss factor household (50kWh per month) OHS Occupational health and safety Free funds from operations Cash generated from operations adjusted for working capital PCLF Planned capability loss factor Gross debt Debt securities and borrowings plus finance lease liabilities plus the after-tax effect of PAIA Promotion of Access to Information Act, 2000 provisions and employee benefit obligations PAJA Promotion of Administrative Justice Act, 2000 Gross debt/EBITDA ratio Gross debt divided by earnings before interest, taxation, depreciation and amortisation PFMA Public Finance Management Act, 1999 Independent non-executive director A director who is: PPA Power purchase agreement • Not a full-time salaried employee of the company or its subsidiary • Not a shareholder representative PPPFA Preferential Procurement Policy Framework Act, 2000 • Has not been employed by the company and is not a member of the immediate family of an individual who is, or has been in any of the past three financial years, employed by the RCA Regulatory Clearing Account company in any executive capacity SAIDI System average interruption duration index • Not a professional advisor to the company • Not a significant supplier or customer of the company SAIFI System average interruption frequency index Supplementary information Independent power producer (IPP) Any entity, other than Eskom, that owns or operates, in whole or in part, one or more TMPS Total measured procurement spend independent power generation facilities UAGS Unplanned automatic grid separations Interest cover EBIT divided by (gross finance cost less gross finance income) UCLF Unplanned capability loss factor (see glossary) Kilowatt-hour (kWh) Basic unit of electric energy equal to one kilowatt of power supplied to or taken from an electric circuit steadily for one hour Load Amount of electric power delivered or required on a system at any specific point 110 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 111 Glossary of terms Independent sustainability assurance report continued Load curtailment Typically larger industrial customers reduce their demand by a specified percentage for the Independent assurance provider’s reasonable assurance report on selected key duration of a power system emergency. Due to the nature of their business, these performance indicators to the Directors of Eskom customers require two hours’ notification before they can reduce demand Introduction Load management Activities to influence the level and shape of demand for electricity so that demand conforms We have been engaged to perform an independent assurance engagement for Eskom Holdings SOC Ltd (Eskom) on to the present supply situation, long-term objectives and constraints selected key performance indicators (KPIs) reported in Eskom’s integrated report for the year ended 31 March 2016. Load shedding Scheduled and controlled power cuts that rotate available capacity between all customers Our engagement was conducted by a multi-disciplinary team including specialists with relevant experience in when demand is greater than supply in order to avoid blackouts. Distribution or municipal sustainability reporting. control rooms open breakers and interrupt load according to predefined schedules Lost-time injury (LTI) A work injury which arises out of and in the course of employment and which renders the Subject matter injured employee or contractor unable to perform his/her regular/normal work on one or We are required to provide reasonable assurance on the following selected sustainability key performance indicators more full calendar days or shifts other than the day or shift on which the injury occurred. to be published in the Integrated Report, which include the indicators contained in the Eskom’s shareholder compact It includes occupational diseases as well as KPIs selected by the directors. The KPIs described below cover only Eskom (company and not group) Lost-time injury rate (LTIR) Proportional representation of the occurrence of lost-time injuries over 12 months per and have been prepared in accordance with Eskom’s reporting criteria that is available on Eskom’s website, at 200 000 working hours. It includes occupational diseases www.eskom.co.za/OurCompany/SustainableDevelopment/Pages/Sustainable_Development.aspx Maximum demand Highest demand of load within a specified period Off-peak Period of relatively low system demand Key performance areas Key performance indicator Open-cycle gas turbine (OCGT) Liquid fuel turbine power station that forms part of peak-load plant and runs on kerosene or Focus on safety Lost-time injury rate (employee) (LTIR) (excluding occupational diseases) diesel. Designed to operate in periods of peak demand Sustainable asset base while ensuring Internal energy efficiency Outage Period in which a generating unit, transmission line, or other facility is out of service security of supply Peak demand Maximum power used in a given period, traditionally between 7:00 and 10:00, as well as Put customer at the centre Eskom KeyCare1 18:00 to 22:00 in summer and 17:00 to 21:00 in winter Enhanced MaxiCare1 Peaking capacity Generating equipment normally operated only during hours of highest daily, weekly or Improve operations Unplanned capability loss factor (UCLF) seasonal loads Energy availability factor (EAF) Peak-load plant Gas turbines, hydroelectric or a pumped storage scheme used during periods of peak demand System average interruption duration index (SAIDI) Primary energy Energy in natural resources, e.g. coal, liquid fuels, sunlight, wind, uranium and water System average interruption frequency index (SAIFI) Pumped storage scheme A lower and an upper reservoir with a power station/pumping plant between the two. Total system minutes lost for events <1 minute During off-peak periods the reversible pumps/turbines use electricity to pump water from Deliver capital expansion Generation capacity installed and commissioned (commercial operation) the lower to the upper reservoir. During periods of peak demand, water runs back into the lower reservoir through the turbines, generating electricity Ingula Unit 3 and 4 synchronisation1 Reserve margin Difference between net system capability and the system’s maximum load requirements Transmission lines installed (peak load or peak demand) Transmission transformers capacity installed and commissioned Return on assets EBIT divided by the regulated asset base, which is the sum of property, plant and equipment, trade and other receivables, inventory and future fuel, less trade and other payables and Electrification connections2 deferred income Reduce environmental footprint in Relative particulate emissions (kg/MWh sent out) System minutes Global benchmark for measuring the severity of interruptions to customers. One system existing fleet Water usage (litres per kWh sent out) minute is equivalent to the loss of the entire system for one minute at annual peak. A major incident is an interruption with a severity ≥ 1 system minute Carbon dioxide emissions1, 2 Technical losses Naturally occurring losses that depend on the power systems used Implementing coal haulage and the Migration of coal delivery volume from road to rail road-to-rail migration plan Unit capability factor (UCF) Measure of availability of a generating unit, indicating how well it is operated and maintained Ensure financial sustainability Operating cost per MWh (excluding depreciation) Unplanned capability loss factor (UCLF) Energy losses due to outages are considered unplanned when a power station unit has to be taken out of service and it is not scheduled at least four weeks in advance Interest cover Used nuclear fuel Nuclear fuel irradiated in and permanently removed from a nuclear reactor. Used nuclear Debt equity ratio fuel is stored on-site in used fuel pools or storage casks Free funds from operations as percentage of gross debt Watt The watt is the International System of Units’ (SI) standard unit of power. It specifies the BPP savings1 rate at which electrical energy is dissipated (energy per unit of time) Human capital Training spend as % of gross manpower costs Working capital ratio (Inventory plus the current portion of payments made in advance, trade and other receivables and taxation assets) divided by (the current portion of trade and other payables, Learners throughput or qualifying Supplementary information payments received in advance, provisions, employee benefit obligations and taxation Disability equity in total workforce liabilities) Racial equity in senior management Gender equity in senior management Racial equity in professional and middle management Gender equity in professional and middle management 1. Not reviewed in the prior year. 2. Not included in the shareholder compact. 112 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 113 Independent sustainability assurance report continued Key performance areas Key performance indicator • Evaluating the appropriateness of quantification consistent with our overall knowledge and methods and reporting policies used, and the experience of sustainability management and Economic impact Percentage of local content contracted in new build reasonableness of estimates made by Eskom performance at Eskom Percentage of local sourcing in procurement (Eskom-wide) Holdings SOC Ltd We believe that the evidence we have obtained is Percentage of B-BBEE attributable spend against TMPS • Evaluating the overall presentation of the selected sufficient and appropriate to provide a basis for our KPIs Percentage of BO attributable spend against TMPS1 conclusions. Percentage of BWO attributable spend against TMPS1 Summary of work performed Basis for qualified conclusion Percentage of BYO attributable spend against TMPS Our work included examination, on a test basis, The completeness of the Local content (Eskom-wide) of evidence relevant to the selected sustainability Percentage of BPLwD attributable spend against TMPS1 KPI could not be verified as the processes and systems information. It also included an assessment of Percentage of QSE attributable spend against TMPS1 put in place to collate, review and monitor the data the significant estimates and judgments made by that supports the reliable measurement of the KPI Percentage of EME attributable spend against TMPS1 the directors in the preparation of the selected were not adequately designed. We were unable to Technology transfer Acquisition of intellectual property1 sustainability information. We planned and performed verify the KPI by performing alternative procedures. our work so as to obtain all the information and Skills development1 explanations that we considered necessary in order Conclusion Job creation1 to provide us with sufficient evidence on which In our opinion, except for the effects of the matter to base our conclusion in respect of the selected described in the “Basis for qualified conclusion” 1. Not reviewed in the prior year. sustainability information. section of our report, the directors’ statement that 2. Not included in the shareholder compact. Our procedures included the understanding of risk the key performance indicators are presented in Directors’ responsibilities assessment procedures, internal control, and the accordance with Eskom Holdings SOC Ltd’s reporting The directors are responsible for the selection, objectivity, professional competence and due care, procedures performed in response to the assessed criteria is, in all material respects, fairly stated. preparation and presentation of the sustainability confidentiality and professional behaviour. risks. The procedures we performed were based on Other matters information in accordance with the Eskom’s reporting our professional judgement and included inquiries, SizweNtsalubaGobodo Inc. applies the International No assurance procedures were performed on the criteria. This responsibility includes the identification observation of processes performed, inspection Standard on Quality Control 1 and accordingly previous sustainability report. The current year of stakeholders and stakeholder requirements, of documents, analytical procedures, evaluating maintains a comprehensive system of quality control information relating to the prior reporting periods material issues, commitments with respect to the appropriateness of quantification methods and including documented policies and procedures has not been subject to assurance procedures. sustainability performance and design, implementation reporting policies, and agreeing or reconciling with regarding compliance with ethical requirements, and maintenance of internal control relevant to the underlying records. Our report includes the provision of reasonable professional standards and applicable legal and preparation of the report that is free from material assurance on selected KPIs, indicated in the table regulatory requirements. Given the circumstances of the engagement, in misstatement, whether due to fraud or error. above, on which we were not previously required to performing the procedures listed above we: Our responsibility provide assurance. Inherent limitations • Interviewed management and senior executives Our responsibility is to express a reasonable to obtain an understanding of the internal control Non-financial performance information is subject to The maintenance and integrity of the Eskom website assurance conclusion on the selected KPIs based environment, risk assessment process and more inherent limitations than financial information, is the responsibility of Eskom management. Our on the procedures we have performed and the information systems relevant to the sustainability given the characteristics of the subject matter and the procedures did not involve consideration of these evidence we have obtained. We conducted our reporting process method used for determining, calculating, sampling matters and, accordingly we accept no responsibility reasonable assurance engagement in accordance with and estimating such information. The absence of a • Inspected documentation to corroborate the for any changes to either the information in the the International Standard on Assurance Engagements Report or our independent reasonable assurance significant body of established practice on which to statements obtained from management and (ISAE) 3000 (Revised), Assurance Engagements report that may have occurred since the initial date draw allows for the selection of certain different senior executives in our interviews other than Audits or Reviews of Historical Financial of its presentation on the Eskom website. but acceptable measurement techniques which can Information, issued by the International Auditing and • Reviewed the process that Eskom has in place for result in materially different measurements and can Assurance Standards Board. That Standard requires determining material selected key performance Restriction of liability impact comparability. Qualitative interpretations of that we plan and perform our engagement to obtain indicators to be included in the report Our work has been undertaken to enable us to relevance, materiality and the accuracy of data are reasonable assurance about whether the selected • Applied the assurance criteria in evaluating the express the conclusions on the selected KPIs to the subject to individual assumptions and judgments. KPIs are free from material misstatement. data generation and reporting processes directors of Eskom in accordance with the terms The precision thereof may change over time. It is • Reviewed the processes and systems to generate, of our engagement and for no other purpose. We important to read the report in the context of the A reasonable assurance engagement in accordance collate, aggregate, monitor and report on the do not accept or assume liability to any party other reporting criteria. with ISAE 3000 (Revised) involves performing selected key performance indicators than Eskom, for our work, for this report, or for the procedures to obtain evidence about the quantification In particular, where the information relies on the • Conducted interviews with senior management conclusion we have reached. of the selected sustainability information and to evaluate reporting processes against the GRI factors derived by independent third parties, our related disclosures. The nature, timing and extent G4 Core guidelines assurance work has not included examination of the of procedures selected depend on our judgement, Supplementary information derivation of those factors and other third party including the assessment of the risks of material • Evaluated the reasonableness and appropriateness information. misstatement, whether due to fraud or error. In of significant estimates and judgements made by making those risk assessments we considered internal management in the preparation of the key SizweNtsalubaGobodo Inc. Our independence and quality control control relevant to Eskom’s preparation of the performance indicators Registered auditors We have complied with the independence and all selected KPIs. A reasonable assurance engagement • Performed site work at various power stations, other ethical requirements of the Code of Professional also includes: Transmission Operating Units and Distribution Per A Mthimunye Conduct for Registered Auditors issued by the • Assessing the suitability in the circumstances of Operating Units Chartered Accountant (SA) Independent Regulatory Board of Auditors, which Eskom’s use of its reporting criteria as the basis • Evaluated whether the selected key performance Director is founded on fundamental principles of integrity, for preparing the selected sustainability indicators presented in the integrated report are 6 June 2016 information 114 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 115 GRI G4 indicator table We have provided some GRI disclosures in our 2016 integrated report. The disclosures provided are set out in the table below, with a reference to where in the document the information may be found. General standard disclosures Ref Description Reference Ref Description Reference Strategy and analysis EU1 Installed capacity, broken down by primary energy source and by Nature of our business and customer base, page 10 regulatory regime Fact sheet on power station capacities, page 128 G4-1 Statement from most senior decision-maker about the relevance of Chairman’s statement, pages 5 to 6 sustainability and the organisation’s strategy for addressing EU2 Net energy output broken down by primary energy source and by Nature of our business and customer base, page 11 sustainability. The statement should present the overall vision and regulatory regime strategy for the short term, medium term, and long term, particularly with regard to managing the significant economic, EU3 Number of residential, industrial, institutional and commercial Nature of our business and customer base, page 10 environmental and social impacts that the organisation causes and customer accounts Fact sheet on customer information, page 126 contributes to, or the impacts that can be linked to its activities as a EU4 Length of above and underground transmission and distribution lines Nature of our business and customer base, page 10 result of relationships with others (such as suppliers, people or by regulatory regime Fact sheet on power lines and substations in organisations in local communities) service, page 130 G4-2 Description of key impacts, risks, and opportunities (including the Integrating risk and resilience, pages 24 to 27 EU5 Allocation of CO2e emissions allowances or equivalent, broken Not applicable – carbon budgets will only become organisation’s key impacts on sustainability and effects on down by carbon trading framework mandatory from 2020 stakeholders, and the impact of sustainability trends, risks, and opportunities on the long-term prospects and financial performance Identified material aspects and boundaries of the organisation) G4-17 List all entities included in the organisation’s consolidated financial Legal structure, page 28 Organisational profile statements, and report any entity included in the organisation’s Annual financial statements, note 12 consolidated financial statements not covered by the report G4-3 Report the name of the organisation Contact details, page 148 G4-18 Explain the process for defining the report content and the Aspect Basis of preparation, IFC G4-4 Report the primary brands, products, and services Our mandate, vision and mission, page 7 Boundaries, and how the organisation has implemented the We believe that the principles of stakeholder G4-5 Report the location of the organisation’s headquarters Legal structure, page 28 Reporting Principles for Defining Report Content inclusiveness, sustainability context, materiality and completeness have been addressed in this G4-6 Report the number of countries where the organisation operates, Legal structure, page 28 integrated report and names of countries where either the organisation has significant operations or that are specifically relevant to the sustainability G4-19 List all the material Aspects identified in the process for defining Not applicable. We have not reported on material topics covered in the report report content Aspects G4-7 Report the nature of ownership and legal form Our mandate, vision and mission, page 7 G4-20 For each material Aspect, report the Aspect Boundary within the Not applicable. We have not reported on material organisation Aspects G4-8 Report the markets served (including geographic breakdown, sectors Our operating environment, page 10 served, and types of customers and beneficiaries) Nature of our business and customer base, page 11 G4-21 For each material Aspect, report the Aspect Boundary outside the Not applicable. We have not reported on material organisation Aspects G4-9 Report the scale of the organisation (including total number of Nature of our business and customer base, page 11 employees, operations, net sales, total capitalisation broken down in Our value chain – Workforce, page 15 G4-22 Report the effect of any restatements of information provided in Not applicable for the integrated report terms of debt and equity, and quantity of products or services Our value chain – Finance, page 15 previous reports, and the reasons for such restatements The annual financial statements have been provided) Fact sheet on customer information, page 126 restated – refer Key accounting policies, significant judgements and estimates, page 89 and note 49 G4-10 Report the total number of employees by employment contract and Our value chain – Workforce, page 15 in the annual financial statements gender, as well as permanent employees, supervised workforce, Building a sustainable skills base – Headcount, workforce by region and gender, workers legally recognised as page 74 G4-23 Report significant changes from previous reporting periods in the Not applicable self-employed, or employees of contractors, and significant Transformation and social sustainability – Scope and Aspect Boundaries variations in employment numbers (due to seasonal variations) Improving internal transformation, page 80 Stakeholder engagement G4-11 Report the percentage of total employees covered by collective Our value chain – Workforce, page 15 G4-24 Provide a list of stakeholder groups engaged by the organisation Stakeholder engagement and material matters, bargaining agreements page 17 G4-12 Describe the organisation’s supply chain Our value chain – Procurement, page 16 G4-25 Report the basis for identification and selection of stakeholders with Stakeholder engagement and material matters, G4-13 Report any significant changes during the reporting period regarding Not applicable whom to engage page 17 the organisation’s size, structure, ownership, or its supply chain G4-26 Report the organisation’s approach to stakeholder engagement, Stakeholder engagement and material matters, G4-14 Report whether and how the precautionary approach or principle is We do not currently apply the precautionary including frequency of engagement by type and by stakeholder group, pages 17 to 18 addressed by the organisation approach and an indication of whether any of the engagement was undertaken specifically as part of the report preparation process G4-15 List externally developed economic, environmental and social United Nations Global Compact; other key UN charters, principles, or other initiatives to which the organisation initiatives, such as the CEO Water Mandate, Caring G4-27 Report key topics and concerns that have been raised through Material stakeholder matters, pages 18 to 20 subscribes or which it endorses for Climate, as well as Sustainable Energy for All; stakeholder engagement, and how the organisation has responded to Carbon Disclosure Project. We are also a UNGC those key topics and concerns, including through its reporting. Report the stakeholder groups that raised each of the key topics and Supplementary information LEAD company, recognised for leadership in the sustainability field concerns G4-16 List memberships of associations (such as industry associations) and Our key strategic international memberships Report profile national or international advocacy organisations in which the include Electric Power Research Institute (EPRI), G4-28 Reporting period (such as fiscal or calendar year) for information Reporting boundary and frameworks, IFC organisation holds a position on the governance body, participates in World Economic Forum (WEF), World Association provided projects or committees, provides substantive funding beyond routine of Nuclear Operators (WANO), Pressurised membership dues, or views membership as strategic Water Reactor Owners' Group (PWROG), and G4-29 Date of most recent previous report Reporting boundary and frameworks, IFC Institute of Nuclear Power Operations (INPO) G4-30 Reporting cycle We report annually 116 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 117 GRI G4 indicator table continued Ref Description Reference Ref Description Reference G4-31 Provide the contact point for questions regarding the report or its Comments may be sent to IRfeedback@eskom.co.za G4-44 Report the processes for evaluation of the highest governance Board evaluation, page 102 contents (also noted on the inside flap) body’s performance with respect to governance of economic, environmental and social topics. Report whether such evaluation is G4-32 Report the “in accordance” option the organisation has chosen, as Not applicable. This report is not prepared in independent or not, and its frequency, and whether it is a well as the GRI Content Index for the chosen option, and the accordance with GRI G4 reporting criteria, self-assessment. Report actions taken in response to evaluation of reference to the External Assurance Report, if the report has been although it contains some GRI disclosures the highest governance body’s performance with respect to externally assured governance of economic, environmental and social topics, including, as a minimum, changes in membership and organisational practice G4-33 Report the organisation’s policy and current practice with regard to Assurance approach, page 1 seeking external assurance for the report. If not included in the G4-45 Report the highest governance body’s role in the identification and Integrating risk and resilience, page 24 assurance report accompanying the sustainability report, report the management of economic, environmental and social impacts, risks, scope and basis of any external assurance provided, as well as the and opportunities. Include the highest governance body’s role in the relationship between the organisation and the assurance providers. implementation of due diligence processes. Report whether Report whether the highest governance body or senior executives stakeholder consultation is used to support the highest governance are involved in seeking assurance for the organisation’s sustainability body’s identification and management of economic, environmental report and social impacts, risks, and opportunities Governance G4-46 Report the highest governance body’s role in reviewing the Integrating risk and resilience, page 24 effectiveness of the organisation’s risk management processes for G4-34 Report the governance structure of the organisation, including Board of Directors, pages 102 to 103. All Board economic, environmental and social topics committees of the highest governance body. Identify any committees committees play a role, although the Social, Ethics responsible for decision-making on economic, environmental and and Sustainability Committee has primary G4-47 Report the frequency of the highest governance body’s review of At least quarterly social impacts responsibility for sustainability matters economic, environmental and social impacts, risks, and opportunities G4-35 Report the process for delegating authority for economic, Executive responsibility has been delegated to G4-48 Report the highest committee or position that formally reviews and Not applicable in the current year, as material environmental and social topics from the highest governance body to Mr Thava Govender, Group Executive: approves the organisation’s sustainability report and ensures that all Aspects are not reported on, although the Social, senior executives and other employees Transmission and Sustainability, who reports to material Aspects are covered Ethics and Sustainability Committee is responsible the Group Chief Executive for ensuring the integrity of information presented G4-36 Report whether the organisation has appointed an executive-level Executive responsibility has been delegated to G4-51 Report the remuneration policies for the highest governance body Remuneration and benefits, pages 104 to 105 position or positions with responsibility for economic, Mr Thava Govender, Group Executive: and senior executives for different types of remuneration, and how environmental and social topics, and whether post holders report Transmission and Sustainability, who reports to performance criteria in the remuneration policy relate to the highest directly to the highest governance body the Group Chief Executive governance body’s and senior executives’ economic, environmental and social objectives G4-37 Report processes for consultation between stakeholders and the Consultation with stakeholders has been delegated highest governance body on economic, environmental and social to the Stakeholder Relations Department, which G4-52 Report the process for determining remuneration, and whether Remuneration and benefits, pages 104 to 105 topics. If consultation is delegated, describe to whom and any reports to the Board on a quarterly basis remuneration consultants are involved feedback processes to the highest governance body Ethics and integrity G4-38 Report the composition of the highest governance body and its Racial and gender equity of the Board of Directors committees by executive or non-executive; independence; tenure on is noted on page 31 G4-56 Describe the organisation’s values, principles, standards and norms Ethics in Eskom, page 106 the governance body; number of each individual’s other significant Other significant commitments are noted in the of behavior such as codes of conduct and codes of ethics positions and commitments, and the nature of the commitments; fact sheet on pages 137 to 139 gender; membership of under-represented social groups; Directors are appointed by the Minister of Public G4-57 Report the internal and external mechanisms for seeking advice on Code of Ethics, page 106 competencies relating to economic, environmental and social Enterprises; no stakeholders other than the ethical and unlawful behavior, and matters related to organisational impacts; stakeholder representation shareholder are specifically represented on the integrity, such as helplines or advice lines Board G4-58 Report the internal and external mechanisms for reporting concerns Code of Ethics, page 106 G4-39 Report whether the Chair of the highest governance body is also an The Chairman is an independent non-executive about unethical or unlawful behavior, and matters related to executive officer director organisational integrity, such as escalation through line management, whistleblowing mechanisms or hotlines G4-40 Report the nomination processes for the highest governance body Board constitution and appointments, page 102 and its committees, and the criteria used for nominating and selecting highest governance body members (including diversity, independence, expertise and experience relating to economic, environmental and social topics, and how stakeholders are involved) G4-41 Report processes for the highest governance body to ensure Code of Ethics, page 106 conflicts of interest are avoided and managed. Report whether conflicts of interest are disclosed to stakeholders G4-42 Report the highest governance body’s and senior executives’ roles in Board of Directors and committees, page 102 the development, approval, and updating of the organisation’s purpose, value or mission statements, strategies, policies, and goals related to economic, environmental and social impacts Supplementary information G4-43 Report the measures taken to develop and enhance the highest Induction and orientation of directors, page 102 governance body’s collective knowledge of economic, environmental and social topics 118 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 119 Ten-year technical statistics Measure and unit 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10 2008/9 2007/8 2006/7 Safety Employee lost-time injury rate (LTIR), index1, 2 0.29 0.36 0.31RA 0.40 RA 0.41RA 0.47RA 0.54 RA 0.50 0.46 0.52 Fatalities (employees and contractors), number 17 10 23RA 19 RA 24 RA 25RA 17RA 27 29 26 Employee fatalities, number 4 3 5RA 3RA 13RA 7RA 2RA 6 17 8 Contractor fatalities, number 13 7 18 RA 16RA 11RA 18 RA 15RA 21 12 18 Supply and demand Total Eskom power station capacity – installed, MW 45 075 44 281 44 189 44 206 44 115 44 145 44 175 44 193 43 037 42 618 Total Eskom power station capacity – nominal, MW 42 810 42 090 41 995 41 919 41 647 41 194 40 870 40 506 38 747 37 764 Total IPP power station capacity – nominal, MW 3 392 2 606 1 677 1 135 1 008 803 – – – – Peak demand on integrated Eskom system, MW 33 345 34 768 34 977 35 525 36 212 36 664 35 850 35 959 36 513 34 807 Peak demand on integrated Eskom system, including load reductions and 34 481 36 170 36 002 36 345 37 065 36 970 35 912 36 227 37 158 35 441 non-Eskom generation, MW National rotational load shedding Yes Yes Yes RA NoRA NoRA NoRA NoRA Yes – – Demand savings, MW 214.9 171.5RA 409.6RA 595.0 RA 365.0 RA 354.1 – – – – Internal energy efficiency, GWh 1.7RA 10.4 RA 19.4 RA 28.9 RA 45.0 RA 26.2RA – – – – Electricity output Power sent out by Eskom stations, GWh (net) 219 979 226 300 231 129 232 749 237 289 237 430 232 812 228 944 239 109 232 445 Coal-fired stations, GWh (net) 199 888 204 838 209 483 214 807 218 210 220 219 215 940 211 941 222 908 215 211 Hydroelectric stations, GWh (net) 688 851 1 036 1 077 1 904 1 960 1 274 1 082 751 2 443 Pumped storage stations, GWh (net) 2 919 3 107 2 881 3 006 2 962 2 953 2 742 2 772 2 979 2 947 Gas turbine stations, GWh (net) 3 936 3 709 3 621 1 904 709 197 49 143 1 153 62 Wind energy, GWh (net) 311 1 2 1 2 2 1 2 1 2 Nuclear power station, GWh (net) 12 237 13 794 14 106 11 954 13 502 12 099 12 806 13 004 11 317 11 780 IPP purchases, GWh 9 033 6 022 3 671 3 516 4 107 1 833 – – – – Wheeling, GWh3 3 930 3 623 3 353 2 948 3 099 3 423 3 175 – – – Energy imports from SADC countries, GWh3 9 703 10 731 9 425 7 698 9 939 10 190 10 579 12 189 11 510 11 483 Total electricity available (generated by Eskom and purchased), GWh 242 645 246 676 247 578 246 911 254 434 252 876 246 566 241 133 250 619 243 928 Total consumed by Eskom, GWh4 4 046 4 114 3 862 4 037 3 982 3 962 3 695 3 816 4 136 3 937 Total available for distribution, GWh 238 599 242 562 243 716 242 874 250 452 248 914 242 871 237 317 246 483 239 991 Sales and revenue Total sales, GWh5 214 487 216 274 217 903 216 561 224 785 224 446 218 591 214 850 224 366 218 120 (Reduction)/growth in GWh sales, % (0.8) (0.7) 0.6 (3.7) 0.2 2.7 1.7 (4.2) 2.9 4.9 Electricity revenue, R million 161 688 146 268 136 869 126 663 112 999 90 375 69 834 52 996 43 521 39 389 Growth in revenue, % 10.5 6.9 8.1 12.1 25.0 29.4 31.8 21.8 10.5 10.9 Customer statistics Arrear debt as % of revenue, % 1.14 2.17 1.10 0.82 0.53 0.75 0.83 1.54 – – Debtors days – municipalities, average debtors days 42.9 47.6 32.7 22.4 – – – – – – Debtors days – large power top customers excluding disputes, average 15.5 16.8 14.5 12.3 14.4 15.5 15.4 16.5 – – debtors days Debtors days – other large power users (<100 GWh p.a.), average debtors days 16.2 17.0 16.9 18.3 – – – – – – Debtors days – small power users (excluding Soweto), average debtors days 48.2 49.1 50.2 48.2 42.9 45.1 40.5 47.5 – – Eskom KeyCare, index6 104.3RA 108.7 108.7 105.8 105.9 101.2 98.1 101.2 – 105.0 Top Customer KeyCare, index 107.2 110.5 110.8 107.5 108.0 – – – – – Enhanced MaxiCare 96.5RA 99.8 92.7 93.2 90.7 89.4 93.0 92.8 89.2 93.9 CustomerCare, index 8.4 8.0 8.3 8.4 8.2 8.1 8.2 8.3 8.3 8.3 Asset creation Generation capacity installed: first synchronisation, units 2 RA 1RA – – – – – – – – Generation capacity installed and commissioned, MW 794 RA 100 RA 120 RA 261RA 535RA 315RA 452RA 1 770 1 043 1 351 Power lines installed, km 345.8 RA 318.6RA 810.9 RA 787.1RA 631.3RA 443.4 RA 600.3RA 418.3 480.0 430.0 Substation capacity installed and commissioned, MVA 2 435RA 2 090 RA 3 790 RA 3 580 RA 2 525RA 5 940 RA 1 630 RA 1 375 1 355 1 000 Generation capacity milestones (Medupi, Kusile and Ingula), days 3.08 59.56RA 48.90 RA 43.48 – – – – – – Supplementary information Total capital expenditure – group (excluding capitalised borrowing costs), 57.4 53.1RA 59.8 RA 60.1 58.8 47.9 48.7 43.7 24.0 17.5 R billion 1. The employee LTIR includes occupational diseases. 2. Figures prior to 2013/14 refer to company numbers. Since 2013/14, group numbers are reflected. 3. Prior to 2009/10, wheeling was combined with the total imported for the Eskom system. 4. Used by Eskom for pumped storage facilities and synchronous condenser mode of operation. 5. Difference between electricity available for distribution and electricity sold is due to energy losses. 6. The KeyCare index was not reported in 2008 due to difficulties in obtaining credible data as a result of load shedding. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 113 to 115 of the integrated report. 120 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 121 Ten-year technical statistics continued Measure and unit 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 2009/10 2008/9 2007/8 2006/7 Plant performance Unplanned capability loss factor (UCLF), % 14.91RA 15.22RA 12.61RA 12.12RA 7.97RA 6.14 RA 5.10 RA 4.38 5.13 4.34 Planned capability loss factor (PCLF), % 12.99 9.91RA 10.50 RA 9.10 9.07 7.98 9.04 9.54 – – Energy availability factor (EAF), % 71.07RA 73.73RA 75.13RA 77.65RA 81.99 RA 84.59 RA 85.21 85.32 84.85 87.50 Unit capability factor (UCF), % 72.10 74.87 76.90 RA 78.80 RA 83.00 RA 85.90 RA 85.90 86.10 86.20 88.60 Generation load factor, % 58.8 61.5 62.8 63.6 65.1 66.4 66.2 67.0 72.3 72.4 OCGT load factor trend 18.6 17.6 19.3RA 10.4 RA 3.9 1.1 0.3 – – – Integrated Eskom system load factor (EUF), % 82.7 83.4 83.6 81.9 79.4 78.5 77.7 78.6 85.2 82.7 Network performance Total system minutes lost for events <1 minute, minutes 2.41RA 2.85RA 3.05RA 3.52RA 4.73RA 2.63RA 4.09 RA 4.21 3.56 3.67 Major incidents, number 1 2 0 RA 3RA 1RA 0 RA 1RA 3 5 2 System average interruption frequency index (SAIFI), events 20.5RA 19.7RA 20.2RA 22.2RA 23.7RA 25.3RA 24.7RA 24.2 33.7 25.2 System average interruption duration index (SAIDI), hours 38.6RA 36.2RA 37.0 RA 41.9 RA 45.8 RA 52.6RA 54.4 RA 51.5 73.7 51.4 Total energy losses, % 8.6 8.8 8.9 9.1 8.7 8.3 8.5 7.9 8.0 8.4 Transmission energy losses, % 2.6 2.5 2.3RA 2.8 RA 3.1RA 3.3RA 3.3 3.1 3.1 – Distribution energy losses, % 6.4 6.8 7.1RA 7.1RA 6.3RA 5.7RA 5.9 5.5 5.5 – Coal statistics Coal stock, days 58 51 44 RA 46RA 39 RA 41RA 37RA 41 13 29 Road-to-rail migration (additional tonnage transported on rail), Mt 13.6RA 12.6RA 11.6RA 10.1RA 8.5 7.1 5.1 4.3 4.4 3.9 Coal purchased, Mt 118.7 121.7 122.0 126.4 124.3 126.2 121.8 132.7 119.6 117.4 Coal burnt, Mt 114.8 119.2 122.4 123.0 125.2 124.7 122.7 121.2 125.3 119.1 Average calorific value, MJ/kg 19.57 19.68 19.77 19.76 19.61 19.45 19.22 19.10 18.51 19.06 Average ash content, % 28.19 27.63 28.56 28.69 28.88 29.03 29.56 29.70 29.09 29.70 Average sulphur content, % 1.07 0.80 0.87 0.88 0.79 0.78 0.81 0.83 0.87 0.86 Overall thermal efficiency, % 31.1 31.4 31.3 32.0 31.4 32.6 33.1 33.4 33.4 33.9 Liquid fuels Diesel and kerosene, Mℓ 1 247.8 1 178.6 1 148.5RA 609.7RA 225.5RA 63.6RA 16.1RA 28.9 345.9 11.3 Environmental statistics Legal contraventions Environmental legal contraventions1 20 20 34 RA 48 50 63 55 114 46 50 Environmental legal contraventions reported in terms of the Operational 1 1 2RA 2 5 4 0 12 6 0 Health Dashboard, number2 Water Specific water consumption, ℓ/kWh sent out3 1.44 RA 1.38 RA 1.35RA 1.42RA 1.34 RA 1.35RA 1.34 RA 1.35 1.32 1.35 Net raw water consumption, Mℓ 314 685 313 078 317 052 334 275 319 772 327 252 316 202 323 190 322 666 313 064 Emissions Relative particulate emissions, kg/MWh sent out4 0.36 0.37RA 0.35RA 0.35RA 0.31RA 0.33RA 0.39 RA 0.27 0.21 0.20 Carbon dioxide (CO2), Mt4 215.6RA 223.4 233.3RA 227.9 RA 231.9 RA 230.3RA 224.7RA 221.7 223.6 208.9 Sulphur dioxide (SO2), kt4 1 699 1 834 1 975RA 1 843RA 1 849 RA 1 810 RA 1 856RA 1 874 1 950 1 876 Nitrous oxide (N2O), t4 2 757 2 919 2 969 2 980 2 967 2 906 2 825 2 801 2 872 2 730 Nitrogen oxide (NO x) as NO2 , kt 5 893 937 954 RA 965RA 977RA 977RA 959 RA 957 984 930 Particulate emissions, kt 78.37 82.34 78.92RA 80.68 RA 72.42RA 75.84 RA 88.27RA 55.64 50.84 46.08 Waste Ash produced, Mt 32.59 34.41 34.97RA 35.30 RA 36.21RA 36.22RA 36.01RA 36.66 36.04 34.16 Ash sold, Mt 2.7 2.5 2.4 2.4 2.3 2.0 2.0 2.1 2.4 2.2 Ash (recycled), % 8.3 7.3 7.0 RA 6.8 RA 6.4 RA 5.5RA 5.6 5.7 6.7 6.4 Asbestos disposed, tons 274.5 991.0 458.0 374.6 448.1 611.5 321.4 3 590.8 321.0 6 060.0 Material containing polychlorinated biphenyls thermally destroyed, tons 59.8 0 10.2 0.9 14.3 422.9 19.1 505.6 17.0 10.0 Nuclear Public individual radiation exposure due to effluents, mSv6 0.0006 0.0010 0.0012 0.0019 0.0024 0.0043 0.0040 0.0045 0.0047 0.0034 Low-level radioactive waste generated, cubic metres 176.1 164.1 180.7RA 188.2RA 184.7RA 165.3RA 137.8 140.8 180.3 94.5 Low-level radioactive waste disposed of, cubic metres 213.1 377.6 324.0 RA 54.0 RA 53.8 RA 81.0 RA 216.0 189.0 270.0 135.0 Intermediate-level radioactive waste generated, cubic metres 33.4 27.6 28.7RA 35.7RA 25.4 RA 39.3RA 47.1 23.9 16.5 49.8 Intermediate-level radioactive waste disposed of, cubic metres 0.0 138.0 178.0 RA 0.0 RA 128.0 RA 0.0 RA 266.0 473.6 418.0 436.0 Supplementary information Used nuclear fuel, number of elements discharged7 56 112 48 56 60 112 56 56 112 56 Used nuclear fuel, number of elements discharged, cumulative figure 2 229 2 173 2 061 2 013 1 957 1 897 1 785 1 729 1 673 1 561 1. The March 2015 comparative has increased from 18 to 20 due to legal contraventions being reclassified once the investigations were finalised. 2. Reported in terms of the 2002 definition of the Operational Health Dashboard. From 2008, repeat legal contraventions are included. 3. Volume of water consumed per unit of generated power sent out by commissioned power stations. 4. Calculated figures based on coal characteristics and power station design parameters based on coal analysis and using coal burnt tonnages. Figures include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups and, for carbon dioxide emissions, includes the underground coal gasification pilot plant. 5. NO x reported as NO2 is calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. 6. The limit set by the National Nuclear Regulator is ≤0,25mSv. 7. The gross mass of a nuclear fuel element is approximately 670kg, with UO2 mass, typically between 462kg and 464kg. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 113 to 115 of the integrated report. 122 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 123 Five-year non-technical statistics Company Group Measure and unit 2015/16 2014/15 2013/14 2012/13 2011/12 2015/16 2014/15 2013/14 2012/13 2011/12 Finance1 Electricity revenue per kWh (including environmental levy), c/kWh 76.24 67.91 62.82 58.49 50.27 Electricity operating cost per kWh (including depreciation and 72.07 67.52 59.67 54.15 41.28 amortisation), c/kWh Cost of electricity (excluding depreciation), R/MWh 640.03RA 610.43RA 541.92RA 496.24 RA 374.19 RA Operating EBITDA margin, % 18.61 15.65 16.15 17.48 28.69 19.77 15.90 17.23 16.98 29.37 EBIT (before profit/(loss) on embedded derivatives), R million 12 079 4 677 7 101 10 694 21 343 13 986 9 777 11 744 9 919 21 985 Interest cover ratio 0.46RA 0.25 0.52 0.27RA 3.27RA 0.55 0.27 0.60 0.22 3.35 Working capital ratio 0.86 0.82 0.70 0.67 0.76 0.83 0.81 0.71 0.68 0.76 Gross debt/EBITDA, ratio 12.24 16.49 13.27 15.37 6.46 11.40 16.08 12.41 16.20 6.46 Debt/equity (including long-term provisions), ratio 1.73RA 2.70 RA 2.21RA 1.96RA 1.69 RA 1.67 2.53 2.11 1.84 1.57 Free funds from operations, R million 37 954 36 032 25 879 19 105 30 503 39 443 36 179 27 542 18 108 30 483 Free funds from operations as % of total debt, % 10.48 RA 10.93 9.21RA 8.55 15.06 10.98 11.00 9.73 8.04 15.15 Debt service cover, ratio 1.00 0.82 1.16 2.05 3.50 1.07 0.92 1.21 2.01 3.50 BPP savings, R billion 17.45RA 8.70 2.30 – – Transformation Socio-economic contribution Corporate social investment committed, R million 103.6 115.5 132.9 RA 194.3RA 87.9 RA Corporate social investment, number of beneficiaries 302 736 323 882 357 443RA 652 347RA 531 762 Job creation, number 23 169 25 875 25 181RA 35 759 28 616 Total number of electrification connections, number 158 016RA 159 853LA 201 788 RA 139 881 154 250 Technology transfer Acquisition of intellectual capital, R million 54 RA – – – – Skills development, number of people 29 RA – – – – Job creation, number of people 54 RA – – – – Employment equity Disabilities, number of employees 1 271 1 294 1 283RA 1 126RA 1 022RA 1 311 1 325 1 305RA 1 137RA 1 032RA Employment equity – disability, % 2.97 3.12RA 2.99 RA 2.59 RA 2.49 RA 2.73 2.89 2.77RA 2.43RA 2.36RA Racial equity in senior management, % black employees 60.90 61.58 RA 59.50 RA 58.30 RA 53.90 RA 61.06 61.70 59.30 RA 58.40 – Racial equity in professionals and middle management, % black employees 71.98 72.28 RA 71.20 RA 69.60 65.69 71.68 71.77 70.60 RA 69.00 – Gender equity in senior management, % female employees 28.07 29.83RA 28.90 RA 28.20 RA 24.31RA 28.13 29.82 28.80 RA 28.50 – Gender equity in professionals and middle management, % female employees 36.01 36.10 RA 35.80 RA 34.60 32.43 35.11 35.29 34.90 34.00 – Procurement equity Local content contracted (Eskom-wide), % 75.22Q 25.13 40.80 – – Local content contracted (new build), % 84.04 RA 33.62LA 54.60 RA 80.20 77.20 RA B-BBEE attributable expenditure, R billion 132.0 120.8 125.4 RA 103.4 RA 72.13RA 125.0 116.0 119.4 RA 96.0 RA – Black women-owned expenditure, R billion 30.2 8.9 9.6RA 5.7RA 3.3RA 30.8 9.3 9.8 RA 6.0 RA – Black-owned expenditure, R billion 51.0 47.5 43.6RA 26.47RA 14.38 RA 52.9 49.4 45.8 RA – – Black youth-owned expenditure, R billion 1.3 0.9 1.3RA 1.20 RA – 1.4 0.9 1.3RA – – Procurement from B-BBEE compliant suppliers, % 83.08 RA 88.89 RA 93.90 RA 86.30 RA 73.20 RA 81.65 89.39 91.80 RA 82.10 RA – Procurement from black-owned suppliers, % 30.98 RA 34.91 32.70 RA 22.10 14.60 33.61 34.41 35.30 RA – – Procurement from black women-owned suppliers, % 17.72 RA 6.61 7.20 RA 4.70 RA 3.30 RA 19.30 6.49 7.50 RA 5.10 RA – Procurement from black youth-owned suppliers, % 0.82 RA 0.64 LA 1.00 RA 1.00 – 0.94 0.63 1.00 RA – – Procurement spend with suppliers owned by black people living with 0.01RA 0 0 – – 0.01 0 0 – – disability (BPLwD), % of TMPS Procurement spend with qualifying small enterprises (QSE), % of TMPS 4.03RA 6.74 11.90 – – 4.62 6.75 15.09 – – Procurement spend with exempted micro enterprises (EME), % of TMPS 4.81RA 5.12 – – – 5.89 5.78 – – – Building skills Training spend as % of gross employee benefit costs 4.45 6.18 RA 7.87RA – – Total engineering learners in the system, number 895 1 315 1 962RA 2 144 RA 2 273RA Supplementary information Total technician learners in the system, number 415 826 815RA 835RA 844 RA Total artisan learners in the system, number 1 955 1 752 2 383RA 2 847RA 2 598 RA Learners throughput or qualifying, number 1 108 RA 424 RA – – – 1. Ratios impacted by the restatements in the annual financial statements were restated. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 113 to 115 of the integrated report. Q Qualified by the independent assurance provider. LA Limited assurance provided by the independent assurance provider. 124 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 125 Customer information at 31 March 2016 Category 2015/16 2014/15 2013/14 2012/13 2011/12 Category 2015/16 2014/15 2013/14 2012/13 2011/12 Number of Eskom customers Electricity revenue per customer category, R million Local 5 688 629 5 477 591 5 232 904 5 013 435 4 852 712 Local 154 959 140 074 129 688 114 307 103 863 Redistributors 801 804 801 795 786 Redistributors 66 396 60 051 55 371 49 891 44 251 Residential1 5 550 307 5 338 723 5 093 847 4 874 004 4 713 178 Residential1 12 884 11 361 10 181 9 044 8 155 Commercial 50 816 50 613 50 425 50 399 50 270 Commercial 10 157 8 599 7 940 6 972 5 925 Industrial 2 733 2 773 2 781 2 789 2 775 Industrial 31 412 30 377 28 305 23 543 23 522 Mining 1 013 1 034 1 054 1 062 1 100 Mining 23 895 20 848 19 829 17 620 15 689 Agricultural 82 450 83 136 83 489 83 877 84 095 Agricultural 7 349 6 247 5 645 5 180 4 482 Rail 509 508 507 509 508 Rail 2 755 2 591 2 417 2 057 1 839 IPP network charge 111 – – – – International 11 11 11 11 10 International 8 055 6 306 5 887 5 892 4 846 Utilities 7 7 7 7 7 End users across the border 4 4 4 4 3 Utilities 4 163 2 988 2 837 3 149 2 404 End users across the border 3 892 3 318 3 050 2 743 2 442 5 688 640 5 477 602 5 232 915 5 013 446 4 852 722 Gross electricity revenue 163 014 146 380 135 575 120 199 108 709 Electricity sales per customer category, GWh Environmental levy included in revenue2 513 485 1 322 6 464 4 290 Local 201 022 204 274 205 525 202 770 211 590 Less: Revenue capitalised3 (367) – (28) – – Less: IAS 18 revenue reversal4 (1 472) (597) – – – Redistributors 89 591 91 090 91 262 91 386 92 140 Residential1 11 917 11 586 11 017 10 390 10 522 Electricity revenue per note 32 in the annual 161 688 146 268 136 869 126 663 112 999 Commercial 10 150 9 644 9 605 9 519 9 270 financial statements Industrial 50 150 53 467 54 658 51 675 58 632 1. Prepayments and public lighting are included under residential. Mining 30 629 29 988 30 667 31 611 32 617 2. The environmental levy of 2c/kWh tax was effective from 1 July 2009 to 31 March 2011. On 1 April 2011 the levy was raised to 2.5c/kWh. On Agricultural 5 733 5 401 5 191 5 193 5 139 1 July 2012 the levy was raised to 3.5c/kWh. The levy is payable for electricity produced from non-renewable sources (coal, nuclear and petroleum). Rail 2 852 3 098 3 125 2 996 3 270 The levy is raised on the total electricity production volumes and is recovered through sales. 3. Revenue from the sale of production while testing generating plant not yet commissioned, capitalised to plant. International 13 465 12 000 12 378 13 791 13 195 4. The IAS 18 principle of only recognising revenue if it is deemed collectable at the date of sale, as opposed to recognising the revenue and then impairing the customer debt when conditions change, has been applied since 2015. External revenue to the value of R1 472 million was thus not recognised at Utilities 4 018 2 797 3 401 4 659 3 607 31 March 2016. End users across the border 9 447 9 203 8 977 9 132 9 588 214 487 216 274 217 903 216 561 224 785 International sales to countries in southern Africa, GWh 13 465 12 000 12 378 13 791 13 195 Botswana 1 099 1 237 1 608 2 574 2 498 Lesotho 205 230 122 255 184 Mozambique 8 281 8 360 8 314 8 284 8 265 Namibia 1 746 924 1 248 1 822 1 507 Swaziland 1 044 882 741 598 596 Zambia 344 16 143 253 134 Zimbabwe 252 108 154 3 7 Short-term energy market 2 494 243 48 2 4 1. Prepayments and public lighting are included under residential. 2. The short-term energy market consists of all the utilities in the southern African countries that form part of the Southern African Power Pool. Energy is traded on a daily, weekly and monthly basis as there is no long-term bilateral contract. Supplementary information 126 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 127 Power station capacities at 31 March 2016 The difference between installed and nominal capacity reflects auxiliary power consumption and reduced capacity caused by the age of plant. Number and Total Total Total Years installed capacity installed nominal nominal commissioned – of generator sets capacity capacity capacity Name of station Location first to last unit MW MW MW Name of station MW Base-load stations Nominal capacity of Eskom-owned power stations 42 810 Coal-fired (14) 38 548 36 441 IPP capacity 3 392 Arnot Middelburg Sep 1971 to Aug 1975 1x370; 1x390; 2x396; 2x400 2 352 2 232 Wind 970 Camden1, 2 Ermelo Mar 2005 to Jun 2008 3x200; 1x196; 2x195; 1x190; 1x185 1 561 1 481 Solar photovoltaic 965 Duvha3 Emalahleni Aug 1980 to Feb 1984 6x600 3 600 3 450 Gas/liquid fuel 588 Grootvlei1 Balfour Apr 2008 to Mar 2011 4x200; 2x190 1 180 1 120 Coal 460 Hendrina 2 Middelburg May 1970 to Dec 1976 5x200; 2x195; 2x170; 1x168 1 893 1 793 Concentrated solar power 200 Kendal 4 Emalahleni Oct 1988 to Dec 1992 6x686 4 116 3 840 Hydroelectric 10 Komati1, 2 Middelburg Mar 2009 to Oct 2013 4x100; 4x125; 1x90 990 904 Other 199 Kriel Bethal May 1976 to Mar 1979 6x500 3 000 2 850 Lethabo Vereeniging Dec 1985 to Dec 1990 6x618 3 708 3 558 Total nominal capacity available to the grid – Eskom and IPPs 46 202 Majuba4 Volksrust Apr 1996 to Apr 2001 3x657; 3x713 4 110 3 843 Matimba4 Lephalale Dec 1987 to Oct 1991 6x665 3 990 3 690 1. Former mothballed power stations that have been returned to service. The original commissioning dates were: Matla Bethal Sep 1979 to Jul 1983 6x600 3 600 3 450 Komati was originally commissioned between November 1961 and March 1966. Tutuka Standerton Jun 1985 to Jun 1990 6x609 3 654 3 510 Camden was originally commissioned between August 1967 and September 1969. Kusile 4 Ogies Under construction 6x800 – – Grootvlei was originally commissioned between June 1969 and November 1977. Medupi4 Lephalale Unit 6: Aug 2015 6x794 794 720 2. Due to technical constraints, some coal-fired units at these stations have been de-rated. Nuclear (1) 3. Duvha Unit 3 (600MW) is out of commission and will be rebuilt. 4. Dry-cooled unit specifications based on design back-pressure and ambient air temperature. Koeberg Cape Town Jul 1984 to Nov 1985 2x970 1 940 1 860 5. Pumped storage facilities are net users of electricity. Water is pumped during off-peak periods so that electricity can be generated during peak periods. 6. Use restricted to periods of peak demand, dependent on the availability of water in the Gariep and Vanderkloof Dams. Peaking stations 7. Installed and operational, but not included for capacity management purposes. Gas/liquid fuel turbine stations (4) 2 426 2 409 Acacia Cape Town May 1976 to Jul 1976 3x57 171 171 Ankerlig Atlantis Mar 2007 to Mar 2009 4x149.2; 5x148.3 1 338 1 327 Gourikwa Mossel Bay Jul 2007 to Nov 2008 5x149.2 746 740 Port Rex East London Sep 1976 to Oct 1976 3x57 171 171 Pumped storage schemes (2)5 1 400 1 400 Drakensberg Bergville Jun 1981 to Apr 1982 4x250 1 000 1 000 Palmiet Grabouw Apr 1988 to May 1988 2x200 400 400 Ingula Ladysmith Under construction 4x333 – – Hydroelectric stations (2) 6 600 600 Gariep Norvalspont Sep 1971 to Mar 1976 4x90 360 360 Vanderkloof Petrusville Jan 1977 to Feb 1977 2x120 240 240 Renewables Wind energy (1) Sere Vredendal Mar 2015 46x2.2 100 100 Solar energy Concentrated Upington Under construction 100 – – solar power Other hydroelectric Supplementary information stations (4)7 61 – Colley Wobbles Mbashe River 3x14 42 – First Falls Umtata River 2x3 6 – Ncora Ncora River 2x0.4; 1x1.3 2 – Second Falls Umtata River 2x5.5 11 – Total power station capacities (28) 45 075 42 810 Available nominal capacity – Eskom-owned 94.98% 128 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 129 Power lines and substations in service Benchmarking information at 31 March 2016 2015/16 2014/15 2013/14 2012/13 2011/12 The fact sheet details the benchmarking exercises The results indicate that: undertaken by the Generation, Transmission and • The trend in the performance of our coal-fired Power lines plant across all indicators continues to be worse Distribution divisions. Transmission power lines, km1 31 957 31 107 29 924 29 297 28 995 than the VGB benchmark 765kV 2 608 2 235 2 235 1 667 1 153 Generation • The availability of the top performing stations in 533kV DC (monopolar) 1 035 1 035 1 035 1 035 1 035 Coal-fired stations the VGB benchmark shows a recovery from a 400kV 2 18 872 18 377 17 011 16 899 17 118 decline in 2012 and 2013 Generation benchmarks the performance of its coal- 275kV 7 343 7 361 7 361 7 360 7 361 • Our units are on a par with the VGB benchmark 220kV 1 217 1 217 1 217 1 217 1 217 fired power stations against those of the members with respect to planned maintenance in the 132kV 882 882 1 065 1 119 1 111 of VGB (Vereinigung der Großkesselbesitzer e.V), a median and low quartiles, while the PCLF of our Distribution power lines, km 49 210 48 278 46 093 44 396 43 856 European-based technical association for electricity best performing units was significantly better and heat generation industries. VGB’s objective is than that of the VGB benchmark units 132kV and higher 25 528 24 929 22 719 21 508 21 068 to provide support and facilitate the improvement • Since 2012, our UCLF performance showed a 88-33kV 23 682 23 349 23 374 22 888 22 788 of operating safety, environmental compatibility and significant deterioration compared to the VGB Reticulation power lines, km the availability and efficiency of power plants for benchmark on all quartiles 22kV and lower 288 550 281 510 276 027 269 570 265 707 electricity and heat generation, either in operation • With respect to the use of available plant or under construction. (measured by energy utilisation factor or EUF), Underground cables, km 7 571 7 436 7 293 7 026 6 770 all our coal-fired units are performing at a level 132kV and higher 66 65 65 65 50 When interpreting the results of the benchmarking close to, and in many cases above the VGB best 33 – 88kV 375 361 364 212 217 study, it must be noted that the operating regimes of quartile, an indication that we are operating our 22kV and lower 7 130 7 010 6 864 6 749 6 503 other utilities contributing to the VGB database may power station units at much higher levels than the not be the same as those of Eskom. VGB benchmark units Total all power lines, km 377 287 368 331 359 337 350 289 345 328 100 Total transformer capacity, MVA 244 637 239 490 232 179 225 799 205 865 95 Transmission, MVA 3 143 440 139 610 138 350 135 840 132 955 90 Distribution and reticulation, MVA 101 197 99 880 93 829 89 959 72 910 85 80 Total transformers, number 342 387 335 242 329 314 320 501 315 397 75 Transmission, number 427 423 420 412 408 70 Distribution and reticulation, number 341 960 334 819 328 894 320 089 314 989 65 1. Transmission power line lengths are included as per distances from the Geographic Information System (GIS). 60 2. The Majuba Umfolozi No 1 line, even though constructed at 765kV, is currently still being operated at 400kV and thus reflected under the 400kV total. 55 3. Base of definition: transformers rated ≥30 MVA and primary voltage ≥132 kV. 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Energy availability factor (EAF), all coal sizes (92 VGB units, excluding Eskom units), % VGB worst quartile Eskom worst quartile VGB median Eskom median VGB best quartile Eskom best quartile 30 25 20 15 10 Supplementary information 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Unplanned capability loss factor (UCLF), all coal sizes (92 VGB units, excluding Eskom units), % VGB worst quartile Eskom worst quartile VGB median Eskom median VGB best quartile Eskom best quartile 130 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 131 Benchmarking information continued 25 95 90 20 85 15 80 75 10 70 5 65 0 60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Mar 16 Planned capability loss factor (PCLF), all coal sizes (92 VGB units, excluding Eskom units), % Unit capability factor (UCF) for all pressurised water reactor (PWR) units worldwide, % Koeberg mean Worldwide PWR worst quartile Worldwide PWR median Worldwide PWR best quartile VGB worst quartile Eskom worst quartile VGB median Eskom median VGB best quartile Eskom best quartile 25 95 85 20 75 15 65 10 55 5 45 0 35 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Mar 16 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Unplanned capability loss factor (UCLF) for all pressurised water reactor (PWR) units worldwide, % Energy utilisation factor (EUF), all coal sizes (92 VGB units, excluding Eskom units), % Koeberg mean Worldwide PWR worst quartile Worldwide PWR median Worldwide PWR best quartile VGB worst quartile Eskom worst quartile VGB median Eskom median VGB best quartile Eskom best quartile Koeberg Nuclear Power Station 2.0 We are affiliated to the World Association of Through INPO, we have maintained our accreditation Nuclear Operators (WANO) and the Institute of from the National Nuclear Training Academy in Nuclear Power Operations (INPO); South Africa is a the United States for our systematic approach to 1.5 member of the International Atomic Energy Agency the training of licensed and non-licensed nuclear (IAEA). These affiliations enable us to benchmark operators at Koeberg. We are the only non-US utility performance, conduct periodic safety reviews, to receive such accreditation. 1.0 define standards, disseminate best practice and train personnel at our nuclear plant, Koeberg. For the review period, Koeberg performance has generally been better than median for the suite of 0.5 A WANO peer review of Koeberg was carried out WANO performance indicators (the complete suite in July 2014, followed by a WANO corporate peer of WANO performance indicators is not shown Supplementary information review in February 2015. Following the Fukushima here). 0 Daiichi event in Japan in March 2011, corporate 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Mar 16 peer reviews are being carried out to determine the The graphs that follow depict the performance of adequacy of corporate support for nuclear power Koeberg Nuclear Power Station against all pressurised Unplanned automatic scrams for all pressurised water reactor (PWR) units worldwide, UA7 per 7 000 hours stations. water reactor (PWR) units worldwide. Koeberg mean WANO-AC worst quartile WANO-AC median WANO-AC best quartile 132 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 133 Benchmarking information continued 1.2 Transmission Transmission participates in benchmarking studies 1.0 every two years. Data was submitted for a study during 2015, and the results are being finalised. 0.8 The previous benchmarking study was conducted in 2012/13 with 27 other international transmission 0.6 companies. The study focused on maintenance and plant performance and identified best international 0.4 practices for the transmission industry. 0.2 These studies have been used to identify opportunities to develop continual improvement objectives and 0 strategies. An analysis has been conducted and long- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Mar 16 term improvement initiatives are being implemented. Existing asset categories performing well are 12-month collective radiation exposure (CRE) for all pressurised water reactor (PWR) units worldwide, man-Sieverts per unit monitored to ensure sustainable performance. Koeberg mean Worldwide PWR worst quartile Worldwide PWR median Worldwide PWR best quartile Distribution Distribution continues to use reference data from previous benchmarking studies for planning purposes. 1.0 In addition to the external benchmarks, Distribution also utilises an internal resource model that models workforce demand based on operating standards 0.8 and underlying asset data. The model provides comparative data that is used for planning purposes by all operating units. 0.6 In preparing for a new benchmark cycle from 2016 onwards, Distribution is assessing proposals 0.4 from external benchmarking service providers to compare technical and operational performance with international utilities. 0.2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Mar 16 36-month collective radiation exposure (CRE) for all pressurised water reactor (PWR) units worldwide, man-Sieverts per unit Koeberg mean Worldwide PWR worst quartile Worldwide PWR median Worldwide PWR best quartile 100 90 80 70 Supplementary information 60 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Mar 16 WANO index for members of WANO Atlanta Center, various reactor types Koeberg mean WANO-AC worst quartile WANO-AC median WANO-AC best quartile 134 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 135 Environmental implications of using or saving electricity Leadership activities Factor 1 figures are calculated based on total electricity sales by Eskom, which is based on the total available for This fact sheet supplements the leadership and governance information set out in the integrated report. distribution (including purchases), after excluding losses through Transmission and Distribution (technical losses), losses through theft (non-technical losses), our own internal use and wheeling. Thus to calculate CO2 emissions, Board of Directors and committees divide the quantity of CO2 emitted by the electricity sales: 215.6Mt ÷ 214 487GWh = 1.01 tons per MWh. Governance of the group and the responsibility for driving good corporate citizenship is vested in a unitary board, which is supported by several Board committees and a Company Secretary. The Board, through its committees, Factor 2 figures are calculated based on total electricity generated, which includes coal, nuclear, provides the strategic direction, while the Group Chief Executive, assisted by the Executive Management Committee pumped storage, wind, hydro and gas turbines, but excludes the total consumed by Eskom. Thus (Exco) and its committees, is accountable to the Board for implementing the strategy. the quantity of CO2 emissions divided by (electricity generated less Eskom’s own consumption): 215.6Mt ÷ (219 979GWh generated – 4 046GWh own consumption) = 1.00 tons per MWh. The composition of the Board at 31 March 2016 is depicted below. Figures represent the 12-month period from 1 April 2015 to 31 March 2016. Factor 1 Factor 2 If electricity consumption is measured in: (total energy (total energy sold) generated) kWh MWh GWh TWh Coal use 0.54 0.53 kilogram ton thousand tons (kt) million tons (Mt) Water use1 1.47 1.46 litre kilolitre megalitre (Ml) thousand megalitres Ash produced 152 151 gram kilogram ton thousand tons (kt) Particulate 0.37 0.36 gram kilogram ton thousand tons (kt) emissions CO2 emissions2 1.01 1.00 kilogram ton thousand tons (kt) million tons (Mt) SO x emissions2 7.92 7.87 gram kilogram ton thousand tons (kt) NO x emissions3 4.16 4.14 gram kilogram ton thousand tons (kt) 1. Volume of water used at all Eskom power stations. 2. Calculated figures based on coal characteristics and power station design parameters. Sulphur dioxide and carbon dioxide emissions are based on coal analysis and using coal burnt tonnages. Figures include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups and, for carbon dioxide emissions, the underground coal gasification pilot plant. 3. NO x reported as NO2 is calculated using average station-specific emission factors, which have been measured intermittently between 1982 and 2006, Dr Ben Ngubane (74) Mr Brian Molefe (49) Mr Anoj Singh (42) Ms Nazia Carrim (35) and tonnages of coal burnt. Chairman Group Chief Executive Group Chief Financial Independent Officer non-executive Multiply electricity consumption or saving by the relevant factor in the table above to determine the environmental Independent Executive director implication. non-executive Executive director Qualifications Qualifications LLB (University of Qualifications B Comm (Unisa) Qualifications Example 1: Water consumption Example 2: CO2 emissions Johannesburg) MB ChB (University of Natal) MBL (Unisa) B Comm Accounting LLM (University of Limpopo) Diploma in Tropical Medicine Post Graduate Diploma (University of Durban- Using Factor 1 Using Factor 1 (University of Witwatersrand) in Economics (London Westville) Significant directorships Used 90MWh of electricity Used 90MWh of electricity University) Master of Family Medicine and Post Graduate Diploma in None 90 X 1.47 = 132.3 90 x 1.01 = 90.9 Primary Health (Natal Medical PhD Engineering Honoris Accounting (University of Therefore 132.3 kilolitres of water used Therefore 90.9 tons CO2 emitted School) Causa (University of Glasgow) Durban-Westville) Chartered Accountant (SA) Using Factor 2 Using Factor 2 Significant directorships Significant directorships Used 90MWh of electricity Used 90MWh of electricity Brikor Ltd Industrial Development Significant directorships 90 x 1.46 = 131.4 90 x 1.00 = 90 Toyota South Africa Motors Corporation Escap SOC Ltd Therefore 131.4 kilolitres of water used Therefore 90 tons CO2 emitted (Pty) Ltd Eskom Enterprises SOC Ltd Zululand Quarries (Pty) Ltd Eskom Finance Company SOC Ltd Further information can be obtained through the Eskom Environmental Helpline. Contact details are available at the back of the integrated report P&G RBP P&G RBP SES RBP P&G RBP SES TC For CDM-related Eskom grid emission factor information, please go to the following link: www.eskom.co.za/OurCompany/SustainableDevelopment/Pages/CDM_Calculations.aspx or via the Eskom website: Our Company > Sustainable Development > CDM calculations ARC Audit and Risk Committee IFC Investment and Finance Committee  P&G People and Governance Committee B  oard Recovery and Build Programme Committee Supplementary information RBP  SES Social, Ethics and Sustainability Committee TC Board Tender Committee   Denotes chairmanship of a committee  Ages are shown at 31 March 2016. Mr Romeo Kumalo and Ms Mariam Cassim resigned as directors, on 12 and 14 April 2016 respectively. 136 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 137 Leadership activities continued Ms Mariam Cassim (34) Mr Zethembe Khoza (57) Ms Venete Klein (57) Mr Romeo Kumalo (44) Ms Chwayita Mabude (46) Ms Viroshini Naidoo (43) Dr Pat Naidoo (55) Mr Mark Pamensky (43) Independent Independent Independent Independent Independent Independent Independent Independent non-executive non-executive non-executive non-executive non-executive non-executive non-executive non-executive Qualifications Qualifications Qualifications Qualifications Qualifications Qualifications Qualifications Qualifications B Compt (University of Senior Executive Programmes Chartered Director (SA) Dip. Business Management B Compt (Unisa) B Proc (University of Durban- Pr. Eng. ECSA, FSAIEE, Chartered Accountant (SA) Witwatersrand) (University of Witwatersrand, Banker’s Exams (Institute of (University of Witwatersrand) Significant directorships Westville) SMIEEE, MIET, MCigre B Comm (University of Chartered Accountant (SA) Harvard) South African Bankers) Advanced Management Airports Company South Africa LLB (University of Durban- PhD Management of Witwatersrand) MBA (University of Cape Enterprise Leadership for Senior Executive Programme Programme (Harvard) Mollo Holdings Westville) Technology (Da Vinci Institute B Acc Sc Honours (Unisa) Town) Executives (University of (Wits Business School) MBL (Unisa) MBA (Buckinghamshire for Technology Management) PBMR SOC Ltd Significant directorships Potchefstroom) Executive Programmes MTS (INSEAD) Chilterns University of UK) MBA (Samford Significant directorships Mark Pam Consulting Group (Harvard, INSEAD, IMD, MIT) Significant directorships University, USA) Super Group Ltd Significant directorships Significant directorships (Pty) Ltd Avatar Green (Pty) Ltd Certificates in Electricity Significant directorships None Oakbay Resources and Energy Zet Kay Investments (Pty) Ltd Regulation (GSB UCT), Institute of Directors in South KND Holdings Ltd (Pty) Ltd Utility Management (GUI, Africa Shiva Uranium (Pty) Ltd Samford University, USA) Old Mutual Wealth (Pty) Ltd and Competitive Electricity South African Reserve Bank Markets (LSB, UK) Significant directorships Pat Naidoo Consulting Engineers cc RSA (sole member) ARC SES IFC P&G SES TC ARC IFC P&G SES ARC IFC RBP ARC P&G SES TC ARC RBP TC IFC RBP SES IFC Ms Suzanne Daniels (46) Mr Giovanni Leonardi (55) Independent non-executive Company Secretary Qualifications Qualifications BA (University of Cape Town) Diploma ls elektroingenieur (Zurich Technical) LLB (University of Cape Town) Programme Executive Management (IMD) Postgraduate Diploma in Law (University of Cape Town) Stanford Executive Programme Significant directorships Significant directorships Azienda Elettrica Ticinese Switzerland None P&G CAC-Holding AG Switzerland Supplementary information 138 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 139 Leadership activities continued Attendance at Board and committee meetings Activities of Board committees The effectiveness of the Board is improved through the use of six Board committees to which it delegates authority Statutory and Board committees comprise a majority of independent non-executive directors. The committees without diluting its own accountability. The Board appoints members to committees, with due consideration of the exercise their powers in accordance with approved terms of reference that define their composition, role, necessary skills and experience required by members of the respective committees. responsibilities and authority. These terms of reference are aligned with the delegation of authority framework, legislative requirements and best governance practices, and are reviewed by the committees and approved by the Meetings of the Board and its committees are scheduled annually in advance. Special meetings are convened as and Board each year. when required to address specific material issues. Number of Board Social, meetings held Invest- People Recovery Ethics Board committee in 2015/16 Key activities for 2015/16 Audit ment and and Build and and and Gover- Pro- Sustain- Board ARC Audit and Risk Committee Members Board Risk Finance nance gramme ability Tender The committee performs a statutory function as set 9 • Recommended to the Board for approval the 2015 Total number of meetings 14 9 10 6 6 5 10 out in the Companies Act, 2008, assisting the Board year end and 2016 interim financial statements and with oversight over financial reporting and disclosure, integrated reports for Eskom Holdings SOC Ltd and Independent non-executives internal control and risk management systems, all of its subsidiaries Dr BS Ngubane *14/14 5/5 2/6 0/1 combined assurance functions and IT governance. • Recommended to the Board the reappointment of a consortium of SizweNtsalubaGobodo Inc. as the Ms N Carrim 9/14 4/4 4/4 6/6 4/4 8/10 The committee also serves as the Audit and Risk external auditors for Eskom Holdings SOC Ltd and Committee for Eskom’s wholly owned subsidiaries, its subsidiaries, with effect from the 2015 annual Ms M Cassim (from 25 May 2015) 11/11 *5/5 2/4 with the exception of Escap SOC Ltd, which has its general meeting own audit committee as prescribed by the Short Term • Reviewed the appropriateness of the going concern Mr ZW Khoza 13/14 9/10 5/5 1/2 5/5 *9/10 Insurance Act 53, 1998. assumption Ms VJ Klein 13/14 4/5 9/10 *6/6 4/4 • Approved the Internal Audit Plan for the three-year Refer to the report of the Audit and Risk Committee period to 2018/19 on pages 3 to 4 of the annual financial statements for Mr R Kumalo 9/14 6/9 8/10 0/1 3/4 • Monitored progress on the implementation of cost more information. containment measures Mr G Leonardi (from 25 May 2015) 5/11 0/3 • Reported to Board on the findings of the independent enquiry into the affairs of Eskom Ms C Mabude 13/14 9/9 5/6 *4/5 9/10 Holdings SOC Ltd conducted by Dentons Ms DV Naidoo 12/14 6/9 *6/6 2/2 9/10 • Reported to the Board on the investigation of the process for awarding contracts to diesel suppliers Dr P Naidoo 12/14 5/7 1/1 6/6 5/5 2/2 • Noted the report from KPMG on governance and control reporting and monitoring processes in Eskom Mr MV Pamensky 10/14 *10/10 IFC Investment and Finance Committee Mr NT Baloyi (until 22 April 2015) 0/1 0/1 The committee oversees our investment strategy, 10 • Approved the conclusion of 10 PPAs and related Executives including the capital expansion programme and the project agreements under the Small IPPs programme, funding thereof, and is also responsible for the based on the risk allocation and standard PPA as Mr B Molefe (from 2 October 2015) 1/2 1/1 Treasury function and the health of the company‘s provided by DoE Mr A Singh (from 2 October 2015) 2/2 capital structure. Responsibilities of the committee • Approved the ERA revision for the phased include: replacement of high risk transformers in 1. Attendance as reflected above refers to directors who were members of that committee during the year to 31 March 2016, and reflects changes due to • Reviewing and approving business cases for new Transmission rotation of members in committee memberships. investments or projects within its delegated authority • Approved the ERA revision cost for the Duvha 2. An asterisk denotes the chairmanship of the Board or committee at 31 March 2016. • Overseeing the borrowing programme and Power Station major refurbishment of the unit approving financial budgets control systems, protection systems, MV and LV switchgear • Noted that the Nuclear Programme DRA spend to date amounted to R475 million, leaving a remainder of R700 million • Approved the Medupi Revision 3 P80 business case of R145 billion (excluding capitalised borrowing costs of R43.7 billion), an increase of R40 billion over the previously approved R105 billion • Approved the Kusile Revision 3 of the P80 business case of R161.4 billion (excluding capitalised borrowing costs, including R5.4 billion net commissioning costs), an increase of R42.9 billion over the previously approved R118.5 billion Supplementary information 140 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 141 Leadership activities continued Number of Number of meetings held meetings held Board committee in 2015/16 Key activities for 2015/16 Board committee in 2015/16 Key activities for 2015/16 P&G People and Governance Committee SES Social, Ethics and Sustainability Committee The committee provides oversight on governance 6 • Recommended that the Board approve the mutual The committee is a statutory committee as set out 5 • Considered the 2015 integrated report, and and human resources matters and is responsible for: agreement to part ways on an amicable basis by in the Companies Act. It assists the Board in carrying confirmed that the report accurately reflected the • Nomination of executive directors and prescribed Ms Tsholofelo Molefe, Finance Director and out its functions regarding social and economic social, ethics, financial and sustainability results for officers Mr Dan Marokane, Group Executive: Group Capital development, stakeholder relations, environment, the year ended 31 March 2015, and was presented in • Recommending remuneration and other human • Recommended the report on the independent health and safety practices and good corporate accordance with the International Framework resources-related policies enquiry into the affairs of Eskom Holdings SOC Ltd citizenship. • Endorsed the nuclear safety oversight reporting • Determining and recommending individual conducted by Dentons to the Board in respect of Responsibilities of the committee include: strategy and interrogated the outcome of and remuneration packages for executive directors HR issues • Monitoring the ethical culture of the organisation management responses to the corporate peer review, and prescribed officers • Disallowed the payment of short-term incentive • Ensuring the group strategy and the ethical to align with international standards. Members • Succession planning bonuses to all employees in 2014/15 as targets were implementation thereof promotes overall engaged WANO and were exposed to other nuclear • Induction, training and evaluation of the Board not met sustainability entities in the US and its committees • Recommended changes to the Memorandum of • Monitoring safety and environmental practices to • Monitored the stakeholder engagement strategy and • Monitoring the effectiveness of the Ethics Incorporation to the Board for approval ensure compliance with regulatory and internal implementation; supplier development and Management Programme • Approved the revised organisational structures for requirements, and alignment with international localisation; health and HIV status in Eskom; Exco, the Office of the Chief Executive, Exco direct best practice industrial relations around the build projects; and The Group Chief Executive is an ex officio reports and the revised Exco subcommittees • Monitoring nuclear safety, and making safety and environmental compliance and liability member of the committee, but recuses himself • Approved the Group Chief Executive and Chief recommendations on policies, strategies and • Operational and environmental sustainability risks during discussions of his remuneration, or at any Financial Officer’s compacts for 2016 guidelines relating to nuclear issues were escalated to the Board for consideration, with time when there is an actual, perceived or potential • Confirmed that Eskom will align with the DPE • Monitoring performance, recommending targets recommendations for these to be captured in the conflict of interest. remuneration standards and key performance indicators and ensuring Corporate Plan and risk registers • Approved the methodology and scope of the Board the integrity of information presented in the • Conducted site visits to Eskom’s research, training evaluation process integrated report and development site in Rosherville, Koeberg • Requested an independent analysis in respect of the Nuclear Power Station and WANO in Atlanta, USA conversion of the Eskom Pension and Provident Fund The committee also serves as the Social, Ethics and from a defined benefit fund to a defined contribution Sustainability Committee for Eskom’s wholly owned fund subsidiaries. • Reviewed the Human Resources Progress Report, TC Board Tender Committee including the Industrial Relations, Employment Equity and New Build Industrial Relations Reports, and the The committee ensures that Eskom’s procurement 10 Approved the implementation of a commodity strategy Ethics Status Report on a quarterly basis system is fair, equitable, transparent, competitive and for maintenance and outage repair services for boiler • Reviewed the progress of the Koeberg Operating cost effective, as required by PFMA and PPPFA. pressure parts and/or maintenance and outage repair Unit Transformation Programme Responsibilities include approving tenders and contracts services for high pressure pipe work for 15 coal-fired above R750 million within its delegated authority. The power stations RBP Board Recovery and Build Programme Committee committee also acts as the oversight authority in the • Approved the mandate to conclude negotiations with Responsibilities of the committee include: 6 Committee monitored the performance and progress formulation of the strategy and ongoing performance Optimum Coal Mine for coal supply to Hendrina • Ensuring that financial sustainability is secured, of the: monitoring. Power Station demand for electricity is reliably met and that • Build Programme Projects for Medupi, Kusile, Ingula • Approved the award of a contract to Areva NP, applicable legislation and regulations are and Transmission projects, relative to the France (Areva) and Westinghouse Electric Company, complied with locked-down dates, cost estimates and other Sweden (Westinghouse) for the supply of three firm • Providing an oversight role over the build milestones and raised alerts to the Board and and three optional reloads for Koeberg’s nuclear programme, in terms of governance, monitoring Shareholder on risks identified that could impact the reactor unit and review shareholder compact, including: • Approved the implementation of the contracting and – Interrogation of the build programme business procurement strategy for the provision of nuclear cases (P50) with recommendations to the IFC support services to the Koeberg Operating Unit – Oversight of the mitigating strategies to manage • Approved the mandate to negotiate and conclude the risks, cost containment measures and cost coal supply and offtake agreements for the supply savings and achievements and delivery of coal to Arnot Power Station • Recovery Programme of the Majuba coal silo and • Approved the contracting and procurement strategy Duvha Unit 3 for the supply of coal shortfall for road and rail • Strategies for sustaining the Generation fleet, deliveries to various Eskom power stations including oversight of the technical and Tetris plan • Approved the revised overall contracting and • Nuclear new build and Steam Generator procurement strategy for the national electrification Replacement projects contract • Monitoring the load shedding schedule • Conducted site visits to: – Kusile new build site – Rotek Industries – Drakensberg Pumped Storage Supplementary information – Ingula Pumped Storage new build site 142 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 143 Leadership activities continued Executive Management Committee (Exco) Exco is established by the Group Chief Executive and assists him in guiding the overall direction of the business and exercising executive control of day-to-day operations. Numerous changes to the Exco structure took place over the last financial year, as detailed in the integrated report. The composition of Exco at 31 March 2016 is depicted below. Mr Brian Molefe (49) Mr Anoj Singh (42) Mr Thava Govender (48) Mr Matshela Koko (47) Mr Abram Masango (47) Ms Ayanda Noah (49) Mr Mongezi Ntsokolo (55) Ms Elsie Pule (48) Group Chief Executive Group Chief Financial Group Executive: Group Executive: Group Executive: Group Executive: Group Executive: Group Executive: Years in Eskom: 1 Officer Transmission and Generation and Group Capital Customer Services Distribution Human Resources (acting) Appointed to Exco in Years in Eskom: 1 Sustainability Technology Years in Eskom: 19 Years in Eskom: 24 Years in Eskom: 25 Years in Eskom: 18 April 2015 Appointed to Exco in Years in Eskom: 25 Years in Eskom: 19 Appointed to Exco in Appointed to Exco in Appointed to Exco in Appointed to Exco in Qualifications August 2015 Appointed to Exco in Appointed to Exco in October 2015 June 2007 October 2003 November 2014 B Comm (Unisa) Qualifications September 2010 December 2014 Qualifications Qualifications Qualifications Qualifications MBL (Unisa) B Comm Accounting Qualifications Qualifications National Diploma in Pr. Eng. (ECSA) B Sc Electrical Engineering BA Social Work (University of Post Graduate Diploma (University of Durban- BSc Chemistry and B Sc Chemical Engineering Mechanical Engineering BSc Electrical Engineering (University of Witwatersrand) the North) in Economics (London Westville) Biochemistry (University of (University of Cape Town) National Higher Diploma (University of Cape Town) BBA Hons (University of BA (Hons) Psychology University) Post Graduate Diploma in Durban-Westville) Mechanical Engineering (Vaal MBA (International Stellenbosch) (University of Pretoria) PhD Engineering Honoris Significant directorships Accounting (University of B Sc Honours Energy Studies Triangle Technikon) Management Centres) MBA (University of MSc Business Engineering Causa (University of Glasgow) Eskom Rotek Industries Durban-Westville) – Nuclear & Fossil (RAU) Significant directorships Executive Development Stellenbosch) (Warwick University) SOC Ltd Significant directorships Chartered Accountant (SA) Management Development Eskom Development Programme (University of Executive Development Significant directorships Industrial Development Significant directorships Programme (Unisa ) Foundation NPC Witwatersrand) Programme (City University of None Corporation Escap SOC Ltd Significant directorships Significant directorships New York) Eskom Enterprises SOC Ltd Electric Power Research Council for Scientific and Significant directorships Eskom Finance Company Institute (EPRI) Industrial Research ACWA Energy SOC Ltd Eskom Enterprises SOC Ltd Eskom Enterprises SOC Ltd Eskom Enterprises SOC Ltd Eskom Rotek Industries Eskom Rotek Industries Eskom Rotek Industries SOC Ltd SOC Ltd SOC Ltd P&G RBP SES RBP P&G People and Governance Committee RBP B oard Recovery and Build Programme Committee  SES Social, Ethics and Sustainability Committee Supplementary information  Ages are shown at 31 March 2016. Ms Elsie Pule was appointed as Group Executive: Human Resources in May 2016. 144 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 145 Leadership activities Notes continued Attendance at Exco meetings Number of meetings Executive Divisional responsibility attended Total number of meetings 18 Mr B Molefe Group Chief Executive (acting from 20 April 2015, appointed from 25 September 2015) 13/17 Mr ZW Khoza Interim Chief Executive (until 20 April 2015) 1/1 Mr T Govender Group Executive: Transmission and Sustainability 14/18 Mr M Koko Group Executive: Generation and Technology (from 15 July 2015) 12/14 Mr E Mabelane Acting Group Executive: Group Technology and Commercial 4/4 Mr A Masango Group Executive: Group Capital 17/18 Ms A Noah Group Executive: Customer Services 15/18 Mr MM Ntsokolo Group Executive: Distribution 16/18 Ms E Pule Acting Group Executive: Human Resources 14/18 Mr A Singh Group Chief Financial Officer (acting from 1 August 2015, appointed from 25 September 2015) 14/14 Ms N Veleti Acting Chief Financial Officer (until 31 July 2015) 4/4 Supplementary information 146 Integrated report | 31 March 2016 Eskom Holdings SOC Ltd 147 Contact details Telephone numbers Websites and email addresses Eskom head office +27 11 800 8111 Eskom website www.eskom.co.za Contact@eskom.co.za Eskom Media Desk +27 11 800 3304 Eskom Media Desk MediaDesk@eskom.co.za +27 11 800 3309 +27 11 800 3343 +27 11 800 3378 +27 82 805 7278 Investor Relations +27 11 800 2775 Investor Relations InvestorRelations@eskom.co.za Eskom Corporate Affairs +27 11 800 2323 Eskom integrated results www.eskom.co.za/IR2016 Toll-free Crime Line 0800 112 722 Feedback on our report IRfeedback@eskom.co.za Eskom Development Foundation +27 11 800 6128 Eskom Development Foundation www.eskom.co.za/csi CSI@eskom.co.za Ethics Office Advisory Service +27 11 800 2791 Ethics Office Advisory Service Ethics@eskom.co.za +27 11 800 3187 +27 11 800 3189 National Sharecall number 08600 ESKOM or Promotion of Access to PAIA@eskom.co.za 08600 37566 Information Act Customer SMS line 35328 Integrated demand management AdvisoryService@eskom.co.za and energy advice CS (customer service) mobile Dial *120*6937566# or Customer Service CSOnline@eskom.co.za *120*myeskom# MyEskom mobi-site www.myeskom.co.za MyEskom app Facebook EskomSouthAfrica Twitter Eskom_SA Physical address Postal address Eskom Megawatt Park 2 Maxwell Drive Sunninghill PO Box 1091 Johannesburg 2000 Sandton 2157 Company Secretary Company registration number Ms Suzanne Daniels Eskom Holdings SOC Ltd Eskom Holdings Secretariat 2002/015527/30 PO Box 1091 Johannesburg 2000 Energy is never lost It’s simply transferred See the good our energy is doing Development Foundation Eskom Development Foundation NPC PO Box 1091 Johannesburg 2000 Tel +27 11 800 8111 Email csi@eskom.co.za www.eskom.co.za/csi Reg No 1998/025196/08 148 Integrated report | 31 March 2016 1113