INTEGRATED REPORT FOR THE YEAR ENDED 31 MARCH 2023 Navigating our report 2 Year in review 56 Governance, leadership 146 Supplementary information and ethics Abbreviations and glossary of terms 147 Our governance framework 57 3 About this report Board and its committees 58 Leadership qualifications and directorships Board and Exco meeting attendance 152 156 OUR SUITE OF REPORTS King IV TM application 69 Statistical tables: technical and non-technical 158 As part of our comprehensive Executive management 71 Plant and customer information 166 integrated and financial reporting, this 6 Who we are Progress on governance clean-up 72 Environmental implications of using electricity Sustainability KPIs selected for reasonable assurance 170 171 2023 integrated report is supplemented by our other reports which make up our reporting suite for 2023 Independent sustainability assurance report 174 Understanding our business 7 PFMA and procurement information required Board of Directors Executive Management Committee 14 16 78 Performance review by National Treasury Contact details 177 IBC IR Condensed annual financial statements 79 Integrated 18 Leadership reports Our finances Our infrastructure 82 98 report Our interaction with the environment 116 Message from the Chairman 19 Our people 132 INTEGRATED REPORT FOR THE YEAR ENDED 31 MARCH 2023 Chief Executive’s review 22 Our role in communities 142 Chief Financial Officer’s commentary 26 We are a proud supporter member of the following bodies JOB027064_Eskom_AFS_2023_v7_MH 29/10/2023 Notes to the financial statements continued for the year ended 31 March 2023 AFS 30 Our strategic context Annual financial statements Considering material matters 31 ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2023 Operating context 33 ESKOM HOLDINGS SOC LTD Annual Financial Statements 2023 Our strategy and turnaround plan 38 Integrating risk and resilience 46 Engaging with stakeholders 53 SR Sustainability report SIX CAPITALS PERFORMANCE TURNAROUND ADDITIONAL CONTENT SUSTAINABILITY REPORT FOR THE YEAR ENDED 31 MARCH 2023 The following navigation icons are used to depict the INDICATORS OBJECTIVES six capitals (refer to page 3 to 4 for definitions): Throughout this integrated report, i Information block or case study performance against target is indicated as follows: Operations recovery A list of abbreviations and glossary of terms Our finances (financial capital) Information available online are available on page 147 to 151 Actual performance met or exceeded target Financial recovery Our infrastructure (manufactured capital) DIGITAL NAVIGATION Actual performance almost met People, culture and Please use the tabs at the top of this report as well as the buttons to Our interaction with the environment target (within a 5% threshold) ethics navigate digitally: (natural capital) To complete a short Return to contents page survey on our report, Actual performance did not Legal separation Our people (human capital) meet target please click here Previous page Our role in communities SC Indicates that a key Next page (social and relationship capital) performance indicator is included in the shareholder compact with DPE Return to previous view Our know-how (intellectual capital) 1 Year in review About this report EAF worsened Loadshedding Significant BOARD RESPONSIBILITY AND APPROVAL further to 280 days deterioration in emissions Eskom’s Board is accountable for the integrity and completeness of Eskom’s reports to stakeholders, which includes the integrated 56.03% (2022: 65 days), despite performance report and any supplementary information. It is supported in this regard by the Audit and Risk Committee and the Social, Ethics and Sustainability Committee. (2022: 62.02%) extensive OCGT usage The Board has considered the integrated report and is satisfied that it has been prepared in accordance with the Integrated Reporting Framework. Considering the reliability of information presented and the completeness of material items discussed, and based on the combined assurance process followed, the Board approved the 2023 integrated report and supplementary information on 30 October 2023. Poor Transmission network New build Kusile Unit 4 4 employee and Mpho Makwana Chairman of the Board Fathima Gany-Ahmed Chair: Audit and Risk Committee Bheki Ntshalintshali Chair: Social, Ethics and Sustainability Committee contractor fatalities reliability commissioned (2022: 6) performance Eskom is South Africa’s national electricity utility. Our mandate is to ensure a stable electricity supply in an efficient manner, We create value through the generation, transmission, distribution, purchase and sale of electricity. Our value creation model depicts to contribute to lowering the cost of doing business and how we transform inputs into electricity supplied to customers, enable economic growth. Given our mandate, Eskom has a and considers the impact of our business on the six capitals. We considerable impact on the economy and the everyday lives believe that our integrated report provides a transparent and of all South Africans, combined with our poor operational balanced account of how we create, preserve or erode value. performance that resulted in unprecedented levels of 523 Lost-time injury rate Headcount reduced by loadshedding during the past year, at huge cost to the economy, IR Our business model is set out on pages 10 and 11 as well as our reliance on the fiscus for financial support. declined to 820 youth employment The latter has an impact on the Sovereign credit rating 0.26 and therefore the cost of our country’s borrowings, which HOW WE DEFINE THE SIX CAPITALS ultimately affects the funds available for other Government We use resources representing all six capitals set out in the (2022: 2 328) services learners programmes. A cost-reflective tariff will support our financial Integrated Reporting Framework as inputs in our business. Very (2022: 0.24) appointed sustainability and limit our reliance on Government support. often, the creation of value in one area leads to the erosion of value in another, given the inevitable trade-offs. We must We interact with a diverse range of stakeholders, such as ensure that our business remains sustainable across all the our shareholder, represented by the Department of Public capitals, and we are experiencing varying degrees of constraints Enterprises (DPE), lenders, employees, customers, suppliers, across all the capitals. regulators, civil society and Government. Net loss before tax Tariff increase of Committed funding raised worsened to 9.61% R59.9 bn Our interpretation of the capitals is set out below, with detail provided in the individual sections dealing with each of the capitals. R31.6 bn (2022: 15.06%) (2022: R35.8 bn) Financial capital is fundamental to our sustainability as a business. It consists of retained earnings, equity Our manufactured capital base is enhanced by the commissioning of new units at power stations (2022: R15.2 bn) from our shareholder through National Treasury, and and extending power lines, as well as through maintenance and refurbishment of existing plant. debt funding provided by lenders, a large portion of The process of generating, transmitting and which is Government guaranteed. distributing electricity erodes that base. Lenders and bondholders earn a return in the Natural capital in the form of non-renewable or form of interest. Given our financial constraints, otherwise scarce primary energy sources, such as our shareholder does not receive any dividends at coal, water, fuel oil, diesel and nuclear fuel, is Arrear municipal debt escalated to R254 bn Significant leadership changes, including this time. Manufactured capital comprises our base-load consumed to generate electricity. Waste is produced in the form of ash, particulate and Government debt R58.5 bn relief announced a new Board and peaking power stations, and transmission and distribution networks. Capacity supplied by gaseous emissions, contaminated water and nuclear waste, which also erodes natural capital. We aim to transition to a cleaner energy mix to reduce our independent power producers (IPPs) and imports impact on the environment through the increased use (2022: R44.8 bn) supplements our own generation capacity. of renewable energy, while acknowledging the impact 2 3 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information About this report continued PREPARATION PROCESS IR The list of KPIs subject to reasonable assurance are set out on the environment of pursuing certain technologies, We contribute to society by enabling economic A team from the Group Finance Division produces the from page 171. The independent sustainability assurance such as lithium. Our transmission and distribution growth through the supply of electricity to all integrated report and supplementary information, under report is included from page 174 networks also have a negative impact on bird life in customers, whether directly or indirectly; electrifying the supervision of our acting Group Chief Financial Officer, some cases, despite our aim to mitigate our impact on new – mainly disadvantaged – households in our Mr Martin Buys CA(SA). The team collaborates with representatives from all areas of the business to source the ANNUAL FINANCIAL STATEMENTS the natural environment. licensed areas of supply; supporting Government’s information presented in the report. The consolidated annual financial statements of Eskom Holdings priorities of job creation, skills development, supplier SOC Ltd have been prepared in accordance with International Human capital covers our employees and transformation and broad-based black economic Financial Reporting Standards (IFRS) as well as the requirements contractors, and their competencies, capabilities and Eskom submits a quarterly report to our shareholder, based on empowerment (B-BBEE); as well as improving the of the Companies Act, 2008 and the PFMA, 1999. experience. We continue to focus on transforming DPE’s reporting guidelines and National Treasury regulations. It lives of many South Africans through our corporate our workforce in terms of racial, gender and disability reports on performance against the shareholder compact agreed social investment (CSI) and socio-economic with DPE, and also covers financial, operational, governance and The consolidated annual financial statements have been audited equity, and instilling a high-performance ethical culture in our employees. development activities. We regret that our power restructuring matters in terms of section 1(2)(b) of the Special by the group’s independent auditors, Deloitte & Touche, who stations and to some extent, our networks, have a Appropriation Act, 2019, as well as the requirements of DPE’s issued a qualified opinion relating to information disclosed As employee benefit costs is a significant cost driver, negative impact on the health of the communities in Risk and Integrity Management Framework. The quarterly in terms of the PFMA, 1999. Except for this qualification, the we have been pursuing a reduction in our headcount, which we operate. We have several projects under shareholder report forms a key input into the integrated report, consolidated annual financial statements are fairly presented mainly through natural attrition, although this has to way to reduce emissions, and a pilot project is under together with our strategic Corporate Plan that we submit to in terms of IFRS. Furthermore, the independent auditors have be balanced with preserving our skills and knowledge way to consider how to mitigate the impact on DPE on an annual basis, all of which are approved by Eskom’s emphasised a number of matters in their report, including a base. Human capital is enhanced through training air quality. Board prior to submission to DPE. material uncertainty relating to Eskom’s ability to continue as a and skills development, but these efforts remain going concern. However, this does not affect their opinion. constrained by our financial situation. Furthermore, Intellectual capital includes technology, which the loss of competent staff, whether through comprises information, telecommunications and The content is further guided by the material matters resignation, retirement or other factors, negatively operational technology; organisational knowledge, determined during the preparation process. Content is AFS The independent auditor’s report is incorporated in the impacts that knowledge base. reviewed by subject matter experts from the business, as annual financial statements systems, policies and procedures; as well as research and innovation to industrialise future technologies and well as executives and Board members, with the Audit and Social and relationship capital focuses on Risk Committee and the Social, Ethics and Sustainability improve current operations. Our world-class System SUSTAINABILITY REPORT interactions with customers, suppliers, communities Committee formally recommending approval of the Operator plays a critical role in managing the supply/ The sustainability report supplements and provides more and the public in general. We believe that strong report to Board. In approving the integrated report, the stakeholder relationships are critical to our ability to demand balance of the power system by maintaining detailed information on our sustainable development impact the frequency at 50Hz. Board assumes ultimate accountability for the content, create value. than that provided in the integrated report. The report is completeness and reliability of the report. guided by the reporting principles of the Global Reporting Initiative (GRI) and also considers our contribution to the United Nations’ Sustainable Development Goals (SDGs). IR The materiality determination process and resulting by legal and regulatory requirements, such as the Companies material matters are discussed from page 31 IR Selected inputs and outputs to the value creation process The Internal Audit Department provided reasonable assurance Act, 2008 and the King IV Report on Corporate Governance are highlighted in the business model from page 10 limited to certain quantitative information, and to a lesser for South Africa, 2016, (King IV TM) as well as global best practice, Financial information is presented in South African Rand, extent, qualitative aspects of the report. such as recommendations by the Task Force on Climate-related Financial Disclosures (TCFD). We have not yet begun assessing our functional and presentation currency. Figures are taken APPROACH TO PRESENTATION from Eskom’s group annual financial statements, which are This integrated report reviews our financial, operational, the impact of the sustainability standards S1 and S2, released by FORWARD-LOOKING STATEMENTS prepared in accordance with IFRS. KPIs are reported based on environmental, social and governance performance for the the International Sustainability Standards Board in June 2023, and Certain statements in this report regarding Eskom’s internally developed measure specification documents setting financial year from 1 April 2022 to 31 March 2023, and which are due for implementation by the 2025 financial year. out measurement criteria; these are linked to process control business operations may constitute forward-looking considers the outlook for the future. Unless otherwise stated, manuals. Non-financial data is reported regularly to Exco and statements. These include all statements other than both financial and non-financial performance data in this report This is our primary report to stakeholders aimed the Board, and included in the quarterly shareholder report. statements of historical fact, including those regarding the relates to the 2023 financial year. Significant events up to the predominantly at providers of financial capital, although financial position, business strategy, management plans and date of approval have been referenced. the report aims to provide information to a wide range of objectives for future operations. OUR SUITE OF REPORTS stakeholders. We believe in providing a balanced, transparent Our 2023 suite of reports comprise: Forward-looking statements constitute current The report covers the group performance of Eskom Holdings and complete account of our performance, by focusing on matters material to our ability to create, preserve or erode expectations based on reasonable assumptions, data or SOC Ltd (Eskom) and its major operating subsidiaries, and INTEGRATED REPORT value. We also consider qualitative and quantitative matters methods that may be imprecise and/or incorrect and information presented is comparable to that of prior years, both The integrated report is prepared in accordance with the material to our operations and strategic objectives, as well as that may be incapable of being realised. As such, they are unless otherwise stated. Although the integrated report contains Integrated Reporting Framework. It considers our value strategic risks and opportunities. not intended to be a guarantee of future results. Actual a set of condensed annual financial statements, it should be read creation model, strategy, risks and opportunities, performance results could differ materially from those projected in any in conjunction with the group annual financial statements, for a and outlook, as well as governance of these areas. Certain Through our short-term turnaround and longer-term strategic forward-looking statements due to various events, risks, complete overview of the group’s financial performance. disclosures required under regulations issued by National objectives, our use of and impact on the six capitals are connected Treasury relating to the disclosure of information under the uncertainties and other factors. Eskom neither intends nor to our strategy, material matters, organisational and strategic Public Finance Management Act (PFMA), 1999, are also covered assumes any obligation to update or revise any forward- AFS Eskom’s group annual financial statements are available risks, key performance indicators (KPIs) and performance. In our in this report. Supplementary information of interest to a looking statements contained in this report, whether as a at www.eskom.co.za/investors/integrated-results/. context, short term means within one year after year end, medium variety of stakeholders is included at the back of the report. result of new information, future events or otherwise. Restatements due to the adoption of an accounting standard term within one to five years, and long term more than five years. that required retrospective application are dealt with in Future performance plans and/or strategies referred to in note 48 Accordingly, we indicate the short-term targets for the 2024 Eskom’s Internal Audit Department provided reasonable assurance limited to certain quantitative information, and the integrated report have not been reviewed or reported financial year when reporting on KPIs in this report, as well as the to a lesser extent, qualitative aspects of the report. The on by the group’s independent auditors. medium-term targets for the 2026 financial year. Where a KPI is Our integrated report is based on the guiding principles and contained in the shareholder compact with DPE, the shareholder group’s external auditors, Deloitte & Touche, were engaged content elements contained in the revised Integrated Reporting compact target is shown in this report. to provide reasonable assurance on selected KPIs disclosed Framework, issued in January 2021. The content is further guided in the integrated report; all but one of the 42 KPIs scoped for reasonable assurance received an unqualified opinion. 4 5 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Understanding our business MANDATE, VISION AND MISSION Our mandate, set out by DPE, is to assist in lowering the cost of doing business in South Africa; enabling economic growth; and providing stability of electricity supply by providing electricity in an efficient and sustainable manner. Furthermore, Eskom is also expected to support Government’s policy objectives. Our vision is “Sustainable power for a better future”, by promoting sustainability in the electricity supply industry. Our mission is threefold: 1 2 3 Creating a sustainable Eskom that drives economic Making a positive social Turning around the growth by providing reliable impact in the country existing business and and efficient electricity by driving shared growth reviving our financial and and ancillary services in a through sustainable operational sustainability manner that adds value for electricity solutions all South Africans ESKOM’S BUSINESS Even before that, independent power producers (IPPs) were Eskom was established on 1 March 1923, known then as the responsible for the early development of the electricity supply Electricity Supply Commission, or ESCOM. It was responsible for industry in South Africa, with Kimberley switching on electric establishing and maintaining electricity supply undertakings for streetlights in September 1882. The first small power stations the whole of South Africa, but on a regional basis. Electricity was were built in the late 1890s to supply electricity to the gold mining to be supplied efficiently, cheaply and abundantly to government industry; by 1915 four thermal power stations had been built to departments, railways and harbours, municipalities and industry. meet the increasing demand from mines and new mining towns. When ESCOM was established in 1923, one of its tasks was to remain on course to achieve universal access through new take over and consolidate many of the existing electricity supply decentralised innovations such as microgrids for hard-to-reach undertakings. Another was to foresee future requirements, communities. to plan accordingly and to build new power stations, as well as expand existing ones, to meet the growing demand for this vital We have provided the power to drive economic growth commodity, electricity. and development in South Africa and the Southern African Development Community (SADC) region. We have been led Over the years, Eskom has been a keystone of the country’s by top South African leaders and executives, and have trained i economic and democratic transitions. We have been many of South Africa’s top engineers. Furthermore, we have instrumental in South Africa’s expansion of energy and provided jobs for thousands of Eskom Guardians and those electrification to the majority of the citizens of South Africa. employed by contractors and suppliers. Eskom has contributed Through the successful implementation of Government’s to the upliftment of communities by touching the lives of millions Integrated National Electrification Programme (INEP), we have of South African beneficiaries through the Eskom Development electrified approximately 5.9 million households within Eskom’s Foundation. And finally, we have powered value chains and licensed areas of supply since early 1991. This has contributed businesses at all scales and reflective of all South African Who we are to around 86% of electricity coverage in South Africa, as we demographics through the procurement of goods and services. A century later, the generation, transmission, distribution and sale of electricity still form the bedrock of our business. This is 7 Understanding our business 14 Board of Directors supplemented by the construction of new power stations such as Medupi and Kusile, which are due for completion by the 2028 financial year, and network infrastructure. Generation, Transmission and Distribution Divisions are the core functions, supported by 16 Executive Management Committee strategic and support functions. We have a number of subsidiaries that support Eskom’s business in various ways. IR An overview of the functions of subsidiaries is set out under “Group overview” on page 12 6 7 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Understanding our business continued OVERSIGHT AND GENERATION CAPACITY NETWORK CAPACITY REGULATION Shareholder ministry Department of Public Enterprises Eskom Holdings SOC Ltd MAIN SUBSIDIARIES Eskom Enterprises SOC Ltd 30 46 788MW 405 173km Policy ministry Escap SOC Ltd Power stations Total nominal capacity of high-, medium- and Department of Mineral Resources and Energy Strategic functions Eskom Finance Company low-voltage lines and Oversight ministries SOC Ltd Base-load Mid-merit and peaking underground cables National Treasury Line divisions Eskom Development stations stations Minister of Electricity Foundation NPC Department of Forestry, Fisheries and the Environment Support functions FUTURE SUBSIDIARIES 39 099MW 2 724MW 301 893MVA Regulators Coal-fired stations Pumped storage of transformer capacity NERSA and NNR Transmission company Only major subsidiaries are shown. Generation company Distribution company 1 854MW 602MW Nuclear power Hydro stations Eskom is one of the last remaining vertically integrated utilities in the world. DPE released its Roadmap for Eskom in a Reformed August 2021. Several defects identified on the new build units are being rectified, in order to improve the availability and Self-dispatching energy 2 409MW 100MW Electricity Supply Industry (DPE’s Roadmap) in October 2019. reliability of the new build units. In response, we are transforming the vertically integrated OCGTs structure, by restructuring towards the creation of three IR Detailed information on our power stations, power lines independent subsidiaries through the legal separation process and substation capacities is available on pages 166 to 168 Sere wind farm we have embarked on. The Southern African Power Pool forms an interconnected As we have been pointing out for a number of years, to address grid, which supports grid stability. This relies on sufficient and the demand shortfall, additional base-load generation capacity reliable transmission grids in neighbouring countries to facilitate of 4 000MW–6 000MW is required urgently, coupled with The PFMA, 1999 requires us to submit a strategic Corporate the transmission of electricity throughout southern Africa. improving the performance of our existing power stations. Plan on an annual basis, which sets out our strategic objectives, Eskom is subject to numerous laws and regulations, with plans and targets to achieve those. The latest plan covers We generate close to 90% of the energy supplied to a HOW WE ARE REGULATED including conditions relating to tariffs, environmental the five-year period to 2028. wide range of customers in South Africa and the region, by Eskom Holdings SOC Ltd is a state-owned company (SOC) compliance, procurement and human resources. Our transforming inputs from the natural environment, such as as defined in the Companies Act, 2008 and is wholly owned licensing conditions place strict limits on plant emissions On an annual basis, we agree on a shareholder compact with coal, nuclear fuel, fuel oil and diesel, as well as water and wind, by the South African Government. The Department of Public to limit our environmental impact. Relevant laws and DPE, to track the KPIs that support our mandate and the strategic into energy. The supply and demand of electricity has to be Enterprises is our shareholder ministry and sets our mandate regulations include, among others: objectives under DPE’s Strategic Intent Statement for Eskom. balanced in real time, which our System Operator does by and oversees our performance. Energy policy is set by the • Electricity Regulation Act, 2006 maintaining the frequency of the power system at 50Hz. Department of Mineral Resources and Energy (DMRE), while • Companies Act, 2008 IR The directors’ report in the consolidated annual financial National Treasury and the Department of Forestry, Fisheries and the Environment (DFFE) oversee aspects of our activities • PFMA, 1999 statements covers performance against the 2023 We also play a developmental role. As required by shareholder compact. Throughout tables in this report, Government, we support the National Development Plan 2030 and ensure compliance with various regulations. • Special Appropriation Act, 2019 shareholder compact KPIs are denoted using SC . Where (NDP) through job creation, economic and skills development, • National Treasury regulations relevant, these KPIs are also included in the statistical broad-based black economic empowerment (B-BBEE), and i • National Energy Regulator Act, 2004 tables, available at the back of this report, from page 158 other national initiatives. Our activities also support several of In March 2023, President Cyril Ramaphosa appointed • National Nuclear Regulator Act, 1999 the United Nations’ Sustainable Development Goals (SDGs). Dr Kgosientsho Ramakgopa as Minister of Electricity • National Environmental Management Act, 1998 and transferred to him certain powers and functions GROUP OVERVIEW contained in the Electricity Regulation Act, 2006 • Occupational Health and Safety Act, 1993 Eskom Holdings SOC Ltd is the group holding company. It Our new build programme commenced in 2005, to build new power stations and strengthening our transmission grid to that were previously under the Minister of Mineral • Basic Conditions of Employment Act, 1997 is the current vehicle for the electricity business and holds cater for the increasing energy demand. To date, the new build Resources and Energy. His focus is on solving the power • Labour Relations Act, 1995 investments in subsidiaries. Our head office is based in programme has delivered four units at Ingula Pumped Storage crisis at Eskom, with his primary task being oversight of • Broad-Based Black Economic Empowerment Act, Johannesburg, with administrative offices in most major centres. Power Station, six units at Medupi Power Station and four units the electricity crisis response to reduce the severity and 2003 Our operations span the length and breadth of South Africa. at Kusile Power station, as well as 14 open-cycle gas turbine frequency of loadshedding. • Preferential Procurement Policy Framework Act, (OCGT) units and refurbishment of previously mothballed 2000 stations. However, three units at Kusile were out of service for • Promotion of Access to Information Act, 2000 almost a year due to a collapsed flue stack, although two have We are also subject to oversight or regulation by several other returned to service; Unit 4 is being managed through planned Government departments, Parliamentary committees and maintenance interventions to prevent a similar incident. regulators. Medupi Unit 4 is also offline due to a generator explosion in 8 9 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Understanding our business continued BUSINESS MODEL INPUTS OUTCOMES FINANCE PROCESS DESCRIPTIONS FINANCE SYSTEM OPERATOR R59.9 billion Funding secured Maintain the frequency of the power system at R72.2 billion Debt and interest repaid R21.9 billion Government support PRIMARY ENERGY 50Hz, to balance electricity supply and demand R259.5 billion Revenue Identify, source, procure and deliver in real time R29.7 billion Spent on Eskom and IPP primary energy (coal, water and OCGTs INFRASTRUCTURE limestone) of the right quality, at the R38 billion EBITDA right time and at optimal cost to R58.5 billion Arrear municipal debt 46 788MW Nominal power station our power stations capacity TRANSMISSION INFRASTRUCTURE 7 110MW IPP capacity Provide a reliable and efficient transmission 799MW New capacity from Kusile Unit 4 405 173km Power lines and cables FOSSIL FUEL-BASED GENERATION network and energy market services in Generate electricity from coal, 326.1km Transmission lines installed South Africa and neighbouring markets optimally manage asset performance R33.9 billion Capital expenditure and leverage core competencies to 56.03% Energy availability factor ENVIRONMENT expand the revenue base. Utilise Delays in the RMIPPPP and RE-IPP bid 102.4Mt Coal burnt gas-fired stations owned by Eskom window 5 256 430Mℓ Net raw water used and independent power producers DISTRIBUTION Provide reliable energy and related services to ENVIRONMENT (IPPs) as peaking capacity 105 Environmental legal contraventions our customers, enhance the customer experience and collect revenue 0.70kg/MWhSO Relative particulate PEOPLE NUCLEAR GENERATION emissions 40 421 Employees (at 31 March 2022) We operate Koeberg Nuclear 1.39ℓ/kWhSO Specific water consumption R1.1 billion Training spend Power Station, Africa’s first and only nuclear power station OUTPUTS PEOPLE PRODUCTS 39 601 Employees at year end SOCIETY AND RELATIONSHIPS RENEWABLE GENERATION 188 401GWh Electricity sales to 0.26 Lost-time injury rate Renewable energy is supplied by distributors and industrial, commercial, 4 Employee and contractor fatalities R63 million CSI committed spend IPPs, primarily in the form of solar international, residential and other customers R32.3 billion Employee benefit expense R2.4 billion DMRE electrification funding photovoltaic (PV) and wind energy, WASTE AND BY-PRODUCTS SOCIETY AND RELATIONSHIPS and by Eskom, using hydroelectric 30.20Mt Ash produced 438 094 CSI beneficiaries and wind energy 129.32kt Particulate emissions 102 590 Electrification connections 187.5Mt CO2 emitted 280 days Loadshedding Positive outcome Negative outcome TURNAROUND OBJECTIVES M1 Liquidity and going concern in the short to M5 Climate change and Eskom’s Just Energy medium term, and ultimately, financial sustainability Transition We aim to align our value creation with a selection of Operations recovery over the long term M6 Leadership stability UN SDGs M2 Government support and debt structure M7 Adequate skills in a high-performance Financial recovery M3 Improving operational stability to lessen the ethical culture People, culture and ethics electricity crisis M8 Fight against fraud, corruption and crime M4 Environmental performance and compliance M9 Governance, compliance and ethics Legal separation M10 Progress on legal separation Our value creation and preservation is underpinned Our material matters influence our ability to create and preserve IR IR by our turnaround objectives over the short to value. Refer to page 31 for further information SR Refer to the sustainability report medium term. Read more from page 39 10 11 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Understanding our business continued Under our legal separation process, new subsidiaries have and indirectly through Golang Coal SOC Ltd. Through its The industry is regulated by the National Energy Regulator of been established to house the transmission and distribution participation in the Phase V expansion of the Richards Bay Coal South Africa (NERSA) under the National Energy Regulatory businesses. The operationalisation of the National Transmission Terminal (RBCT), SDCT owns rights to export coal. Act, 2004 and the Electricity Regulation Act, 2006, by providing Imports from Company South Africa SOC Ltd (NTCSA) has been delayed licences, regulatory rules, codes and guidelines. Importantly, Exports to due to several key policy and regulatory dependencies, but Other dormant subsidiaries of EE are in the process of being NERSA determines our allowed revenue in accordance with the Zambia is expected during the 2024 financial year. The National wound up or liquidated. Electricity Pricing Policy (EPP). Electricity Distribution Company South Africa SOC Ltd (NEDCSA) has been registered to house the distribution CONTRIBUTION TO FINANCIAL PERFORMANCE Our nuclear power station, Koeberg, is overseen by the Zimbabwe business, but the process has also suffered delays due to key The contribution from Eskom and the other group companies National Nuclear Regulator (NNR), to ensure that Koeberg external dependencies, and is also dependent, to some extent, to group performance and financial position is shown below. It is complies with nuclear safety standards to protect individuals, Mozambique Namibia Botswana on progress in the NTCSA process. Operationalisation of clear that the Eskom business remains by far the most significant. society and the environment against radiological hazards linked NEDCSA is anticipated by the 2026 financial year. Options are to the use of nuclear technology. being considered for the future of the generation business. Revenue SUPPLY AND DEMAND OF ELECTRICITY The Eskom group comprises the operating company with its Electricity is supplied through our transmission and distribution eSwatini subsidiaries and joint ventures. Our local subsidiaries provide Primary energy networks to local and export customers by Eskom’s power strategic services to Eskom and our employees. We had stations, supplemented by IPPs and cross-border suppliers. Lesotho South Africa a subsidiary based in Uganda, but it is to be wound down Employee following the conclusion in March 2023 of the 20-year benefit expense We export power to several countries in the Southern African concession arrangement to operate and maintain Nalubaale Power Pool, however, the extent of exports is diminishing as a and Kiira hydroelectric power stations in Uganda. EBITDA result of our power supply constraints. We also import power Depreciation from several countries in the region. Mozambique is by far our IR The number of customers, electricity sales volumes and For an overview of electricity generation in Uganda and the and amortisation most significant trading partner for both imports and exports. revenue by customer segment are set out on page 169 activities of Eskom Uganda, refer to https://www.youtube.com/watch?v=QQMlDin9Y0k Net finance cost/(income) The supply and demand of electricity is depicted below. Significant subsidiaries are discussed below. Net loss/(profit) after tax Source, GWh 2023 2022 2021 SUBSIDIARIES OF ESKOM Total assets Coal-fired stations 171 131 184 568 183 553 Escap SOC Ltd is a wholly owned insurance captive company. It Nuclear power 9 803 12 355 9 903 manages and insures the business risk of Eskom and its subsidiaries. Pumped storage stations 4 081 4 743 4 795 Total liabilities Hydro stations 3 060 1 943 1 387 Eskom Finance Company SOC Ltd (EFC) provides housing and Open-cycle gas turbines (OCGTs) 3 018 1 826 1 457 other loans to employees. The disposal of EFC, mandated by Capital expenditure Wind 214 253 305 the shareholder, has resumed. However, the offer received was not approved due to it not meeting requirements. 0% 20% 40% 60% 80% 100% Eskom generation 191 307 205 688 201 400 Eskom Rest of the group (including eliminations) Pumping by pumped storage stations (5 504) (6 434) (6 625) The Eskom Development Foundation NPC (the Foundation) Profits/income in subsidiaries are shown as negative figures in Net sent out by Eskom 185 803 199 254 194 775 is a non-profit company under section 21 of the Companies the graphs above. Independent power producers (IPPs) 17 957 15 973 13 526 Act, 2008. It implements Eskom’s CSI programmes, thereby Imports 8 654 8 500 8 812 improving the quality of life of communities where we operate. Segment disclosure for Generation, Transmission, Wheeling1 2 904 2 499 2 310 AFS Eskom Enterprises SOC Ltd (EE) is an investment holding Distribution and other segments is provided in note 7 of the Energy available for distribution 215 318 226 226 219 423 company. An overview of its subsidiaries is provided below. consolidated annual financial statements Technical and other losses2 (23 879) (24 811) (25 078) Internal use (345) (516) (804) AFS Full details of Eskom’s equity-accounted investees and THE ELECTRICITY SUPPLY INDUSTRY Wheeling1 (2 904) (2 499) (2 310) subsidiaries at 31 March 2023 are set out in notes 11 and 12 The electricity supply industry in South Africa consists of the Unaccounted3 211 (119) 621 of the consolidated annual financial statements generation, transmission, distribution and sale of electricity. Local and international sales 188 401 198 281 191 852 It includes the import and export of electricity to and from neighbouring countries. Additional information SUBSIDIARIES OF ESKOM ENTERPRISES Loadshedding and load curtailment4 13 476 1 605 1 034 Eskom Rotek Industries SOC Ltd (ERI) provides technical Eskom owns and operates most of the base-load and peaking Percentage of demand not met4 5.91% 0.71% 0.47% support to the electricity business, including lifecycle and plant capacity, while IPPs supplement generation capacity, mainly in maintenance services. the form of wind and solar PV power. In theory, gas turbines 1. Wheeling refers to the movement of electricity between international customers through Eskom’s network, without the power being available to customers on the South African grid. – both Eskom- and IPP-owned – supply peaking capacity, 2. Technical and other losses include energy losses incurred during the transmission and distribution process, together with losses due to electricity theft and errors. Pebble Bed Modular Reactor SOC Ltd (PBMR), which is wholly although in reality, these units are run at load factors far in 3. The unaccounted figure, which is in essence a balancing figure, arises due to different cut-off dates for recording information relating to sales and production. owned by EE, is in a state of care and maintenance to preserve excess of design expectations due to the supply constraints we 4. This is an estimate by the System Operator of the sales lost and demand not met due to loadshedding and load curtailment, based on forecast versus actual the intellectual property created during operation. The EE have seen over the past few years. demand at a given time. It does not take account of load shifting due to loadshedding patterns. Board is considering the way forward on PBMR. EE continues to hold an effective interest of 69% in South Capacity added and energy supplied by IPPs are discussed IR from page 107 Dunes Coal Terminal Company SOC Ltd (SDCT), both directly 12 13 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Board of Directors AT 31 MARCH 2023 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 Mr Mpho Makwana (52) 2 Mr Calib Cassim (51) 3 Mr Martin Buys (65) 4 Dr Rod Crompton (70) 9 Mr Leslie Mkhabela (50) 10 Dr Tsakani Mthombeni (43) 11 Mr Bheki Ntshalintshali (69) 12 Dr Mteto Nyati (58) Chairman Acting Group Chief Acting Group Chief Financial Independent non-executive Independent non-executive Independent non-executive Independent non-executive Independent non-executive Executive Officer director director director director director G Appointed in October 2022 Appointed in July 2017 Appointed in March 2023 A B S A H S B I S G H S B G H I Previously served as non- Served as Group Chief Previously served as General Appointed in October 2022 Appointed in October 2022 Appointed in October 2022 Appointed in October 2022 Appointed in January 2018 executive director of Eskom Financial Officer since Manager: Financial and Legal professional with Engineer with experience Former trade unionist; served Engineer with experience Experience in energy, from 2002 to 2011, including July 2017. Appointed as acting Management Reporting. experience in restructuring in sustainable development, as general secretary of the in information and chemicals, economic regulation acting as Chairman and CEO Group Chief Executive from Appointed as acting Group of state-owned assets, energy management and Congress of South African communication technology and industrial policy February 2023 Chief Financial Officer from commercial and administrative climate change strategy Trade Unions (COSATU) (ICT); served as CEO of MTN B Admin (Hons) (University March 2023 BA (Hons) (University Chartered Accountant (SA) law, and dispute resolution SA and Altron of Pretoria) of KwaZulu-Natal) M Sc Electrical Engineering Comparative Industrial Relations Master of Business Leadership Chartered Accountant (SA) B Juris (University of (Clarkson University) (Ruskin College) B Sc Mechanical Engineering Postgraduate Diploma Ph D Humanities (University in Retail Management (Unisa) Master of Business Leadership Limpopo) Ph D Electrical Engineering Diploma in Industrial Relations (University of KwaZulu-Natal) of KwaZulu-Natal) (University of Stirling) (Unisa) LLB (University of Limpopo) (Clarkson University) (Allenby College) Ph D (Honoris Causa) M Com Taxation (University Information Technology of Pretoria) Management (University of 13 Ms Tryphosa Ramano (51) 14 Dr Busisiwe Vilakazi (39) 15 Dr Claudelle von Eck (52) Johannesburg) 5 Ms Fathima Gany-Ahmed (47) 6 Mr Lwazi Goqwana (47) 7 Mr Clive Le Roux (71) 8 Ms Ayanda Mafuleka (43) Independent non-executive Independent non-executive Independent non-executive Independent non-executive Independent non-executive Independent non-executive Independent non-executive director director director director director director director B G I A B S A G H S A G H S B I B H I S A B Appointed in October 2022 Appointed in October 2022 Appointed in October 2022 Appointed in October 2022 Appointed in October 2022 Appointed in October 2022 Appointed in October 2022 Finance professional, registered Engineer with experience Organisational development Finance professional, Engineer with experience in Engineer; served as Chief Finance professional, as a Chartered Accountant (SA) in ICT research and and change management registered as a Chartered manufacturing, construction, Nuclear Officer and power registered as a Chartered innovation, data science and professional; former CEO B Com (University of Accountant (SA) financial services, logistics, station manager at Matimba Accountant (SA) analytics, strategy and digital of the Institute of Internal Cape Town) energy and government services and Koeberg transformation Auditors of South Africa B Accounting Sciences (Unisa) B Compt (Hons) (Unisa) Postgraduate Diploma in MBA (Milpark Business B Sc Electrical Engineering Certificate in Advanced Accounting (University of MBA (University of Master of Business Leadership B Compt (Hons) (Unisa) School) (cum laude) (University of Financial Management Cape Town) Witwatersrand) (Unisa) Pr Eng (Engineering Council Witwatersrand) (University of Johannesburg) Ph D Engineering Science D Phil Leadership (Change of South Africa) Advanced Executive Diploma (University of Oxford) Management) (University of in Leadership (Unisa) Johannesburg) 6% 30–39 Age diversity Gender diversity Racial diversity 27% 60+ Membership of Board committees 27% Denotes chair of a committee Mr Mpho Makwana will step down as Chairman IR Qualifications listed are not 40–49 A Audit and Risk Committee of the Board at the end of October 2023, exhaustive. Refer to pages having served one year in the position. 80% B Business Operations Performance Committee Thereafter, Dr Mteto Nyati will take over. 152 to 154 for full details of 33% 67% 20% Female Male ACI G Governance and Strategy Committee directors’ qualifications and White Mr Martin Buys was appointed as an executive active directorships, as well H Human Capital and Remuneration Committee director, in the position of acting Group Chief Financial Officer, on 21 March 2023. as meeting attendance for the i Investment and Finance Committee year ended 31 March 2023 40% S Social, Ethics and Sustainability Committee Ages are shown at 31 March 2023. 50–59 14 15 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Executive Management Committee AT 31 MARCH 2023 1 2 3 4 5 6 7 8 9 1 Mr Calib Cassim (51) 2 Mr Martin Buys (65) 3 Mr Jan Oberholzer (64) 4 Ms Faith Burn (54) 6 Ms Nthato Minyuku (44) 7 Ms Elsie Pule (55) 8 Ms Jainthree Sankar (51) 9 Mr Vuyolwethu Tuku (47) Acting Group Chief Acting Group Chief Group Chief Operating Chief Information Officer Group Executive: Group Executive: Human Chief Procurement Officer Group Executive: Executive Financial Officer Officer Government and Regulatory Resources Transformation Management Appointed to Exco Affairs Appointed to Exco Office Appointed to Exco Appointed to Exco Appointed to Exco in May 2020 Appointed to Exco in March 2021 in July 2017 in March 2023 in July 2018 Appointed to Exco in November 2014 Appointed to Exco 2 years in Eskom 29 years in Eskom 21 years in Eskom 36 years in Eskom 30 years in Eskom (including in October 2020 25 years in Eskom in July 2020 from 1983 to 2008) M Sc Mathematics 2 years in Eskom B Com (Hons) Business 2 years in Eskom Chartered Accountant (SA) Chartered Accountant (SA) (University of Johannesburg) BA (Hons) Psychology (Unisa) B Sc Electrical Engineering B Architectural (University of Pretoria) B Sc Electrical Engineering Master of Business Master of Business Master of Business MBA Sustainable Business (University of Pretoria) Studies (University of (University of Cape Town) Leadership (Unisa) Leadership (Unisa) Leadership (Unisa) M Sc Business Engineering (University of Southern Witwatersrand) MBA (University of M Com Taxation (University Master of Business (Warwick University) Queensland) Leadership (Unisa) Master of City Planning and Witwatersrand) of Pretoria) Master of Project Urban Design (University of Executive Program Management (University of Cape Town) (University of Michigan) Southern Queensland) 5 Ms Mel Govender (41) Group Executive: Legal and Ms Nthato Minyuku and Ms Mel Govender resigned in April 2023, with exit dates of 30 April Compliance and 30 June 2023 respectively. Ms Natasha Sithole and Ms Winile Madonsela are acting in the Qualifications listed are not exhaustive. respective positions while the recruitment processes are under way. IR Refer to pages 154 to 155 for full Appointed to Exco in October 2021 details of Exco members’ qualifications 1 year in Eskom Mr Jan Oberholzer’s term came to an end on 30 April 2023 when he reached retirement age. The Group Chief Operating Officer position was removed from the organisational structure and active directorships, as well as LLB (University of KwaZulu-Natal) thereafter. meeting attendance for the year ended 31 March 2023 Ages are shown at 31 March 2023. Gender diversity Racial diversity Age diversity Skills and expertise 22% 15% 60+ Social and 25% 33% human sciences Science, 40–49 engineering and technology 44% 56% 78% 22% Male Female ACI 15% White Finance, accounting and economics 44% 50–59 15% Legal, governance 30% and risk management Commerce and industry 16 17 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Message from the Chairman South Africa is a gateway to more than 250 million people in the southern African region. As such, a stable Eskom and a stable electricity grid is not only important to the people of South Africa, but to southern Africa as a whole. As we know, almost everything we do today requires electricity at some point or another, making it indispensable for progress in today’s world. I referred last year to the state of permacrisis that pervaded Eskom when the new Board took over in October 2022. At the time, the Board’s top priorities were to put an end to the unprecedented levels of loadshedding to reduce the strain on the economy, and to reduce Eskom’s drain on the fiscus. In doing so, we strived to be an engaged board that seeks to build a high-performance ethical culture based on sound corporate governance. In the transition from ageing coal-fired stations, there are opportunities to preserve jobs and optimise existing grid The new Board took office during an exceptionally difficult capacity. Eskom is pursuing these opportunities through time in Eskom’s 100-year history. Consequently, we’ve had to repurposing and repowering plans, and is aiming to facilitate get operationally closer to certain key issues, for instance, we more capacity coming onto the grid through its land lease constituted the Business Operations Performance Committee initiative. This transition must always balance the best interests to provide oversight of Eskom’s operations, specifically, of the nation’s Just Energy aspirations with the realities of the monitoring performance against energy availability factor economy and the electricity supply chain. The independent (EAF) targets. As satisfactory improvement is demonstrated, transmission company which is soon to be operationalised the Board will step back from “governance unusual” to more will also facilitate trade and investment into a transformed classical governance granting more space for responsive electricity market and value chain. The National Energy Crisis managerial performance. Committee (NECOM) is working through its structures to deliver additional capacity of 21GW to the grid by 2026; TOWARDS A MORE RESILIENT AND the grid connection rules have been updated to ensure that RESPONSIVE ESKOM additional generating capacity is connected as quickly as Eskom, like many other utilities, must navigate the competing possible. demands associated with the energy trilemma, that is, energy security, energy equity both through access and affordability, In the short term, the focus is on improving operations so that and energy sustainability. Eskom’s 2035 strategy aims to find the Eskom finds a way out of being a drain on the fiscus and on optimal balance between prioritising operational, financial and the economy, both through its need for Government support structural recovery from the challenges that are threatening the and the impact of unprecedented levels of loadshedding on entity’s sustainability, and to respond effectively to the global the economy and the livelihood of all South Africans. We must and local transformation shaping the electricity sector. remember that we are not alone – energy crises are a growing global phenomenon. Emerging successfully out of our crisis Eskom’s turnaround plan focuses on recovering operations, must also leverage valuable lessons learnt elsewhere in the improving income statement performance, strengthening the world. While loadshedding has become commonplace in some balance sheet, driving legal separation of the three licensed regions, countries worldwide are struggling with electricity businesses, and transforming our people and culture to succeed supply, and South Africa is not the only country that has to in a rapidly evolving electricity supply industry. The industry implement loadshedding to protect the grid. is being shaped by deregulation, rapidly maturing low-carbon technology options, increasing levels of non-traditional The new Board has actively engaged the management team competition, digitalisation and the need for leveraging for alignment on a set of priorities that will not only contribute infrastructure as a basis for transitioning sustainably to net zero to the efforts of NECOM to resolve the electricity crisis, but Leadership reports emissions by 2050. also ensure that it puts Eskom on a path towards a sustainable and transitioned utility. With the support of the relevant Eskom also needs to prepare for the inevitable transition in the government departments and agencies to unlock bottlenecks, medium to long term by making investments along the value Eskom is expending every effort to improve plant performance chain, in line with government policy. To this end, we need to and facilitate additional generation capacity. Through several 19 Message from the Chairman 22 Chief Executive’s review remember that Eskom is not a policymaker, but a utility and a programmes and initiatives, Eskom, in collaboration with state-owned company that must implement government policy Government, is facilitating the increased participation by the and priorities. private sector in the provision of new capacity. 26 Chief Financial Officer’s commentary 29 Our group performance 18 19 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Message from the Chairman continued The Generation recovery plan was refocused with a stronger BUILDING A HIGH-PERFORMANCE ETHICAL Besides focusing on the immediate priorities of turning around I have run my leg of the race as best as was possible, and I hand emphasis on EAF recovery, with the aim of improving CULTURE Generation’s performance, Eskom is moving ahead with the over the baton to Dr Nyati, to run his fair share of this complex performance at six priority stations that would provide the Culture eats corporate strategy for breakfast – the success of separation into three legal entities in a transformed energy race. I am confident that he, together with the collective biggest benefit to the system as they contribute more than Eskom’s turnaround plan rests on the ability to mobilise and market. Beyond that, the focus has to be on future-proofing leadership of the Board, will ensure continuous stability and 50% of the unplanned load losses, together with sustaining rally Eskom Guardians behind the recovery of operational Eskom and responding to the very real threat of climate change, improvement in the public trust in Eskom; the gains made so performance at well-performing stations. Planned work performance. This involves looking after our people and through the Just Energy Transition. Potential opportunities far provide fertile ground for sustaining improvement and includes capacity recovery projects and critical projects to implementing a high-performance ethical culture to improve for public-private partnerships are being explored to fund JET enduring on the journey to success. I have confidence in the sustain performance. employee morale, through deploying appropriate reward initiatives, subject to the conditions of the debt relief and with Eskom Guardians to continue working together as a winning and retention strategies to ensure that pockets of excellence the support of National Treasury. The Komati repurposing and team – just like our indomitable Springboks – to stabilise To influence the electricity demand profiles of customers for are retained, and that underperformance can be dealt repowering project is but the first step in this plan. the entity and turn the tide towards 70% plant availability the benefit of local, regional and national power system needs, with. In short, we need accountable leadership driving the by March 2025, for the ultimate good of the country and the energy efficiency demand-side management programme entrenchment of Eskom’s values for the ultimate betterment CONCLUSION its citizens. has been reactivated and the demand response programme of the organisation. Given Eskom’s importance to the country and the region, we is being expanded to include mid-segment customers and must turn Eskom around to restore South Africa as a “good The ultimate asset and building block lie in the motto of residential smart metering. The biggest contribution that It is important to acknowledge that Eskom’s poor performance country” that successfully contributes to the good of humanity. our country as inscribed in our national coat of arms: customers can make is to use electricity wisely, especially has created a trust deficit within the country. To overcome this With South Africa ranking only 44th out of 169 countries in the !ke e: /xarra //ke – our power lies in harnessing all the diversity during the constrained morning and evening peak times. deficit, the Board, through the Social, Ethics and Sustainability latest Good Country Index – doing particularly poorly in our of thought, capability and leadership of our nation. Working Committee, is redoubling efforts to restore the integrity of contribution to planet and climate – we certainly have our work together we shall overcome! Onwards, forward – Eskom, Eskom will work with the Minister of Electricity, leveraging Eskom, both internally and externally. Adherence to Eskom’s cut out for us. In order to do better, we require the collaboration South Africa! the NECOM structures, to ensure that the Energy Action Code of Ethics, known as the “The Way”, is defined by Eskom’s of all our stakeholders. As Simon Anholt says, “Working together Plan is implemented expeditiously in collaboration with all key six core values – Zero Harm, integrity, innovation, sinobuntu, makes for better policy than working alone.” stakeholders. customer satisfaction and excellence. In building a values- driven, high-performance culture, “The Way” ensures that I am privileged to have served as Chairman of Eskom for a Considering the situation one year after the new Board was second time, especially at this challenging time for our country. Mpho Makwana Guardians not only do things right, but also do the right things. appointed, the Eskom ship is slightly more stable than we My sense of duty has always propelled me to make a positive Chairman found it. The lights are on more than before, with some days Furthermore, to turn around the organisation successfully, we contribution, no matter how small. I thank the Honourable entirely without loadshedding. That said, our recovery efforts must deal proactively and effectively with fraud, corruption Minister Gordhan for the positive, amicable manner in have not fully yielded the desired outcomes, owing to the and the criminal elements that have infected the organisation. which we concluded my tenure, thereby ensuring a seamless extensive work that needs to be done against the backdrop of There must be zero tolerance for fraud and corruption, and the transition to my successor, Dr Mteto Nyati. As a Board, we are a vulnerable and unreliable power system. We are heartened legacy of state capture must be dealt with, to rebuild trust and also grateful to the Minister and to the broader government that the Generation recovery plan is showing green shoots, confidence in Eskom. leadership for their faith in us. We are further grateful for the and I believe there is hope. Minister’s guidance in holding us accountable, to ensure good LOOKING AHEAD governance and ethical leadership, and judicious execution of FINANCIAL CONSIDERATIONS Eskom’s challenges require systemic solutions. The shareholder Eskom’s mandate. As our acting CFO points out, operating challenges during has created an environment that will enable the effective the 2023 financial year continued to hamper Eskom’s financial execution of the President’s Energy Action Plan. To do performance, with the most significant contributor to the this, we also require a passionate and engaged workforce. worsening net loss coming from the effects of generation The Board has identified a number of challenges, such as low supply constraints, both through increased costs and revenue staff morale; lack of skills in some critical areas; leadership lost through loadshedding. quality and instability; lack of trust; operating in a climate of fear; crisis fatigue and burnout; and are working on initiatives On the other hand, the debt relief announced by Government to address these. towards the end of the financial year will go some way towards improving Eskom’s financial sustainability, with Government Ensuring leadership stability is critical to Eskom’s ongoing pledging to provide relief of R254 billion towards Eskom’s debt recovery and success. Key to this is the appointment of a servicing costs over the debt relief period, although this comes permanent Group Chief Executive and filling other executive with strict conditions. vacancies. Regarding the recruitment of the GCE, we are working in constant partnership with the shareholder. We Credit ratings remain at sub-investment grade level, with have resubmitted a list of candidates for the shareholder’s investors raising concerns around Eskom’s high debt burden consideration, in line with the requirements of the company’s and arrear municipal debt, operational challenges and MOI. We are confident that the process can be concluded loadshedding, as well as lack of long-term certainty around by the end of the year. The intention is that Mr Calib Cassim electricity tariffs. Successful implementation of the turnaround returns to his role as CFO once a permanent GCE is appointed, plan and maintaining a positive outlook for the South African and we are in discussions to renew his contract which comes economy remain critical to improve credit ratings. The to an end in December 2023. This will be done in consultation announcement of the debt relief has had a significant positive with the shareholder. impact on Eskom’s ratings. 20 21 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Chief Executive’s review Towards the end of the year, the Generation recovery plan was refocused with a stronger focus on EAF recovery, with the focus on six priority stations that would provide the biggest Despite the relatively good performance, we acknowledge the effect of the underinvestment in our networks, and the constraints that imposes on connecting new IPP capacity. Grid connection benefit to the system by improving their EAF as they contribute capacity in the Northern Cape, Eastern Cape and Western Cape more than 50% of the unplanned load losses: Duvha, Kendal, has been depleted. Grid capacity constraints limited the capacity What stood out about the past year? Kusile, Majuba, Matla and Tutuka. Work includes capacity procured under bid window 6 of the RE-IPP Programme to Without a doubt, 2023 was one of the toughest years we’ve recovery projects and critical projects to sustain performance. 1 000MW, much lower than the target of 2 600MW. ever experienced. It’s a great pity that Eskom’s centenary year has been totally overshadowed by the poor performance of Liquidity constraints continued to hamper the execution of Transmission is increasing the asset renewal investment our generation fleet, with all the challenges – both operational capital projects and outages, with outage readiness impacted progressively over a five-year period to the required and financial – that this brings. most. Funding constraints contributed to the full outage sustainability level to mitigate the risk of equipment failures. programme not being executed, with some outages deferred Significant investment in the distribution grid is required to Our generation plant performance dropped to even lower to the next financial year. However, funding has been made sustain and improve network performance going forward. levels than the previous year, and loadshedding intensified even available in the 2024 financial year, and we should see this further, with 34 days of stage 6 loadshedding, almost unheard improving with the expected improvement in liquidity due to The impact of theft and vandalism on both our transmission of before this, except for one day in December 2019 when Government’s debt relief. and distribution networks is also becoming more apparent. stage 6 was implemented for the first time. However, we have Responding to these incidents diverts resources from attending to to remember that loadshedding is required to protect the At Koeberg Unit 1, the steam generator replacement and normal faults, impacting service levels to customers. Additionally, power system given the constrained generating environment. scope to enable long-term operation is being executed, which energy losses due to a culture of non-payment, illegal connections, Higher stages of loadshedding also don’t mean that we’re is critical to allow Koeberg to operate for a further 20 years to theft and vending fraud remain unacceptably high. fire in September 2022, which has delayed the delivery of that approaching a blackout – that is exactly what loadshedding is 2044. However, the slip of almost five months on this outage unit to the system by about a year. If you add the Koeberg Kusile Unit 4 achieved commercial operation on 31 May 2022, intended to avoid. is great cause for concern, especially as it has a knock-on effect Unit 1 extended planned outage, it means that over 4 500MW although as expected – and similar to other new build units – it on the planned outage of Unit 2, which is meant to commence The unprotected and unlawful strike action we saw in June and has been offline for an extended period, further adding to is not yet operating consistently at full capacity. Interventions, almost immediately after Unit 1 returns to service. The outage July 2022 after wage negotiations deadlocked had a devastating the constrained system and resulting in either higher levels which include the new build defects correction process, is in on a single unit accounts for almost one stage of loadshedding, impact on the system, with widespread disruption of our of loadshedding being required or significantly higher spend place to optimise performance. Construction and commissioning at a time that we can ill afford it. operations due to high levels of staff absenteeism, leading on OCGTs. activities on Kusile Units 5 and 6 continue, despite the setback to unheard-of levels of unplanned losses, caused by either Other than the delays to outages, our Koeberg plant continues suffered as a result of the gas air heater fire at Unit 5. At Medupi, Our turnaround plan continues to focus on operations deliberate sabotage or just neglect of plant due to employees to perform well, within all safety parameters. the focus remains on completing the remaining scope on the recovery; financial recovery, which covers improving the staying away, exacerbated by disruption of coal handling balance of plant work, executing major plant defect repairs and income statement and strengthening the balance sheet; people, Initially, relative particulate emissions performance improved operations. Some areas of plant still have not fully recovered resolving claims towards project close-out by December 2025. culture and ethics; and driving legal separation. The aim is to since the prior year due to focused maintenance of generating from the effects of the strike action. On the positive side, a position Eskom to deliver value within the broader national plant. However, performance then declined drastically, to the The rollout of the major boiler plant defects solutions great many of our Eskom Guardians chose not to participate efforts to drive reform in the electricity supply industry. worst levels since 1995. The biggest contributor to the poor at Medupi and Kusile that require unit outages has been in the strike action, but worked tirelessly to keep the lights on – we owe them a debt of gratitude for their unfailing performance is Kendal, with further damage suffered during completed, leading to a significant increase in performance Can you expand on the operational performance over the the strike action last year. Furthermore, as system constraints (until the failure of the Kusile flue gas duct). commitment to this country. past year? increased – limiting our ability to do maintenance to address The poor plant performance continues to have a significant As I’ve said, one of the stand-out features of the 2023 financial emissions challenges – performance has not shown a turnaround. We are making progress on our battery energy storage project, impact on financial performance – both in the form of year was the dismal performance of the generation fleet. Plant with construction on three of the packages expected to be diesel burnt to sustain supply, and also sales lost through unavailability in excess of 30%, coupled with a shortfall in Nevertheless, Eskom’s total CO2 emissions declined by 9.5% completed during the coming year. However, phase 2 of the loadshedding. Other factors which negatively impact financial supply by IPPs, resulted in severe capacity constraints, leading from 2022 in line with the decline in EAF, dipping to below project has been put in abeyance due to the suspension of performance are the lack of cost-reflective tariffs – although to 280 days of loadshedding during the year – that amounts 200Mt for the year for the first time since 2004, after peaking funding for new capital projects as part of Government’s debt we have seen some progress in that regard – as well as the to about five days per week for the entire year. The capacity around 233Mt in 2014. This bodes well for the country’s relief conditions. escalating arrear municipal debt and unsustainable debt levels. constraints limited sales to local customers as well as exports progress against the climate commitments made in terms of the We are grateful to National Treasury for the progress in dealing to neighbouring countries, negatively impacting potential Paris Agreement. Tell us more about the people, culture and ethics area of with our debt burden and municipal debt. The acting CFO revenue growth. Cross-border imports, mainly from Cahora the turnaround plan covers all matters related to financial performance in his report. Bassa, assisted in supplementing capacity. Although water performance met the target for the year, poor Through this focus area, we aim to prepare the organisation water management practices across the fleet persist, negatively for change, in support of the overarching goal of three legally As we’ve said before, we have to balance sufficient levels of In the past year, we saw the lowest levels of plant availability, impacting overall water performance. We recognise that in separated subsidiaries under Eskom Holdings, in line with DPE’s liquidity and spend to improve generation plant performance, with EAF dropping to 56.03% for the entire year, and even a water-scarce country, we need to do more to protect this Roadmap. and also the use of diesel turbines to limit the level of below 50% during March 2023. We also had the highest precious resource. Regrettably, the poor performance of the loadshedding given the poor generation plant performance. unplanned unavailability, and the longest continuous system often prohibits taking plant out of service to attend to In the previous year, we launched our culture transformation Furthermore, we must invest in our plant to ensure loadshedding at the highest stages that the country has ever many of the challenges causing the poor performance. programme, refocused on our values, as a key enabler of the environmental compliance. suffered. turnaround plan. We have made progress embedding the Transmission system minutes performance declined culture transformation in the business. Given our aspirations Despite all the negatives, many areas of the business continued To mitigate against higher levels of loadshedding, OCGTs had significantly, with an abnormal number of interruptions due towards a high-performance ethical culture, the strike action to perform well. We delivered Kusile Unit 4 in May 2022, to be utilised frequently to support the power system, resulting to various factors. The number of interruption of supply we saw last year was truly disappointing. However, I am although that achievement was overshadowed by the collapse in the highest OCGT usage we’ve ever experienced. We spent incidents increased, partly due to switchgear failures brought pleased by the peaceful way in which the recent round of of the flue stack in October 2022, which took Kusile Units 1, 2 almost R30 billion on Eskom-owned and IPP OCGTs during on by loadshedding. Distribution network performance wage negotiations was concluded. This is the first time in more and 3 out of service for almost a year. Together with Medupi the year, at load factors of 14.3% and 12.5% respectively, far remained stable and continued to perform better than than a decade that we have reached an agreement during Unit 4, which remains out of service until the second quarter in excess of our planning assumptions. We also experienced target on all measures, although distribution infrastructure the collective bargaining process, which is testament to the of the 2025 financial year due to a generator explosion, the high coal demand from more expensive power stations due was also affected by consequential faults related to national strengthening of partnerships with Eskom’s trade unions. The combined unavailability contributes around three stages of to generation performance challenges. This all comes at great loadshedding and overload trips. fact that this was done without disruption to the system during loadshedding. Kusile Unit 5 also experienced a gas air heater financial cost, which simply is not sustainable. the critical winter period, as it had been last year, is worth the 22 23 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Chief Executive’s review continued slightly higher settlement than we had planned for. The three- On the Transmission side, the delays relate to obtaining lender focus on recovering performance at the six priority stations, greater emphasis will be placed on operational performance year agreement reached will also bring stability. consent, the appointment of independent non-executive while sustaining performance at stations that already deliver improvement and the financial turnaround of the business, directors for the National Transmission Company South reliable performance. underpinned by an intensive people and culture transformation. Our headcount has reduced by another 2% since the previous Africa (NTCSA), the granting of trading licences by NERSA, year, with a total of 7 064 employees exiting the group since and DMRE designating NTCSA as buyer of electricity. We Initiatives are also being implemented to recover and increase What else does Eskom intend focusing on, both now and 2019. Despite the 7% cost-of-living adjustment granted to have completed all lender engagements and submitted the available capacity to meet demand. This includes the recovery into the future? employees during the 2023 financial year, employee benefit required documentation; now we await approval from the of around 5 000MW of capacity, both from units that are on Something which is sorely needed in the short term is the costs reduced slightly year-on-year, given the headcount various lenders, which is dependent on their internal processes. long-term outage – 2 100MW from Kusile Units 1, 2 and 3; appointment of a permanent Group Chief Executive to bring reduction. We have optimised our workforce plan to The Board has submitted a list of candidates for directors for 920MW from Koeberg; 720MW from Kusile Unit 5 once it is leadership stability to the organisation. We need to fill a number accommodate an increase in headcount over the next five DPE’s consideration, and we await their response. Although commissioned; 720MW from Medupi Unit 4 by the second of vacancies at executive level, as well as invest in depth of years, based on benchmarking and to capacitate Eskom not issued, the award of the three licences by NERSA is a step quarter of the 2025 financial year – as well as 1 500MW by leadership, and look at building skills across the organisation. towards a future-fit organisation in support of the legal in the right direction, and we are hopeful that NTCSA will improving plant performance at designated coal-fired power separation, the implementation of clean energy technology and commence trade by April 2024. stations. As part of bringing back capacity, we returned Kusile Units 3 the Just Energy Transition. and 1 by October 2023 using temporary stacks, which have been The Distribution progress is being similarly delayed, as we also We can already see the improvement in the system. At the approved by DFFE, with Unit 2 to follow in November 2023. We are deeply saddened by the loss of one employee and three require lender consent. The granting of distribution licences by start of the winter period, there was much talk of us having Although the units’ output may be lower while utilising the contractors in service to Eskom over the past year. We cannot NERSA is also dependent on the issuance of the transmission to implement stage 8 loadshedding during winter, but our temporary stacks, it will alleviate pressure on the power system. tolerate a single life lost, and we continue to reinforce a culture licences. However, we have recently received PFMA approval generation teams did well to avoid that. Yes, we did see a Our Koeberg team is working tirelessly to return Unit 1 to service of Zero Harm to keep our employees, contractors and the public by DPE of the operationalisation of the National Electricity significant amount of stage 6 loadshedding (more than the by November 2023, although we will not really see the impact on safe. Our lost-time injury rate has been deteriorating slightly over Distribution Company South Africa (NEDCSA). The Electricity entire 2023 financial year), but we did not go beyond that. the system, as Unit 2 will go on outage shortly thereafter. the past few years, and we remain focused on those areas with Regulation Act has to be amended to cater for the separation More recently, we have seen an improvement in unplanned the biggest contribution to our safety performance. of the Distribution activities. We expect that NEDCSA will be unavailability, to levels more in line with our expectations, Good progress is being made on bringing Kusile Unit 5 able to commence trade by November 2025. with EAF reaching around 60% late in July. Although diesel online, with first synchronisation to the grid expected by Are you concerned about fraud and corruption? spend is still unacceptably high, it is in line with expectations, November 2023, and full commercial operation targeted six To be honest, other than the performance of the system, it’s The separation of Generation will be the last to be achieved, and still driven by the shortfall in supply by renewable and months later. We also hope to see the synchronisation of the one thing giving me sleepless nights. In our bid towards a and is expected in 2025. short-term IPPs, as much as by Eskom’s own poor generating Kusile Unit 6 by August 2024, at around the same time as the high-performance ethical culture, we simply must root out the plant performance. Early in August, we reached a point where expected return of Medupi Unit 4 using a secondhand stator. ongoing scourge of fraud, crime and corruption, as well as poor Is an end to the electricity crisis in sight? no loadshedding was implemented during the daytime, with performance and other unacceptable behaviour in general. We As we’ve been saying for quite some time, Eskom alone cannot loadshedding only required during the evening peak and Even with these improvements, we still require about prioritise the protection of employees who participate in the solve the electricity crisis. To this end, we welcome the Energy overnight, to support building up emergency reserves. So there 4 000MW–6 000MW of base-load capacity on the grid, to fight against corruption. Action Plan launched by President Cyril Ramaphosa in July 2022 is definitely light at the end of the tunnel. ease supply constraints and stabilise the grid, creating the space to address the electricity crisis. for much-needed maintenance of Eskom’s generating plant. Since our last integrated report was released, we have The procurement of additional capacity to enable the unfortunately not made much headway in dealing with The plan centres on five key areas: execution of outages by creating maintenance space in the Despite the focus on improving performance in the short to fraud and corruption, largely due to the various operational constrained system will be a critical enabler. Approximately medium term, we remain committed to our strategy of a Just • Fixing Eskom and improving the availability of existing supply, challenges we’ve had to address, with the main focus on 2 900MW has been identified that can be connected in the Energy Transition in the long term to decrease greenhouse gas with adequate capital being made available to execute improving the performance of the generating plant and next two years. The rooftop solar PV initiative has the potential emissions, promote job creation through reskilling, and stimulate required maintenance on generating plant ensuring that we maintain an adequate supply of electricity to deliver 10GW by 2030. We will also be intensifying our economic growth, thereby focusing on long-term growth and • Enabling and accelerating private investment in generation demand-side management interventions to reduce demand. sustainability. However, given the conditions of Government’s to our customers. As the former GCE indicated last year, we capacity, through initiatives such as our land lease debt relief solution, we will not be able to execute all projects on- must realise that it will take time for efforts to improve internal programme as well as 5GW of supply from private sector The Standard Offer and Emergency Generation programmes balance sheet and we will have to explore partnership options. controls across the organisation. Our efforts are also somewhat projects which is expected to come online by 2025 to procure additional capacity from IPPs have been approved. fragmented, further hampering consequence management, although our plans to establish a single investigative unit to • Accelerating the delivery of new generation capacity The first contract for 100MW under the Standard Offer Nevertheless, Government’s debt relief will go a long way coordinate all investigative matters should go some way • Enabling business and household investment in rooftop solar, went into operation on 1 May 2023. Under the Emergency towards improving financial sustainability and liquidity in the towards streamlining our efforts. We remain disappointed with partly through tax incentives and guarantees for solar loans Generation programme, contracts have been awarded to five short to medium term, and we are tremendously grateful to the slow progress by law enforcement agencies in dealing with • Fundamentally transforming the electricity sector participants, with contract signing expected in the second National Treasury for finalising the terms so soon after the matters involving fraud and corruption, although we have seen quarter of the 2024 financial year. announcement in the National Budget Speech in February some notable successes recently. We will work with the Minister of Electricity and NECOM 2023, thereby providing some level of comfort to lenders. to ensure that the Electricity Action Plan is implemented On the transmission and distribution side of the business, we We are already working on ensuring compliance with the We are resolute in pursuing those who have enriched expeditiously in collaboration with all key stakeholders. are investing in the necessary infrastructure to increase grid conditions, to ensure that the support, which will initially come themselves at the expense of our organisation and South capacity and provide grid stability in the context of increased in the form of a subordinated loan, is converted to equity, to Africa. We are ensuring that we have a robust framework in We are painfully aware that the poor performance of the generation being added to the network. To achieve this, public- realise the full benefit thereof. place for zero tolerance to fraud and corruption, and we’re unpredictable and unreliable power system is inhibiting private partnerships will be explored to expedite the delivery strengthening the support for whistle-blowers. We continue economic growth and employment opportunities, with a of 14 000km of new transmission network and 8 000km of new What do you want people to focus on? to collaborate with law enforcement agencies to ensure that devastating effect on businesses and the lives of all South distribution network by 2035. I need our Guardians to remember that we each hold the future in perpetrators are brought to account. Africans. We want to deliver successfully on our mandate our hands. Every one of us has the power to make a difference to to provide a reliable supply of electricity to the country by The ultimate aim of our strategy is to ensure that we supply adequate electricity in a sustainable manner. This means that this great nation. It’s not always easy to see the light at the end of Is Eskom making progress on the legal separation? effectively operating our infrastructure. the tunnel, but if we keep working together, I know we are going over and above our interventions to fix the business, we must We are still fully committed to DPE’s Roadmap to transform the also enable more private sector investment into the industry. to succeed. We cannot lose faith – we must hold onto HOPE! Our immediate focus is reducing the intensity and frequency of electricity supply industry, by implementing business separation loadshedding. This will be achieved by improving the availability This is needed to meet the growing demand, significantly and forming separate wholly-owned subsidiaries to house the of the generation fleet through effective implementation of the reduce our financial dependence on Government, and make Generation, Transmission and Distribution businesses. However, EAF recovery programme, aimed at reaching an EAF level of a positive contribution to South Africa’s environmental and Calib Cassim several external dependencies have hampered progress. 65% in March 2024. This will be delivered through an intensified socio-economic objectives. In the short to medium term, a Acting Group Chief Executive 24 25 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Chief Financial Officer’s commentary Liquidity has been further constrained by SARS disallowing We are also seeking to bridge the gap between our costs and the refund of levies relating to Eskom’s diesel use over several the revenue allowed by NERSA through our turnaround plan. years, with a cumulative amount of R7.1 billion due to Eskom How would you describe Eskom’s financial performance at year end. We are pursuing the necessary legal processes to To address costs, Eskom’s turnaround savings programme aims over the past year? address this dispute. Furthermore, arrear municipal debt has to curtail cost growth, improve efficiencies and identify other We continue to navigate a very challenging operating continued to escalate to unsustainably high levels, amounting to income opportunities. We achieved combined savings and environment, plagued by generation capacity shortages and R58.5 billion at year end (2022: R44.8 billion). other income initiatives of R27.8 billion for the year, exceeding depressed economic conditions. These factors have had a our target of R21.4 billion. The majority of these savings came direct impact on Eskom’s financial sustainability, requiring us Altogether, most of our financial ratios deteriorated over the from containing growth in primary energy costs, other than to make difficult trade-offs between liquidity, the utilisation past year. Eskom’s standalone long-term financial sustainability OCGTs, by optimising coal inventory and pricing. However, of OCGTs to minimise loadshedding for the benefit of the remains dependent on the migration towards cost-reflective these initiatives relate mainly to working capital and do not lead economy, as well as accommodating spend on our operational tariffs, resolving our operating challenges and associated cost to an immediate improvement in profitability. Unfortunately, recovery and capital expenditure programmes. pressures, deleveraging the balance sheet and addressing non- our savings efforts were hindered in large part by the payment by certain customers. Positive strides have been made overspend in OCGTs and fuel oil, which is unlikely to be reined Some of the key areas which contributed to the year-on-year in putting interventions in place to resolve these challenges and in until we have resolved the poor performance of our coal- worsening of the net loss are: strengthen Eskom’s financial position over time, through our fired fleet and South Africa’s generation capacity constraints turnaround plan and with the support of Government. are addressed. R billion 0 11.9 Tell us more about the turnaround plan and efforts to On the revenue side, we are pursuing a migration to cost- industrial and mining sectors were less heavily impacted due to -5 improve financial sustainability reflective tariffs by challenging NERSA’s decisions in court. The the recovery of global commodity markets, leading to higher lack of cost-reflective tariffs and resultant revenue shortfall -10 electricity demand at times from these customers. Our turnaround plan aims to place us on a more sustainable over the past two decades has been a key contributor to footing by focusing on Eskom’s operational and financial -15 (15.2) A 7% salary adjustment was implemented for the majority Eskom’s poor financial performance and reliance on debt. (15.0) recovery. It is important to acknowledge that financial and -20 of employees during the year, with the exception of top operational performance are intrinsically linked, as can be seen (2.9) As I mentioned earlier, NERSA awarded a standard tariff -25 (3.0) management. This was necessary to support Eskom’s from our results over the past year. Calib discussed aspects of increase of 9.61% for 2023, being the first year of MYPD 5. operational stability following the protracted dispute with the operational recovery in his report; I will focus on the main -30 (4.0) We successfully challenged this decision in court, setting aside (3.5) organised labour, which led to industrial action and widespread initiatives of our financial recovery. NERSA’s decision on the valuation of the regulatory asset (31.6) disruption of our operations during June and July 2022. Despite -35 base. Although no retrospective adjustment was granted tax enu e Ts l oil anc e ost her tax this, employee benefit costs have remained relatively stable as Addressing our debt burden is a key component of our efo re Rev CG fue ten anc ec Ot efo re for 2023, NERSA was required to apply the court order for ss b 2) t lo (202 rgy – O rgy – ne dm ain t fin sb ) los (2023 we were able to contain the salary adjustment to inflationary turnaround plan, to ensure the long-term financial sustainability e e n e ary e a n N e e t the remaining two years of MYPD 5. Consequently, NERSA N ary Prim Rep airs N levels and absorb the increase through savings in other areas, of Eskom. During the year, we received R21.9 billion in equity Prim announced its revenue decision for 2024 and 2025, equating Increase Decrease Total coupled with a reduction in headcount from natural attrition. support from Government through the Special Appropriation to an average standard tariff increase of 18.65% and 12.74% Act, 2019, to aid Eskom in meeting its debt servicing obligations. Altogether, EBITDA declined to R38 billion (2022: R53 billion) respectively. Although not addressing the lack of cost-reflective In fact, generation supply constraints, arising from both Going forward, this support package has been replaced by the and we recorded a net loss after tax of R23.9 billion for the tariffs, this decision will help in migrating the tariff path to poor plant performance and delays in commissioning new debt relief measures announced recently, which I’ll cover in year (2022: R11.9 billion). Despite the growth in revenue, the more appropriate levels and will greatly support our financial IPP capacity, had the most significant impact on financial more detail later. Suffice it to say that Government is aware of cost pressures arising from our poor operational performance sustainability going forward. performance for the year. This impact was twofold: increasing the financial and operational challenges that we are facing and reliance on expensive OCGTs to supplement supply as well as and macroeconomic factors led to a weakening of the EBITDA is committed to providing the necessary financial support to negatively affecting sales volumes through loadshedding and margin to 14.66% (2022: 21.39%). Eskom, subject to certain conditions, while also acknowledging load curtailment. the importance of a cost-reflective tariff path. Liquidity remains one of our biggest short-term challenges, Primary energy costs grew by 16.6%, with the growth in with cash and cash equivalents declining to R7.5 billion at year OCGT expenditure being by far the biggest contributor. This end (2022: R15.9 billion). Cash generated from operating was driven by both an increase in production from Eskom- activities amounted to R41.5 billion, largely in line with EBITDA 60 R billion % 25 600 R billion Ratio 18 60 R billion Ratio 2.0 owned and IPP OCGTs as well as significant fuel price pressure performance. However, the reality is that operating cash 50 linked to the global macroeconomic environment. Unplanned flows are simply inadequate to support our highly leveraged 500 16 50 breakdowns and load losses also resulted in much higher use of capital structure, before even considering capital expenditure 40 20 14 1.5 fuel oil for combustion support and the start-up of coal-fired requirements. Total debt servicing requirements – both capital 30 400 12 40 units, along with a growth in repairs and maintenance costs and interest – amounted to R72.2 billion for the year, leaving 20 15 to support the Generation recovery plan and address plant a significant shortfall which required equity support from 10 300 10 30 1.0 performance challenges. Government. 8 0 10 200 6 20 On the positive side, we received a standard tariff increase of With respect to our capital structure, our gross debt balance -10 0.5 9.61% for the year, directly improving revenue. However, this increased to R423.9 billion (2022: R396.3 billion), largely due -20 5 100 4 10 benefit was partially offset by a 5% reduction in sales volumes to the weakening of the Rand affecting foreign borrowings. -30 2 due to the supply constraints I mentioned earlier, together Net finance costs grew by 12% in part due to the growth -40 0 0 0 0 0.0 with lower electricity demand from customers operating in in the debt balance. We also experienced a higher average 2019 2020 2021 2022 2023 Actual 2023 Target 2019 2020 2021 2022 2023 Actual 2023 Target 2019 2020 2021 2022 2023 Actual 2023 Target tough economic conditions. We experienced a decline in cost of borrowings, linked to global inflation and interest rate EBITDA, R billion EBITDA margin, % Debt securities and borrowings, R billion Cash from operations, R billion sales volumes across every customer segment, although the pressures, coupled with lower capitalisation of interest to the Net loss before tax, R billion Gross debt/EBITDA Debt/equity ratio Cash interest cover ratio Debt service cover ratio asset base as the new build programme winds down. 26 27 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Chief Financial Officer’s commentary continued Our group performance Unfortunately, arrear municipal debt has continued to worsen, The conditions place strict restrictions on Eskom’s capital increasing by 30.6% to R58.5 billion at year end. We have been expenditure and prohibit any new borrowings during the debt Our shareholder outlines the strategic objectives for Eskom in the Strategic Intent Statement. KPIs are aligned to DPE’s strategic pursuing various interventions, including negotiating payment relief period, unless written permission is granted by the Minister objectives and the key focus areas of our turnaround plan, with performance across our top 10 KPIs for 2023 set out below. arrangements with defaulting municipalities, implementing of Finance. Given the restriction on new borrowings, we faced an active partnering programme to assist municipalities with additional liquidity risk during the first quarter of the 2024 FINANCIAL PERFORMANCE NETWORK PERFORMANCE their service delivery and revenue collection efforts, as well as financial year, while awaiting promulgation of the Act and receipt Improve our income statement Refurbish our transmission and distribution networks pursuing Eskom’s legal rights through the courts. Despite our of the first tranche of Government support. To manage this and strengthen our balance sheet best efforts, we have not been able to resolve this challenge on risk, we raised an additional R16 billion in funding at the end of System Reduce system 4.71 EBITDA Improve our margins minutes lost minutes lost due to 2023 our own. Government has intensified its efforts to address this March 2023 with the support of National Treasury, and received 14.66% 3.53 margin, % on EBITDA through 2023 interruptions systemic problem through a municipal debt relief plan, which the related disbursements in early April 2023. revenue certainty, 19.70% 4.71 2022 2.88 I will discuss in more detail later. Out of the R78 billion debt relief to be made available during 14.66 cost optimisation and 2022 21.39% (2022: 2.88) 3.53 (2022: 21.39) efficiency 19.02% 3.48 Finally, we are targeting the disposal of non-core assets through the 2024 financial year, we received R16 billion in August 2023 2021 3.53 15.96% the sale of Eskom Finance Company SOC Ltd as well as various and R20 billion in October 2023. A further R8 billion is 2021 11.67% underutilised properties, in line with our real estate strategy. anticipated to be received during the third quarter, followed Reduce the average SAIDI, hours These disposal programmes are under way and remain an area by R34 billion in the fourth quarter. interruption duration 2023 35.5 Improve our ability of focus. Lenders may be concerned about the impact that these Debt service cover ratio to meet our debt 2023 0.58 0.55 35.5 experienced by 38.0 obligations through (2022: 35.5) customers 2022 35.5 conditions have on existing debt and also on the Just Energy 0.58 0.76 38.0 What is the financial outlook for the coming year? sufficient operating 2022 Transition. National Treasury has confirmed that Eskom (2022: 0.76) cash flows 0.74 35.4 2021 We have continued to experience the adverse effects of may continue to draw down on existing facilities in place or 0.30 38.0 2021 generation supply constraints on financial performance during committed prior to year end. Any Government guarantees 0.11 the 2024 financial year, mostly due to the reliance on expensive remain in place until the related debt is fully settled. ENVIRONMENTAL IMPACT OCGT production. As mentioned earlier, this situation will Furthermore, greenfield generation projects may be pursued Debt equity Strengthen our 1.87 2023 Improve environmental performance continue until South Africa’s generation capacity shortages are with written approval from the Minister of Finance. Eskom ratio balance sheet and 1.83 limit growth in debt Particulate Reduce the mass of alleviated. remains committed to South Africa’s Just Energy Transition 1.87 securities and 2022 1.81 emissions, particulates (ash) 2023 0.70 and is exploring potential opportunities for public-private (2022: 1.81) borrowings 1.97 kg/MWhSO emitted from 0.30 We have set aside R19.7 billion for Eskom OCGTs and partnerships to fund JET initiatives, subject to the conditions of 2021 2.03 Eskom’s coal-fired 0.34 R8.8 billion for IPP OCGTs for the 2024 financial year. So far, the debt relief and with the support of National Treasury. 2.31 0.70 power stations, 2022 0.31 we’re projecting to stay within budget on Eskom OCGTs; (2022: 0.34) per unit of energy 0.38 whether we will be able to maintain this will depend on fuel With respect to arrear municipal debt, National Treasury has GENERATION OPERATIONS sent out 2021 0.32 prices remaining below budget assumptions as well as the published two circulars which detail the application process Improve reliability of generation fleet and reduce performance of the coal-fired fleet going forward. In the case and related conditions for municipal debt relief for defaulting loadshedding Specific water Reduce the amount of IPP OCGTs, we expect to exceed the budget for the year as municipalities. The plan will see a municipality’s arrear debt Improve the energy consumption, of water consumed 2023 1.39 EAF, % the Risk Mitigation IPP Procurement Programme (RMIPPPP) balance at 31 March 2023 being written off over three financial availability factor 2023 56.03% ℓ/kWhSO by Eskom’s power 1.39 has experienced further delays and is not providing the years, subject to its compliance with the conditions. We are 56.03 (EAF), which is the 65.00% stations, per unit of 1.45 additional capacity we had planned for. Any increase in spend working closely with Government in implementing this plan (2022: 62.02) ratio of available 2022 62.02% 1.39 energy sent out 2022 1.33 and are finalising the related conditions to stop the growth in energy over nominal 74.00% (2022: 1.45) 1.42 will have to be funded through unutilised budget from the 2021 arrear debt and address the culture of non-payment. National energy 64.19% 1.34 RMIPPPP as well as cost savings in other areas. 2021 Treasury has received applications from several defaulting 73.00% As I mentioned earlier, NERSA has awarded an average municipalities, with 28 municipalities approved to participate in HEALTH AND SAFETY the municipal debt relief programme so far. Collectively, these UCLF, % Reduce the incidence Support a culture of Zero Harm standard tariff increase of 18.65% for 2024, which will aid in 31.92% municipalities account for R26.7 billion or around 46% of the of unplanned outages 2023 recovering the costs associated with our current operating arrear debt balance outstanding at 31 March 2023. 31.92 to improve system 23.00% LTIR Reduce the employee 0.26 challenges. We are monitoring developments in the regulatory (2022: 25.35) availability 23.35% lost-time injury rate 2023 environment, including NERSA’s proposal for the introduction We are conducting bilateral engagements with lenders regarding 2022 14.00% 0.26 (LTIR) for the group 0.30 of a new pricing methodology. In addition, the legal processes (2022: 0.24) (including occupational 2022 0.24 the legal separation process and associated timelines. The 2021 20.04% diseases) 0.30 for a number of court review applications are still under way, transfer of the Transmission Division to the National Transmission 15.50% which collectively relate to the recovery of around R50 billion Company South Africa SOC Ltd is subject to certain suspensive 2021 0.22 0.32 in revenue. Regrettably, these legal processes do take time and, conditions being met, including obtaining applicable lender given the way that the regulatory process works, any amounts consents. We will continue to engage transparently with lenders as awarded in Eskom’s favour can only be recovered through the legal separation process unfolds. future revenue and RCA decisions from NERSA. This means TURNAROUND OBJECTIVES Graph legend Year-on-year performance that Eskom has to carry the shortfall for the time being, which Despite the many difficulties over the past year, we remain Target Performance improved does have adverse implications for our liquidity. set on our objective to place Eskom on a more sustainable Actual (target met) Performance stable footing going forward, through the turnaround plan and with Operations recovery Actual (target not met) Performance declined We are tremendously grateful for Government’s continued the support of our stakeholders. Ultimately, this requires financial support and assistance in deleveraging Eskom’s balance resolving Eskom’s capital and tariff structures, delivering on Financial recovery sheet. The Eskom Debt Relief Act, 2023 was promulgated in our operational recovery and bringing much-needed structural OTHER METRICS July 2023 and will provide relief of R254 billion towards Eskom’s reforms to the electricity industry. Above are some of the KPIs used to measure our overall debt servicing costs over the debt relief period. Of this, People, culture and ethics performance. We also make use a number of other metrics R78 billion has been committed for the 2024 financial year. The to monitor performance across our business, which are support will initially take the form of a subordinated loan, to be Legal separation highlighted throughout the report and in the supplementary converted to equity once we have demonstrated compliance Martin Buys information from page 158. with the related conditions. Acting Group Chief Financial Officer 28 29 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Considering material matters Material matters encompass the high-likelihood, high-consequence factors that have a significant influence on our ability to create, preserve or erode enterprise value over the short, medium and long term. Our evaluation includes both positive and negative matters, considering their impact on the six capitals as well as alignment with our turnaround objectives. By focusing on these material matters, we ensure that our strategic decisions, resource allocation and efforts are directed towards addressing the most critical factors that contribute to our long-term sustainability and value creation. The materiality determination process filters matters based on their relative importance. It starts with the previous year’s material matters, and then considers: • Changes in our operating environment • Matters considered by the Board and its committees • Issues raised by stakeholders • Outcomes of our risk management process • Significant events over the past year As a result of this process, we have identified the following material matters, which, if not managed properly, will negatively affect our ability to create and preserve value. Item Material matter Description Related turnaround objective Liquidity and going Our ability to maintain financial viability and meet our M1 concern in the short to obligations in the future. It encompasses all elements of financial medium term, and performance, such as revenue generation, cost management, ultimately, financial and long-term financial planning. It further considers the sustainability over the availability of sufficient cash and resources to meet short- to long term medium-term obligations and ensure our ability to continue operating as a going concern. It relies to some extent on funding activities, and other challenges such as payment of arrear municipal debt Government support and The extent of Government support and assistance to Eskom, M2 debt structure including the management of our debt structure to ensure financial stability and sustainability, together with support to recover arrear municipal debt. It also covers funding raised, as well as debt servicing into the future Improving operational Efforts to enhance the stability and reliability of our operations M3 stability to lessen the to mitigate the electricity crisis, ensuring a consistent and secure electricity crisis supply of electricity to meet the needs of consumers and industries. It covers our generation plant and network performance, as well as ensuring sufficient generation capacity through the new build programme and IPPs, and also considers primary energy security. The increased supply of electricity would have a positive impact on financial performance, through additional revenue generated. Operational stability further relies on sufficient liquidity to plan and execute work effectively Environmental Adherence to environmental regulations coupled with efforts to M4 performance and minimise our environmental impact through sustainable compliance practices, emission reduction and renewable energy initiatives Our strategic context Climate change and Strategies and actions in response to climate change, including M5 Eskom’s Just Energy the transition to cleaner energy sources, reducing carbon Transition emissions and promoting a sustainable and equitable energy transition aligned to the goals of the Just Energy Transition Leadership quality and Ensuring consistent and effective leadership within Eskom to 31 Considering material matters 33 Operating context   M6 stability provide strategic direction, decision-making, and stability, which is crucial for addressing challenges, implementing reforms, and driving organisational performance 38 Our strategy and turnaround plan 46 Integrating risk and resilience 53 Engaging with stakeholders 30 31 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Considering material matters continued Operating context Item Material matter Description Related turnaround objective Adequate skills in a Fostering a work culture that promotes high performance, WHAT THE WORLD EXPECTS … M7 high-performance ethical ethics, and integrity while ensuring that Eskom has the necessary Globally, there has been a move by stakeholders, most notably investors, towards assessing the sustainability and culture skilled workforce to effectively manage operations, drive ethical impact of an organisation by assessing how it approaches environmental, social and governance (ESG) matters. innovation, and address future challenges This acceleration has been driven by heightened social, governmental and consumer attention to the broader impact of Fight against fraud, In order to turn around the organisation successfully, we have to corporations, as well as by investors and executives who realise that a strong ESG proposition can safeguard the long- M8 corruption and crime deal proactively and effectively with fraud, corruption and the term success of a company. ESG investors seek to ensure that the companies they fund are responsible stewards of criminal elements that have infected the organisation the environment, are good corporate citizens and are led by accountable managers. Eskom has embraced sustainable Governance, compliance Upholding strong corporate governance practices and ensuring development and has been reporting related performance since the mid-1990s; in more recent times, we have been M9 and ethics compliance with relevant laws, regulations and standards to providing insight in respect of ESG-related initiatives through our integrated report and now, also through our promote transparency, accountability and ethical conduct within sustainability report. Eskom’s operations Progress on legal Advancement of the legal separation of Transmission, M10 separation Distribution and Generation based on DPE’s Roadmap, which involves the separation of our operations into separate The benefits of using an ESG framework is that we can leverage Poor generation plant performance and system-wide capacity subsidiaries to enhance operational efficiency, transparency and this information to identify opportunities for continuous constraints remain a significant risk for both Eskom and the accountability improvement to create a business that will be sustainable in country. Although this risk has become a reality, resulting all respects in the long term. More importantly, it serves as a in sustained high levels of loadshedding over the past navigation framework, guiding us to address our weaknesses year, uncertainty remains around the likelihood of further and threats, to focus on our strengths, and to take advantage deterioration despite the implementation of treatment plans. of emerging strategic trends in the electricity sector, specifically The outlook for the coming year remains poor, unless the in terms of the financial, operational and structural challenges Generation recovery plan and plans by the National Energy that must be overcome to ensure our ongoing business Crisis Committee are successfully executed within the sustainability. expected timeframes. As a state-owned company, Eskom supports and enables The frequent implementation of loadshedding and the Government’s transformation objectives. The shareholder current economic climate pose additional risks to the business compact with DPE reiterates that, given the inherent sector, as some businesses close or downsize. South Africa is dual mandate of SOCs, Eskom is required to pursue both experiencing a growth in unemployment, topping the global commercial and socio-economic objectives. We give effect to charts for youth unemployment. These factors have a ripple DPE’s Transformation Framework and Guidelines which seek effect on socio-economic conditions and are likely to lead to maximise the impact of developmental and transformation to even worse poverty levels, household unaffordability and objectives as set out by Government. inequality, to highlight but a few of the risks associated with our inability to meet demand. In recent times, although we remain committed to supporting transformation of the economy, our contributions have OUR ENVIRONMENTAL IMPACT been constrained by our challenged operating paradigm. Eskom contributes about 47% of South Africa’s greenhouse Furthermore, we have not adequately leveraged the magnitude gas (GHG) emissions, which means that achieving net zero of our spending power and the broad spectrum of initiatives emissions will be dependent on our ability to reduce carbon that we are pursuing due to a fragmented approach to emissions. At the same time, investment in the coal industry is transformation. declining, while investment in clean energy is on the increase. This will ultimately affect the availability of coal in the long A significant opportunity to drive transformation arises as term. While the Russia-Ukraine crisis has led to an immediate we gear up to drive the implementation of our 2035 strategy, increase in coal demand and a significant impact on fuel which includes our Just Energy Transition. In view of the prices due to limited supply of oil, trends indicate that global magnitude of capital spend that will underpin the required investment continues the shift towards clean energy. undertakings of the 2035 strategy, we have an opportunity to play a key role in facilitating investment to accelerate Eskom has also become the world’s biggest emitter of sulphur transformation and meaningfully support Government’s dioxide (SO2), with 97% of our SO2 emissions associated with objectives as articulated in the NDP’s Vision for 2030. coal combustion for power generation. Increased ambient levels of sulphur dioxide pollution is linked to an increased OUR IMPACT ON THE WORLD frequency in ailments ranging from asthma to heart attacks. South Africa’s economic growth has been constrained, with the The requirement to comply with environmental legislation impact of loadshedding exacerbating the situation. This puts and the impact our operations have on the health and a strain on most customers’ ability to pay for services, which environment cannot be ignored. This, together with South manifests itself in lower payment levels and related growth in Africa’s commitments to the Paris Agreement, means that municipal debt, which stood at R58.5 billion at the end of the Eskom – as one of the most significant contributors to South financial year. If the current trend continued unabated, given Africa’s emission challenges – has to lead in finding an optimal worsening payment levels being experienced, it is expected way of achieving compliance, while ensuring security of supply. that municipal debt would reach R209 billion by the 2028 This balancing act needs to consider technological practicalities financial year, the end of the current planning horizon. and also factor in the knock-on effect on the cost of electricity 32 33 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Operating context continued supplied to customers. Nevertheless, it is a challenge to find ESKOM’S RESPONSE TO THE CHANGING INDUSTRY TRENDS: THE ROLE OF THE FOUR Ds the balance between the cost of stabilising existing plant, which ELECTRICITY SECTOR The following major industry trends are shaping the future of the electricity sector, which can be summarised along four key themes, seeks to improve the availability of generating capacity reliably, Globally and locally, the energy sector is transforming, driven namely decarbonisation, decentralisation, digitisation and democratisation. and the cost of retrofits required to ensure environmental by fundamental shifts in policy, technology, economic and compliance, which adds no capacity nor improves reliability. environmental demands. The industry is evolving from a predictive, vertically integrated model based on centralised The alignment with global environmental commitments is generation flowing in a single direction towards a decentralised, not limited to Eskom, but also driven by some of our largest modular model based on bidirectional flow of power enabled customers, who are looking to find sources of clean energy to by smart metering. This introduces new players to the industry remain competitive in the export market. Current estimates and an unfolding series of demand-centric, value-adding indicate that 33% of South Africa’s trade export is at risk; applications. The most significant of these is the shift towards this number is likely to increase to over 50% of the country’s greener, cleaner technology, which aims to reduce overall exports being negatively affected by the introduction of carbon Democratisation Decarbonisation emissions in line with global and South Africa’s commitments to Eskom aims to democratise access to energy by The global shift towards reducing carbon border tax adjustment mechanisms by the European Union. the Paris Agreement. making it affordable and inclusive, ensuring that emissions is prompting Eskom to transition from everyone, regardless of their socio-economic fossil fuels to cleaner energy sources, contributing status, has equal opportunities to benefit from to a sustainable and low-carbon future reliable and sustainable energy solutions YESTERDAY TOMORROW GENERATION Decentralisation Digitisation Few large power plants Many small power producers Moving away from centralised energy systems, Leveraging digital technologies and innovative Eskom embraces distributed generation, solutions, Eskom enhances operational efficiency, empowering communities to generate their own grid management and customer experience, electricity and fostering energy independence embracing the power of digital transformation in the energy sector MARKET Centralised, mostly national Decentralised, ignoring boundaries OTHER CONSIDERATIONS environmental challenges, which is further compounded by Eskom is the 106th global utility to implement unbundling, which skills challenges. In addition, Eskom has had to contend with is an important step to enable more private generation capacity financial challenges driven by a weak balance sheet due to a to be added to the transmission grid. The establishment of high debt burden, below-cost-reflective tariffs, declining sales, an Independent Transmission System and Market Operator above-inflationary cost increases and escalating arrear municipal TRANSMISSION (ITSMO) is a key milestone to attract the estimated R1 trillion debt. Due to historical underinvestment in the transmission investment in generation that South Africa needs over the next and distribution infrastructure due to the need to allocate Based on large power lines Including small-scale transmission and regional supply compensation decade to meet the growing electricity demand in the long funds to address generation challenges, the network business term. This also implies that we will see a rise in competition, finds itself with a significant backlog in the refurbishment and specifically in the generation and distribution sectors, and not strengthening of the network, together with the geographical only the retailing of electricity but also in network provision. expansion and ultimately, the capacity of the network to connect customers to the grid. DISTRIBUTION While the world around us continues to evolve, we have experienced significant operational, financial and structural These dynamics are all important considerations in our ability to Top to bottom Both directions challenges in the latter part of our 100-year journey. These deliver on our mandate, and have affected vital national priorities have ranged from operational challenges in the ability of the such as economic growth, job creation and efforts to combat Generation business to recover declining plant availability, poverty in South Africa, while further denting our poor reputation evidenced by the all-time-low energy availability factor, to linked to loadshedding and corruption. CONSUMER Passive, only paying Actively participating in the system 34 35 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Operating context continued • Policy and funding shifts towards • Low GDP growth, further The Energy Action Plan sets out the country’s response to address loadshedding and achieve energy security. cleaner and decentralised impacted by the COVID-19 The plan has five key interventions that will be implemented through NECOM, under the leadership of the Minister of generation pandemic and the impact of Electricity. These interventions and assumptions are outlined below: GLOBAL loadshedding • South Africa signed the Paris Agreement and pledged its • Stringent environmental support towards net zero compliance requirements TH A F R I C A emissions by 2050 S OU (e.g. MES and CO2) OBJECTIVE 1 We have submitted a net metering tariff for residential customers • Coal shortages driving up primary Fix Eskom and improve the availability of existing to NERSA for approval. This should encourage households and • Renewable project costs energy cost supply businesses to invest in their own generation capacity, contributing decreased by 88% since 2011 SU PPLY to supply and reducing demand. This is also in line with the C IT Y IN We have developed an EAF recovery plan, which is set to deliver conditions outlined in Government’s debt relief package. RI 6 000MW by 2025 and achieve an EAF level of 65% by the D CT US • Policy and regulatory E LE end of March 2024, with 70% by the end of March 2025. Our OBJECTIVE 5 TRY considerations (NDP, IRP, outage funding has been adjusted to ensure that adequate capital Fundamentally transform the electricity sector • Eskom legal separation and is available to execute required maintenance on generation DPE Roadmap, etc.) financial sustainability risks plant. Demand-side management interventions will also be • Removal of the licensing implemented over the period. The estimated impact of these Eskom is working resolutely to ensure the establishment of the • Operating challenges: threshold for embedded interventions is around 1 450MW over the next three years. National Transmission Company South Africa (NTCSA). Upon deteriorating coal plant generation in 2022 – increase in the promulgation of the Electricity Regulation Amendment performance private power generation OBJECTIVE 2 Act and receipt of licensing, lender and relevant enabling • Environmental challenges: legal Enable and accelerate private investment in approvals, the independent market is expected to start trading contraventions and associated generation capacity from 1 April 2024. This will further stimulate investment in the costs of achieving full compliance electricity supply industry, as independent electricity suppliers The latest forecast from the Presidency indicates that more will be able to sell their electricity in the market, reducing than 9.6GW of new capacity in the form of private sector pressure on our ageing fleet and providing space to execute We have long said that our challenges require systemic through the Energy Action Plan, deals with all aspects of the projects is in the pipeline, with around 5GW planned to come much-needed maintenance. solutions. Eskom, like many other utilities, must navigate the electricity ecosystem, is chaired by the President and includes the online by 2025. We are also in the process of implementing competing demands associated with the energy trilemma, that key ministries required to enable faster decision-making, unlock the innovative land lease initiative which is set to release up Given the systemic nature of the electricity ecosystem, all is, energy security, energy equity (i.e. access and affordability) bottlenecks and enable faster deployment of interventions to to 31 000 hectares of Eskom land with a potential solar PV of these levers have to deliver as planned, and the required and energy sustainability, including the impact thereof on recover from the electricity crisis. capacity of around 11GW that could be connected to the grid enablers and inherent risks which are outside our sphere of everyday lives. Our 2035 strategy aims to find the optimal rapidly, given the proximity to existing network infrastructure. control will need to be managed through NECOM structures balance between prioritising operational, financial and Despite the focus and endeavour of NECOM-led inter- to deliver an effective impact on reducing the electricity crisis. structural recovery from the challenges that are threatening stakeholder interventions to redress the electricity supply OBJECTIVE 3 our ongoing business sustainability, and also respond crisis, the start of the 2023 calendar year was fraught with Accelerate new generation capacity Assuming that all of these interventions materialise and deliver effectively to the global and local transformation shaping the unprecedented levels of loadshedding. The heightened levels on their objectives, there should be a net increase in South electricity sector. of loadshedding had debilitating impacts on every facet of our Africa’s generation capacity of around 10 000MW by 2025 society, not least on our healthcare sector, the agricultural This includes procurement of surplus capacity from the earlier taking into account the impact of stations approaching their end sector, small businesses, our water infrastructure and our bid windows from the RE-IPP Programme. We have launched of life and incorporating the embedded generation uptake. This THE ELECTRICITY CRISIS AND THE the Standard Offer programme to procure up to 1 000MW is expected to result in a reduction in the levels and intensity of PRESIDENT’S ENERGY ACTION PLAN transport networks. of additional energy from existing private generators. We are loadshedding in the coming years. We spoke at length in our 2022 integrated report about the also pursuing the Emergency Generation Programme from new This continued downward spiral prompted the President to origins of the electricity crisis gripping South Africa. If we do suppliers that have capacity available immediately to dispatch While we will ensure that we deliver against our commitment announce drastic interventions in the State of the Nation address not respond adequately in the short term, the electricity crisis to the grid as and when required by the System Operator, on the Energy Action Plan, other levers outside our control are on 9 February 2023. The President declared a state of disaster will severely constrain economic recovery over the next five to together with the import of additional power from countries in critical to ensuring the long-term sustainability of the electricity on 22 February 2023 to respond to the electricity crisis and its 10 years, affecting the trajectory of our recovery in the medium the region. supply industry. effects (this was terminated on 5 April 2023). This was followed to long term. If we are to regain credibility as a sector and as by the appointment of Dr Kgosientsho Ramokgopa as Minister an investor-friendly emerging economy, we must cater for a In addition, DMRE is accelerating the procurement of electricity We will play our part in improving fleet performance, procuring of Electricity in the Presidency, to assume full responsibility for whole host of uncertainties. What is certain is that our current through planned IPP bid window programmes, with 1 000MW capacity and enabling a liberalised market to promote investment overseeing all aspects of the electricity crisis response, including trajectory will continue to result in loadshedding, similar to, or in bid window 6 and a potential 5 000MW in bid window 7 in much-needed capacity. Government needs to ensure that the the work of NECOM. even worse than, we have seen over the last few years. The expected to come online by 2026, subject to the availability enabling policy is in place for the investments to be made. Fixing choice we have to make is very clear, and premised on the of grid capacity. This follows a ministerial determination of the existing fleet alone is not a sustainable solution in the long As Eskom, we are grateful for these interventions, as we need to transform and leverage the opportunities presented by 18 000MW of new generation capacity from wind, solar and term. Investment in new generation infrastructure will be critical continue to emphasise that Eskom alone cannot address the the imminent energy transition. battery storage that was published in August 2022. for the long-term sustainability of the electricity supply industry. electricity crisis. We will work with the Minister of Electricity to ensure that the Electricity Action Plan is implemented On 25 July 2022, President Cyril Ramaphosa announced the OBJECTIVE 4 expeditiously in collaboration with all key stakeholders, establishment of the National Electricity Crisis Committee Enable business and households to invest in acknowledging that “in a time of crisis, we need a single point (NECOM). It provides an integrated political coordinating rooftop solar of command and a single line of march”, as the President platform for the response to the energy crisis, to address pointed out. loadshedding and enable the reforms necessary for the long- Homes and businesses will be incentivised to install rooftop PV term sustainability of the electricity supply industry. NECOM, systems, and sell surplus energy generated to the grid. The IRP 2019 is being reviewed, which will provide an updated view of the supply- and demand-side levers available. 36 37 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our strategy and turnaround plan OUR STRATEGY IN A NUTSHELL demonstrate positive environmental and socio-economic impacts. In the short to medium term, focused effort on LEVERAGING THE TRANSITION While our focus is on delivering the outcomes of the performance improvement and optimisation to turn the While the reality of the energy transition is influencing our strategic direction, we must resolve our financial, operational turnaround plan, a deliberate focus will be placed on aligning business around is critical, as is the financial turnaround. and structural challenges to create a sustainable platform that allows us to leverage opportunities as the country’s policy future investments and aspirations with the imminent transition. direction supporting the energy transition unfolds. Consequently, in the shorter term, we must focus on our turnaround By driving a just energy transition (JET), Eskom will be enabled To achieve our desired end state and to ensure an integrated to address many of our immediate challenges in the short approach to delivering the ambition, we have revised our plan, which, when achieved, will provide a foundation to pursue our longer term strategic trajectory. Our pursuit of a term, while facilitating long-term growth and sustainability. The strategic objectives to incorporate internal and external transitioned utility involves a gradual move towards balancing the response to the short-term crisis with the long-term JET will also assist with supporting national goals to decrease developments. The objectives will ensure greater urgency on sustainability of the company. the turnaround and to ensure that the immediate interventions greenhouse gas emissions, promote job creation through reskilling, and stimulate economic growth. deliver the desired outcomes to set the organisation on a path to sustainability. Consequently, our focus for the next two to The aim of our strategy is to contribute to providing electricity three years is to execute the turnaround and legal separation, to meet growing demand, have a significantly reduced while positioning the organisation for the transition. IGNORE THE TRANSITION RESIST THE TRANSITION LEVERAGE THE TRANSITION financial dependence on the South African Government, and OR OR STATUS QUO DEGENERATE TRANSFORM Harness the transition to Decommission as per IRP 2019, Pursue life extensions address critical challenges: no ambition for future capacity for existing assets environment, capacity, finance, allocation Maintain the current configuration socio-economic Delay legal separation and grid of Distribution business Adopt alternative Distribution expansion efforts Postpone connections of small- model for implementation Preserve current Distribution scale embedded generators business model PROGRESSIVE Turnaround JET objectives Level of focus = Eskom actively supports objectives Accelerate repurposing Strategic objectives South Africa’s economic growth and repowering of SHRINKING REGRESSIVE = Pioneering a Just Energy Operations recovery stations Fix the current business = Eskom business with no future = Continuing the energy crisis Transition (JET) model with Implement an global replicability Financial recovery integrated socio- Prepare for competition People, culture economic strategy and ethics Actively pursue Leverage technology renewable energy Legal separation allocation Transition responsibly Risks of ignoring the transition Benefits of embracing the transition Short term Medium term Long term ~33% of trade at risk due to implementation of Ensures South Africa’s exports are competitive carbon tariffs by 2030, and up to 56% by 2050 despite growing carbon tariffs Decarbonisation Decentralisation Democratisation Digitisation Trade partners The strategy is not binary, all aspects of the strategy are important, however there is urgent focus on the turnaround to respond to the current energy crisis. Large industrial and mining customers Cheaper renewable energy can be sold to large decarbonising, looking for renewable energy customers looking to decarbonise Customers Some coal plant OEMs indicated they will not Renewable technology is increasingly practical and renew select spares contracts costs continue to decline Suppliers Limited, expensive commercial funding and Abundant funding available, often at concessional insurance available rates Funders 38 39 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our strategy and turnaround plan continued LONG-TERM OBJECTIVES business. Solar PV has the potential to deliver around 10GW We have already identified opportunities where the To guide Eskom’s activities in navigating the complex environment, our long-term strategic objectives have been defined as indicated by 2030. This must be augmented by net billing and the Generation business can leverage its existing assets to below. feed-in tariff framework. Interventions to unlock demand-side participate in the future industry. These include the land leasing management through the rollout of industrial energy efficiency initiative, which has seen overwhelming support from the Fix the current business Prepare for competition Leverage technology Transition responsibly campaigns and the rollout of solar water heaters will be private sector to invest in land, with the first tranche attracting implemented to reduce the gap between demand and supply. more than 2 000MW in renewable energy capacity. Land leasing at, or in close vicinity to, our power stations provides The turnaround programme has received a further catalyst in easy access to the grid to stimulate private sector participation the form of the balance sheet support that will be provided in adding additional generation capacity in the short to medium by National Treasury, aimed at supporting the immediate term. Approximately 31 000 hectares of Eskom land has been operational and financial challenges to position us on a identified for land leasing, with a potential PV capacity of sustainable path. The conditions that Eskom must abide by around 11GW. during the debt relief period have been clearly articulated. In the medium to long term, ancillary services that will be Pursuing financial Facilitating a Modernising our Striving for net zero Refer to “Our finances – Funding activities and risks” provided by gas and pumped hydro storage schemes will play and operational competitive future power system emissions by 2050 IR a critical role in the future energy mix. The Generation team on page 89 for the conditions attached the Eskom Debt sustainability energy industry Relief Act, 2023 will be exploring partnership opportunities to enable it to Expand and strengthen Reduce environmental offset the reduction in market share as a result of stations Recover operational Operationalise the transmission and impact through reaching their end of life with new opportunities in line with the performance – target EAF Independent Transmission distribution networks optimised shutdown While the balance sheet support provided by National evolution of the industry. of 70% by March 2025 System and Market (14 000km and 8 000km plan and development of Treasury will serve as a catalyst to our turnaround efforts, the Operator respectively) renewable technologies ongoing challenges related to municipal debt have reached The establishment of an Independent Transmission System and Address municipal debt critical levels. Municipalities owed Eskom R58.5 billion at year Market Operator (ITSMO) in line with DPE’s Roadmap is critical while migrating to cost- Revise business models Allocated R72 billion Repurpose and repower end, from a level of around R2.6 billion in 2014. The culture of for the sustainability of the electricity supply industry. Enabling reflective tariff to achieve for Generation and to transmission and coal power stations non-payment undermines efforts by Government to ensure additional generators and establishing market platforms will financial sustainability Distribution R32 billion distribution and complete Komati that we are financially sustainable. Technological solutions and attract much-needed private investment in the generation and networks over the next repurposing and battery engagements with various stakeholders are being prioritised to distribution sectors, while reducing reliance on Government’s Procure additional Develop and offer five years storage projects find a sustainable solution to the municipal debt. The municipal already constrained balance sheet. capacity, up to 8 000MW ancillary services to the debt relief initiative recently announced by National Treasury by 2026 market and increase non- Implement technology Promote industrialisation has the potential to go some way towards addressing the Eskom needs to further position itself to respond to the regulated revenue streams solutions to enable and job creation escalating arrear municipal debt challenge. changing environment through the introduction of technology Improve leadership quality distributed generation for better efficiencies and to manage a dynamic network within and stability Pursue enabling policy and (e.g. smart meters) Explore partnership The success of our turnaround plan rests on our ability to regulatory limits, specifically, the establishment of a Distribution regulatory frameworks opportunities to invest in mobilise and rally our people behind the recovery of our System Operator (DSO) to manage and coordinate distributed Entrench an ethical gas and pumped storage operational performance. This involves looking after our generation as a neutral facilitator of open markets; the provision high-performance culture schemes people and implementing a high-performance ethical culture of ancillary and balanced responsible services to the ITSMO towards a values-driven to improve employee morale, through deploying appropriate to secure the power system; and the implementation of active organisation reward and retention strategies to ensure that pockets of partnering to solve incapacity and non-payment challenges at excellence are retained, and that underperformance can be municipalities. dealt with. A key focus of the turnaround plan will involve an emphasis LEVERAGE TECHNOLOGY: MODERNISING on addressing the lack of accountability and consequence OUR POWER SYSTEM FIX THE CURRENT BUSINESS: PURSUING Kendal, Kusile, Majuba, Matla and Tutuka. Although the management, non-compliance with safety standards and The evolution of the electricity supply industry and connection FINANCIAL AND OPERATIONAL RECOVERY initial focus was on the six priority stations, all stations have housekeeping practices, non-adherence to well-documented of large-scale renewable and distributed energy also require This objective encompasses our turnaround objectives, detailed recovery plans which are being centrally monitored procedures, poor operational practices and lack of discipline, as significant strengthening and expansion of transmission and intended to fix the current business, with a particular focus with related actions being tracked. The plans and their well as on improving leadership quality, stability and continuity distribution infrastructure, in line with the stated capacity on generation recovery, financial sustainability and, most implementation are stress-tested by independent consultants throughout the leadership layers. requirements of the Transmission Development Plan importantly, ensuring an ethical and high-performance culture reporting directly to the Board. Generation Division has (TDP), which are cascaded into the Distribution Network among all employees. Following positive developments on regrouped its efforts around focus areas and levers to improve Development Plans. financial challenges, such as the positive revenue decisions people, plant and process performance – these are essential PREPARE FOR COMPETITION: FACILITATING for the next two years received from NERSA and the debt levers to deliver a sustainable improvement into the future. A COMPETITIVE ENERGY INDUSTRY In order to ensure that the rollout of the transmission grid is relief package announced by National Treasury, we are now The entry of additional private generators presents a number not a constraint to adding more generation capacity, innovative in a better position to address the operational challenges that However, primarily due to system constraints, outages continue of risks to the sustainability of Generation’s business. At the ways of delivering more lines are being considered, including were closely related to the financial constraints. Consequently, to be deferred or cancelled, including those on the six priority same time, the penetration of large-scale additional generators concessioning and “build, operate, transfer” (BOT) models. In efforts are being intensified to focus on the recovery of EAF, stations. These constraints correctly result in priority being provides opportunities for the business to participate in the the short to medium term, the Transmission and Distribution procurement of additional capacity and return of units that are given to safety and statutory outages over reliability and emerging market by providing the base-load capacity that businesses will be capacitated to expedite the delivery of on long-duration outages. performance improvement projects. will be required to complement the intermittent nature around 14 000km of new transmission network and 8 000km of renewable energy. This will simultaneously require the of new distribution network by 2035. Additional technology Initiatives to improve EAF and recover load losses will be The procurement of additional capacity is critical to enable the Generation business to ensure that the plant can operate in solutions such as smart meters will enable bidirectional delivered through the Generation recovery plan, initially execution of outages by creating space in a highly constrained a reliable manner and has the capability to operate flexibly in metering that, together with appropriate feed-in tariffs, will focusing on the six priority stations which contribute more system. The Transmission business will contract at least response to the dynamic nature of the system. stimulate small-scale embedded generators, most notably, than 50% to unplanned load losses and where an improvement 2 900MW in the next two years, while concurrently executing greater investment in rooftop solar by customers. will have the biggest positive impact on the system – Duvha, the rooftop solar PV initiative, enabled by the Distribution 40 41 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our strategy and turnaround plan continued We have allocated approximately R46 billion over the next five TRANSITION RESPONSIBLY: STRIVING FOR The first five years of the transition are deemed to be the Over this period, we will prioritise and deliver on the Komati years to address the infrastructure requirements across the NET ZERO EMISSIONS BY 2050 WITH AN most critical to enable the sustainable success of the just repurposing and repowering project and support the efforts Transmission and Distribution businesses to modernise the grid INCREASE IN SUSTAINABLE JOBS transition of both Eskom and the country, and to make a vital of the President’s Energy Action Plan to unlock additional and invest in information technology upgrades. Stricter legislation means that approximately 16GW (33% of contribution to economic growth, job creation, socio-economic capacity through more innovative land leasing initiatives. This our installed capacity) is at risk of being shut down immediately development, and laying the foundation for a stable, equitable will also include partnering with the private sector to train our Our IT strategy is focused on solutions to empower the and cohesive South Africa. employees, while enabling future growth. due to non-compliance. Techno-economic indicators also user (both employees and customers) through the use of show that life extension of ageing power stations is not technology and simplifying the user experience. The IT strategy The key focus areas in the immediate and short term include Enabling the transition to renewable energy will improve a viable strategy, given the extraordinarily high cost of is also aligned to enable a digital business transition, specifically refining the approach to the repurposing and repowering of the carbon intensity of South African industries and will prolonging the life of old power stations, the significant cost of within the realm of addressing fraud and high-risk procurement. stations, ensuring alignment with Government’s Just Energy retain competitiveness. Renewables will be enabled through environmental compliance, the impact on the country’s export Transition plans, actively pursuing renewable energy allocations We are investigating the implementation of a robust fraud competitiveness and the negative impact this may have on our partnerships and power purchase agreements (PPAs). Potential analytics platform to identify, reduce and eliminate waste, through partnerships and implementing an integrated socio- for local manufacture, optimisation regarding established special industrial and commercial customer base. economic strategy. abuse and fraudulent procurements. Billing and customer economic zones (SEZs) and renewable energy development interface analytics aimed at reducing non-technical losses to We are working with the relevant ministries, specifically the zones (REDZs) will be leveraged. Preparing for the repurposing and repowering of stations support revenue assurance are also being developed. Block Department of Forestry, Fisheries and the Environment (DFFE) is intended to mitigate the socio-economic impact on the chain technology use cases are being investigated to manage to align on an optimal solution for South Africa and Eskom to The proactive approach to planning a just energy transition communities surrounding the stations that will be reaching spending, promote transparency and reduce fraudulent meet minimum emissions standards (MES) and in the medium for Eskom will enable a more integrated approach to socio- their technical and economic end of life. This initiative is meant transactions in the supply chain of goods and services. to long term, and reduce Eskom’s GHG emissions through a economic strategy. Some of the additional benefits of moving to enable and optimise the just transition from coal to more well-controlled just energy transition while avoiding investment towards lower-carbon technologies are the potential to create carbon-efficient electricity generation. Solar PV, wind, battery of more than R300 billion in emission-control equipment. storage and gas are immediate technologies prioritised for new and exciting jobs and a greater preservation of biodiversity repowering initiatives, with investigation of other technologies in South Africa. The increase in investment in cleaner Our focus is on a well-planned, optimised shutdown of stations to be considered in the medium to longer term. technologies will open the door for social upliftment through that are approaching their end of economic life, consistent with job creation, the creation of demand along the electricity the IRP 2019, while mitigating the associated socio-economic It is noted that the conditions of the debt relief package from supply chain, and the development of previously disadvantaged impacts on affected communities. National Treasury precludes investment in new generation groups, including black- and women-owned companies, as well over the debt relief period. The debt relief conditions are also as promoting community-based ownership. The initial focus is clear on the immediate next steps for generation. These entail on reindustrialisation in the Mpumalanga region as a result of STRATEGIC TIMELINES the scale of our operations in this region. that National Treasury, in collaboration with DPE, conduct OUR JUST ENERGY TRANSITION (JET) STRATEGY an independent assessment of Eskom’s operations which will recommend which power stations can be resuscitated to original DEVOLVING THE STRATEGY equipment manufacturer’s standard. As part of this assessment, In driving initiatives within Eskom, we will align with national 0–3 3–5 >5 other options like concessioning of some power stations will JET plans as well as the Presidential Climate Commission on years years years be considered, including the optimal approach to the stations all matters involving the transition, including targets, funding reaching their end of economic life. mechanisms, localisation, industrialisation and socio-economic impacts. Short term: Turnaround objectives Medium term Long term: Strategic objectives Improve plant availability (EAF) and Sustain plant availability at 70% Increase non-regulated revenue streams recover ~6 000MW Implement optimal tariff structure Finalise legal separation Procure additional capacity and achieve cost-reflective tariffs Position the Eskom brand as the Operationalise NTCSA and enable Establish Distribution System Operator employer of choice energy trading and energy trading business Construct 14 000km transmission grid Expand, strengthen and modernise the Revise business models for and 8 000km distribution network grid to enable new electricity supply Generation and role in renewables industry market Improve environmental performance by 2035 by reducing SO2, NO x, Drive ethical and high-performance Implement social plan to support particulate matter and CO2 culture optimised shutdown of ageing coal plants Eskom’s long-term strategy positions us as an enabler of JET The JET programme has three main objectives: and a key role player in executing the IRP 2019. The JET is • Just elements: doing better for people and the planet, while about leveraging opportunities presented by the transition growing localisation and industrialisation to a cleaner and greener energy future, while creating new • Energy elements: cleaner, sustainable, reliable electricity job opportunities for those displaced by the replacement of provision coal by cleaner technologies. It means a transition towards a low-carbon, climate-resilient economy and society in a manner • Transition elements: transformational change of business that does not impede socio-economic development, but results models, attracting green financing in an increase in sustainable jobs. It is not a sudden shift in economic activity but occurs in a phased manner over time. 42 43 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our strategy and turnaround plan continued TRANSMISSION PROGRESS DISTRIBUTION PROGRESS Previously communicated plans proposed NTCSA The previously communicated plans had targeted Distribution operationalisation readiness by December 2022 and corporatisation by December 2022, readiness for commencement of trade in April 2023, subject to the various operationalisation by December 2023 and commencement dependencies. of trade by April 2024, subject to the various dependencies, among which the Transmission separation and approval of the Operationalisation readiness was not achieved and NTCSA second PFMA application. did not start trading as planned due to several external dependencies. These are: The first PFMA application for the establishment of the Operational recovery Improve debt collection • Acquiring licences from NERSA Distribution company was approved by DPE and National • Implement the Generation • Implement municipal debt Treasury. The memorandum of incorporation was approved, recovery plan: solution • Obtaining lender consent and the National Electricity Distribution Company South Africa – Recover ~6 000MW by 2025 • Limit municipal debt growth to • NTCSA being designated as buyer by DMRE R8 billion per year (NEDCSA) has been registered with CIPC. – Achieve 65% EAF by end • Conclusion of various governance requirements with a key March 2024 Improve operations and cost issue being the appointment of independent directors for However, corporatisation was not achieved by December 2022 Procure additional capacity – Achieve 70% EAF by end • Procure additional ~8 000MW control NTCSA by DPE as the second PFMA application for operationalising March 2025 capacity • Reduce energy losses Distribution was still being processed by DPE. Following • Deliver cost efficiencies The revised Transmission licence applications (for three licences) approval of the PFMA application by DPE in October 2023, the Improve cost control Legal separation were submitted to NERSA in September 2022. Following a merger agreement has to be concluded. • Deliver cost efficiencies • NTCSA trading by April 2024 Legal separation process which included a public comment period, NERSA has • Optimising coal quality and • Trading by November 2025 awarded the three licences from July 2023 onwards, although the The key risks to legal separation of Distribution are: quantity including long-term Establish energy trading market • Tariff and EDI restructuring licences have not yet been issued. contracts and water strategies platform • Delays in NERSA engagements regarding licensing, as Modernise the power system Distribution will only apply for its licences once the The Transmission lender engagements with all lenders have Generation legal separation and Strengthen and expand grid • Upgrade distribution network Transmission licences are in place, as Distribution’s • Construction of ~3 000km of • Implement wholesale and market been completed and documentation was submitted to those environmental sustainability licences will reference the Transmission licences. Certain • Upgrade high-frequency transmission grid trading platforms lenders from whom consent is required. Consent was delayed amendments, which are expected to arise from the transformers and electrostatic • Installation of ~22 000MVA of • Implement demand-side from the target date of 31 August 2022, as lenders required Transmission licences, may have to be incorporated precipitators transformation capacity management further feedback on National Treasury’s proposed debt relief to Eskom. Bilateral lender engagements after the National • Resolution of municipal debt challenges • Off-set projects and emissions Maintain system minutes New markets and products Budget Speech in February 2023 have been completed. Formal • Impact of the ERA amendment bill abatement plans • Maintain system minutes <1 • Growing the business through requests for consent were submitted to the relevant lenders. • Delays in obtaining lender consent • Review/implement shutdown at 3.53 grid access, energy wheeling, Consent is dependent on each lender’s governance processes. plan and repurposing/repowering electric vehicles and microgrids Due to these delays and dependencies, commencement of opportunities Pursue profitable sales • Network services, retail services, An interim NTCSA board and some governance structures trade is targeted by November 2025. • Explore clean energy partnerships opportunities in the region DSO and energy trader are in place. The Minister of Public Enterprises requested that the newly appointed Eskom Board review the list of proposed GENERATION PROGRESS NTCSA directors submitted previously. After consideration The intention is to form a new Eskom holding company, wholly by the Governance and Strategy Committee, the Board has owned by Government, which will in turn acquire all of the shares recommended candidates for DPE’s consideration to ensure in the existing Eskom Holdings SOC Ltd. The existing company will that the NTCSA supports the establishment of an energy then change its name to Eskom Generation and transfer Eskom’s trading platform to promote competition in the electricity corporate assets into the new Eskom holding company. Our operating divisions are each focusing on initiatives to Functional separation has been completed for all divisions, as generation industry. give effect to the strategy, encompassing both the short-term previously reported. The due diligence report for Generation has been finalised turnaround objectives and the long-term objectives. A process is under way with Government and NERSA to Several external dependencies and risks have been considered and completed. Given the approved corporate structure, designate NTCSA as buyer of power from IPPs. the unbundling of Generation is dependent upon the As the country works towards solving the energy trilemma, and attended to and are at varying stages of completion. These of ensuring energy security, energy equity (access and include: establishment and operationalisation of a new holding company. Trade unions have elected to approach the Group Executive: affordability), and energy sustainability for the economy and The legal separation of Generation was not completed by • Implications to lenders and loan covenants Human Resources to seek a resolution of matters they raised the people of the region, Eskom will work closely with the 31 December 2022 as originally expected due to this dependency. • Eskom’s debt challenges during various arbitrations. They have reiterated that they Minister of Electricity and through NECOM, to give effect to are not convinced on the appropriateness of a section 197 • Implications to the assessed tax loss benefit We are awaiting Government’s guidance on the way forward. the turnaround. In collaboration with key stakeholders, we will process and that they still require specific information to be strive to support the transition by supporting Government’s • Staff transfer and labour consultations able to conclude their position. Consultations will be reopened The revised plans target establishment of the new holding policy direction for the future electricity sector, as we strive to • The need to unbundle tariffs prior to separation to allow time for further discussions. The discussions will be company in 2024/25 and legal separation of Generation in 2025, deliver on our vision of “sustainable power for a better future”. • Policy and Government-approved market rules scheduled upon receipt of NTCSA’s licences. due to the dependency on legislation and Government policy. • A legal framework for the restructuring process PROGRESS ON LEGAL SEPARATION • A regulatory framework and licensing requirements SARS issued a VAT ruling in February 2022 and an income tax The Board resolved to align to and implement legal separation ruling in March 2023 regarding the transfer of assets to NTCSA, as set out in DPE’s Roadmap for Eskom in a Reformed Electricity confirming that intra-group corporate rollover provisions will Supply Industry (DPE’s Roadmap) issued in October 2019, by apply and the transfer of assets to NTCSA will be tax neutral. implementing business separation and forming separate wholly owned subsidiaries to house Generation, Transmission and We are working on revised plans for NTCSA operationalisation Distribution, based on the revised timelines adopted at the Inter- and commencement of trade. We expect operationalisation of Governmental Steering Committee (IGSC). NTCSA by April 2024. 44 45 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Integrating risk and resilience ASSESSMENT OF RISK Eskom’s reputation has been in a downward spiral, accelerated Through the effective management of risk and resilience, we by environmental challenges, loadshedding, the lack of cost- ENTERPRISE RISK MANAGEMENT PROCESS are able to formulate and execute our strategy, operate our reflective tariffs, high levels of debt and escalating arrear We are committed to effective management of risk which is central to Eskom’s governance and management processes, and business with the least possible disruption, respond to and municipal debt, allegations of fraud and corruption and the essential for achieving our vision and mandate. It is imperative that risk and resilience management be embedded into all recover from disruptions should they materialise, and leverage effects of state capture, all of which require clear business business processes to identify and manage risks consistently and proactively. Our vision is to provide stability of electricity opportunities as they arise. It is important that risks that affect positions on how to address them and proactively engage with our strategic objectives are identified, managed effectively and stakeholders and external decision makers to rebuild trust and supply through providing electricity in an efficient and sustainable manner, assist in lowering the cost of doing business in monitored continuously. confidence in Eskom. South Africa and enable economic growth. EMERGING RISKS AND THE RISK LANDSCAPE OPERATIONAL RISKS As noted earlier, we operate in a complex environment. At the lowest level, we deal with operational risks, which Emerging risks are assessed on a regular basis through are raised by individual business areas and classified from We manage risk and resilience throughout Eskom and its an example, the Human Capital and Remuneration Committee scanning our environment and identifying changes in our Priority I risks at the highest level to Priority IV risks at the subsidiaries using an established approach. In terms of the (HCRC) would consider people-related risks, and provide operating environment due to global and local developments, lowest, based on the magnitude of the consequence and requirements of King IV TM, the Board has overall responsibility oversight over the effectiveness of interventions. as well as appropriate changes reported in the business. The likelihood of the occurrence. All Priority 1 and emerging risks for the oversight and governance of risk, and also approves the identification of emerging risks is critical to ensure that these are reported quarterly to Exco and the Board, which provide risk appetite and tolerance levels, together with the Enterprise We utilise an integrated risk management information system risks are managed proactively. Emerging risks are tracked and oversight as recommended by King IV TM. These Priority 1 Risk and Resilience Management Policy and Plan. for all organisational risk management information, with reported quarterly to Exco and the Board. risks are aggregated into strategic risk categories across seven accountable owners assigned to each risk. Key risk indicators dimensions. Board has delegated the responsibility for effective risk and are in place for all risks, to ensure that they are managed Both local and international factors have resulted in a weaker resilience management to Exco. Together with its Risk and proactively and to understand direction in which they are Rand, higher inflation and interest rates, slower economic STRATEGIC RISKS Sustainability Committee, Exco reviews the key priorities and moving, and at which rate. Furthermore, the assessment of growth and an increasing unemployment rate. Civil unrest Our risk landscape is monitored, tracked and reported across deliverables of the Risk and Resilience Management Plan on an strategic risks, risk appetite and emerging risks is part of our remains a major risk due to the poor socio-economic seven risk categories which address these long-term risks. annual basis, while risk management performance is monitored strategy development process. conditions. The aggregated strategic risks are a consolidation of various on a quarterly basis, in line with Eskom’s Risk Appetite and divisional and subsidiary Priority 1 risks grouped under the Tolerance Framework. Eskom continues to comply with DPE’s Risk and Integrity Added to this, South Africa has been grey-listed for not various risk consequence categories, namely finance, operations, Management Framework, which was published in complying with international standards on the prevention environment and climate change, people, culture and safety, On behalf of the Board, the Audit and Risk Committee (ARC) November 2020, and aims to strengthen practices by SOCs in of money laundering, terrorist financing and proliferation information technology, compliance stakeholder management. has overall oversight of risks. The Board is rolling out an the areas of risk management, sustainability reporting, conflict of financing, which may deter foreign investment, which is needed The aggregated strategic risks are consolidated and aligned integrated approach to risk, with individual committees taking interest management, vetting of employees and general ethics to stimulate economic growth and job creation. Although this to the Board-approved risk appetite statements. All have key accountability for the risks affecting their particular areas. As management. We report progress to DPE on a quarterly basis. has not affected Eskom’s funding programme at this stage, it risks indicators (KRIs) assigned, with treatment plans in place. may lead to more onerous requirements from lenders in the Successfully treating these risks is paramount for our future future. However, in the medium term, we are protected to success. some extent by the debt relief restrictions. Strategic risk Furthermore, the Russia/Ukraine war continues, leading to Risk appetite refers to the amount and type of risk appetite and Shaping our supply chain constraints and rising fuel and food costs. South an organisation is prepared to pursue or accept in risk of strategy future through Africa’s relations with the US are strained: a deterioration achieving its objectives, while risk tolerance refers to options strategy in trade relations can impact oil and other energy-related an organisation’s readiness to bear the risk after risk development imports, foreign-based technology, foreign investments treatment. This risk appetite and tolerance process and development assistance, which could impact Eskom’s serves as an early warning mechanism when adverse Scanning our operations and financial sustainability. risk trends reach unacceptable limits. environment Risk of strategy Volatile political conditions, together with the upcoming misalignment national elections in 2024, are likely to influence the country’s and critical risk context. Credit rating agencies are monitoring the situation A number of significant risks, mainly related to financial, assumptions in South Africa, particularly with respect to the energy crisis in operational and environmental sustainability, have remained INTEGRATED AND the medium term, governance and leadership challenges, and unchanged for a long period. The risk dashboard indicates that PROACTIVE STRATEGY the execution of treatment plans. Any downgrade would have we are operating outside our risk appetite for the financial, Emerging risk DEVELOPMENT AND an impact on the cost of existing borrowings. operational, environmental and compliance risk categories. and strategic risk EXECUTION Furthermore, the key risk indicators indicate that more profile The International Monetary Fund (IMF) has reduced its Priority 1 risks may materialise unless treatment plans are Planning growth forecast for South Africa for 2023 to 0.1% and has successfully implemented, with the cause of many risks being strategy warned that South Africa risks economic stagnation unless it outside of management control. execution acts with urgency to implement economic reforms. National Treasury has a slightly more optimistic view, with growth Monitoring and forecast at 0.9%. adjusting our Risk of direction execution 46 47 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Integrating risk and resilience continued Strategic risk per category Risk appetite description Related material matters Treatment plans Finance There is a high appetite to reduce the loss to • Collaborating with Government (specifically National Treasury) to develop and execute the debt M1 M2 Eskom’s financial sustainability is being compromised due to below-cost-reflective less than R5 billion over the next two years by relief package tariff determinations by NERSA and declining sales, operational challenges resulting increasing revenue, operating from an efficient • Optimising cash from operations to fund capex in increasing costs, high levels of debt, an increase in non-payment of municipal bulk cost base, and having a stable balance sheet. accounts, and the effects of fraud and corruption (including state capture). This Achieving this requires shareholder interventions • Engaging with NERSA and various stakeholders have yielded more balanced tariff determinations situation could affect our ability to meet financial obligations and maintain the status and possibly policy shifts, as well as recently. This is a key lever towards financial sustainability as a going concern. If fraud and corruption – due to unethical behaviour and innovative solutions • Internal and external interventions are being implemented to address arrear municipal debt, ineffective controls to prevent, detect and correct such behaviour – are not including the Distribution debt strategy, the active partnering solution and the municipal debt brought under control, it could lead to continued financial losses, and further relief proposed by National Treasury to address historical debt, and sustainably arrest the decline operational and reputational damage in payment levels Operations There is a high appetite to meet the country’s • Establishment by the President of the National Energy Crisis Committee (NECOM) to oversee M3 M10 Eskom’s operational performance is deteriorating due to a loss of critical skills; poor electricity demand, and to protect the national measures to improve the performance of Eskom’s existing power station fleet plant performance and poor outage execution quality; coal-related challenges; grid using load reduction and loadshedding as • The revised Generation recovery plan and execution of the Koeberg long-term operation project capex reduction in recent years; an inability to sustain and maintain transmission control measures, to ultimately prevent a network reliability; and intolerable levels of theft and vandalism of network national blackout. This will be achieved by • Engaging both DPE and DMRE to procure additional capacity to create space for much-needed equipment due to deteriorating socio-economic conditions. This is exacerbated by operating plant efficiently and safely through a maintenance risks to the Koeberg long-term operation project. This frequently results in system skilled and competent workforce, while • Engaging with NERSA, DPE and DMRE to assist with regulatory challenges to support constraints and the perceived risk of a national blackout, causing a decline in remaining mindful of limiting environmental harm. Generation’s operational maintenance requirements stakeholder confidence. Poor operating performance also impacts on financial To be successful, Eskom requires shareholder • Improving consequence management to address poor performance sustainability and Government support There is risk of further delay of legal separation, due to lack of alignment at various levels and stakeholder engagement, leading to further reputational damage and declining investor confidence Environment and climate change High appetite to comply with the relevant • Addressing plant defects during outages to improve emissions and water consumption of power M4 M5 Our poor environmental performance and non-compliance with laws and environmental legislation to prevent harm or stations regulations could result in the loss of our licence to operate, as well as the damage to the environment • Implementing an optimised approach to Minimum Emission Standards (MES) compliance in line shutdown of generating plant and/or litigation. Non-compliance is caused by the with JET to integrate considerations related to emissions, cost, tariff, net present value, practicality, lack of disciplined execution as well as the lack of funds to implement initiatives to High appetite to transition to a lower-carbon and climate-resilient company through alternate technology options and energy provision ensure compliance, coupled with the lack of space to conduct the necessary maintenance or outages Government support, while addressing • Prioritising funding for emissions projects as part of the Generation capital plan socio-economic imperatives and complying with • Escalating environmental compliance challenges (including MES) to the relevant policy department In the long term, Eskom may fail to transition from a coal-based power system to a various policies and regulations • Aligning with the Electricity Minister on the proposed optimal solution to balance environmental lower-carbon and climate-resilient organisation due to obstacles on the net zero pathway; or no low-carbon technology fleet allocation to Eskom by DMRE, leading compliance in light of supply constraints to a failure to invest in an optimal combination of clean technologies to achieve CO2 reductions People, culture and safety High appetite for a skilled workforce and a • Reviewing HR policies to address the skills shortage M6 M7 M8 M9 The loss and lack of skills is a root cause of many risks and will continue to impact high-performance organisation built on an ethical • Implementing HR strategy, including a skills audit and hybrid work model our sustainability. In addition, a breakdown in relations between organised labour culture, with accountable leadership driving the • Implementing Eskom’s culture transformation programme to deliver a high-performance and management affects productivity and creates a harmful working environment, entrenchment of Eskom’s values and in extreme cases, could lead to an inability to supply electricity to customers. ethical culture The health and safety of people may be compromised by failure to effectively High appetite for zero harm among employees, • Reviving the Eskom Academy of Learning implement occupational health and safety improvement initiatives, leading to harm contractors and members of the public, by • Updating the leadership continuity plan (injuries, fatalities or damaged property), thereby decreasing productivity and eliminating fatalities and reducing injuries. Furthermore, there is no appetite to affect • Leveraging performance and consequence management systems ultimately, damaging our reputation human health negatively M1 Liquidity and going concern in the short to medium term, and ultimately, financial sustainability over the long term M6 Leadership stability M2 Government support and debt structure M7 Adequate skills in a high-performance ethical culture M3 Improving operational stability to lessen the electricity crisis M8 Fight against fraud, corruption and crime M4 Environmental performance and compliance M9 Governance, compliance and ethics M5 Climate change and Eskom’s Just Energy Transition M10 Progress on legal separation 48 49 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Integrating risk and resilience continued Strategic risk per category Risk appetite description Related material matters Treatment plans Information technology High appetite to lead Eskom’s information • Enforcing security compliance on all applications, as well as collaborating between Group IT and M3 M9 A major cyber-security attack against Eskom’s IT network infrastructure will affect technology direction proactively, while enabling, application vendors critical business systems, and will have legal, operational and financial implications, empowering and co-creating innovative • Developing new key risk indicators to enhance risk monitoring ultimately leading to reputational damage. Treatment plans are in place and technology solutions for our customers in the generally considered effective next three years • Incorporating interventions in Eskom’s disaster recovery plan Compliance No appetite for any non-compliance with legal • Implementing the Fraud Prevention Plan M4 M9 Compliance with certain areas of the PFMA has been a challenge in recent years. and regulatory compliance obligations, or • Addressing the recommendations of the Judicial Commission of Inquiry into Allegations of State Misstatement of irregular as well as fruitless and wasteful expenditure and losses compromising compulsory requirements or Capture (Zondo Commission) by a dedicated task team due to criminal conduct results in a qualified audit opinion, high financial losses, voluntary commitments, which may cause harm reputational damage as well as possible criminal prosecution. This is exacerbated to the organisation. Furthermore, Eskom has no • Improving the efficacy of the PFMA Loss Control Department to execute and report on PFMA by regulatory non-compliance with MES limits and litigation challenges we face appetite for unethical conduct, fraud, corruption compliance or crime in general • Improving systems to enhance controls, and better managing conflicts of interest • Reviews and investigations by the Internal Audit Department and Forensic and Anti-Corruption Department • Implementing the procurement roadmap to improve commercial governance processes • Conducting ethics risk assessments, as well as compulsory training on ethics, fraud awareness and PFMA requirements Stakeholder management High appetite to enhance our relationship with • Implementing the stakeholder engagement plan, including continuous internal and external M1 M2 M3 M4 M5 Failure to manage non-technical risks – those risks and opportunities that arise from all stakeholders, with specific focus on external engagement Eskom’s interaction with a broad range of stakeholders – impact the organisation on interested parties, such as communities, M6 M7 M8 M9 M10 • Engaging with DPE, National Treasury and other government departments through the NECOM multiple levels, putting achievement of Eskom’s strategy, in the short, medium and government departments and the shareholder, to platform long term, at risk. Failure to sufficiently assess and proactively respond to external achieve common value. This is underpinned by stakeholder expectations impacts financial and operational sustainability. The decline an effective, efficient, timeous and integrated • Implementing Eskom’s reputation management strategy in socio-economic conditions exacerbates associated community-related risks such as communication plan, and managing external risk theft and vandalism of infrastructure and threats to our employees, as well as factors that impact our sustainability potential harm to members of the public exposed to our products and infrastructure, leading to financial, legal and reputational risk M1 Liquidity and going concern in the short to medium term, and ultimately, financial sustainability over the long term M6 Leadership stability M2 Government support and debt structure M7 Adequate skills in a high-performance ethical culture M3 Improving operational stability to lessen the electricity crisis M8 Fight against fraud, corruption and crime M4 Environmental performance and compliance M9 Governance, compliance and ethics M5 Climate change and Eskom’s Just Energy Transition M10 Progress on legal separation 50 51 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Integrating risk and resilience continued Engaging with stakeholders Eskom groups its risk categories to track trends. Each We manage the following national disaster risks through our category includes related risks bundled together for better Enterprise Resilience Programme, which caters for disaster In the current business landscape, stakeholder engagement is of great importance. We recognise the impact of corporate understanding and analysis. management as well as emergency preparedness. Individual reputation on investor confidence, profitability and business value, and understand the importance of building trust and Exco members take accountability for risk monitoring and Each of these risk categories is plotted on the risk radar below, maintaining strong relationships with our stakeholders. Operating as we do within a complex political, government and response planning for each of these risks, which remain with the level of risk appetite influencing the colour of the unchanged from the prior year. regulatory environment, we acknowledge the need to navigate these dynamics effectively through sound stakeholder indicator, while the status of treatment plans determines the engagement. position on the risk radar. National blackout People culture Severe supply constraint Nuclear incident As we address the ongoing electricity supply crisis, we STAKEHOLDER ENGAGEMENT recognise the importance of balancing economic growth and We use different methods to engage with specific stakeholder Economic or financial collapse Climate change sustainability while minimising the impact of the electricity crisis groups. For instance, regular meetings with government People safety Cyber-attack or critical systems failure on the economy and the lives of all South Africans. Stakeholder agencies and regulatory bodies facilitate collaboration and National industrial action support, including customers and the broader public, remains ensure alignment with energy policy and regulations. Surveys Financial Drought and water-related disaster crucial for achieving success, with stakeholder trust serving as and consultations are conducted with customers to gather Environment Environment or climate disaster a key enabler of our future endeavours. We are committed to feedback on service quality and pricing. Partnerships are Solar or geomagnetic storm continuous improvement and strive to enhance stakeholder formed with local communities to address their concerns and Pandemic engagement by actively responding to stakeholder needs and support socio-economic development in the areas where we ultimately, promoting energy security in the long term. operate. Terrorism or political instability Stakeholder Operations management The Social, Ethics and Sustainability Committee (SES) provides We have implemented specific initiatives to address oversight of the effectiveness of stakeholder engagement, while stakeholder concerns and enhance collaboration. For example, We continue to ensure compliance with the Disaster stakeholder relationship management is delegated to Exco, with our development programmes focus on education, healthcare Information Management Act, 2002 and manage our response to major various functions within Eskom responsible for engaging with and infrastructure. Environmental initiatives include reducing technology threats and disruptions through our Enterprise Resilience specific stakeholder groups. carbon emissions, investing in renewable energy projects and Compliance Programme. Technical and non-technical vulnerabilities are implementing more sustainable practices. Collaboration with continuously reviewed. Simulation exercises are conducted This section delves into Eskom’s ongoing efforts to engage Government, including the shareholder ministry, involves regularly to ensure that Eskom can continue to operate and with stakeholders, foster meaningful dialogue and address regular engagement, annual general meetings and transparent recover within a reasonably short time in the event of serious stakeholder concerns, driving the organisation towards a reporting to ensure their interests are represented. incidents or disasters. sustainable future. Moderate risk appetite Overall, our stakeholder identification and analysis enable us Engagements on a national exercise for the 2024 financial year STAKEHOLDER LANDSCAPE to understand and address the diverse interests, concerns and High risk appetite have commenced. The disaster priority being considered is a Our stakeholder groups encompass a wide range of entities, expectations of our stakeholders. Through effective engagement severe supply constraint requiring much higher levels of load and include business partners, civil society, customers, strategies, we aim to foster meaningful dialogue, build trust and Treatment plan fully on track reduction. This would make use of the defined higher stages employees, government agencies, investors, media outlets, align our operations with stakeholder needs, ultimately working Treatment plan mostly on track listed in the third edition of NRS048-9 that was submitted to parliamentary committees, regulators and international groups. towards a sustainable and mutually beneficial relationship with all NERSA on 30 June 2023. Each stakeholder group has distinct interests, concerns and stakeholders. Treatment plan requires escalation expectations. Customers prioritise reliable and affordable ENTERPRISE RESILIENCE electricity, investors focus on returns and financial stability, We maintain a strong commitment to continuous improvement DISASTER RISKS During the 2023 financial year, Government declared three while employees value job security and a supportive work in stakeholder engagement. Recognising evolving needs and Disaster risks are those risks inherent to our operations that national states of disaster: two were related to floods and one environment. Government agencies and regulatory bodies expectations, we plan to enhance our processes and outcomes. would have a significant consequence should they materialise, was related to the impact of severe electricity supply constraints, emphasise compliance and effective implementation of energy Future strategies include implementing advanced technology even though they have a relatively low likelihood of occurring, although the latter was since revoked on 5 April 2023. policy. Local communities are concerned about the social and platforms for seamless communication and utilising digital and generally have adequate controls in place to address them. environmental impacts of our operations, while environmental tools to broaden stakeholder participation. By embracing In February 2023, Exco approved that Eskom’s emergency organisations advocate for sustainable practices. a continuous improvement mindset, we seek to foster Severe generation supply constraints continued to affect our response structures be expanded to include the work undertaken transparency, address stakeholder concerns and make strategic operations during the past year, although the risk of a national by NECOM, which was established to coordinate Government’s To engage with stakeholders, we employ a comprehensive decisions that align with diverse perspectives. blackout is still assessed as low. We also saw our declining response to the energy crisis and ensure implementation of the stakeholder engagement strategy and framework. This includes operational resilience being tested by the wide-spread Energy Action Plan. NECOM is coordinating the Energy Action proactive communication, regular consultations and formal Through ongoing evaluation and benchmarking, we aim to build industrial action during June and July 2022. Plan through the workstreams of the Energy National Joint feedback mechanisms. We strive to foster transparent and trust, strengthen relationships and drive a positive impact for all Operational and Intelligence Structure (NatJOINTS). Although the constructive dialogue with stakeholders through various stakeholders. state of disaster related to the electricity crisis was revoked, we channels, such as stakeholder forums, public meetings, A national exercise on cyber-attacks and terrorism continue to work with the NECOM structures. customer surveys and online platforms. disasters was undertaken in March 2023. Over 500 of our people participated in the online simulation SR For more on our enterprise resilience initiatives, refer to Stakeholder management is one of the key risks categories on exercise. Findings are being analysed and corrective “Our governance – Resilience” in the sustainability report which we focus, with treatment plans in place to manage the action will be implemented to strengthen cyber associated risk. resilience. 52 53 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Engaging with stakeholders continued The table below sets out our various stakeholder groups and explain why they matter to us. It also indicates what their various concerns are, and how we respond. We also provide a link between the stakeholder concerns and our material matters. Stakeholder Why they matter How we engage Concerns Material matters Response Business and suppliers Their involvement in Eskom’s supply chain and Contracts, procurement processes, relationship Fair competition, reliable Fair and transparent procurement practices; ethical M1 M3 M8 M9 Organisations involved in business activities contributes to operational management supply chain, ethical practices, supplier guidelines business activities and supply efficiency and success, as well as the possibility of fraud and corruption chain fraud and corruption Civil society They play a crucial role in advocating for social Consultations, public hearings, community Environmental impact, social Engagement on environmental and social issues; sustainable M3 M4 M5 M8 Non-governmental organisations and environmental concerns engagements responsibility community development initiatives and community groups Customers The satisfaction and consumption patterns of Key customer consultations, customer surveys, Service reliability, affordability Enhanced service reliability; tariff affordability; transparent M1 M3 M5 M9 Individuals and entities individuals and entities directly impact our complaint resolution mechanisms, tariff pricing practices consuming Eskom’s services revenue and service delivery consultations Employees The dedicated workforce at Eskom drives Leadership site visits, internal communication, Employee benefits, work Skills development programmes; employee wellbeing M1 M3 M6 M7 M8 Our workforce operations, innovation and organisational employee forums, training and development conditions, wellbeing, career initiatives; ethical guidelines and compliance measures performance growth, job security M9 M10 Government These entities provide oversight, direction and Engagements, consultations, partnerships Energy policy, economic Collaboration on policy development; support for debt M1 M2 M3 M4 M5 Regulatory and policy-making financial support essential to Eskom’s operations impact, financial and relief measures; sustainable energy initiatives; progress on entities operational sustainability, M6 M7 M8 M9 M10 legal separation environmental compliance, climate change commitments, corruption Investors They contribute capital and play a significant role Targeted engagements, investor presentations, Financial performance, return Debt relief measures; transparent reporting; M1 M2 M3 M5 M6 Investors, lenders and ratings in shaping Eskom’s financial future integrated reporting on investment, operational communication on legal separation progress agencies sustainability, climate change M8 M9 M10 commitments, corruption, legal separation Media They hold Eskom accountable, shape public Press releases, media briefings, one-on-one News coverage, transparency Timely and accurate information dissemination; media M1 M3 M6 M8 M10 Journalists and media outlets perception and disseminate information about interviews engagement on key initiatives the organisation Parliamentary committees Government entities responsible for oversight Regular meetings, reporting and participation in Financial and operational Implementation of debt relief measures; transparency in M1 M3 M4 M8 M9 Government entities overseeing and monitoring of Eskom’s performance, legislative processes sustainability, environmental governance practices; engagement on legal separation Eskom’s operations governance and financial management compliance, governance and M10 process compliance, corruption, legal separation Regulators Entities responsible for setting tariffs, ensuring Collaboration, regulatory filings, public Financial and operational Compliance with environmental regulations; M1 M3 M4 M5 Entities responsible for regulating compliance, promoting fair competition and participation, compliance with regulations sustainability, environmental implementation of sustainable practices; climate change Eskom’s activities protecting consumer interests performance and compliance mitigation strategies International groups They provide valuable global perspectives and Collaborative initiatives, international conferences Sustainable development, Collaboration on sustainable development goals; climate M3 M4 M5 M8 M9 Global organisations and share best practices in the energy industry climate change mitigation action strategies associations M1 Liquidity and going concern in the short to medium term, and ultimately, financial sustainability over the long term M6 Leadership stability M2 Government support and debt structure M7 Adequate skills in a high-performance ethical culture M3 Improving operational stability to lessen the electricity crisis M8 Fight against fraud, corruption and crime M4 Environmental performance and compliance M9 Governance, compliance and ethics M5 Climate change and Eskom’s Just Energy Transition M10 Progress on legal separation 54 55 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our governance framework at 31 March 2023 DEPARTMENT OF PUBLIC ENTERPRISES Eskom’s mandate is based on the shareholder’s Strategic Intent Statement Our annual performance is measured against the shareholder compact ESKOM HOLDINGS SOC LTD King IV TM and our Code of Ethics, “The Way”, guide the way we do business Board of Directors Executive Management Committee Audit and Risk Capital (oversight of internal and Information and Technology external audit) Divisional boards Nuclear Management Business Operations Performance Generation Operating Governance and Strategy Regulation, Policy and Economics Transmission Human Capital and Remuneration Risk and Sustainability Investment and Finance Distribution Social, Ethics and Sustainability Tender Turnaround Eskom’s approach to governance is focused on continuously and ensuring its sustainability and prosperity. The powers of the improving and entrenching good corporate governance practices Board and the shareholder are defined in Eskom’s memorandum across the group, to enable the Board and management to of incorporation (MOI). The Executive Management Committee exercise their fiduciary duties through effective oversight and (Exco) is accountable for exercising executive control over support high quality decision-making. In the spirit of good day-to-day operations and to deliver on the strategy set out by corporate governance, we strive to apply the principles and the Board. practices of the King IV Report on Corporate Governance for South Africa, 2016 (King IV TM). Refer to pages 14 to 17 for the composition of the Board IR and Exco, including information on diversity An essential component of our governance framework is ensuring clarity of roles between the shareholder, the Board and management, to achieve our strategic priorities within Divisional boards for Generation, Transmission and Distribution the legislative, regulatory and policy environment in which we serve as a transitional structure towards Eskom’s legal separation operate. Clear accountability for decision-making is assigned and drive separate accountability for each division. Although the through our delegation of authority (DoA) policy and significance divisional boards function relatively independently, they report and materiality framework (SMF), which guide the referral of to Exco to ensure that decision-making is aligned with Eskom’s matters from management to the Board, and from there to DPE overall strategy. The divisional boards do not constitute a board and National Treasury, where required. of directors in accordance with the Companies Act, 2008, but Governance, leadership and ethics function as operational boards until the legal separation of each In line with the PFMA, 1999, we conclude an annual shareholder division is concluded. compact with DPE, which sets out the key performance indicators that support our mandate and the strategic objectives Eskom’s legal separation will ultimately result in the formation under the shareholder’s Strategic Intent Statement. of wholly owned subsidiaries with independent boards for Transmission, Generation and Distribution, starting with the 57 Our governance framework 58 Board and its committees 69 King IVTM application The Board, supported by several committees, is the focal National Transmission Company South Africa SOC Ltd. The point of our governance framework and is accountable to the boards of the wholly owned subsidiaries will still be accountable 71 Executive management 72 Progress on governance clean-up shareholder for performance against financial, operational to the Board of Eskom Holdings SOC Ltd, in line with good and other business expectations. Furthermore, the Board is corporate governance practices. responsible for providing strategic direction to the organisation 56 57 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Board and its committees Report by the Board for the year ended 31 March 2023 BOARD COMPOSITION AND APPOINTMENTS Mr Mpho Makwana will step down as Chairman of the Board NUMBER OF MEETINGS NEW BOARD (1 OCTOBER 2022 TO In terms of Eskom’s MOI, the Board may consist of a maximum at the end of October 2023, having served one year in the Twenty-two meetings were held during the year. In addition, 31 MARCH 2023) of 15 directors. The Board was not fully constituted at the position. Thereafter, Dr Mteto Nyati will take over. the Board held three workshops on various topics. • Reviewed the structure and mandates of the Board start of the year as it comprised only eight directors, including committees and established BOPC as a new committee six independent non-executive directors and two executive BOARD COMMITTEES MEMBERSHIP • Finalised the composition and terms of reference of the directors. The Board had requested the shareholder to The Board is supported by various committees, to which it Board committees as well as the Board Charter, to enable appoint additional non-executive directors in line with its skills, delegates authority without diluting its own accountability. Refer to the Board composition at 31 March 2023 on IR the Board to deliver on its mandate experience and diversity needs. These committees exercise their authority in accordance with page 14 terms of reference, reviewed annually and approved by the • Approved Eskom’s 2035 strategy Ms Busisiwe Mavuso resigned as a non-executive director Board, and which define their composition, mandate, roles and • Refocused the Generation recovery plan with a stronger with effect from 27 September 2022, and the terms of responsibilities. The Board considers information, opinions, PURPOSE emphasis on EAF recovery Prof. Malegapuru Makgoba, Prof. Tshepo Mongalo, Dr Banothile recommendations, reports and statements presented by the The Board fulfils the primary roles and responsibilities of a • Approved the increase in the borrowing plan for the 2023 Makhubela and Dr Pulane Molokwane as non-executive respective chairs of the Board committees. governing body outlined in the Companies Act, 2008, the financial year directors ended on 30 September 2022 and were not PFMA, 1999 and King IV™ by: • Approved the group annual financial statements, the renewed. All Board committees are comprised of and chaired by • Setting the strategic direction of the organisation, and integrated report and the sustainability report for the 2022 independent non-executive directors. When required, the treating strategy, risk, performance and sustainability as financial year, as well as the interim financial statements for Dr Rod Crompton’s term as a non-executive director was GCE, CFO and executive management from various functional the 2023 financial year inseparable renewed, while Mr André de Ruyter, Group Chief Executive areas attend committee meetings as officials. • Providing oversight through effective governance • Recommended the reappointment of the external (GCE), and Mr Calib Cassim, Group Chief Financial Officer frameworks, and approving policies and plans that enable auditors and the decision to not declare a dividend to the (GCFO), remained from the previous Board. The shareholder The new Board has reviewed the structure of its committees implementation of the strategy shareholder appointed a further 12 independent non-executive directors to ensure that it is fit for purpose and effective in driving with effect from 1 October 2022, thereby fully constituting the Eskom’s strategic turnaround. This review culminated in the • Monitoring management’s performance and implementation • Recommended the appointment of the acting GCE and new Board with 13 independent non-executive directors and establishment of the Business Operations and Performance of the strategy, ensuring accountability and promoting acting GCFO to the shareholder, following the resignation of two executive directors and providing the necessary expertise Committee (BOPC), which is mandated to provide oversight integrity of reporting the former GCE and skills to provide stability and strategic direction to Eskom. of Eskom’s technical and operational performance, focusing • Ensuring identification and management of compliance • Supported the urgent application to DFFE for the specifically on improving energy availability factor (EAF) requirements and risks through effective internal controls, condonation and extension of the chimney stack recovery at On 14 December 2022, Mr André de Ruyter announced his performance. supported by a risk-based internal audit function Kusile Power Station resignation and agreed to serve an extended notice period • Promoting a high-performance ethical culture aligned to • Approved the Corporate Plan for the 2024 to 2028 financial until 31 March 2023. On 22 February 2023, the Board and The mandate of the former Board Strategy Committee was Eskom’s values and operating as a responsible corporate years, including the financial budget and key assumptions Mr de Ruyter reached a mutual agreement to revert to expanded to include governance matters and the committee citizen – ethically, socially and environmentally the original notice period of 28 February 2023. He was not was renamed to the Governance and Strategy Committee In addition, the Board considered and approved numerous required to serve the balance of his notice period and was (GSC). The committee’s revised mandate includes the KEY ACTIVITIES AND DECISIONS recommendations from its committees, detailed under the released with immediate effect. Mr Calib Cassim was appointed nomination of Board members, board and committee key activities of the respective Board committee reports that PREVIOUS BOARD (1 APRIL 2022 TO as the acting GCE with effect from 24 February 2023 and evaluations, as well as oversight of Eskom’s turnaround strategy, follow. Mr Martin Buys was appointed as acting GCFO with effect legal separation, the Corporate Plan and shareholder compact. 30 SEPTEMBER 2022) • Approved Eskom’s 2022 emission reduction plan from 10 March 2023, while the recruitment process for a CONCLUSION permanent GCE is under way. With the relinking of governance matters to GSC, the former • Considered Eskom’s action plan to address loadshedding The Board adopted an appropriate Board Charter, regulated People and Governance Committee was changed to the • Supported the augmentation and outsourcing of its affairs in compliance with this charter and is satisfied that Mr Buys was appointed as an executive director, in the position Human Capital and Remuneration Committee (HCRC), maintenance skills to stabilise poor performing power it has discharged its responsibilities contained therein. The of acting GCFO, on 21 March 2023. The Board was therefore enabling the committee to focus on oversight over human stations Board is satisfied that it comprises the appropriate balance of fully constituted at year end. resource policies and practices, leadership continuity • Approved the implementation plan to address the knowledge, skills, experience, diversity and independence. and stability, skills development, remuneration as well as recommendations of the Zondo Commission In February 2023, Eskom procured the services of a talent implementation of a high-performance ethical culture. • Approved the incorporation of a new distribution company sourcing firm to assist with the recruitment process for the as well as revised timelines for Eskom’s legal separation GCE position. Following an extensive process of shortlisting process and interviewing suitable candidates, the Board concluded that • Approved the facility to finance the first phase of the battery there was only one appointable candidate and submitted its energy storage (BESS) project nomination to the shareholder in July 2023. In September 2023, the shareholder advised the Board that it is required to submit a shortlist of three candidates in terms of the MOI. The Board reconsidered the matter and submitted a revised shortlist in line with the shareholder’s requirements in October 2023. Eskom is awaiting a decision in order to finalise the recruitment process. 58 59 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Report by the Audit and Risk Committee Assurance and controls for the year ended 31 March 2023 NUMBER OF MEETINGS • Financial performance and liquidity; IT governance and The Audit and Risk Committee (ARC) provides oversight The responsibility for combined assurance is delegated to Seventeen meetings were held during the year. performance; PFMA compliance; enterprise risk and resilience; and sets direction on assurance, risk management, controls, Eskom’s Internal Audit Department, which facilitates and and forensic and technical investigations compliance and the governance of technology and information coordinates the execution of combined assurance activities. MEMBERSHIP (AT YEAR END) across Eskom. ARC receives regular reports on the status of governance, risk Six independent non-executive directors: management, compliance and the adequacy and effectiveness FUTURE FOCUS AREAS Ms Fathima Gany-Ahmed (chair), Dr Rod Crompton, Considering liquidity risks, sustainability risks relating On an annual basis, ARC approves the charter of Eskom’s of preventative and corrective controls. Ms Ayanda Mafuleka, Mr Leslie Mkhabela, Dr Busisiwe Vilakazi to financial reporting, Eskom’s status as a going concern, internal assurance and forensics functions, as well as a risk-based and Dr Claudelle von Eck as well as efforts to improve the income statement and audit plan and resource plan, to address the complexity of risks GOVERNANCE, RISK MANAGEMENT AND strengthen the balance sheet facing Eskom. During the 2023 financial year, the assurance and INTERNAL CONTROLS PURPOSE forensics functions were managed within a single department, Based on the results of audits planned and completed during the Reviewing the effectiveness of the finance function, The committee’s roles and responsibilities include: A&F, although ARC has approved the restructuring of the 2023 financial year, including key observations, Eskom’s Internal PFMA loss control function, risk and compliance • The statutory functions of an audit committee set out in the management and the internal control environment, department into a separate Internal Audit Department and Audit Department has concluded the following: Companies Act, 2008 and the PFMA, 1999, including oversight of together with consequence management, to ensure that Forensic and Anti-Corruption Department with effect from internal and external audit functions, financial reporting, internal the 2024 financial year. These functions report directly to ARC contraventions are appropriately addressed GOVERNANCE INTERNAL CONTROLS control systems, as well as risk and compliance management and maintain independence from executive management by • Oversight of risks and opportunities and governance of Assessing the capacity and capability of the organisation Governance requires The design of internal controls determining the scope of internal audits and investigations, improvement in respect of in general is adequate, information and technology to combat fraud, corruption and crime, including the establishment of a single investigative unit to address performing audit and forensic work and communicating results compliance with applicable although application is • Serving as the statutory audit committee for Eskom’s wholly owned free from interference. investigations into these matters laws and regulations. Internal partially effective. Control subsidiaries, with the exception of Escap SOC Ltd, which has its own Audit has noted that key deficiencies were identified audit committee in terms of the Insurance Act, 2017 Monitoring progress on Eskom’s legal separation and COMBINED ASSURANCE organisational positions are relating to compliance with compliance with Government’s debt relief conditions vacant, with employees acting plant management, supply KEY ACTIVITIES DURING THE YEAR Our combined assurance model includes a combination of Overseeing implementation of Eskom’s fraud prevention while recruitment processes are chain management, contract The committee considered the following and, where required, supervision, management and assurance across various functions under way. Efforts to restore management, sustainability plan and initiatives to address matters identified by the recommended matters for approval or noting by the Board: in Eskom, and culminates in oversight by ARC and the Board. Eskom’s ethical culture and management and strategy and external auditors • Group annual financial statements, the integrated report and related This approach seeks to enable an effective control environment, sound governance principles leadership processes, among documents for the 2022 financial year as well as interim group Exercising ongoing oversight of information and provide reasonable assurance and support the integrity of and practices are continuing others financial statements for the 2023 financial year, including the going technology management information for decision-making and reporting to stakeholders. concern assessment of Eskom and related SENS announcements Monitoring of combined assurance, including overseeing RISK FINANCIAL CONTROLS to notify debt investors of the anticipated delay in publication of the MANAGEMENT the internal audit function and the external audit SUPERVISION financial statements process, as well as the establishment of separate The design of the system of The system of internal financial • Reportable irregularities raised by the external auditors and Operations and supervisory oversight risk management is adequate, controls is adequate and internal audit and forensics departments several key audit matters for the 2022 financial year, including the Implementation of internal controls and risk management although the system of controls provides a reasonable basis restatement of prior period errors, findings and control deficiencies Overseeing the preparation of the annual financial processes to ensure a high-performing and sustainable operating relating to compliance is for the preparation of Eskom’s statements of Eskom and its subsidiaries environment partially effective financial statements • External audit fees, external auditor feedback reports and the external audit opinion relating to the 2022 financial year • Management representation letter and dividend distribution policy OPERATIONAL MANAGEMENT ARC has concluded that the combined assurance model for the 2022 financial year CONCLUSION The committee adopted an appropriate formal terms of reference, Management and review functions is adequate; however, monitoring and assessment of the • Eskom’s application for partial exemption from the disclosure of execution of controls needs to be enhanced internally, to regulated its affairs in compliance with its terms of reference and is Assurance over the adequacy of operational risk management, information in terms of the PFMA, 1999 in the annual financial proactively address control deficiencies and prevent recurrence satisfied that it has discharged its responsibilities contained therein. effective adherence to internal control processes and delivery statements Furthermore, the committee fulfilled all its statutory duties in terms against objectives of findings. The system and process of risk management is • The then Assurance and Forensics Department (A&F) of the PFMA, 1999, and section 94(7)(f ) of the Companies Act, adequate, although the effectiveness thereof needs to be Charter, Eskom’s fraud prevention plan and risk and resilience 2008. The committee is satisfied that its composition and balance of management plan improved. The compliance framework requires continued focus skills and expertise is in line with the requirements of Regulation 42 FUNCTIONAL MANAGEMENT in its application, especially in terms of PFMA requirements and • Progress and amendments to the annual audit plan for the 2023 of the Companies Act, 2008. financial year Specialised control functions contract management. Consequence management needs to be Development and maintenance of internal improved to address non-compliance with well-documented • The three-year rolling strategic internal audit plan, including the annual Refer to the report of the Audit and Risk Committee in the control frameworks and policies, reviewing and monitoring policies, process control manuals and procedures. Furthermore, audit plan and combined assurance plan for the 2024 financial year AFS annual financial statements for further information Risk, resilience and compliance the need for additional resources and skills in the finance, • The restructuring of A&F into separate internal audit and forensics departments, subsequently implemented in the 2024 financial year Assurance over risk and resilience as well as compliance internal audit and forensics functions were noted. Despite • Progress on forensic investigations and legal matters, including The committee assessed the ability of Eskom to continue to operate management practices and processes these shortcomings, the system of internal financial controls the recommendations of the Zondo Commission as well as as a going concern in the foreseeable future and acknowledged and compensating measures provide a reasonable basis for the the allegations of the former GCE, as discussed in “Progress on that there are various dependencies and material uncertainties that preparation of Eskom’s financial statements. ASSURANCE governance clean-up” from page 72 may cast significant doubt on the going-concern assessment. The • The insurance plan and budget for the 2024 financial year committee has a reasonable expectation that the risks to Eskom’s External audit The independent auditors, Deloitte & Touche, once again going concern will be satisfactorily addressed with the mitigation Independent reasonable assurance of the annual financial issued a qualified opinion relating to information disclosed in • The Corporate Plan for the 2024 to 2028 financial years and the shareholder compact for the 2024 financial year strategies in place, particularly due to the continued financial support statements and selected sustainability KPIs in the integrated report terms of the PFMA, 1999. Except for this qualification, Eskom’s from Government through the Eskom Debt Relief Act, 2023. The Internal audit • Progress on Eskom’s legal separation committee therefore recommended to the Board that the adoption financial statements are fairly presented in terms of IFRS. • Considerations around the establishment of a single investigative Assurance over the adequacy and effectiveness of risk Deloitte & Touche emphasised a material uncertainty relating of the going-concern basis of accounting was appropriate. management, internal control and governance unit to manage all investigative matters to Eskom’s ability to continue as a going concern. In addition, the committee provided oversight and considered Refer to note 3.2 in the annual financial statements for AFS reports on the following areas: further information on the going concern assessment OVERSIGHT AFS Refer to the report of the Audit and Risk Committee and Board and ARC the independent auditor’s report in the annual financial • Quarterly shareholder reports to DPE and National Treasury, statements for further information covering Eskom’s performance as well as risks and strategic matters Consider control deficiencies and risk affecting the organisation, and provide guidance 60 61 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Report by the Business Operations Report by the Governance and Performance Committee Strategy Committee for the year ended 31 March 2023 for the year ended 31 March 2023 NUMBER OF MEETINGS NUMBER OF MEETINGS • The financial impact of the early retirement of Generation The committee was established after the appointment of the FUTURE FOCUS AREAS Nine meetings were held during the year. assets in line with the Just Energy Transition new Board from 1 October 2022. Five meetings were held Overseeing the Generation recovery plan and • Feedback on engagements with various stakeholders during the year. In addition, the committee held five workshops outage management programme for the short, Following the appointment of the new Board, the committee’s regarding the shutdown of stations due to DFFE’s decision on various topics. medium and long term mandate was revised to include governance-related matters on Eskom’s postponement application for the minimum Reviewing the Generation winter plan for the 2024 and the name changed from the Board Strategy Committee to emission standards (MES) MEMBERSHIP (AT YEAR END) financial year the Governance and Strategy Committee. • Update on consequence management for power station Eight independent non-executive directors: Considering feedback from independent general managers Dr Mteto Nyati (chair), Dr Rod Crompton, Mr Lwazi Goqwana, investigations and reviews at power stations MEMBERSHIP (AT YEAR END) • Request for additional diesel funding for Generation, after Mr Clive le Roux, Ms Ayanda Mafuleka, Dr Tsakani Mthombeni, Six independent non-executive directors: which the matter was dealt with by management in line with Reviewing technical performance and operational Ms Tryphosa Ramano and Dr Busisiwe Vilakazi Mr Mpho Makwana (chair), Ms Fathima Gany-Ahmed, the DoA issues, including production issues, customer services issues, related corporate procedures, as Mr Bheki Ntshalintshali, Dr Mteto Nyati, Ms Tryphosa Ramano • Media analysis on loadshedding and the allegations of PURPOSE well as safety, security, health, environmental and and Dr Claudelle von Eck the former GCE, as well as Eskom’s approach to media The committee’s responsibilities include: insurance matters engagement on public matters • Oversight of Eskom’s technical performance and operational PURPOSE • Eskom’s implementation plan to address the Overseeing coal, nuclear and renewable primary issues, as well as safety, security, health, environmental and The committee’s responsibilities include: recommendations of the Zondo Commission energy carriers insurance matters which are not dealt with by the Social, • Oversight of Eskom’s implementation of Government • Identifying and evaluating candidates for the appointment of Assessing the adequacy of electricity supply the Eskom GCE Ethics and Sustainability Committee directives, roadmaps and policy documents relating to the • Monitoring the adequacy of electricity supply, as well as Monitoring progress against shareholder compact restructuring of Eskom and the electricity supply industry • Update on Eskom’s stakeholder engagement plan and progress against shareholder compact and Corporate Plan and Corporate Plan targets relating to the • Making recommendations to the Board on Eskom’s long- quarterly stakeholder engagement reports targets relating to the production of electricity production of electricity term strategy and restructuring of Eskom • Eskom’s centenary commemoration plan • Oversight of coal, nuclear and renewable primary energy Considering proposed changes to measures • Oversight of the implementation of Eskom’s 2035 strategy • The refresh of Eskom’s corporate identity carriers reported in the Operational Health Dashboard, and turnaround plan • The Corporate Plan for the 2024 to 2028 financial years and • Reviewing progress achieved through production and operational support reports and any other • Making recommendations and driving key actions with shareholder compact for the 2024 financial year operational strategic initiatives, proposed changes to operational indices on a regular basis various stakeholders to ensure the financial sustainability of measures reported in the Operational Health Dashboard Reviewing findings and the implementation Eskom, including strengthening of the balance sheet and operational reports, as well as outcomes from major of recommendations from major technical • Development and implementation of a high-performance FUTURE FOCUS AREAS technical investigations and technical audits investigations and technical audits conducted by the ethical culture in collaboration with the Human Capital and Overseeing the implementation of Eskom’s Internal Audit Department on a regular basis Remuneration Committee to support Eskom’s strategy turnaround plan, with a focus on addressing the • Providing guidance on production and operational risks, as national energy crisis well as the appropriateness of mitigation plans, stakeholder Providing guidance and assurance on production and • Reviewing the Board’s size, composition, qualifications, skills, feedback and public communication plans operational risks identified and determining whether experience and diversity and making recommendations to Supporting the implementation of the President’s appropriate mitigation plans are in place the Board and nominations of directors to the shareholder Energy Action Plan and working with the Minister of KEY ACTIVITIES DURING THE YEAR • Oversight of the annual evaluation of the Board, Board Electricity, NECOM and NatJOINTS The committee considered the following and, where required, committees and subsidiary boards Monitoring progress against key milestones of recommended matters for approval or noting by the Board: CONCLUSION the legal separation of Eskom, with a focus on the • The Generation recovery plan, including performance The committee adopted an appropriate formal terms KEY ACTIVITIES DURING THE YEAR operationalisation and trading of NTCSA challenges and technical workshops to address the of reference, regulated its affairs in compliance with its The committee considered the following and, where required, Revising Eskom’s 2035 strategy to incorporate Generation turnaround terms of reference and is satisfied that it has discharged its recommended matters for approval or noting by the Board: developments in Eskom’s operating environment • The 24-month recovery plan to address technical responsibilities contained therein. • The induction agenda and focus areas of the new Board Ensuring that the shareholder compact, Corporate performance challenges • The process for declarations of interest of directors Plan, budgets and financial plans are recommended • Insight and expertise for Generation, to assure optimal • Feedback on engagements relating to the national energy crisis to the Board for approval capability levels for processes, technologies and people to • Update on the implementation of Eskom’s strategy, including Finalising the shortlists to be submitted to the enable operating, maintenance and outage excellence the turnaround plan and progress towards legal separation shareholder for nomination of candidates for the • Progress on the Medupi Unit 4 recovery plan, Kusile Power Eskom GCE position as well as the non-executive • Feedback on lender engagements relating to the legal Station flue gas duct recovery as well as the Koeberg Unit 1 directors of the NTCSA Board; these shortlists separation of Eskom, including lender consent processes outage and related risks were concluded and submitted to the shareholder in • Assignment of NTCSA as the buyer from IPPs in terms of • A case study relating to rooftop solar PV in Vietnam July 2023 section 34 of the Electricity Regulation Act, 2006 • The Corporate Plan for the 2024 to 2028 financial years and • Suspensive conditions of the NTCSA merger agreement and shareholder compact for the 2024 financial year the shortlist of candidates for appointment as non-executive directors of the NTCSA Board CONCLUSION The committee adopted an appropriate formal terms • The retail tariff plan for the 2023 financial year, as well as of reference, regulated its affairs in compliance with its negotiated pricing agreements, cost-reflective tariffs and terms of reference and is satisfied that it has discharged its price signalling responsibilities contained therein. 62 63 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Report by the Human Capital and Remuneration and benefits Remuneration Committee for the year ended 31 March 2023 NUMBER OF MEETINGS • Workforce analytics and the outcome of the skills audit, OUR APPROACH TO REMUNERATION Seven meetings were held during the year. In addition, the including the required actions and quick-win initiatives to The Human Capital and Remuneration Committee (HCRC) TOTAL REMUNERATION committee held three workshops on various topics. address the identified skills gaps assists the Board in its oversight of key human resources = • Progress on human resources audits and plans and need to policies, including a remuneration philosophy which is fair, Guaranteed remuneration and benefits Following the appointment of the new Board, the committee’s address adverse outcomes and build ethical leadership transparent, responsible and equitable. Our approach to mandate was revised. Governance-related matters were Ensures that talented individuals are attracted, retained • Progress on implementation of Eskom’s 1:1:6:10 culture remuneration is intended to support Eskom’s strategic transferred to the Governance and Strategy Committee and and receive support to perform their roles efficiently transformation programme and related initiatives objectives, encourage value creation and advance long-term the name of the committee was changed from the People • Effectiveness of grievance and disciplinary procedures and sustainability through: + and Governance Committee to the Human Capital and need to capacitate case presenters, case chairs and employees • Adopting the King IV TM principles for the remuneration of Short-term incentives Remuneration Committee. directors and executives Manages and facilitates performance through a results-driven In addition, the committee held successful workshops with • Implementing DPE’s guidelines on remuneration and approach that is collaborative, transparent and fair MEMBERSHIP (AT YEAR END) Board members, executives and senior managers to review the incentives for executives, prescribed officers and non- Six independent non-executive directors: + effectiveness of human resources strategies and processes. executive directors of SOCs Long-term incentives Dr Claudelle von Eck (chair), Ms Fathima Gany-Ahmed, • Ensuring alignment with the shareholder compact, which Mr Clive le Roux, Mr Leslie Mkhabela, Mr Bheki Ntshalintshali Ensures the long-term sustainability of the organisation sets clear targets and drives individual and organisational and Dr Mteto Nyati FUTURE FOCUS AREAS performance, as well as remuneration-related conditions Overseeing the implementation of the committee’s attached to the Government support four focus areas for human resources, which include: PURPOSE GUARANTEED REMUNERATION fostering a high-performance ethical culture; being Guaranteed remuneration is fixed and includes compulsory The committee’s responsibilities include: In April 2022, DPE released revised remuneration and an employer of choice; developing a future-fit and benefits such as medical aid, pension, group life and death • Overseeing human resources strategies, policies and incentives guidelines for executives and non-executive directors productive organisation; and building skills benefits, as well as allowances for motor vehicle expenses and performance, including relationships with organised labour of SOCs. We have updated our remuneration policy to align Monitoring human resources performance and to the latest guidelines and submitted this to DPE for review. personal security. and employees as well as Eskom’s culture Priority 1 people risks quarterly and overseeing the However, DPE’s revised guidelines are still awaiting Cabinet • Reviewing reports relating to the adequacy and effectiveness implementation of reporting on ethical implications of skills and people management processes in Eskom approval. Our remuneration policy is being considered by DPE VARIABLE REMUNERATION for matters considered by the committee and will be finalised subject to their review. • Ensuring that appropriate leadership continuity plans are Variable remuneration is linked to the achievement of individual Supporting interventions to improve employee morale in place for executive directors, senior executives and and organisational performance objectives, subject to defined Monitoring leadership continuity, succession gatekeepers. Short-term incentives relate to a single financial prescribed officers and annually reviewing these plans IR Remuneration of managerial and bargaining unit employees planning and talent management strategies, to is discussed under “Our people – Remuneration and year, whereas long-term incentives cover a three-year period. • Reviewing and making recommendations to the Board on improve leadership quality and stability benefits” from page 136 Eskom’s organisational structure Supporting the review of the short-term incentive Given Eskom’s financial constraints, no incentives have been • Overseeing the development and review of a remuneration scheme and engaging with the shareholder paid to executives since the 2018 financial year. Since the 2020 policy that aligns to the Board’s direction on fair, responsible REMUNERATION PRACTICES FOR DIRECTORS Finalising Eskom’s executive remuneration policy in financial year, the conditions of the Special Appropriation and transparent remuneration AND EXECUTIVES line with DPE’s latest guidelines Act, 2019 have also prohibited variable incentive payments to • Making recommendations to the Board on matters NON-EXECUTIVE DIRECTORS executives. Reviewing performance management principles pertaining to the appointment, removal, and resignation of Non-executive directors receive a fixed monthly fee, guided for executives and senior management, including prescribed officers and senior executives and ensuring that by DPE, and are reimbursed for expenses incurred in fulfilling increased leadership accountability TOTAL REMUNERATION FOR DIRECTORS AND these processes are credible and transparent their duties. HCRC submits proposals on non-executive Monitoring progress of the leadership development GROUP EXECUTIVES remuneration to the Board, which considers and makes strategy and supporting initiatives KEY ACTIVITIES DURING THE YEAR recommendations to our shareholder for approval, in line with Category, R000 2023 2022 The committee considered the following and, where required, Reviewing the implementation of and supporting DPE’s guidelines. recommended matters for approval or noting by the Board: Eskom’s 1:1:6:10 culture transformation programme Non-executive directors1 7 917 5 274 • Quarterly human resources reports, focusing on workforce Promoting a speak-up culture through whistle- Executive directors 12 587 12 162 EXECUTIVES analytics, people relations, health and wellness, employee blower protection and support HCRC is responsible for determining executive remuneration, Other group executives 24 768 24 191 benefit costs and organisational effectiveness Monitoring the digitalisation and digitisation strategy in line with DPE’s guidelines. Executives are not involved in Total remuneration 45 272 41 627 • Review of the capacity of the human resources division to of human resources the approval process, and HCRC maintains the right to adjust, support Eskom’s turnaround plan and transformation strategy Rebuilding the capacity and capability of the Eskom withhold or veto any remuneration. 1. The number of non-executive directors has increased from eight in Academy of Learning to address skills needs 2022 to 13 in 2023, following the appointment of a new Board by the • Eskom’s talent management strategy, with a focus on shareholder. Consequently, overall non-executive director remuneration attracting and retaining scarce skills Executive remuneration comprises both a guaranteed and has increased. variable component and is designed to demonstrate a clear • Leadership continuity and succession planning, including the CONCLUSION relationship between performance and remuneration, based on strengthening of Eskom’s leadership bench The committee adopted an appropriate formal terms Refer to note 49 in the consolidated annual financial the following principles. AFS • Review of the effectiveness of current leadership of reference, regulated its affairs in compliance with its statements for detailed remuneration information as programmes and initiatives aimed at ensuring leadership terms of reference and is satisfied that it has discharged its required by King IV TM effectiveness. The committee identified a number of factors, responsibilities contained therein. The committee ensured both internal and external, affecting leadership effectiveness compliance with all relevant legal and regulatory requirements Housing loans to executive directors and other group and contributing to poor decision-making pertaining to remuneration of employees across the executives are disclosed in the consolidated annual financial • The review of Eskom’s short-term incentive scheme to organisation, and further noted that no deviations from Eskom’s statements. No loans have been made to non-executive encourage a high-performance ethical culture remuneration philosophy were observed during the year. directors. 64 65 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Report by the Investment and Report by the Social, Ethics and Finance Committee Sustainability Committee for the year ended 31 March 2023 for the year ended 31 March 2023 NUMBER OF MEETINGS In addition, the committee considered and approved matters NUMBER OF MEETINGS In addition, the committee provided oversight and considered Fifteen meetings were held during the year. within its approval mandate, and considered and recommended Five meetings were held during the year. reports on the following areas: those above its approval limits to Board. These matters • Operational sustainability, including environmental MEMBERSHIP (AT YEAR END) included various procurement strategies, capital investment MEMBERSHIP (AT YEAR END) sustainability performance, challenges and mitigation Five independent non-executive directors: approvals or revisions, as well as other commercial decisions. Eight independent non-executive directors: measures; nuclear oversight, including nuclear safety and Ms Tryphosa Ramano (chair), Mr Lwazi Goqwana, Mr Bheki Ntshalintshali (chair), Dr Rod Crompton, Ms Fathima nuclear plant performance; safety, healthy, environment and Mr Clive le Roux, Dr Tsakani Mthombeni and Dr Mteto Nyati FUTURE FOCUS AREAS Gany-Ahmed, Mr Clive le Roux, Mr Leslie Mkhabela, Dr Tsakani quality performance; and transformation Mthombeni, Dr Busisiwe Vilakazi and Dr Claudelle von Eck • Progress on the capacity expansion programme from a Reviewing Eskom’s capital allocation framework PURPOSE safety, environmental, financial, operational, governance and Monitoring the execution of approved capital socio-economic perspective The committee’s responsibilities include: PURPOSE projects • Oversight of financial budgets, capital and borrowing The committee’s responsibilities include: Overseeing procurement strategies relating to programmes, and procurement strategies • The statutory functions of a social and ethics committee set SR Refer to the 2023 sustainability report for more information capital projects out in the Companies Act, 2008 relating to Eskom’s sustainability practices • Approval of business cases for new ventures, capital investments, projects, disposals and other commercial Evaluating and monitoring the liquidity and balance • Oversight of socio-economic development; good corporate matters sheet of the Eskom group, including the impact of citizenship; environmental, climate change, health and safety • Monitoring the concept, design and execution phases of Government’s debt relief programmes; and the assurance of select KPIs through the FUTURE FOCUS AREAS major capital projects Reviewing and monitoring the implementation of sustainability audit Ensuring that all requirements of the Companies Eskom’s legal separation, in particular the transfer of • Supervision of nuclear strategies and policies, as well as Act, 2008 and nuclear safety regulations are adhered • Oversight of Eskom’s treasury function to on an ongoing basis assets and debt to NTCSA nuclear safety in terms of regulatory requirements and international best practice Overseeing Eskom’s ethics review to improve the KEY ACTIVITIES DURING THE YEAR The committee considered the following and, where required, • Serving as the statutory social and ethics committee for ethics management strategy and related policies and recommended matters for approval or noting by the Board: CONCLUSION Eskom’s wholly owned subsidiaries procedures The committee adopted an appropriate formal terms Monitoring compliance to environmental laws and • Review of the strategy and mandate for the disposal of of reference, regulated its affairs in compliance with its KEY ACTIVITIES DURING THE YEAR remediation plans for areas of non-compliance Eskom Finance Company SOC Ltd terms of reference and is satisfied that it has discharged its The committee considered the following and, where required, • Amendments to the borrowing programme for the 2023 Ensuring that Eskom remains a socially committed responsibilities contained therein. recommended matters for approval or noting by the Board: financial year and responsible corporate citizen through the • The integrated report and sustainability report for the 2022 improvement of its corporate social responsibility • Quarterly investment monitoring reports and the status of financial year, as well as quarterly subsidiary sustainability initiatives the capital investment plan performance reports Monitoring proposed changes in the Companies • The shortfall in funding for the Generation capital plan for • Feedback from the external auditors on the reasonable Amendment Bill, 2021 relating to the social and the 2023 to 2027 financial years, based on Eskom’s revised assurance of selected sustainability KPIs reported for the ethics committee capital affordability and capital allocation 2022 financial year • The revised budget for the standard offer programme and • Progress on Eskom’s alignment with the Organisation emergency generation programme for Economic Cooperation and Development’s (OECD) CONCLUSION • Review of the loadshedding mitigation programme recommendations on anti-corruption The committee adopted an appropriate formal terms • Review of power purchase agreements with preferred • Feedback on the ethics risk assessment by the Ethics of reference, regulated its affairs in compliance with its bidders for bid window 6 of the renewable energy Institute, as well as the ethics monitoring report terms of reference and is satisfied that it has discharged its independent power producer (RE-IPP) programme responsibilities contained therein. Furthermore, the committee • Stakeholder management and environmental sustainability • The gas supply strategy for OCGTs matters fulfilled all its statutory duties as set out in Regulation 43 of the • Inclusion of the Komati repowering and repurposing project Companies Act, 2008. in Eskom’s Corporate Plan and borrowing programme • Eskom’s financial budget and plan for financial years 2024 to 2028 for inclusion in the Corporate Plan 66 67 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Ethics based on our values King IVTM application The Board, through its Social, Ethics and Sustainability soon as circumstances that may affect their declaration change. KING IV TM ASSESSMENT AND FOCUS AREAS As reported previously, the Board had recognised the need to Committee, is responsible for the governance of ethics in Where a conflict exists, it must be declared and managed. All Based on an assessment for the year ended 31 March 2023, our strengthen its membership and concluded that the appointment Eskom, by establishing an ethical culture and providing oversight newly appointed directors and employees receive induction on overall implementation of the King IV TM principles and practices of additional non-executive directors was urgently required of ethics strategies and policies in accordance with King IV TM. our Code of Ethics and ethics policies and are required to submit remains partially effective. Although many of the required as a result of the vacancies on the Board and to ensure that its An ethical culture entails improving ethical behaviour and a declaration of interest. Any interests declared by directors practices are in place and have been for many years, the Board committees, in particular ARC and the Investment and Finance strengthening values. and Exco members in meetings are minuted for the record. The acknowledges that not all of the King IV TM principles have been Committee (IFC), were adequately constituted. Internal Audit Department has reviewed directors’ declarations, fully or effectively applied. Adherence to our Code of Ethics, known as the “The Way”, in line with its audit plan for the 2023 financial year. Requests to appoint additional non-executive directors were is not optional. It is the way we do business in Eskom, guiding Eskom’s King IV TM application register for the year ended submitted to the shareholder as the appointment of directors the way in which the Board and employees interact with one 31 March 2023 is available online and the development of a succession plan for directors is the another as well as with our shareholder, customers, suppliers, All members of the Board and Exco completed responsibility of the shareholder and is managed in accordance the public, other stakeholders and the environment. their declarations for the 2023 financial year and any with the Handbook for the Appointment of Persons to Boards identified conflicts are managed appropriately. Principles considered to be fully or effectively applied in previous of State and State-Controlled Institutions. “The Way” is defined by six core values, which form the reports continue to remain in place and are not highlighted foundation of our values-driven organisation and reflect our No Eskom official or employee is allowed to do business in the summary below. This summary instead focuses on key The gaps associated with the vacancies on the Board were commitment to the highest standards of governance and ethics. with Eskom while being employed by Eskom or its governance developments during the year, as well as initiatives addressed through the appointment of 12 independent non- subsidiaries. To our knowledge, there are no conflicts of to address our King IV TM focus areas, where principles have not executive directors by the shareholder on 1 October 2022. interest due to any director doing business with Eskom. been fully or effectively applied or where interventions have not Zero Harm means protecting the Eskom Way Thereafter, the new Board was fully constituted with yet yielded the desired results. 15 directors. Integrity means acting the Eskom Way Due diligence reviews have been conducted for procurement Principle 1 The Board should lead ethically and effectively An annual board evaluation is conducted to confirm that the transactions tabled for approval at relevant Exco, divisional Board contains an appropriate balance of skills, knowledge, Principle 2 The Board should govern the ethics of Eskom Innovation means thinking the Eskom Way and Board committees. Where these reviews find that the experience and independence. While there are no diversity in a way that supports the establishment of an requirements of Eskom’s procurement and supply chain ethical culture targets set for the Board, its demographic profile reflects a management (P&SCM) procedures and the Preferential diversity that is appropriate for the South African context. Sinobuntu means caring the Eskom Way Procurement Policy Framework Act, 2000 have not been adhered to then the non-compliance is rectified. Any director, employee Various initiatives are under way to improve ethics in The new Board adopted a revised structure for its committees, Customer satisfaction means serving the Eskom Way or supplier who is found to have contravened ethics policies and Eskom, in particular the promotion of ethical behaviour and including the establishment of BOPC to provide oversight of procedures or the DoA, including through failure to submit a implementation of ethics policies, ethics training as well as Eskom’s technical and operational performance. Each committee declaration of interest, will be subject to disciplinary processes. consequence management. Excellence means working the Eskom Way has its own terms of reference, approved by the Board and reviewed annually. Members of the committees are appointed by As mentioned in last year’s report, The Ethics Institute As mentioned previously, an independent assessment the Board, except for ARC, whose members are nominated by was commissioned to perform an independent ethics risk of Eskom’s ethics risk profile has been conducted by the We believe so strongly in the importance of these values that the Board and appointed by the shareholder. ARC has identified assessment to determine potential ethics opportunities, as Ethics Institute. Our Ethics Office is developing an ethics a values-driven culture is one of the cornerstones of the high- the need for the committee to be strengthened with appropriate well as unethical behaviours and practices that place Eskom management strategy and management plan to address the performance ethical culture outlined in Eskom’s 1:1:6:10 culture skills and experience in IT and insurance. at risk. The results of the assessment highlighted the maturity recommendations arising from this assessment. The strategy is transformation programme. The programme is a key enabler of expected to be submitted to the Board for consideration in the our turnaround plan. of ethics awareness in Eskom, but noted that improvement is Following the resignation of Mr André de Ruyter as GCE, the required in terms of accountability, transparency and addressing third quarter of the 2024 financial year. Board has appointed an acting GCE and acting GCFO while the the lack of trust. These findings are being used to inform the recruitment process for a GCE is under way. IR For further information on Eskom’s 1:1:6:10 culture contents of our ethics strategy and determine the scope of Furthermore, Eskom’s 1:1:6:10 culture transformation transformation programme, refer to “Our people – ethics management interventions for Eskom. The Ethics Office programme is being implemented to enable a high- Organisational effectiveness” on page 137 Principle 9 The Board should ensure that the evaluation of is developing an ethics management strategy and plan for performance ethical culture across the organisation. Feedback its own performance and that of its committees, approval by the Board, based on the findings of the report. on consequence management has been improved with the its chair and its individual members, support A dedicated Ethics Office is responsible for developing ethics implementation of the Fraud Prevention Plan and regular continued improvements in its performance and policies and procedures and monitoring the effectiveness We are committed to the fight against fraud, corruption, reporting to relevant Board committees. effectiveness of their implementation. The Ethics Office also facilitates irregularities and other forms of economic crime. We subscribe annual ethics training, which is mandatory for all employees, to the OECD’s recommendations on anti-corruption. As a IR Refer to “Ethics based on our values” on the previous page Although King IV TM recommends that board evaluations be and provides guidance on ethical issues in the workplace. signatory to the United Nations Global Compact and the and “Progress on governance clean-up” from page 72 for performed every second year, Eskom conducts a board evaluation Any potential breaches of ethics that may involve fraud and World Economic Forum’s Partnership Against Corruption further information annually in line with DPE’s SOC Board Evaluation Framework. corruption are referred to the Forensics Department for initiative, we adopt a zero-tolerance approach to fraud, further investigation. corruption and irregularities. The Board undertook an independent follow-up evaluation in Principle 7 The Board should comprise the appropriate balance of knowledge, skills, experience, July 2022 to measure progress against the Board improvement Our conflict of interest policy and declaration of interest Various interventions are under way, as discussed in diversity and independence for it to discharge its plan. The composition of the Board was identified as the most procedure complement our Code of Ethics by setting out the IR “Progress on governance clean-up” from page 72 governance role and responsibilities objectively significant area for improvement, which has now been addressed. obligations of directors and employees in dealing with ethical and effectively issues, such as actual, perceived and/or potential conflicts of The new Board has commenced with a full board evaluation interest, performing private work, relationships with suppliers We encourage all stakeholders to report unlawful or irregular Principle 8 The Board should ensure that its arrangements for the 2023 financial year, which will include a review of all as well as receiving or offering business courtesies. conduct involving Eskom’s directors, employees or suppliers for delegation within its own structures promote Board committees, a Board self-assessment as well as peer through an independent, confidential whistle-blowing hotline. independent judgement, and assist with balance of power and the effective discharge of its duties assessments. The evaluation is expected to be completed Directors and employees across all occupational levels are during the 2024 financial year. required to complete an annual declaration of interest by 30 June IR Refer to the inside back cover for the contact details of our of every year, irrespective of whether a conflict exists, or as toll-free whistle-blowing hotline 68 69 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information King IVTM application continued Executive management Principle 10 The Board should ensure that the appointment GOVERNANCE OF TECHNOLOGY AND of, and delegation to, management contribute INFORMATION Exco is established by the GCE and is accountable for executing • Mr Riedewaan Bakardien resigned as Chief Nuclear Officer to role clarity and the effective exercise of The responsibility for managing technology and information the strategy of the Board and control over day-to-day with effect from 31 July 2022. After acting in the position, authority and responsibilities has been delegated to Exco, with Exco’s Information and operations. Exco is supported by several subcommittees in the Mr Keith Featherstone was appointed as Chief Nuclear Technology Committee ensuring alignment between operational technology (OT) and information technology (IT). execution of its duties. Officer in January 2023 Eskom’s DoA policy governs the process by which the authority • Ms Mandy Rambharos, General Manager: Office of the to act and make decisions is delegated, in accordance with the Group Chief Executive, responsible for managing Eskom’s ARC considers quarterly reports that provide assurance on the Refer to “Our governance framework” on page 57 for the levels of materiality outlined in the SMF. The DoA applies to IR JET Office and driving our JET strategy, resigned with effect security and availability of Eskom’s IT systems of control, as well Exco subcommittees Eskom and its subsidiaries and is reviewed regularly. as assessments of the adequacy and effectiveness of governance, from 31 October 2022. Mr Vikesh Rajpaul was subsequently risk management, compliance and controls relating to IT. appointed in the position A review of the DoA is under way to ensure that the Board is Membership of Exco includes the GCE, GCFO and group satisfied that the DoA appropriately contributes to role clarity executives responsible for various functional areas of the • Ms Nida Gafoor, General Manager: Assurance and Forensics, INFORMATION TECHNOLOGY resigned with effect from 30 November 2022. In the and the effective exercise of authority and responsibilities. business. The GCE and GCFO positions are subject to five-year Through ARC, the Board has adopted an IT Charter and 2024 financial year, the Board approved the separation of contracts, with an option to renew. All other executives are policies to provide direction on how information technology A&F into separate internal audit and forensics functions. Succession planning for key executive positions remains an full-time employees, unless otherwise noted. is managed in the organisation to ensure the confidentiality, Ms Ureka Rangasamy and Mr Godfrey Quickfall are acting as area of focus, with HCRC providing enhanced oversight security, integrity and availability of information. Group IT the heads of the respective departments around leadership continuity, succession planning and talent The term of Mr Calib Cassim ends in December 2023; the has established strategic forums to oversee IT governance, • Following the departure of Mr André de Ruyter in management strategies, aimed at improving leadership quality Board and Mr Calib Cassim are in discussions regarding the compliance, assurance, risk and resilience, cloud and data February 2023, Mr Calib Cassim was appointed as the acting and stability. Recruitment processes are under way for vacant renewal of his contract. management, IT investments, as well as cyber-security. Eskom is GCE and Mr Martin Buys was appointed as acting GCFO Exco and executive management positions, following the also investigating the utilisation of data analytics and conducting resignation of key executives. Refer to pages 16 and 17 for the Exco composition, including research on blockchain and artificial intelligence technologies, in IR After year end, Mr Bheki Nxumalo was appointed as Group information on diversity line with the shareholder’s expectations. Executive: Generation with effect from 1 April 2023. IR Refer to “Executive management” on the next page OPERATIONAL TECHNOLOGY The group executives for Generation, Transmission and Mr Jan Oberholzer’s term as GCOO came to an end on Principle 14 The Board should ensure that Eskom The Technical Governance Committee reports to Exco’s Distribution serve as the divisional managing directors of their 30 April 2023 when he reached retirement age. The GCOO remunerates fairly, responsibly and Operating Committee and is responsible for development respective divisional boards. position was removed from the organisational structure transparently so as to promote the of technical processes and standards, as well as effective thereafter. Mr Jan Oberholzer was subsequently appointed achievement of strategic objectives and positive management of operational technology throughout Eskom. CHANGES IN EXECUTIVE LEADERSHIP on a fixed-term contract to assist in overseeing the Kusile and outcomes in the short, medium and long term The following changes took place during the year: Koeberg projects, although a mutual agreement to part ways COMPLIANCE was later reached, with his last day being 31 July 2023. The Board is accountable for compliance and governs this • Mr Phillip Dukashe resigned as Group Executive: Generation Eskom has separate remuneration policies in place due to different through the Compliance Charter and, with the assistance of with effect from 31 May 2022. Mr Rhulani Mathebula was remuneration practices across bargaining unit, managerial, Ms Nthato Minyuku, Group Executive: Government ARC, oversees compliance throughout Eskom. appointed to act in the position and subsequently resigned executive and non-executive categories. We have updated the and Regulatory Affairs, and Ms Mel Govender, Group with effect from 30 November 2022. Mr Thomas Conradie remuneration policy for executives and non-executive directors Executive: Legal and Compliance, resigned in April 2023, and Given the complex legal and regulatory obligations affecting was then appointed to act in the position to ensure alignment with DPE’s latest guidelines, which were exited Eskom on 30 April and 30 June 2023 respectively. our operations, the overall risk of non-compliance in the • Mr Bheki Nxumalo, previously Group Executive: Group released in April 2022. Our updated remuneration policy is being Ms Natasha Sithole and Ms Winile Madonsela are acting in organisation remains high. Our focus remains on improving Capital, was appointed as the Chief Executive Officer considered by DPE and will be finalised subject to their review. the respective positions while the recruitment processes are compliance maturity by: of Eskom Rotek Industries SOC Ltd with effect from Eskom has conducted a remuneration benchmarking review to under way. ensure employee remuneration is fair and in line with market- • Identifying compliance obligations, including compulsory 1 June 2022. The group executive position for the Group related wages and salaries. requirements and voluntary commitments Capital division was terminated, with the division reporting • Understanding and regularly assessing the impact on the directly to the Group Chief Operating Officer (GCOO) achievement of the Eskom’s strategic objectives Refer to page 65 for further information on executive and IR • Developing and maintaining relevant controls non-executive remuneration • Conducting routine monitoring of adherence to controls • Managing the resolution of identified risks and GOVERNANCE FUNCTIONAL AREAS contraventions The Board sets the policy and direction for governance functional areas to support the organisation in achieving its Non-compliance may result in reportable matters through the strategic objectives. PFMA, 1999. Transgressions are managed through disciplinary processes, and may extend to civil and criminal legal action The Board has delegated responsibility for the oversight of where appropriate. risk, information technology, compliance and assurance to ARC. While ARC has overall oversight of risks, the Board is We have conducted a review of our approach to compliance, implementing an integrated approach, where individual Board and are implementing an improved organisational structure committees will take accountability for the risks affecting their for the corporate compliance function. Processes for the particular areas. The governance of technology and information recruitment of certified compliance practitioners and as well as compliance are discussed in further detail below. procurement of an integrated governance, risk and compliance management system are under way. IR Eskom’s risks and opportunities are discussed in “Our strategic context – Integrating risk and resilience” from page 46. Our approach to combined assurance is discussed in “Assurance and controls” on page 61 70 71 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Progress on governance clean-up RESTORING ESKOM’S REPUTATION AS A Over time, these issues have eroded Eskom’s operational and It is believed that an intelligence report, commissioned by and the requirement to disclose material post-year end events. TRUSTED CORPORATE CITIZEN financial sustainability as well as its reputation and relationships Mr De Ruyter through a privately funded investigation, formed Furthermore, criminal convictions and civil judgments are The Board has intensified its focus on environmental, with key stakeholders. The Board acknowledges that addressing the basis for his allegations. The report was not handed over dependent on the justice system and this remains a lengthy social and governance (ESG) matters to rebuild Eskom as these matters will be a lengthy process and recognises that to Eskom. The Special Investigating Unit (SIU) confirmed in process, with no substantial outcomes in these cases so far as a high-performance, ethical and values-driven organisation. more internal work is required to eradicate the scourge of June 2023 that it had obtained the report from the company investigations and legal proceedings are ongoing. Furthermore, our ESG framework has been enhanced, in criminality that affects the organisation. appointed to conduct the intelligence investigation and support of our Code of Ethics, to factor in broader legal and is reviewing the information in terms of its investigation We continue to provide the necessary support where governance issues, including Eskom’s response to the effects The governance focus areas of our ESG framework include methodology and protocols. The SIU is also investigating how recommendations are being driven by another organisation and aftermath of state capture as well as criminality, in the form various initiatives to address crime, fraud and corruption, as the report was commissioned. An independent legal firm or are not within Eskom’s control – such as court proceedings of fraud, corruption, theft and sabotage. shown below, as well as strengthening PFMA compliance and has been appointed to assist the Board in addressing these – to ensure the successful prosecution of implicated supply chain management processes. matters and determining any further steps required. They have suppliers, former employees, former directors and associated obtained a copy of the report and are consolidating the findings perpetrators. to aid in the Board’s investigation. INITIATIVES TO ADDRESS IMPLICATED INDIVIDUALS Conducting an The allegations continue to garner extensive media coverage AND COMPANIES investigation into and the Standing Committee on Public Accounts (SCOPA) has Addressing held numerous meetings on the allegations and surrounding Consequence management of delinquent employees the allegations by Employees implicated in state capture were dismissed or security risks circumstances, inviting representation from key individuals and the former GCE and resigned in early 2018. There are currently no outstanding affecting Eskom’s institutions involved. Mr De Ruyter subsequently published a the privately funded disciplinary actions against individuals highlighted in the Zondo operations book, the contents of which has been included in the list of intelligence Commission report and no implicated individuals are currently report allegations under investigation by Eskom. employed by Eskom. Improving Addressing The Board is taking these allegations very seriously. Should consequence the findings of Director delinquency proceedings its investigation find that the allegations have merit, they will management the Zondo From a legal perspective, the most effective avenue to charge be dealt with through the appropriate channels. Eskom is processes Commission former directors and officials is through delinquency proceedings cooperating with all external investigations and inquiries related to these matters. under the Companies Act, 2008. DPE is coordinating this process across all SOCs. Eskom has prepared detailed evidence ESKOM’S RESPONSE TO THE FINDINGS OF THE packs relating to all implicated directors and has submitted the evidence relating to four former directors to the CIPC for Initiatives to ZONDO COMMISSION consideration and to aid in delinquency proceedings. Investigating Performing a As mentioned in last year’s report, we have established forensic matters address crime, risk assessment fraud and a dedicated state capture task team which is assisted by and implementing of Eskom’s crime external legal counsel. The task team has completed its review Reporting of former delinquent directors and officials to disciplinary corruption landscape the relevant professional body of the report of the Zondo Commission and developed action an implementation plan to address the Commission’s The South African Institute of Chartered Accountants recommendations and ensure appropriate legal remedies instituted disciplinary proceedings against Eskom’s former Chief are pursued. Financial Officer, Mr Anoj Singh, and revoked his professional Whistle- membership in August 2020. Similar proceedings are being Establishing The recommendations include instituting criminal charges, considered for other implicated individuals and we continue blowing and a single ensuring appropriate consequence management against to work with DPE and the Department of Justice on these managing conflicts investigation employees and suppliers, pursuing director delinquency matters. of interest Implementing unit proceedings and civil recovery of financial losses suffered Eskom’s Fraud Criminal proceedings by Eskom. Prevention Plan As mentioned, we are working with law enforcement The key focus areas of our implementation plan are consistent agencies to bring all criminal matters arising from the Zondo with these recommendations and include civil recoveries, Commission report to court as soon as possible. We are criminal charges and consequence management for implicated monitoring progress on these matters. suppliers, former employees and former directors identified Developments across these areas are discussed in further detail period of 28 February 2023 set out in his resignation letter; he by the Commission; an in-depth crime risk assessment; and the Civil recoveries below; however, due to the sensitive nature of these matters, was not required to serve the balance of his notice period and review of our structures, policies and procedures to support Several civil recovery proceedings have been launched by not all information can be disclosed in this report. was released with immediate effect on 22 February 2023. the eradication of crime, fraud and corruption going forward. both the SIU and Eskom. The SIU has sought to extend its mandate to include all matters raised in the report of the BOARD INVESTIGATION INTO THE ALLEGATIONS During the interview, Mr De Ruyter publicly disclosed We are working with DPE, other SOCs and law enforcement Zondo Commission. Our task team is monitoring civil recovery information on alleged fraud and corruption affecting Eskom, agencies on various initiatives and our state capture task proceedings to intervene where legal progress remains slow. BY THE FORMER GCE which has prompted the Board to initiate an investigation to team is monitoring progress on the implementation of the During an interview with eNCA in February 2023, Mr André determine whether there are any gaps between what is already Commissions’ recommendations, including litigation instituted Blacklisting of suppliers de Ruyter made certain allegations and alluded to the known and under investigation by Eskom and what was alleged by the SIU through the Special Tribunal. Eskom has placed a provisional block on all implicated suppliers, involvement of Government officials in fraud and corruption, in the interview. preventing new contracts with these suppliers. Eskom is without first disclosing the information to the Board or This report provides limited additional information since last awaiting the outcome of related court cases before following consulting the Board on the matter. The Board could not Mr André de Ruyter was asked to hand over all documentation year’s report, given that much of the progress relating to the necessary governance processes to formally blacklist any condone Mr De Ruyter’s actions and reached a mutual and company assets on the day of his departure from Eskom. the 2023 financial year was already reported on due to the suppliers. agreement with Mr De Ruyter to revert to the original notice delayed release of Eskom’s 2022 annual financial statements 72 73 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Progress on governance clean-up continued Initiatives to enhance proactive management of fraud and December 2023, with full implementation planned by the end WHISTLE-BLOWING AND CONFLICT OF courts. A further 41 have been through the criminal proceedings corruption of the 2024 financial year. INTEREST MANAGEMENT provided for under the Criminal Procedure Act, 1977. While the aforementioned initiatives are focused on addressing All stakeholders, including employees, are encouraged to existing matters and investigations, Eskom is also re-evaluating ESKOM’S FRAUD PREVENTION PLAN report suspected incidents of unlawful or irregular conduct Improved relationships with law enforcement agencies resulted the effectiveness of its approach to crime, fraud and corruption We have implemented a Fraud Prevention Plan which is reviewed involving Eskom’s directors, employees or suppliers through in the arrests of more than 18 individuals during the year, in line with the recommendations of the Zondo Commission and updated annually. The key objectives of the plan include: our whistle-blowing channels. These channels are managed by including employees and suppliers who were implicated in and external audit findings. This involves reviewing and making • Improving Eskom’s ethical culture and legislative compliance an independent service provider to ensure the integrity and fraudulent and corrupt activities. relevant changes to policies, processes, systems, controls and • Adopting and embedding a zero-tolerance approach to confidentiality of the process. All incidents are acknowledged structures where necessary. within 24 hours and cases are registered for forensic investigation Regrettably, our investigations have revealed similar themes fraud and corruption in business operations after conducting an initial assessment of the incident. to previous years, with instances of improper contract • Raising awareness of fraud through various fraud prevention management, general procurement irregularities and fraud Review of policies and procedures campaigns and training interventions Our task team has reviewed Eskom’s supply chain management continuing. Non-compliance with Eskom’s well-documented • Improving the transparency and credibility of the IR Refer to the inside back cover for the contact details of our policies and procedures, employee dishonesty, such as and human resource policies and procedures and made whistle-blowing channels procurement process through inaccurate or incomplete declarations on interest, as recommendations to improve the implementation of consequence management and enable sanctions to take place • Encouraging members of the public to blow the whistle on well as circumvention of controls remain the most prevalent fraud, corruption and financial misconduct by publicising Compliance with and monitoring of the annual declaration of themes in these cases. Eskom’s Internal Audit Department more effectively going forward. Eskom’s whistle-blowing channels interest process has improved, with 99% of employees having has recommended control enhancements in affected areas to • Enhancing fraud deep dives and fraud risk assessments submitted their declarations for the 2023 financial year. Where prevent recurrence and the correction of identified control These measures are discussed in more detail under IR • Establishing an intelligence-driven forensic investigation employees have not declared business-related interests or have deficiencies are being monitored. "Improving consequence management" on the next page capacity performed private work without prior approval, they will be • Supporting management in the implementation of subjected to disciplinary processes. IMPROVING CONSEQUENCE MANAGEMENT We are also implementing automated systems in the consequence management, and improving oversight and A number of interventions have been put in place to improve procurement of goods and services and management of spend, management accountability Our declaration of interest system sources information directly the effectiveness of consequence management processes. including price check tools, digitalisation of stock control from the Companies and Intellectual Property Commission These include the establishment of an external disciplinary and e-auction systems, to proactively address fraud- and The Anti-Fraud and Corruption Integration Committee (CIPC) database to ensure that any active directorships are tribunal, consisting of internal and external experts, to expedite corruption-related risks. Technology developments are being (AFCIC) was established in 2020 to monitor implementation of appropriately disclosed. Exceptions that raise potential non- disciplinary action and address the backlog of cases, training of monitored to identify further opportunities across these areas. the fraud prevention plan each year and to ensure integration compliance with our conflict of interest policy are referred to our disciplinary chairs and case presenters, as well as monitoring between forensic, legal, ethics, industrial relations and supplier Forensic and Anti-Corruption Department for investigation. and evaluation of long outstanding disciplinary actions at Crime landscape risk assessment review functions. executive and Board level. We are conducting a full assessment of Eskom’s crime risk FORENSIC INVESTIGATIONS AND DISCIPLINARY management landscape in partnership with an independent During the year, we conducted a self-assessment on ACTION As mentioned, the state capture task team has also reviewed service provider. This initiative is aimed at identifying risks our alignment to the goals and purpose of the OECD’s key policies and procedures relating to the implementation of related to bribery and corruption, financial crime, physical asset recommendations on anti-corruption. The assessment identified FORENSIC INVESTIGATIONS consequence management and has proposed an end-to-end crime, cybercrime and money laundering, to inform Eskom’s gaps and enhancement opportunities related to certain business 7 963 incidents registered for assessment on the forensic process to manage integrity matters within Eskom, including approach to addressing and combating these activities. processes. A plan has been developed to address these gaps and fraud, corruption, breaches of the conflict of interest policy and case management system through reporting channels implement enhancements in the 2024 financial year. the management of the whistle-blower hotline, among others. The first phase of the crime landscape risk assessment is in 278 new cases registered 227 forensic investigations progress, given the time needed to conduct interviews and An anti-fraud and corruption strategy has been developed for forensic investigation concluded Separate disciplinary and grievance procedures are being obtain information for a project of this scale and complexity. and will be updated to incorporate the results of the 305 cases under investigation at year end, relating to implemented for bargaining unit and managerial employees, to The final report, including recommendations for treating root independent assessments on Eskom’s crime landscape and align to Eskom’s conditions of service and industry trends as causes, is expected to be issued in the third quarter of the 2024 ethics risks. Furthermore, a fraud risk assessment has been current and prior years financial year. well as institute separate standards for managerial employees concluded, leading to the development of a fraud risk register due to the higher expected duty of care. for the organisation. AFCIC is monitoring progress of the SANCTIONS Once the risk assessment is completed, recommendations implementation of the OECD’s recommendations as well as around the design and implementation of control frameworks 223 employees recommended for disciplinary action An agreement was reached with our recognised trade unions controls linked to the fraud risk register, in line with its mandate. to institute the amended disciplinary and grievance procedures will be considered in the second phase, together with 54 suppliers recommended for review to the Supplier for bargaining unit employees from 1 July 2023. The amended embedding a crime risk management programme as part of Our Forensic and Anti-Corruption Department has also Review Committee procedures provide guidelines for disciplinary enquiries and Eskom’s standard operating procedures. performed a fraud deep dive on the procurement of goods hearings to ensure consistency in the application of consequence 158 confirmed cases of fraud and corruption registered and services to identify exceptions, such as inflated prices Single investigative unit with the South African Police Services (SAPS) management. Eskom undertakes to institute disciplinary action and deliberate splitting of orders to circumvent controls. The Eskom’s Forensic and Anti-Corruption Department is within three months from the date that it becomes aware of external auditors have raised similar findings during the external mandated to perform independent forensic investigations into any misconduct. Consultations on the disciplinary and grievance audit for the 2022 financial year, and again for the 2023 financial We have enhanced our forensic investigation process to make cases of fraud, corruption and general irregularities, supported procedures applicable to managerial employees are in progress. year. Further analysis is being conducted on these findings it compulsory for all internal and outsourced investigations to by a panel of external investigators. In addition, Eskom has and the recommendations to address these matters, although assess, during an investigation, whether a case is required to be many other functions which are responsible for investigating As reported previously, the Human Resources Division has revised the Board is not satisfied with the level of progress made in reported to law enforcement agencies. This process has been and responding to crime and other unethical behaviour. its reference flagging procedures to include employees who improving internal controls across the organisation. implemented to ensure that all relevant matters are reported resigned before disciplinary processes or investigations could be in terms of the Prevention and Combating of Corrupt Activities The existing approach of having multiple investigative functions, concluded. Previously, only employees who were dismissed were Act, 2004. Forensic investigating reports are only signed off operating in an uncoordinated manner at times, is not yielding During the year, we published monthly newsletters for flagged. Individuals who have been flagged cannot be employed once this requirement has been satisfied and, where applicable, the desired results. To enhance our effectiveness in preventing employees, to raise awareness about fraud and corruption in Eskom for 10 years and cannot serve as an employee of a a case number from SAPS or the Directorate for Priority and responding to these matters, we have embarked on a across the organisation. A further three special editions contractor on Eskom sites. The withholding of pension benefits Crime Investigation (the Hawks) has been assigned. programme to consolidate our multiple investigative functions were released to observe African Anti-Corruption Day and the recovery of losses or damages to Eskom from flagged into a single investigative unit. It is envisaged that a high- and the International Fraud Awareness Week in July 2022 employees are also outlined in the revised procedure. Of the 158 cases registered with law enforcement, 10 are at level structure for the investigative unit will be in place by and November 2022. trial stage at various magistrate and specialist commercial crimes 74 75 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Progress on governance clean-up continued In instances where suppliers have failed to declare a potential status is being continuously assessed and we have identified We are finalising procedures and related controls around the Losses due to criminal conduct of R6 billion were reported conflict of interest and have been proven to have benefitted gaps and areas where PFMA compliance has been a challenge. removal process for uncondoned irregular expenditure, to during the year, of which the majority related to non-technical unduly through such relations, a supplier review process is We will continue to analyse the root causes of non-compliance minimise the continued impact of historical matters on the energy losses. The methodology for determining the split followed. Eskom’s Supplier Review Committee investigates to address them effectively. Development of a detailed action cumulative irregular expenditure balance. between technical and non-technical losses was revised, cases of misconduct and institutes disciplinary action, which may plan to address the audit qualification is under way with clear increasing the non-technical portion from around 30% of total include blacklisting of suppliers from Eskom’s database as well as objectives, timelines and responsible individuals and areas, the energy losses in 2022 to almost 70% in 2023. Losses due to recommendations to National Treasury for blacklisting of suppliers progress of which will be monitored regularly. CLARIFYING RECENT DEVELOPMENTS IN criminal conduct for the 2022 financial year were restated from on the national supplier database. Our state capture task team is PFMA DISCLOSURE REQUIREMENTS R2.8 billion to R5.7 billion. reviewing the backlog of supplier disciplinary cases and addressing A key focus area is Eskom’s PFMA policy and procedure, In January 2023, National Treasury issued Instruction new cases as they arise. An external service provider has been which will be updated to align to changing regulations and best Note 4 of 2022/23, requiring certain PFMA information Disclosure of PFMA information in terms of National appointed to assist in closing these matters out. practice. Once completed, Eskom will ensure that employees previously disclosed in the annual financial statements AFS Treasury Instruction Note 4 of 2022/23 is set out in receive training on the updated policy and procedure. PFMA to instead be disclosed in an organisation’s annual (or note 51 in the annual financial statements as well as in the ADDRESSING SECURITY RISKS training for employees at all levels of the organisation will help integrated) report. Only irregular expenditure, fruitless and IR supplementary information from page 177 A Safety and Security Work Stream has been established to ensure that employees understand their responsibilities and wasteful expenditure and material losses due to criminal the importance of PFMA compliance. Eskom is also continuing under the Energy NatJOINTS and is chaired by the National conduct relating to the current and comparative financial to seek ways to enhance and strengthen internal controls to Our P&SCM Department has implemented a procurement Commissioner of Police, to focus specifically on combatting years are required to be disclosed in the annual financial improve PFMA compliance. These measures will aid in fostering roadmap to improve commercial governance processes as well criminal activities affecting Eskom’s operations as well as statements. a culture of transparency and accountability within Eskom and as compliance to procurement and other relevant legislation, and the criminal cases reported by Eskom to law enforcement ensure that those individuals responsible for non-compliance The change in disclosure applies to all departments, trading thereby reduce the occurrence of irregular expenditure. authorities. As reported previously, an Executive Security and non-conformance with the PFMA are held accountable. entities, constitutional institutions and public entities listed Steering Committee has been established within Eskom to in Schedules 2 and 3 of the PFMA, 1999, including Eskom The procurement roadmap aims to reduce the number of address security risks relating to criminal acts, including theft, and its subsidiaries, and is effective from 3 January 2023. cancellations of published tenders, improve compliance with vandalism and sabotage incidents. The PFMA defines irregular expenditure as “expenditure, procurement plans, reduce the number of contract modifications, In March 2023, we requested an exemption from disclosing expansions and deviations as well as enhance contract Our focus remains on gathering intelligence on key criminal other than unauthorised expenditure, incurred in irregular expenditure, fruitless and wasteful expenditure management. In line with the conditions attached to the Special elements within and external to Eskom. We are collaborating contravention of or that is not in accordance with a and material losses due to criminal conduct in our annual Appropriation Act, 2019, progress on the roadmap has been with law enforcement and other criminal justice agencies requirement of any applicable legislation”. The definition is financial statements for the 2023, 2024 and 2025 financial reported to National Treasury and DPE on a regular basis. to address possible shortcomings which prevent successful very broad, as irregular expenditure can arise from lack of years. The request was intended to provide time for Eskom investigations and prosecutions on criminal matters. compliance with any applicable legislation, whether external to improve PFMA reporting processes and compliance with To enhance compliance, transparency and accountability in laws or internal policies, procedures and processes. the PFMA, 1999, and thereby reduce the risk of continued supply chain management, Eskom has amended its P&SCM Eskom’s General Manager: Security has been placed on qualified external audit opinions. It is important to note that precautionary suspension to finalise an investigation into i It is important to note that irregular expenditure does i Eskom did not request to be exempted from complying procedures to address the requirements of National Treasury not imply that funds were misused or that any financial PFMA SCM Instruction Note 3 of 2021/22, which came into unverified messages and allegations of fraud and corruption with the requirements of the PFMA, 1999 but only from losses or wasteful expenditure were incurred. Irregular effect 1 April 2022. The instruction note caters for deviations linked to the awarding of an emergency security contract, which the disclosure of PFMA information in the annual financial expenditure can occur due to a variety of reasons, such from competitive bidding through procurement by other has been widely reported in the media. Given the seriousness statements, with the intention that the information would as procedural errors, non-compliance with policies and means, as well as for the expansion and variation of contracts. of these allegations, Eskom is working with relevant authorities instead be reported in full in the integrated report. procedures as well as lack of proper documentation. to investigate the matter. The emergency security contract was It does not matter whether the transgressions were We consider these transactions to be an exception and not the placed in line with Eskom’s procurement procedures and National The Minister of Finance granted a partial exemption on accidental, occurred in good faith, or were based on a norm and provide regular reporting to National Treasury as Treasury directives for the emergency procurement of services. 31 March 2023 based on this request, but subsequently commercially sound decision – they will still be defined as these transactions are concluded, in line with the requirements withdrew the exemption to allow for a period of engagement of the instruction note. National Treasury publishes reports irregular expenditure. The National Prosecuting Authority (NPA) and its Investigating and written technical input from other stakeholders. The on deviations, contractual expansions and variations across all Directorate is working with legal experts and Eskom’s forensic exemption was formally retracted on 7 June 2023. SOCs on a quarterly basis. investigators to support its efforts in ensuring successful prosecution of alleged perpetrators of complex and high- At 31 March 2023, the cumulative balance of irregular We continue to cooperate with supervisory authorities including the Minister of Public Enterprises, National Treasury, Eskom recorded a total of 606 deviations and 274 contractual profile cases. The NPA has also committed to increasing its expenditure amounted to R91.2 billion, the vast majority of the Auditor-General of South Africa and Parliament. expansions and variations during the 2023 financial year. collaboration with law enforcement authorities to focus on which relates to historic transgressions. Irregular expenditure major crimes, such as cable theft and damage to essential incurred during the 2023 financial year totalled R5 billion. Improving systems, controls, resources and processes to infrastructure, which seriously threaten the operational Note that the PFMA amounts reported are exclusive of VAT. monitor and report on PFMA contraventions remains an IR Disclosure of deviations, expansions and variations is set sustainability of Eskom and other SOCs. area of focus, as the Board is not satisfied that prior year out from page 183 The balance for the comparative period has been restated, PFMA qualification issues have been adequately addressed. STRENGTHENING PFMA COMPLIANCE AND increasing by R17.3 billion, largely as a result of prior year expenditure that was only confirmed as irregular in the current Reporting on irregular expenditure, fruitless and wasteful REPORTABLE IRREGULARITIES RAISED BY THE SUPPLY CHAIN MANAGEMENT expenditure and material losses due to criminal conduct EXTERNAL AUDITORS Eskom has once again received a qualified opinion relating to the year. The process of collecting information and reporting on to National Treasury on a quarterly basis, as required In terms of section 45 of the Auditing Profession Act, 2005, irregular expenditure continues to be a focus area, although it disclosure of PFMA information, as associated financial records by the PFMA, 1999 and relevant National Treasury the external auditors are required to report any reportable is expected that new instances of irregularities will be detected were not complete or accurately maintained in line with legislative instructions, remains in place. irregularities to the Independent Regulatory Board for Auditors, as we continue our governance clean-up exercise. requirements. The auditors have raised material findings in respect and only then report the matter to Eskom, affording management of Eskom’s compliance with specific matters and key legislation, an opportunity to respond to and/or rectify the matter. Nonetheless, the cumulative balance of irregular expenditure as well as significant internal control deficiencies. remains high, mainly due to limited progress in receiving the The closing balance of fruitless and wasteful expenditure necessary condonations and removal of historical irregular The Board remains committed to enhancing systems, controls, amounted to R6.8 billion at year end, of which R105 million, AFS Details of the reportable irregularities, as well as the action expenditure. Regrettably, obtaining the necessary supporting taken and status of the respective matters, are discussed in resources, policies and procedures as well as reporting relating to nine incidents, has been reported for the year under documents for historical matters remains a challenge. We note 52 in the consolidated annual financial statements structures to address this significant focus area. These review. The balance for the comparative period has been are committed to rectifying past mistakes and ensuring enhancements are not yet effective as there are still areas that restated by R1.7 billion, with 75 matters incurred in prior years accountability. During the year, Eskom received notice of require significant improvement. Eskom’s PFMA compliance which were only confirmed in 2023. condonations to the value of R246 million. 76 77 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Condensed annual financial statements The group financial results set out in the condensed financial uncertainty relating to Eskom’s ability to continue as a going statements have been extracted from the consolidated concern. However, this does not affect their opinion. annual financial statements of Eskom Holdings SOC Ltd for the year ended 31 March 2023, which have been prepared in The consolidated annual financial statements, which detail accordance with International Financial Reporting Standards the financial performance of the group and company, are (IFRS) and in the manner required by the Companies Act, 2008 available online and the PFMA, 1999. The consolidated annual financial statements have been The income statement, statement of financial position and prepared under the supervision of the acting Group Chief statement of cash flows for the 2022 financial year have Financial Officer, Mr Martin Buys CA(SA), and were duly been restated as a result of the adoption of an accounting approved by the Board of Directors on 30 October 2023. standard that required retrospective application. All financial information presented in this report reflects the restated The consolidated annual financial statements have been audited results where applicable. by the group’s independent auditors, Deloitte & Touche, in accordance with the Public Audit Act of South Africa, 2008, Refer to note 48 in the consolidated annual financial the General Notice issued in terms thereof and International AFS statements for more information on the prior period Standards on Auditing. The independent auditors issued a restatements qualified opinion relating to information disclosed in terms of the PFMA, 1999. Except for this qualification, the consolidated Neither the future performance plans nor strategies referred annual financial statements are fairly presented in terms of to in the integrated report have been reviewed or reported on IFRS. Furthermore, the independent auditors have emphasised by the group’s independent auditors. a number of matters in their report, including a material CONDENSED GROUP INCOME STATEMENT 9.61% tariff increase for the year, offset by a 5% decline in for the year ended 31 March 2023 sales volumes driven by generation and IPP supply constraints leading to unserved energy, as well as poor Restated economic conditions affecting many sectors 2023 2022 Rm Rm % Higher OCGT usage to alleviate supply constraints, coupled with higher fuel oil usage for the start-up of power stations Continuing operations due to more frequent plant breakdowns. Exacerbated by Revenue 259 543 247 594 5 fuel price pressures and combustion support Other income 2 742 1 494 Headcount reduction, offset by 7% salary increase for Primary energy (154 942) (132 933) 17 employees from bargaining unit up to senior management level Employee benefit expense (32 321) (32 985) 2 Net impairment loss and write-downs (2 182) (1 436) Increased maintenance and plant operating costs to address (34 795) (28 780) 21 poor plant performance Other expenses Profit before depreciation and amortisation The biggest contributor to the decline in performance is the expense and net fair value and foreign exchange 38 045 52 954 28 impact of generation and IPP supply constraints on revenue loss (EBITDA) and primary energy costs Depreciation and amortisation expense (32 485) (32 066) 1 Mainly due to new build units achieving commercial operation Operating profit (EBIT) 5 560 20 888 73 Net fair value and foreign exchange loss on Mainly due to fair value movements on hedging instruments financial instruments, excluding embedded (169) (4 748) 96 arising from weakening of the Rand, as well as credit risk derivatives and hedge effectiveness adjustments Net fair value and foreign exchange (loss)/gain (116) 1 622 107 on embedded derivatives A new pricing agreement became effective from Profit before net finance cost 5 275 17 762 1 August 2021. The prior year includes unwinding of the derivative that existed up to that date. Since then, only Net finance cost (37 015) (33 063) 12 day 1 fair value movements are recognised Performance review Finance income 3 365 2 364 Finance cost (40 380) (35 427) Higher average cost of borrowings and lower interest Share of profit of equity-accounted investees capitalised to projects after units are commissioned, together 93 52 with an increase in gross debt securities and borrowings after tax Loss before tax (31 647) (15 249) A return to profitability remains hampered by poor 79 Condensed annual financial statements 82 Our finances 98 Our infrastructure Income tax 7 708 3 319 operational performance, lack of cost-reflective tariffs, high debt servicing costs and non-payment by some customers, Loss for the year (23 939) (11 930) 101 particularly municipalities 116 Our interaction with the environment 132 Our people 142 Our role in communities Income/gain increased Income/gain decreased Expense/loss decreased Expense/loss increased 78 79 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Condensed annual financial statements continued CONDENSED GROUP STATEMENT OF FINANCIAL POSITION CONDENSED GROUP STATEMENT OF CASH FLOWS at 31 March 2023 for the year ended 31 March 2023 Restated Restated 2023 2022 2023 2022 Rm Rm % Rm Rm % Assets Cash flows from operating activities Non-current assets 743 235 720 155 3 Loss before tax (31 647) (15 249) 108 Property, plant and equipment and intangible Adjustment for non-cash items 75 936 79 745 672 768 671 082 assets Changes in working capital (2 320) (9 771) 76 Future fuel supplies 7 167 6 304 14 Additions to coal and nuclear fuel supplies Cash generated from operations 41 969 54 725 Investment in equity-accounted investees and 350 418 Net cash from/(used in) derivatives held for subsidiaries A portion of coal inventory is recognised as non-current, 97 (899) risk management Inventories 12 209 11 516 6 based on the quantity of coal held and usage patterns at Operating cash flows of R41.5 billion remain inadequate to power stations Finance income received 462 441 meet total debt servicing requirements of R72.2 billion, Deferred tax 17 190 9 326 (25) Finance cost paid (109) comprising interest of R33.1 billion and capital of Embedded derivatives 772 822 (218) Net derivatives increased due to weakening of the Rand as Income taxes paid (892) R39.1 billion, emphasising the impact of our operating Derivatives held for risk management 17 633 8 046 119 well as credit risk and hedge effectiveness adjustments challenges, the lack of cost-reflective tariffs and the Other non-current assets 15 146 12 641 Net cash from operating activities 41 527 54 024 23 continuing need for Government support Current assets 84 652 83 173 2 Cash flows used in investing activities Proceeds from disposal of property, plant and Inventories 24 014 23 086 4 Increase in maintenance spares and consumables for 746 331 scheduled maintenance programmes equipment and intangibles Loans receivable 247 319 Acquisitions of property, plant and equipment (31 865) (29 016) 10 Embedded derivatives 51 117 and intangibles Derivatives held for risk management 9 359 463 1 921 Acquisitions of future fuel supplies (3 137) (2 468) 27 Trade and other receivables 26 702 25 163 6 Net proceeds/(acquisitions) of insurance 647 (2 601) Insurance investments 15 629 17 318 Increase largely attributable to growth in municipal and investments metro debtors Payments made in advance (442) – Other current assets 1 134 822 Cash and cash equivalents 7 516 15 885 53 Cash used in provisions (1 900) (318) 497 Net cash (used in)/from derivatives held for (18) 178 Total assets 827 887 803 328 3 Refer to the condensed group statement of cash flows on risk management the next page Net cash from loans receivable and finance Equity 109 212 lease receivables Capital and reserves 236 087 237 057 Dividends received 254 129 Liabilities Loss for the year, offset by share capital of R21.9 billion 1 150 56 Finance income received 1 792 Investing activities relate mainly to capital expenditure on Non-current liabilities 473 282 453 876 4 issued in exchange for Government support the new build programme, Generation outage and technical Net cash used in investing activities (33 814) (32 403) 4 plan requirements as well as network infrastructure Debt securities and borrowings 367 993 345 490 7 Derivatives held for risk management 241 5 415 96 Cash flows used in financing activities Debt of R29.6 billion raised, offset by R39.1 billion repaid. Deferred tax – 348 Foreign-denominated borrowings increased due to Debt securities and borrowings raised 29 603 33 036 10 Contract liabilities and deferred income 26 078 25 525 weakening of the Rand. A portion of non-current debt Payments made in advance (369) (471) reclassified as current as maturities fall due Debt securities and borrowings repaid (39 110) (38 854) 1 Employee benefit obligations 16 902 16 404 Provisions 50 143 49 257 Share capital issued 21 857 31 693 31 Net derivatives increased due to weakening of the Rand as Net cash from/(used in) derivatives held for Lease liabilities 7 415 8 032 4 894 (2 769) well as credit risk and hedge effectiveness adjustments Other non-current liabilities 4 510 3 405 risk management Net cash used in lease liabilities and financial 112 395 5 (689) (417) Current liabilities 118 518 trading liabilities Finance income received 789 656 Debt securities and borrowings 55 936 50 804 10 Finance cost paid (33 069) (32 547) 2 Financing activities include debt raised of R29.6 billion, net Derivatives held for risk management 1 788 4 563 61 Net derivatives increased due to weakening of the Rand as well as credit risk and hedge effectiveness adjustments Taxes paid (58) (66) of commercial paper, and Government support of Payments received in advance 4 026 3 880 R21.9 billion, offset by total debt servicing of R72.2 billion. Employee benefit obligations 3 584 3 450 Net cash used in financing activities (16 152) (9 739) 66 Debt raised excludes the rollover of a R15 billion syndicated Mainly due to the settlement of compensation event loan which was extended through a clause contained in the Provisions 5 914 8 944 34 obligations Net (decrease)/increase in cash and cash existing facility as well as R16 billion in funding concluded in Trade and other payables 44 264 37 994 (8 439) 11 882 March but only received in early April 2023 equivalents Other current liabilities 3 006 2 760 Cash and cash equivalents at the beginning of 15 885 4 041 the year Total liabilities 591 800 566 271 5 Liquidity remains constrained due to the lack of AFS The statements of comprehensive income and Foreign currency translation 33 5 cost-reflective tariffs and high debt servicing requirements, 827 887 803 328 3 statements of changes in equity are available in Effect of movements in exchange rates on prompting the need for Government support Total equity and liabilities 37 (43) the consolidated annual financial statements cash held Asset increased Asset decreased Cash and cash equivalents at the end of Liability decreased Liability increased 7 516 15 885 53 the year Inflow increased Inflow decreased Outflow decreased Outflow increased 80 81 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our finances VALUE CREATED Received Government equity support of Revenue grew by 4.8%, supported by a NERSA awarded standard tariff The Eskom Debt Relief Act was National Treasury published two circulars R21.9 billion to strengthen the balance standard tariff increase (including RCA) increases of 18.65% for 2024 and 12.74% promulgated in July 2023 and will relating to the municipal debt relief plan, sheet and support Eskom’s status as a of 9.61% for the year for 2025 in its MYPD 5 determination support debt servicing of R254 billion which aims to address Eskom’s arrear debt going concern over the next three years balance and improve revenue collection over the next three years VALUE PRESERVED VALUE ERODED Contained employee benefit costs at R32.3 billion Sales volumes declined by 5%, largely as a result of Gross debt securities and borrowings increased to (2022: R33 billion), despite implementing a 7% salary generation and IPP supply constraints which resulted R423.9 billion (2022: R396.3 billion) increase to the majority of employees during the in significant levels of loadshedding 2023 financial year Solvency ratios deteriorated due to unfavourable EBITDA Net loss after tax worsened to R23.9 billion performance, remaining well below acceptable levels Successfully executed our borrowing programme, (2022: R11.9 billion), driven mostly by a 16.6% increase securing R59.9 billion during the year (2022: R35.8 billion), in primary energy costs Continued incorrect application of the regulatory allowed including R16 billion of pre-funding for the 2024 financial revenue methodology by NERSA, requiring lengthy court year while awaiting promulgation of the Eskom Debt Lower than budgeted production from renewable IPPs and processes, delaying the progress towards cost-reflective Relief Act delays in the Risk Mitigation IPP Procurement Programme tariffs (RMIPPPP), coupled with lower than budgeted EAF levels, Effective hedging implemented to offset the impact of the required increased use of more expensive OCGTs Arrear municipal debt escalated to R58.5 billion (including significant weakening of the Rand during the year on interest) by year end (2022: R44.8 billion), with average foreign denominated borrowings Cash and cash equivalents declined to R7.5 billion at year municipal debtors days unacceptably high at close to end (2022: R15.9 billion) 180 days Credit ratings were affirmed and remain at sub- investment grade level, although outlook improved to Approximately R7.1 billion in cumulative diesel levy positive from the majority of rating agencies by year end refunds owed to Eskom at year end, directly affecting (2022: majority stable outlook) liquidity We make use of financial capital in the form of debt Primary energy costs have risen substantially due to increased or equity to fund our operations. Debt includes both reliance on expensive OCGT production to avoid or minimise guaranteed and unguaranteed borrowings from external loadshedding. Unplanned breakdowns and partial load losses PROFITABILITY AND WORKING CAPITAL lenders. To ensure sustainability, equity should ideally be have also resulted in significantly higher use of fuel oil for created through profits generated by sufficient revenue to combustion support and the start-up of coal-fired units. Target Target Target Target Actual Actual Actual cover our costs, otherwise through share capital received Measure and unit 2026 2024 2023 met? 2023 2022 2021 Further contributing to the decline in EBITDA performance from our shareholder. Company was a 5% reduction in sales volumes as a result of unserved energy from loadshedding and load curtailment driven by Electricity revenue per kWh 207.22 164.27 138.44 141.38 127.32 111.04 generation supply constraints. This impact was partially offset (including environmental levy), c/kWh FINANCIAL RESULTS OF OPERATIONS Electricity operating costs, R/MWh 1 571.36 1 319.84 1 121.43 1 188.81 992.80 906.36 by an improvement in revenue, driven by a regulatory standard OVERVIEW tariff increase of 9.61% for the year. The group recorded a net loss after tax of R23.9 billion for the Group year (2022: R11.9 billion), with most of the deterioration in 84 080 54 169 52 954 32 608 EBITDA, R millionSC 51 929 38 045 profitability driven by a decline in EBITDA to R38 billion (2022: R53 billion). The EBITDA margin decreased to 14.66% EBITDA margin, % 22.02 17.50 19.70 14.66 21.39 15.96 (2022: 21.39%). Generation and IPP supply constraints, in Current ratio 1.20 1.15 1.52 0.89 0.90 0.95 particular, had an adverse impact on financial performance. Free funds from operations (FFO), R million 92 216 54 016 59 310 43 847 63 795 42 972 FFO after net interest paid, R million 66 580 21 399 25 123 11 567 31 904 6 496 1. Future targets assume a tariff path with annual increases of 18.65%, 12.74% and 12.50% over the next three financial years, based on our latest Corporate Plan and NERSA’s determinations for 2024 and 2025. 82 83 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our finances continued Most financial ratios performed worse than target and Sales volumes per customer category, % Regrettably, the rail industry continues to be affected by cable In addition, SARS has disallowed Eskom’s claims for refunds deteriorated when compared to the previous year. Eskom’s 1% 6% theft and vandalism of infrastructure, while the distributor, for fuel levies and road accident fund levies relating to diesel standalone long-term financial sustainability remains dependent 2% residential (including prepayments) and agricultural sectors used to generate electricity at Gourikwa and Ankerlig on the migration towards cost-reflective tariffs, resolving our 5% were negatively impacted by lower sales due to loadshedding. power stations since 2019. In June 2020, Eskom lodged an operating challenges, addressing our high debt burden and 5% Agriculture is an energy-intensive industry and is adversely administrative appeal, which was subsequently disallowed by recovery of arrear debt from defaulting municipalities. Positive affected by loadshedding due to its heavy reliance on electricity SARS in October 2022. The cumulative refund due to Eskom strides have been made in putting interventions in place to 42% for irrigation and refrigeration. at 31 March 2023 amounted to approximately R7.1 billion, resolve these challenges and strengthen Eskom’s financial which has a direct impact on our liquidity. Of this, R3.5 billion position over time, through our turnaround plan and the 15% 2023 International sales decreased as a result of load curtailment relates to the 2023 financial year, while the remainder relates to support of Government. implemented on firm power supply agreements and the disallowed amounts from prior years. We are pursuing dispute suspension of non-firm supply agreements due to South resolution proceedings and legal remedies available to us to SALES AND REVENUE Africa’s supply constraints, as well as improved self-generation resolve this matter. Revenue for the group amounted to R259.5 billion, an increase among neighbouring countries and trading in the Southern of 4.8% compared to the prior year (2022: R247.6 billion). African Power Pool. The following graphs set out the breakdown of primary energy Excluded from this amount is revenue that could not be 24% costs, net of lease accounting adjustments. The contribution of recognised in terms of accounting standards due to Theft through illegal connections, meter tampering and ghost the particular source to primary energy costs and total TWh non-collectability from municipal and residential customers, Distributors Commercial Rail vending, which are recognised as non-technical losses, further energy produced is provided in brackets. Industrial Residential International amounting to R15.8 billion for the year (2022: R14.2 billion). lower our sales. Mining Agricultural Of this, R7.6 billion was recognised as revenue on a cash Primary energy breakdown basis once payment was received (2022: R6.5 billion). IR Non-technical losses are discussed in more detail under R7 billion (4%) Distributors, together with the residential, industrial and mining n/a “Our infrastructure – Energy losses and equipment theft” sectors account for over 85% of our sales volumes. from page 110 Sales volumes and revenue per year R billion TWh R41.8 billion (27%) Refer to page 169 for the number of customers by customer 18TWh (8%) 300 +4.8% Revenue 210 IR -5% Sales volumes segment, as well as electricity sales by customer category, OPERATING COSTS 250 205 both volumes and revenue Operating expenses, R billion 275 200 200 Year-on-year reduction in sales volumes 250 9% 2023 R77.6 billion (50%) 178.5TWh (82%) 195 225 150 TWh % 200 190 R6.5 billion (4%) 175 100 Distributors 4.4 5 8.7TWh (4%) 185 150 Industrial 0.6 1 125 50 R21.4 billion (14%) 180 Mining 0.2 1 100 3TWh (1%) 0 175 Commercial 0.5 5 75 R0.7 billion (1%) 2019 2020 2021 2022 2023 50 9.8TWh (5%) Residential 1.3 13 25 Revenue Sales volumes Agricultural 0.6 11 Coal and other generation Electricity imports 0 R7.6 billion (6%) Nuclear generation IPPs Rail 0.5 22 2019 2020 2021 2022 2023 2023 Over the past five years, Eskom has experienced a compound Target OCGT generation/a Environmental levy International 1.9 14 annual reduction in sales volumes of around 2.5% per year. Primary energy costs Employee benefit expense We saw a partial recovery of sales volumes in 2022, although Depreciation and amortisation Other operating expenses Total 9.9 5 R35.2 billion (26%) CAGR this was off the back of an unprecedented 6.7% decline in 16TWh (7%) sales in 2021 due to the impact of the COVID-19 lockdown. A decline was experienced across every customer category. Sales volumes have continued to decline in 2023, decreasing PRIMARY ENERGY Sales to the industrial and mining sectors were not nearly as to 188.4TWh (2022: 198.3TWh) as a result of poor economic Primary energy costs constitute around 61% of operating 2022 R74 billion (56%) badly affected, as these sectors benefitted from favourable conditions as well as generation and IPP supply constraints costs and increased by R22 billion, or 16.6%, when compared 191.5TWh (83%) commodity prices, which led to improved profit margins, leading to unserved energy. Large industrial and mining to the prior year. This increase accounts for around 80% of driving higher production by large mines and smelters during customers in particular remain exposed to volatile commodity the growth in operating costs, despite a 12.2TWh decline in much of the year. R5.3 billion (4%) prices and external economic factors. production volumes year-on-year. For comparison, primary 8.5TWh (4%) energy costs constituted around 55% of operating costs in the R10 billion (7%) 2019 financial year. 1.8TWh (1%) R0.8 billion (1%) 12.4TWh (5%) The main contributing factors were the growth in Eskom- Coal and other generation Electricity imports owned and IPP OCGT costs as well as fuel oil used for Nuclear generation IPPs combustion support and the start-up of coal-fired units OCGT generation Environmental levy after outages or trips. These factors were a direct result of the poor generation performance and more frequent plant breakdowns, requiring increased reliance on production from OCGT peaking sources. OCGT production, although critical for alleviating supply constraints and reducing the impact of loadshedding, is vastly more expensive than any other generation source and has been heavily affected by global fuel price pressures. 84 85 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our finances continued Our own generation costs, comprising coal, Eskom-owned A comparison of the primary energy unit cost of the various OTHER OPERATING COSTS A number of interventions are being undertaken to address OCGTs and nuclear generation, increased by 17.5% to generation categories is shown below: Employee benefit costs amounted to R32.3 billion for the year these shortcomings. These include filling key vacancies and R99.7 billion, excluding the environmental levy (2022: (2022: R33 billion). Employee benefit costs have remained obtaining additional support at Generation warehouses, R84.8 billion). Unit cost, R/MWh 2023 2022 % change relatively stable over the last five years, at approximately performing comprehensive process reviews, monitoring R33 billion, despite the increase in Eskom’s operating costs. site adherence to monthly reporting of counts, performing Total coal-fired generation costs, excluding the environmental Coal1 492 439 12 investigations and conducting consequence management. Employee costs constitute around 13% of operating costs for levy, increased by 4.9% to R77.6 billion (2022: R74 billion). Nuclear 106 99 6 the year, compared to around 18% in the 2019 financial year. Furthermore, a barcoding project is being implemented Production volumes from coal-fired stations decreased by 7%, Eskom-owned OCGTs2 7 077 4 743 49 to reduce reliance on manual processes and modernise while the average coal purchase cost per ton increased by 9.2%. IPPs3 2 326 2 204 6 We have contained employee benefit costs by aligning Generation warehouses. Eskom’s Internal Audit Department This increase was mainly due to contractual price escalations, IPP OCGTs4 7 278 4 574 59 decisions around remuneration and benefits with the reality and Forensic and Anti-Corruption Department have also been which are linked to the input costs of mines and therefore Renewable IPPs 1 986 2 027 2 of our financial challenges in compliance with the conditions engaged to investigate significant write-offs. affected by higher fuel costs and the weakening of the Rand International purchases3 748 625 20 attached to the Government support. We have also achieved during the year. an overall reduction in headcount over the past few years. DEPRECIATION AND AMORTISATION 1. From 1 April 2022, pre-commissioning costs are no longer capitalised to However, overtime costs remain a concern, increasing to Depreciation and amortisation expense increased by 1.3% to Expenditure on Eskom-owned OCGTs increased by 112.8%, the asset and instead recognised in primary energy cost. Therefore, the R2.5 billion during the year due to the exceptionally high levels unit cost includes pre-commissioning production of 813GWh from certain R32.5 billion, largely due to the commissioning of additional to R21.4 billion, largely due to a 65.3% increase in production of unplanned maintenance arising from plant performance Medupi and Kusile units (2022: 1 369GWh). generating units through the new build programme (2022: to 3 018GWh, coupled with higher diesel prices and the non- 2. The average cost is calculated on fuel and start-up costs only, excluding challenges (2022: R2.1 billion). R32.1 billion). Medupi Unit 1 achieved commercial operation recovery of diesel levy refunds from SARS (2022: R10 billion storage and demurrage costs, but including environmental levies. For comparability, the calculation is shown as gross of diesel levy refunds as a on 31 July 2021 and was therefore in operation for the full year, to produce 1 826GWh). The OCGT load factor increased to result of the inability to recover these amounts from SARS. IR Remuneration and benefits are discussed in further detail as opposed to a portion of the 2022 financial year. Kusile Unit 4 14.3% to ensure system stability during periods of generation under “Our people – Remuneration and benefits” on 3. Note that the unit costs of IPPs and international purchases are based achieved commercial operation on 31 May 2022, earlier than supply constraints (2022: 8.7%). on the full cost of operation, whereas the unit cost of Eskom-owned page 136 the expected target date of January 2023. generation is based only on the primary energy cost. Given that IPP and international purchases are treated as a variable cost in Eskom’s accounts, The increase in costs were partially catered for by this treatment is considered appropriate under accounting standards. Other operating expenditure increased by 20.9% to NET FAIR VALUE MOVEMENTS ON FINANCIAL absorbing budget made available from renewable 4. The average cost is calculated on the net amount spent on energy, R34.8 billion, largely due to a 15.8% increase in repairs and INSTRUMENTS excluding capacity charges, and after the lease accounting adjustment. IPPs, which produced 2 540GWh, or 13.1%, less than maintenance, coupled with additional plant operating costs The group recorded a net fair value loss on financial budget, as well as the Risk Mitigation IPP Procurement (2022: R28.8 billion). The group’s expenditure on repairs and instruments, excluding embedded derivatives, of R0.2 billion The increase in coal and international purchases unit costs Programme (RMIPPPP) which planned to provide maintenance (before intergroup eliminations and capitalised (2022: R4.7 billion). Financial instruments are largely impacted was largely due to inflationary and contractual increases. The 2 627GWh but did not come online during the year. maintenance and excluding associated labour costs) increased by interest rate and exchange rate movements, as well as credit average unit cost for the coal fleet was impacted by the factors Together, these programmes led to R8.6 billion in to R22.1 billion (2022: R19.1 billion). risk and hedge effectiveness adjustments. The Rand weakened affecting the coal purchase price discussed earlier, as well as an unutilised budget which was redirected to Eskom-owned significantly against major currencies during the year due to increase in fuel oil for combustion support and start-ups after and IPP OCGT spend to offset the reduced production MAINTENANCE SPEND global macro-economic factors, resulting in a fair value loss on breakdowns of coal-fired units. from these cheaper sources. the translation of foreign borrowings and a corresponding fair Generating plant R16.6 billion value gain on derivative hedging instruments. Nuclear unit costs increased as a result of inflation and nuclear (2022: R14.7 billion) 13% fuel cost increases. Overall, IPP expenditure grew by 18.6%, largely due to Transmission network R1.2 billion YEAR-END EXCHANGE RATES more extensive use of IPP OCGTs and higher diesel prices. As discussed, the unsustainable increases in Eskom-owned (2022: R0.8 billion) 50% The expenditure on IPP OCGTs (net of the lease accounting Distribution network R4.4 billion EUR/ZAR 19.30 (2022: 16.19) and IPP OCGT unit costs were driven by unfavourable diesel adjustment of R1.6 billion) increased to R8.3 billion to produce (2022: R3.6 billion) 20% USD/ZAR 17.72 (2022: 14.59) price movements during the year. The average diesel price 1 098GWh (2022: R4.6 billion to produce 899GWh), while for Eskom-owned OCGTs increased from around R18/ℓ in R33.5 billion was spent on renewable IPPs to produce April 2022 to around R23/ℓ by March 2023. 16 859GWh (2022: R30.6 billion to produce 15 073GWh). Extensive planned maintenance was required on generating NET FINANCE COST AND DEBT plant to address performance challenges and defects in line Renewable IPP unit costs continue to decline as suppliers in Net finance cost, R billion 2023 2022 % change with the Generation recovery plan, while significantly higher the latter RE-IPP bid windows, with lower contracted rates, levels of unplanned maintenance were needed to address Debt securities and are connected to the grid and contribute an increasingly higher 33.7 29.1 16 several critical plant issues. Maintenance work has also borrowings proportion of production. Derivatives held for risk been prioritised for transmission and distribution network 6.7 5.1 23 infrastructure, relating mainly to reliability maintenance, management vegetation management and live-line maintenance. Other 9.0 7.8 15 Gross finance cost 47.8 43.6 10 Impairment of financial assets amounted to R1 billion, mainly in Cost of borrowings respect of trade and other receivables (2022: R0.6 billion). We also (7.5) (8.2) 9 capitalised to assets recorded write-downs on other assets of R1.2 billion for the year (2022: R0.8 billion). This related mainly to inventory write-downs Finance cost 40.4 35.4 14 in Generation, based on discrepancies identified in the top 80% Finance income (3.4) (2.4) 42 stock counts conducted at warehouses, as well as provisions raised for unaccounted spares and uncatalogued inventory. Net finance cost 37.0 33.1 12 These were the result of an inventory clean-up exercise, which Gross finance costs have increased due to a higher average emanated from shortcomings in the internal controls relating cost of borrowings, linked to global inflation and interest rate to consumables management. The main root causes include pressures, together with an overall increase in the debt balance. inadequately resourced warehouses, reliance on manual processes, disregard for established warehouse procedures, as well as poor housekeeping. 86 87 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our finances continued Furthermore, lower borrowing costs are capitalised to the Government Government Net interest-bearing debt, asset base as the new build programme nears completion and announces a announces the R billion 2023 2022 % change new units are transferred to commercial operation, negatively Moody’s affirms prospective debt Eskom Debt affecting our profitability. Debt securities and our credit ratings relief solution in Relief Bill in the 423.9 396.3 7 borrowings with a negative the mini-budget National Budget COST OF DEBT AND INVESTMENT RETURN Cash and cash equivalents (7.5) (15.9) 53 outlook speech Speech Net derivatives held for risk Average cost of debt 10.48% (2022: 10.28%) (25.0) 1.5 1 799 management Average investment return 6.08% (2022: 4.45%) Net interest-bearing debt 391.5 381.9 3 Apr 2022 Sep 2022 Oct 2022 Nov 2022 Feb 2023 Mar 2023 The average cost of debt is based on a blend of fixed and 1. In the table above, assets are reflected as negative amounts. floating rates, with the majority of our borrowings on fixed rates to hedge against interest rate exposures. Our gross debt securities and borrowings balance has increased by R27.6 billion, largely as a result of adverse exchange rate Fitch affirms our Moody’s revises Standard & Standard & movements on foreign borrowings. Although, this was offset by credit ratings outlook from Poor’s revises Poor’s affirms hedging activities, resulting in the movement in net derivatives. with a stable negative to outlook from our credit ratings We raised debt of R29.6 billion and repaid R39.1 billion during outlook positive negative to stable and revises the year, net of commercial paper and excluding the rollover outlook from of a R15 billion syndicated loan facility and pre-funding of stable to credit R16 billion for the 2024 financial year. Altogether, net interest- watch positive bearing debt increased by R9.6 billion. Subsequent to year end, Fitch affirmed our previous credit ratings with a stable outlook in May 2023. Fitch noted Eskom’s worsening CREDIT RATINGS AND FUNDING operating performance, as well as improved tariff determinations and Government’s plan to reduce Eskom’s debt. In September 2023, Solvency ratios Moody’s upgraded Eskom’s long-term family rating from caa1 to B2 and Eskom’s standalone rating from caa3 to caa1, with a stable outlook, following the implementation of the Eskom Debt Relief Act. Target Target Target Target Actual Actual Actual Measure and unit 2026 2024 2023 met? 2023 2022 2021 FUNDING ACTIVITIES AND RISKS Group Funding progress against the borrowing programme FFO as % of gross debt, % 19.22 11.36 11.91 9.12 14.11 9.42 Planned borrowing Committed Committed FFO (after net interest) as % of gross debt, % 13.88 4.50 5.05 2.40 7.06 1.42 Potential sources, R billion programme 2023 by year end 2023 by year end 2022 Cash interest cover, ratioSC 3.62 1.22 1.33 1.29 1.69 0.85 Debt service cover, ratioSC 2.16 0.44 0.55 0.58 0.76 0.30 Development finance institutions (DFIs) 9.5 6.5 6.3 Gross debt/EBITDA, ratio 5.70 8.78 9.59 12.64 8.54 13.98 Export credit agencies (ECAs) – 0.1 0.4 Debt/equity (including long-term provisions), ratio 1.05 1.48 1.83 1.87 1.81 2.03 Domestic bonds and notes 16.0 18.5 7.1 Syndicated loan1 14.0 15.0 14.4 Private placements2 5.0 16.1 7.0 Structured products and commercial paper – 3.7 0.6 Our solvency ratios deteriorated when compared to the prior Our credit ratings remain at sub-investment grade level, Total 44.5 59.9 35.8 year, which is largely attributable to the decline in EBITDA with investors raising concerns around Eskom’s high debt performance. It is clear that operating cash flows remain burden and arrear municipal debt, operational challenges 1. The syndicated loan was secured through extension of the existing facility. Although it is included in Eskom’s funding activities for the year, the rollover of the inadequate to fund our debt servicing requirements on a and loadshedding, as well as long-term uncertainty around facility is not disclosed as debt raised or debt repaid in the statement of cash flows. 2. Similarly, the private placements are included in Eskom’s funding activities for the year as they were concluded on 31 March 2023, however, the funding is not standalone basis. electricity tariffs. Successful implementation of our turnaround disclosed as debt raised in the statement of cash flows as the disbursements only took place in early April 2023. plan and maintaining a positive outlook for the South African 3. Committed sources include funding raised or signed facilities with milestone drawdowns. CREDIT RATINGS economy remain critical for improving our credit ratings. Summary of Eskom’s credit ratings at 31 March 2023 During the year, rating agencies’ outlook for Eskom We had planned to secure borrowings of R44.5 billion during During the year, we successfully extended our syndicated Standard & Fitch: local improved significantly, largely on the back of Government’s the 2023 financial year. The borrowing programme was loan facility by 12 months and raised the remaining balance of Rating Poor’s Moody’s currency announcement of a debt relief solution. revised to R60 billion in February 2023, of which we secured R610 million from the lender group, resulting in utilisation of the Foreign currency CCC+ caa1 n/a R59.9 billion. The increase was required to cater for increased full facility of R15 billion. Local currency CCC+ caa1 B capital requirements arising from our operational challenges, Standalone ccc- caa3 ccc- the reinvestment in maturing debt instruments and to raise To meet the additional borrowing programme requirements additional funding ahead of the first quarter of the 2024 for the year, on 31 March 2023 we concluded a $155 million Credit watch Outlook Positive Stable financial year while awaiting receipt of further Government dual currency private placement and a $750 million bond positive support. club loan, also through a private placement, with the support Last rating action Affirmed Affirmed Affirmed of National Treasury. As mentioned, the funding was only Last action date 14 Mar 2023 31 Oct 2022 27 Sep 2022 received in early April 2023 to support Eskom’s liquidity in the 2024 financial year while awaiting Government support. 88 89 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our finances continued Anticipated loan repayments and interest cash flows (net of swaps) of the existing debt portfolio at 31 March 2023, R billion R16 billion in funding on 31 March 2023, although the related DFI drawdown schedule R billion 90 disbursements only took place early in April 2023. This funding 2024 10.7 was required to support liquidity for the first quarter of the 80 2025 4.1 2024 financial year, while awaiting promulgation of the Eskom 70 2026 1.7 Debt Relief Act. 60 2027 2.0 50 PRICE APPLICATIONS TO SUPPORT REVENUE Total 18.5 40 REQUIREMENTS 30 Improving our income statement by migrating towards cost- 20 The primary focus of Eskom’s debt strategy going forward is reflective tariffs remains a key priority. Despite applying for to ensure strict adherence to the conditions attached to the revenue based on prudent and efficient costs in accordance 10 debt relief package, to enable conversion of Government’s with the MYPD methodology, the revenue and RCA 0 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044+ subordinated loans to equity. This remains the only approach determinations made by NERSA over recent years have not to deleveraging our balance sheet. Given the limitation on new enabled the migration towards cost reflectivity. Capital Interest borrowings, the debt relief package essentially requires Eskom to ensure that the balance of debt servicing costs, as well as the As reported previously, we have lodged several review Our debt repayment profile remains pressured over both the short and long term, with debt repayments and interest payments of cash flows required for the capital investment programme, are applications with the courts to challenge recent NERSA around R195 billion and R135 billion respectively over the next five years to 31 March 2028. Total debt service costs for 2024, net of fully funded through cash generated from operations. determinations. Developments since last year’s report are swaps, are expected to amount to R76.8 billion. discussed below. The availability period of Government’s R350 billion COURT REVIEW APPLICATIONS GOVERNMENT’S PLAN TO ADDRESS ESKOM’S DEBT BURDEN GFA expired on 31 March 2023, restricting us from Revenue decision for financial years 2023 to 2025 The Minister of Finance announced Government’s debt relief plan for Eskom during the 2023 National Budget Speech in applying for new Government guarantees thereafter. At 31 March 2023, we had utilised R332 billion, or (MYPD 5) February 2023. The Eskom Debt Relief Act was subsequently promulgated on 7 July 2023 and will provide relief of debt servicing NERSA awarded Eskom a standard tariff increase (including the costs of R254 billion over the next three years. 95%, of the guarantees available under the GFA (2022: R322 billion). RCA) of 9.61% for the 2023 financial year, significantly lower The first component will provide direct support of R184 billion to address our debt and interest payments as they fall due over than the 20.5% we had applied for. The reasons for decision the next three years. This support will initially take the form of a subordinated loan, which will be settled in ordinary shares on The expiry of the GFA does not impact the existing were published in June 2022; we subsequently submitted a quarterly basis once we have demonstrated, to National Treasury’s satisfaction, that we have complied with the conditions guarantees issued, which will remain in place and a court review application to address NERSA’s incorrect attached to the support. The second component will see Government take over R70 billion in Eskom debt commitments (both reduce upon settlement of the related debt, in line with treatment of the regulatory asset base (RAB). capital and interest) in 2026. National Treasury’s recommendations. In October 2022, the High Court set aside NERSA’s decision in The conditions announced during the 2023 National Budget Speech state that: respect of the valuation of the RAB, although no retrospective • Eskom’s capital expenditure is restricted to transmission and distribution activities. The only capital expenditure that may adjustment was granted to the 9.61% tariff increase for 2023. MANAGING LIQUIDITY be undertaken for generation relates to minimum emission standards, flue gas desulphurisation and required maintenance. NERSA was ordered to apply its MYPD methodology for Liquidity remains a key challenge, limiting our ability to achieve No other greenfield generation projects will be allowed during the debt relief period redetermination of the valuation of the RAB, to form the basis financial and operational sustainability. Lack of cost-reflective • Eskom may not use the proceeds from the sale of non-core assets for capital and operating needs. All proceeds from the sale of for the revenue decisions for the 2024 and 2025 financial years. tariffs, escalating arrear municipal debt, poor operating non-core assets, including Eskom Finance Company SOC Ltd and any property sales, will be used for the debt-relief arrangement performance and high debt servicing costs, contribute to our In January 2023, NERSA awarded an average standard tariff i • No new borrowing will be allowed from 1 April 2023 until the end of the debt relief period, unless written permission is liquidity constraints and jeopardise Eskom’s ability to continue increase of 18.65% for 2024 and 12.74% for 2025. Our MYPD 5 granted by the Minister of Finance as a going concern. revenue application equated to an average standard tariff • Government guarantees under Eskom’s R350 billion Government Guarantee Framework Agreement (GFA) will reduce in line increase of 32.02% for 2024 and 9.74% for 2025. The reasons with National Treasury’s recommendations To improve liquidity, we restricted organisational cash for decision were published in February 2023, and included • Positive equity balances in Eskom’s derivative contracts (swaps/hedges) may not be used to structure new debt or loan requirements by targeting savings and containing operating certain conditions relating mainly to Eskom’s maintenance plan agreements without the approval of National Treasury. Any such balance may not be used as “margin financing” for another expenditure and capital expenditure through a number and spend, OCGT use and spend, as well as a requirement derivative contract or derivative overlays of focused initiatives. Improving our profitability and to provide quarterly updates to NERSA. Proposals were also solvency ratios in a sustainable manner requires successful • The debt relief can only be used to settle debt and interest payments made on meeting particular EAF levels. NERSA did apply the implementation of our financial recovery turnaround objective, • Eskom may not implement remuneration adjustments that negatively affect its overall financial position and sustainability High Court order related to the valuation of the RAB in its each lever of which is discussed in more detail below. determination. National Treasury has subsequently clarified that the restriction on capital expenditure for generation will still allow for the completion of existing projects, such as Medupi and Kusile, the repowering and repurposing of Komati, battery energy storage, FINANCIAL RECOVERY Generally, the determination addresses Eskom’s revenue the life extension of Koeberg, as well as sourcing of nuclear fuel and investment in existing cost-plus coal mines. Greenfield Pursue cost-reflective tariffs requirement, however, there are conflicting decisions with generation projects may be undertaken, but only with the written approval of the Minister of Finance. Obtain Government support and reduce respect to the allowance for OCGTs. NERSA assumed a 10% reliance on debt OCGT load factor in the production plan, but only assumed a The conditions to be attached to the Eskom Debt Relief Act, together with additional operational and financial conditions, 6% load factor in its revenue determination. An overall shortfall have been finalised by National Treasury and DPE. The additional conditions aim to address key operational aspects including Manage arrear debt in supply is evident due mainly to IPP projects not being Generation plant performance, municipal debt recovery, skills development and further financial efficiencies. Achieve sustainable cost curtailment commissioned as envisaged, together with a decline in EAF. Dispose of non-core assets The Democratic Alliance, the Tebeila Institute and the South African Local Government Association (SALGA) separately We had planned to secure borrowings of R29.8 billion during the 2024 financial year; however, the conditions restrict us from raising Cash and cash equivalents declined during the year, largely reviewed NERSA’s determination for 2024 and 2025, and an new borrowings from 1 April 2023, unless approved by the Minister of Finance. Eskom may, however, continue to draw down on due to the servicing of Eskom’s debt obligations. Cash urgent interdict was submitted to stop the implementation existing DFI facilities that are guaranteed under the GFA. Eskom is targeting a DFI drawdown schedule of R18.5 billion over the next and cash equivalents amounted to R7.5 billion at year end thereof. The urgent interdict has since been withdrawn, four years and will also rely on the support from Government. (2022: R15.9 billion). As mentioned, we concluded an additional 90 91 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our finances continued although the non-urgent case will continue; the court hearings include an additional R15 billion in allowable revenue per year were originally planned for May 2023, although the parties in the 2024 to 2026 financial years, and R14 billion in the 2027 could not reach an agreement on timelines for the exchange financial year. NERSA has complied with the court order in its THE IMPACT OF THE LACK OF COST-REFLECTIVE TARIFFS ON ESKOM’S FINANCIAL POSITION of pleadings. The Tebeila Institute subsequently withdrew its MYPD 5 revenue decision for 2024 and 2025. To be financially sustainable, we require cost-reflective tariffs where the revenue determined by NERSA is sufficient to cover application. The hearings took place in September 2023 and a the prudent and efficient costs that we incur to supply electricity to customers, and also provide a fair return on capital. court outcome is awaited. Other court review applications under way Where the return on capital provided through the tariff is less than Eskom’s weighted average cost of capital, it ultimately Regrettably, since our 2022 report there have been no leads to a revenue shortfall. Revenue decision for financial years 2020 to 2022 significant developments relating to court review applications (MYPD 4) in respect of the RCA decisions for the 2015 to 2017 financial We were awarded a standard tariff increase of 9.61% for the 2023 financial year. To achieve cost-reflectivity, the average tariff In June 2022, the Supreme Court of Appeal (SCA) issued an years (MYPD 3), the RCA decision for 2018 (MYPD 3), the would have had to increase by approximately 20%. order on the timing of the recovery of the remaining R59 billion revenue and RCA decisions for 2019 as well as the RCA due to Eskom, arising from the R69 billion Government support decision for 2020 (MYPD 4). The legal processes for these The lack of cost-reflective tariffs and resultant revenue shortfall has been an ongoing challenge since 2006 and is one of the main incorrectly deducted by NERSA in its revenue determination review applications are still under way, which collectively relate reasons for our financial constraints, requiring increased reliance on debt to fund the shortfall. This, together with our new build for MYPD 4. In terms of the court order, NERSA is required to to the recovery of an estimated R50 billion. programme, has led to our debt securities and borrowings balance escalating to R424 billion by 2023. Growth in cumulative revenue shortfall and debt, R billion 800 700 We have submitted proposals for the restructuring of NERSA approved the introduction of Homeflex, a residential tariffs to NERSA, as existing tariff structures no longer time-of-use tariff, and we introduced a net billing offset rate 600 accurately reflect the component costs for energy, network for customers with small-scale embedded generation to be 500 and retail requirements. Furthermore, tariffs need to be compensated for energy supplied to the grid. 400 modernised to address the planned restructuring of Eskom and the electricity supply industry. Key among these was NERSA has published its reasons for decision, with the 300 the rebalancing of the tariff to more appropriately recover main objection to our proposal for the restructuring of i 200 fixed generation costs through a capacity charge rather than tariffs being the inability to meet electricity demand with 100 through volume-based charges. Our submission was aligned our existing generation capacity. NERSA indicated that it 0 to the Electricity Pricing Policy and the Grid Code and required further time to assess the proposals. No further -100 proposed the unbundling of charges to more transparently guidance was provided on how tariffs should be restructured reflect the services provided and provide appropriate pricing based on a cost-of-supply study or to accommodate the -200 signals to customers. separate costs of generation, transmission and distribution -300 amid Eskom’s legal separation. It is likely that Eskom will -400 NERSA was required to process our application for only be able to submit further proposals for possible -500 implementation in the 2024 financial year. In March 2023, implementation from the 2026 financial year. -600 -700 -800 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 OTHER DECISIONS RCA decision for the 2021 financial year (MYPD 4) Approximate cumulative revenue shortfall Gross arrear municipal debt Debt securities and borrowings Cumulative Government support RCA decision for the 2020 financial year (MYPD 4) In May 2023, NERSA published its reasons for decision for In December 2021, NERSA approved R3.5 billion to be an RCA of R204 million in favour of the consumer, against Note: Government support in 2016 includes the conversion of a R60 billion shareholder loan and direct equity of R23 billion. Debt securities and borrowings recovered through the RCA mechanism, against our application our application of R10.7 billion in favour of Eskom. We are and Government support are reflected as negative amounts for illustrative purposes. of R8.4 billion. We submitted a court review application to reviewing NERSA’s decision on a similar basis as previous RCA challenge NERSA’s decision on a similar basis as previous RCA decisions, as it is evident that NERSA has not implemented As can be seen, our debt balance has largely increased in lockstep with the growth in the annual revenue shortfall, together with decisions. NERSA has not opposed the review application. previous court-ordered decisions when making this decision. the increase in the arrear municipal debt balance. In more recent years, the growth in debt has been tempered by Government The case was lodged in October 2023. equity support, with Eskom’s debt book reaching maximum carry limits based on the level of Government guarantees available In December 2022, NERSA made a determination on the as well as the cost of debt servicing. timing of the recovery of the RCA, with R3.3 billion to be RCA decision for the 2022 financial year (MYPD 4) recovered equally over three years from standard tariff In April 2023, we submitted an RCA application of customers (R1.1 billion per year from 2025 to 2027) and the R23.9 billion, in favour of Eskom, for the 2022 financial year, remaining R135 million to be recovered from local special driven primarily by revenue, primary energy and operating pricing arrangement customers and international customers. cost variances. The RCA application was delayed as a result of We have accepted NERSA’s decision around recovery of the the late release of Eskom’s audited financial statements for the RCA, although the court review application relating to the RCA 2022 financial year. Based on the published timelines, NERSA is decision is still under way. expected to make its decision by December 2023. 92 93 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our finances continued GOVERNMENT SUPPORT AND REDUCING ARREAR MUNICIPAL DEBT The top 10 defaulting municipalities owed arrear debt RELIANCE ON DEBT A total of 21.9 billion ordinary shares with a par value Non-payment of municipal debt is a systemic challenge to the of R36.9 billion at year end (or 63% of total arrear Government support remains a key enabler to servicing of R1 were issued in return for Government support electricity industry as a whole. For many years, Eskom has municipal debt). our debt balance and strengthening our balance sheet. received during the year. been pursuing a multi-pronged strategy aimed at recovering The conditions attached to the Government support, the arrear municipal debt owed. This includes engagement Municipality, R million 2023 2022 % change which relate to various financial, operational, governance and negotiation of payment arrangements with defaulting 1. Emalahleni Local Municipality, 7 418 5 978 24 and restructuring matters, were finalised in October 2022. The debt relief package is expected to improve financial municipalities, pursuing Eskom’s legal rights, as well as Mpumalanga We remained compliant with the conditions to ensure that sustainability by assisting us with our debt servicing challenges. participation in the Multi-disciplinary Revenue Committee 2. Maluti-a-Phofung Local 7 239 6 499 11 support was made available when required. Based on financial modelling, our gross debt securities and (MdRC) of the Eskom Political Task Team. Municipality, Free State borrowings balance is expected to reduce by around 40% over 3. Emfuleni Local Municipality, 5 913 4 240 39 Addressing our debt burden is a key component of our the next five years, to below R270 billion. Despite this, arrear municipal debt has continued to escalate to Gauteng turnaround plan, to ensure the long-term financial sustainability of unsustainably high levels, amounting to R58.5 billion (including 4. Matjhabeng Local Municipality, 4 398 5 250 19 Eskom. As mentioned, Government’s continued support to our We continue to face liquidity risk, particularly due to the interest) at 31 March 2023 (2022: R44.8 billion). The top 20 Free State balance sheet was confirmed through the announcement of the seasonality of Eskom’s cash flows. This risk was exacerbated defaulting municipalities accounted for around 78% of total 5. Govan Mbeki Local Municipality, 3 723 2 898 28 Eskom Debt Relief Act, which was promulgated on 7 July 2023. in the first quarter of the 2024 financial year while awaiting arrear municipal debt, with over 32% of the total owed by Free Mpumalanga promulgation of the Eskom Debt Relief Act and receipt of the State municipalities. The problem has continued to worsen as 6. Lekwa Local Municipality, 1 536 1 860 21 Government support, R billion first tranche of support, as the conditions restricted us from the number of municipalities with an arrear debt balance of Mpumalanga raising new borrowings to manage liquidity. To mitigate this risk, more than R100 million has increased to 61 at 31 March 2023 7. Ngwathe Local Municipality, 1 713 1 467 17 Eskom Debt Relief Act, 2023 we raised additional funding ahead of the 2024 financial year (2022: 53). Free State Cumulative R184 billion through an increase in the 2023 borrowing programme. Given 8. City of Matlosana Local 1 438 884 63 support to be received the restriction of new borrowings, we unfortunately have Invoiced municipal debt (including interest) and Municipality, North West Special Appropriation Act, 2019 Takeover of R70 billion in debt limited capacity to absorb any shortfall in revenue or increase percentage of total debt in arrears at 31 March 2023, 9. Thaba Chweu Local Municipality, 1 264 1 047 21 Cumulative R158.6 billion equity servicing commitments in 2026 in operational or capital expenditure while awaiting support R billion Mpumalanga support received 140 from Government. 10. City of Mbombela Local 1 068 695 54 120 80 Municipality, Mpumalanga 100 80 Out of the total of R78 billion debt relief to be made available 26% 84% 70 60 during the 2024 financial year, we received R16 billion in Dealing with defaulting municipalities 81% 40 August 2023 and R20 billion in October 2023. A further 60 We have continued our efforts to address arrear municipal 20 R8 billion is anticipated to be received during the remainder of 50 0 80% debt through our municipal debt management strategy. 2020 2021 2022 2023 2024 2025 2026 the third quarter, followed by R34 billion in the fourth quarter. 76% 40 The objectives of our strategy include: 30 72% CURRENT ACCOUNT MANAGEMENT MANAGING ARREAR DEBT 20 Collection of the revenue owed to us and the recovery of arrear debt from defaulting municipalities remain priorities to improve 10 Stop defaulting and enforce payment of current liquidity and strengthen our balance sheet. Regrettably, systemic challenges in South Africa have led to persistent revenue recovery amounts 0 challenges and a continued culture of non-payment in some sectors. 2019 2020 2021 2022 2023 Current amounts CAGR ARREAR DEBT MANAGEMENT Key debt management indicators at 31 March 2023 Arrear municipal debt (including interest) Reduce and/or eliminate overdue debt Target Target Target Target Actual Actual Actual Measure and unit 2026 2024 2023 met? 2023 2022 2021 Arrear municipal debt by province FUTURE DEBT MANAGEMENT Arrear debt as % of revenue, % 7.00 4.93 3.54 4.80 3.91 3.24 Average debtors days (including Soweto and international), Gauteng Prevent future defaulting through pre-emptive action n/a 98.38 86.16 95.19 88.44 101.92 16% days Limpopo Debtors days – municipalities, average debtors days n/a 194.65 157.23 179.27 149.63 140.65 2% To achieve these, we continue to enhance existing revenue and Debtors days – large power top customers excluding debt management processes, enforce Eskom’s rights through n/a 16.06 15.04 14.48 14.63 15.01 legal action and expedite Government interventions. We disputes, average debtors days Other large power user debtors days (<100GWh p.a.), North West Mpumalanga employ a multi-stakeholder engagement approach through n/a 16.54 17.47 16.28 17.54 17.50 8% 29% various intergovernmental platforms. average debtors days Debtors days – small power users excluding Soweto, n/a 46.47 47.50 46.19 47.70 50.07 Our active partnering programme aims to assist defaulting average debtors days Free State 32% KwaZulu-Natal municipalities in their revenue collection efforts and improve Payment levels excluding Soweto interest, % SC, 2 93.00 94.90 95.70 95.03 95.97 96.82 2% Northern Cape municipal service delivery. Despite engaging with more than 1. Debtors days are based on amounts processed on our billing system, and are shown before accounting adjustments relating to non-collectability. Therefore, the 6% 45 municipalities, the uptake has been extremely poor. To amounts may not agree with those disclosed in the annual financial statements. No targets have been approved for the 2026 financial year and are therefore date, only five active partnering agreements are in place, with shown as not applicable. Eastern Cape Phumelela, Msunduzi, Maluti-a-Phofung, Raymond Mhlaba and 2. Targets for 2024 and 2026 include Soweto interest, based on the updated definition of the shareholder compact target. Bela-Bela municipalities. 5% Western Cape Poor payment levels of certain municipalities have contributed to the growth in arrear municipal debt, resulting in the average 1% Maluti-a-Phofung Local Municipality, our second largest defaulter municipal debtors days deteriorating to close to 180 days, or around six months. at year end, has signed the distribution agency agreement, but implementation is still pending. For details of debtors by category, including impairment and carrying values, refer to notes 5.1.1 and 20 in the consolidated annual AFS financial statements 94 95 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our finances continued In July 2022, the High Court granted Eskom the right to attach RESIDENTIAL ARREAR DEBT We are targeting further savings of R10.5 billion in 2024, based PAYMENT AGREEMENTS AT 31 MARCH 2023 the bank accounts of the City of Matlosana Local Municipality. Total invoiced Soweto debt has decreased to R2.3 billion on a revised methodology and using our 2023 results as a 33 active payment agreements in place, with only 13 fully The municipality’s court appeal was dismissed with costs in (including interest) at year end (2022: R4.6 billion). The reduction baseline. The Turnaround Management Office is monitoring the honoured February 2023 and we are attempting to negotiate a payment in Soweto debt is mainly due to prescribed debt, which is no implementation of initiatives to contain Eskom’s cost base and arrangement. A portion of the outstanding debt was recovered longer legally enforceable, being written off and the reversal of increase other revenue streams to ensure that these measures This includes six of the top 20 defaulting municipalities, from the attached bank accounts. with only one fully honoured in duplum interest. Average payment levels in Soweto remain are achievable and sustainable. unacceptably low at 20.2% for the year (2022: 25.1%). The Non-adherence to payment agreements continues to In October 2022, the High Court also granted Eskom the right focus on converting customers to prepaid meters is continuing, DISPOSAL OF NON-CORE ASSETS contribute to the increase in arrear municipal debt to attach R1.3 billion of Emfuleni Local Municipality’s assets to with 10 142 conversions completed during the year. As reported last year, the sale of Eskom Finance Company SOC settle its accounts. In July 2023, the High Court ruled that the Ltd was put on hold as market conditions were not considered We are exploring all avenues to collect the revenue due to municipality must appoint Eskom to perform all functions and favourable at the time. As required by the conditions attached services relating to its electricity business within six months of INTERNATIONAL ARREAR DEBT us, including following legal processes through the courts once to the Special Appropriation Act, 2019, we recommenced the the judgment. A distribution agency agreement is in the process Electricidade de Moçambique (EDM) remains the only other options have been exhausted. disposal process during the year and received bids from the of being finalised. international customer in arrears, with R574 million outstanding at year end, of which 94% is overdue. A settlement of market by November 2022. As previously reported, the SCA ruled that Letsemeng Local Municipality must settle all amounts due and payable to Eskom. While we believe that favourable court rulings go a long way R53 million was reached and has been paid by EDM to settle R350 million of debt that was under dispute, relating to invoices We requested an extension from the shareholder beyond The municipality’s appeal to the Constitutional Court was in enforcing Eskom’s legal right to payment, we simply cannot from 2019. the original deadline of 31 March 2023 to allow Eskom’s dismissed in July 2022. The municipality’s payment proposal solve our municipal debt challenges on our own. Unfortunately, governance structures to consider the transaction and was rejected by Eskom and its bank account was attached the MdRC has not convened for some time, while awaiting Subsequent to year end, EDM has agreed, in principle, to a obtain representation from the preferred bidder on matters in March 2023. The attachment was lifted following the National Treasury’s proposals to address arrear municipal proposed payment plan for the settlement of the remaining raised by IFC. Ultimately, IFC considered the outcome of the municipality’s offer to settle the amount through its equitable debt. In the interim, we continue to implement existing debt undisputed arrear balance. An upfront payment of R100 million negotiations and resolved not to approve the transaction. share payments. management initiatives while working with National Treasury to was received in terms of the payment plan, but EDM has Eskom is considering other available options and is engaging address the root causes of the problem. not yet signed the agreement or honoured the monthly with National Treasury on the way forward. instalments. Engagements are continuing to resolve the matter. A disposal programme for the sale of non-core and During the 2023 National Budget Speech, the Minister of Finance announced Government’s municipal debt relief plans. National underutilised properties was launched during the year, in line Treasury published two circulars in March 2023, which provided further detail on the municipal debt relief plan, municipalities’ CONTROLLING EXPENDITURE TO IMPROVE with Eskom’s real estate strategy. Properties are listed on an application process and the related conditions, which aim to restore a set of minimum financial management best practices in LIQUIDITY online sales platform and employees are given preference; municipalities. Another focus area of our turnaround plan is improving our after a period of 21 days the properties are made available for income statement through sustainable cost curtailment efforts sale in the open market. The process is being managed by an In terms of the plan, every municipality with arrear debt may apply to National Treasury for relief of its outstanding balance at and improving efficiencies. We have achieved combined savings independent agent. Assets to the value of R2.3 billion have 31 March 2023, including interest and penalties and excluding any current amounts. and other income initiatives of R78.5 billion over the last four been identified from Eskom’s asset register, comprising vacant years, against an original target of R61.8 billion by 2023. land as well as residential and commercial properties. YEAR 1 YEAR 2 YEAR 3 1 April 2023 to 31 March 2024 1 April 2024 to 31 March 2025 1 April 2025 to 31 March 2026 Turnaround savings, R billion 70 FUTURE FOCUS AREAS 12 consecutive months of 12 consecutive months of 12 consecutive months of 60 78.5 Pursuing a cost-reflective tariff path to recover prudent compliance with conditions compliance with conditions compliance with conditions and efficient costs and earn a fair return on assets 50 61.8 Providing input into the amendment of the 50.7 Eskom, in consultation with Eskom, in consultation with Eskom, in consultation with 40 Electricity Pricing Policy and development of National Treasury, writes off 1/3 National Treasury, writes off 1/3 National Treasury, writes off 1/3 30 NERSA’s revised regulatory methodology of the arrear debt balance at of the arrear debt balance at of the arrear debt balance at 30.6 40.4 Ensuring effective use of constrained financial 31 March 2023 31 March 2023 31 March 2023 20 16.3 20.3 resources to address poor plant performance, grid 10 6.2 expansion and environmental compliance requirements The conditions require the municipality to ring-fence all electricity, water and sanitation revenue collected, settle its current as well as Eskom’s JET strategy, within the confines of 0 accounts with Eskom within 30 days, implement a programme to install prepaid meters to improve its revenue collection, 2020 2021 2022 2023 the conditions attached to the Eskom Debt Relief Act institute certain financial management and reporting processes, among other requirements. Actual Target Cumulative actual Cumulative target Enforcing strict adherence to the Eskom Debt Relief Furthermore, National Treasury will enforce penalties available in the existing legislative framework and implement additional Act conditions, to ensure the conversion of the penalties on municipalities, including the takeover of a defaulting municipality’s electricity business as well as strengthening of subordinated loans to equity, to reduce Eskom’s debt During 2023, we achieved savings of R27.8 billion against a target burden over time NERSA licence conditions, NERSA dispute resolution processes and consequence management processes. of R21.4 billion, with the majority attributable to containing Should a municipality fail to comply with the conditions, the payment relief to that municipality will immediately cease. However, Engaging with lenders on the management of existing growth in primary energy expense other than OCGTs, through any debt already written off by that time will remain written off. Eskom will be allowed to resume its credit control and debt and the legal separation optimising coal inventory and pricing. To a lesser extent, savings debt management policies on the defaulting municipality, as well as resume any legal proceedings, and the municipality must were achieved through a reduction in targeted employee benefit Working with Government on the implementation immediately start repaying its arrear debt, interest and penalties. costs and procurement efficiencies. Other income initiatives, of the municipal debt relief plan to improve payment We are engaging with National Treasury on the municipal debt relief process and the conditions outlined in the circulars. including municipal self-build projects, vending commission and levels and address the escalating arrear municipal National Treasury has received several applications for debt relief from defaulting municipalities. By 30 September 2023, new connections, further contributed to performance. debt balance 28 municipalities received approval to participate, one of which was conditional and subsequently approved in October 2023. Implementing cost curtailment initiatives to achieve The combined arrear debt balance of these municipalities amounted to R26.7 billion at 31 March 2023. Primary energy savings relate mostly to working capital, and combined savings of R10.5 billion in 2024 do not necessarily lead to an immediate improvement in the Finalising the disposal of Eskom Finance Company income statement. Regrettably, savings have been offset by a SOC Ltd National Treasury circulars 123 and 124 can be accessed online significant overspend in OCGTs as well as fuel oil. 96 97 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure VALUE CREATED The Matimba Unit 5 boiler continued Bid window 6 of the Renewable Energy The Standard Offer and Emergency Resilient distribution network High-voltage transmission lines to set a new record, with 3 429 days by IPP (RE-IPP) Programme has been Generation programmes to procure performance and customer satisfaction installed to strengthen the grid during 31 March 2023 (or just over nine years) concluded with five successful bidders, additional capacity from IPPs have been ratings underpinned by operational the year far exceeded target without a boiler tube failure while grid connection of RE-IPP bid approved efficiencies and innovative use of window 3.5 and 4b projects continue technology Rollout of the major boiler plant in line with scheduled grid connection defects solutions at Medupi and Kusile dates Kusile Unit 4 achieved commercial that require unit outages have been operation on 31 May 2022, earlier than completed, leading to a significant the target date of January 2023 increase in performance (until the failure of the Kusile flue gas duct) VALUE PRESERVED VALUE ERODED System Operator continues to manage the system within Further deterioration in plant availability, with plant Generation system constraints are limiting increased an acceptable range unavailability in excess of 30%, coupled with a shortfall exports and revenue growth The Generation recovery plan was refocused towards the in supply by IPPs resulted in severe capacity constraints, Deterioration in the transmission system reliability, end of the year with a stronger focus on EAF recovery leading to 280 days of loadshedding (2022: 65 days) measured by system minutes <1 and the number of Extremely high utilisation of gas turbines, at a combined interruptions, coupled with an increase in the number of The steam generator replacement and scope for long- cost of energy of R29.7 billion for Eskom and IPP-owned line faults per 100km. The impact of theft and vandalism is term operation for Koeberg Unit 1 is being executed, OCGTs (2022: R14.7 billion) becoming more apparent which is critical to allow Koeberg to operate for a further 20 years to 2044, provided that the NNR awards the A flue gas duct failure was experienced at Kusile Unit 1 Reliability of supply on distribution networks impacted by necessary licences in October 2022, also affecting Units 2 and 3. The interruptions, due to an increase in consequential faults incident made around 2 100MW unavailable, significantly related to national loadshedding, overload trips, theft Renewable IPPs continue to contribute to available worsening the system performance and vandalism energy, especially over the evening peak The system continues to be impacted by the Medupi Energy losses due to a culture of non-payment, illegal Cross-border imports, mainly from Cahora Bassa, also Unit 4 generator explosion in August 2021, resulting in connections, theft and fraud remain high. Theft, supplement capacity 720MW not being available to the grid until the second vandalism and equipment overloading leading to increased The transmission network has seen a reduction in the quarter of the 2025 financial year breakdowns and higher maintenance cost, negatively number of major system incidents, and continues to impacting resource utilisation for normal incidents connect our power stations to distribution networks Capital constraints continue to hamper the execution of capital projects and outages, with outage readiness Kusile Unit 5 experienced a gas air heater fire incident, servicing customers, despite constraints in connecting impacted most. The funding constraint contributed to the resulting in the discontinuation of all commissioning new IPPs full outage programme not being executed, with some activities, causing a schedule delay of about a year. Construction is under way on phase 1 of the battery outages deferred to the next financial year Repairs are in progress energy storage system (BESS) project at Elandskop, Despite successful conclusion, grid capacity constraints Some key Generation technical plan and emission Pongola and Hex sites limited the capacity procured under bid window 6 to control projects experiencing schedule delays due to Steady progress on Generation technical plan and 1 000MW (the target was 2 600MW). Grid connection construction, commercial, governance approval and emissions control projects, with progress in the high- capacity in the Northern Cape, Eastern Cape and vandalism challenges, risking achievement of the Minimum frequency transformer (HFT) projects, electrostatic Western Cape has been depleted Emission Standards (MES) targets precipitator (ESP) projects, and ash disposal facilities (ADFs) Delays experienced in financial and legal close for projects in the Risk Mitigation IPP Procurement Programme and Stable labour relations and stakeholder management at bid window 5 of the RE-IPP Programme, together with the new build projects existing projects not delivering as expected, resulting in a shortfall of around 2 500GWh in energy purchases for the year, thereby contributing to system constraints 98 99 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure continued Our aim is to provide a reliable supply of electricity to increased levels of loadshedding and “overproduction” of Loadshedding and load curtailment over the past stations during June and July 2022, mostly due to a lack of the country by effectively operating our infrastructure, around 2 000GWh for the year. It bears repeating that five years operators reporting for duty. This resulted in a lack of routine which constitutes our manufactured capital. It consists additional dispatchable capacity of 4 000MW–6 000MW is maintenance, inability to address minor defects on operating 300 6 000 of our generation fleet and transmission and distribution required immediately, to support the stability of the power 280 plant, as well as delays in returning units to service. networks, supplemented by capacity supplied by IPPs and system, create space for maintenance and reduce the need 250 5 000 for loadshedding. At an assumed average load factor of The 2022/23 Summer Plan ran from 1 September 2022 cross-border imports. It also includes new power stations 30% for renewables, it would require renewable capacity of 200 4 000 to 31 March 2023. Again, three scenarios of unplanned and high-voltage transmission lines being constructed 13 000MW–20 000MW. unavailability were considered, namely 13 000MW, 14 500MW under our new build programme, together with projects 150 3 000 and 16 000MW – these levels are higher than those in the aimed at delivering customer and IPP connections, A total of 4 116GWh was supplied by Eskom-owned and Winter Plan due to higher levels of unplanned unavailability refurbishing existing assets and ensuring environmental 100 2 000 IPP OCGTs during the year (2022: 2 725GWh) at a cost of 65 during the summer period – generation plant tends to perform compliance. R29.7 billion (2022: R14.7 billion), a situation which is clearly 50 46 47 1 000 better during winter than summer, with heat negatively 30 not sustainable. However, we utilise the OCGTs to the extent impacting performance and plant availability. The Summer Plan MANAGING SUPPLY AND DEMAND possible within our financial constraints, as we are acutely 0 2019 2020 2021 2022 2023 0 showed a possible 126 days of stage 3 and higher loadshedding ROLE OF THE SYSTEM OPERATOR aware of the debilitating cost of loadshedding to the country. at unplanned unavailability of 14 500MW. However, Our world-class System Operator maintains the frequency of the Days Hours loadshedding up to stage 6 was required on 203 days during power system at around 50Hz to balance electricity supply and the Summer Plan period, with actual unplanned unavailability demand in real time, by managing dispatchable generation capacity IR Refer to “Use of open-cycle gas turbines” on the next page for a discussion of how the overspend on the OCGTs was exceeding the maximum assumption of the Summer Plan to compensate for variations in energy supplied by renewable funded Estimated percentage of contracted demand not supplied almost 50% of the time. As a result, levels of loadshedding were generation, which is non-dispatchable. The system frequency is due to loadshedding much more severe during the summer period. This was largely maintained within a dead band of 49.85Hz to 50.15Hz. due to the shutdown of three units at Kusile due to a flue gas We again saw record levels of hydro generation, due to good 16 000 7 5.91 duct failure towards the end of October 2022, which had not Loadshedding is implemented to maintain the supply/demand rainfall associated with the La Niña weather phenomenon. Our 14 000 6 been catered for in the plan. balance, and to ensure sufficient reserve capacity to respond hydro plant produced 3 060GWh for the year (2022: 1 943GWh), 12 000 5 to significant unplanned breakdowns or disruptions to supply, which is about 2 000GWh more than the average for the 10 000 Refer to “Generation performance – Unplanned losses” on in order to protect the power system. This usually occurs preceding decade. Without this, higher levels of loadshedding 4 IR page 103 for more information when high levels of unplanned generation unavailability are would have been required throughout most of the year. 8 000 3 combined with low diesel fuel levels at OCGT stations and/or 6 000 low water levels at pumped storage stations, leading to a need Renewable IPP generation continued to support the 2 to conserve and/or replenish emergency resources. 4 000 USE OF OPEN-CYCLE GAS TURBINES power system throughout the year, producing 16 859GWh 2 000 0.56 0.47 0.71 1 Utilisation of Eskom’s open-cycle gas turbines (OCGTs) (2022: 15 073GWh), with wind generation in particular 0.35 We continue to test the various defence systems to maintain reached unprecedented levels this year, due to the dismal supporting the evening peaks. The highest wind generation 0 0 our ability to respond effectively to protect against a major 2019 2020 2021 2022 2023 performance of Eskom’s coal-fired plant, resulting in a shortfall supplied over the past year was 3 028MW on 2 December 2022 event, such as a regional or national blackout. of 4 830GWh against plan. This was exacerbated by a shortfall (2022: 2 639MW). The average load factor for wind generation Estimated energy not supplied, GWh Energy not supplied, % of 5 167GWh in energy supplied by renewable IPPs as well as over the evening peak was 42.4% for the year (2022: 42.6%), SYSTEM PERFORMANCE the Risk Mitigation IPP Procurement Programme (RMIPPPP), or 1 434MW (2022: 1 174MW). Wind generation had to be Yet again, our generation plant availability reached the The 2022 Winter Plan covered the period from 1 April to due to delays in bringing projected capacity online. curtailed on 25 occasions over the night minimum period lowest levels ever, due to unprecedented levels of unplanned (2022: 16), due to the low demand between 1:00 and 4:00. 31 August 2022. The plan considered three scenarios of unavailability. On average, around 15 700MW was not available for unplanned unavailability, namely 12 000MW, 13 500MW and An amount of R8.6 billion in unutilised budget was redirected generation at total unplanned unavailability of 33.58%, with close 15 000MW. Further uncertainty of approximately 4 000MW from these programmes to Eskom-owned and IPP OCGT SYSTEM FORECAST AND LOADSHEDDING exists due to the volatility of the system. At unplanned spend to offset the reduced production from these cheaper to 4 900MW unavailable due to planned maintenance, leaving around 26 000MW capacity available for generation. This required IMPLEMENTED DURING THE YEAR unavailability of 13 500MW, the Winter Plan showed a possible sources. In total, R13.1 billion of additional funds was allocated extensive use of both Eskom- and IPP-owned OCGTs to meet Loadshedding was required on 280 days during the year 37 days of stage 2 loadshedding. However, for the entire to Eskom-owned OCGTs, funded from the IPP budget and demand during periods of poor base-load generation availability. (2022: 65 days), with the split between the various stages Winter Plan period, 77 days of loadshedding up to stage 6 other cost savings, while an extra R4.1 billion was directed Furthermore, the challenge of managing non-dispatchable capacity shown below. were required due to much higher than anticipated levels towards IPP OCGTs. such as wind and solar energy when the sun is not shining or the of unplanned unavailability. The high stages of loadshedding Loadshedding during the past year were brought on by industrial action affecting multiple power Eskom’s OCGT load factor increased to 14.3% (2022: 8.7%) wind not blowing should not be underestimated, as it can lead to huge shifts in available capacity from day to day. against a target of 7%, to ensure system stability during periods Stage 1 8 of generation supply constraints. Operational, system performance and environmental 80 Stage 2 data can be accessed on our Data Portal at www.eskom.co.za/dataportal/ 33 Target Target Target Target Actual Actual Actual Stage 3 Measure and unit 2026 2024 2023 met? 2023 2022 2021 Stage 4 95 OCGT production, GWh 5 494 2 539 1 826 1 457 A factor that contributed to the supply constraints is the fact 1 466 3 018 that IPP capacity – both renewable and other programmes, 30 OCGT diesel usage, R million1 43 953 19 609 8 327 21 355 10 033 4 075 Stage 5 such as DMRE’s Risk Mitigation IPP Procurement Programme 1. The OCGT cost includes diesel storage and demurrage costs of R104 million (2022: R108 million; 2021: R79 million) incurred when not utilising the OCGTs. The – has not come online as expected under the IRP 2019, with an 34 Stage 6 budget figure for 2023 was net of an anticipated diesel levy refund of R1.9 billion which had to be written off due to a dispute with SARS. Actual amounts exclude energy shortfall of more than 5 100GWh for the year, requiring any diesel levy refund. 2. The 2026 target is the cumulative target over the next three years. 100 101 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure continued The average unit production cost increased in line with the GENERATION PERFORMANCE We use a number of measures to track the performance on Unplanned losses increase in the diesel price, and increased further due to an We operate 30 base-load, mid-merit, peaking and renewable outages, such as outage readiness, due date performance and UCLF has deteriorated significantly compared to the previous inability to recover diesel rebates. power stations, with a total nominal capacity of 46 788MW to post-outage UCLF. year, due to an increase in both partial and full load losses. meet the country’s electricity demand by providing electricity Utilisation of the two IPP-owned OCGTs also increased during at a reasonable price. The median age of our coal-fired stations Outage readiness is tracked three months before the planned Full load losses remain high, with major incidents, unit trips, outage the year, producing 1 098GWh (2022: 899GWh) at a cost is over 40 years. execution of an outage, and is reliant on timeous and adequate slips and boiler tube failures being some of the main reasons. of R9.9 billion to Eskom (2022: R6.2 billion), which includes a release of funds. The late release of funds has a ripple effect fixed capacity charge of R1.6 billion (2022: R1.5 billion). The IPP We also operate four small hydroelectric stations, as well as on the T-3 performance when it comes to activities such as The coal fleet recorded 712 UAGS trips for the year OCGTs recorded a load factor of 12.5% (2022: 10.2%). the 100MW Sere Wind Farm, which are not considered for the ordering of spares, issuing of task orders and finalising the (2022: 681), which contributed 3.13.% to UCLF for the capacity management purposes. integrated schedule. year (2022: 2.67%). Kriel, Duvha and Tutuka account for For the coming year, we have catered for a load factor of about approximately 31% of the Generation coal fleet trips for 12% on both the Eskom and IPP-owned OCGTs, reducing to The average performance of the outage readiness indicator at the year, with the turbine, boiler, feed water, generator and Detailed information on the installed and nominal capacity 9% in the 2025 financial year, as EAF improves and more IPP IR T-3 over the past five years was approximately 65%, although electrical plant collectively accounting for 83% of trips. of each of our power stations, as well as IPP capacity, is set capacity comes online. out on pages 166 to 167 it has seen an improvement over the past year to 70.25% There were 171 boiler tube failures for the year, which (2022: 67.45%), against a target of 80%. It should be noted contributed 2.56% to UCLF (2022: 189 failures contributed that Deloitte has qualified this KPI, as they were not able to 2.45%). The upward trend in the boiler tube failure rate over substantiate the value reported due to a lack of adequate the last five years was caused by the maintenance backlog due Target Target Target Target Actual Actual Actual supporting documentation. Measure and unit 2026 2024 2023 met? 2023 2022 2021 to outage deferrals and deferred midlife refurbishments caused by reduced capital investment. Since 2018, Komati, Grootvlei Energy availability factor (EAF), % SC 70.00 65.00 65.00 56.03 62.02 64.19 IR Refer to the qualification contained in the independent and Hendrina stopped doing philosophy maintenance (due Planned capability loss factor (PCLF), % 10.50 10.50 10.50 10.39 10.23 12.26 sustainability assurance opinion on page 174 for further to cost-cutting and shutdown plans). As a result, these three information Unplanned capability loss factor (UCLF), % 18.00 28.00 23.00 31.92 25.35 20.04 stations incurred a significant increase in their boiler failure rate, Other capability loss factor (OCLF), % 1.50 1.50 1.50 1.66 2.40 3.51 with an increase from 2.11 in March 2018 to 4.38 in March 2023. The release of funds has been jeopardised by the constrained Nevertheless, five stations recorded outstanding performance Partial load losses, average MW1 n/a n/a 3 695 6 057 4 851 4 109 at the end of March 2023 (based on a failure rate of less than 1), liquidity position due to the lack of cost-reflective tariffs and Post-philosophy outage UCLF, % SC 14.00 14.00 14.00 35.75 29.74 21.23 the inability to predict allowed revenue or the effective tariff namely Kusile, Medupi, Matimba, Kendal and Tutuka. Boiler tube failure rate (12-month moving average), path, which has forced reductions to capital expenditure as the 1.80 1.80 1.80 2.17 2.44 2.31 number SC easiest response mechanism. Adding to this is the reliance on Following the extensive damage to the Medupi Unit 4 Unplanned automatic grid separations (UAGS trips), significant borrowing activities to fund the capital programme, generator in August 2021, the plant has been successfully n/a n/a 392 736 697 527 number1 and when market sensitivity results in delays in signing facilities, preserved and the property damage assessment on the especially for coal projects, it results in a need to protect generator stator has been concluded. The severity of the 1. Future targets shown as n/a are dependent on system performance. liquidity by controlling cash outflows, with reducing capital damage to the stator core necessitates a complete replacement expenditure being the easiest lever. Uncertainty creates a stop- of the generator stator. The damaged stator has been removed. TECHNICAL PERFORMANCE The high EUF can be alleviated by adding additional capacity start effect to capex projects, hampering the ability to plan The option to procure a secondhand stator was assessed as We measure the performance of our generation fleet through and improving Generation plant reliability. We are striving to successfully and order long-lead materials. Current generation an interim solution. An array of tests was performed on the a number of indicators. EAF or energy availability factor reach average EAF of 60% for the 2024 financial year, and 65% plant performance and significant cash pressures, exacerbated secondhand stator prior to purchase. The final report on the denotes overall plant availability. PCLF or planned capability loss for the 2025 financial year, in conjunction with reducing EUF by high fuel oil and OCGT fuel consumption, further hinder the condition of the stator has been received. Given the favourable factor is an indication of the level of planned maintenance, while within international norms. ability to release funds for all requirements. outcome of the tests, the unit is expected to be returned to UCLF or unplanned capability loss factor signifies unplanned service in the second quarter of the 2025 financial year. losses, whether through full breakdowns or partial unavailability Medupi Unit 1 achieved commercial operation on 31 July 2021 Several strategic initiatives are addressing challenges that have of plant. OCLF or other capability loss factor refers to those and has been contributing to the official KPIs from a significant impact on outage readiness. These challenges The procurement of a new generator stator from the OEM losses outside of a station’s control – together with UCLF, it 1 August 2022, one year after being declared commercial. include the unavailability of spares, placement of contracts (original equipment manufacturer) is in progress. The planned makes up the unplanned unavailability of the fleet. The unit has achieved 90.88% EAF for the year. Kusile Unit 4 and the quality of outage scoping. The Reliability Maintenance completion of manufacturing of a new stator is during the achieved commercial operation on 31 May 2022 and achieved Recovery team is looking at improving the quality and third quarter of the 2026 financial year, including shipping and EAF was significantly lower than the previous year, and also 78.57% EAF during its first 10 months of operation. accuracy of outage scope by developing a holistic approach. delivery to Medupi. The new stator is planned for installation significantly worse than target. The decrease in EAF compared A budget of R9.9 billion has been approved for outages in six years after the return to service date of Unit 4 during a to the previous year is largely due to the significant increase in Planned maintenance the 2024 financial year and funds have been released for planned general overhaul. unplanned losses. However, due to the success of addressing Planned maintenance has improved slightly year-on-year, and execution. the new build design defects, the Medupi units (excluding almost achieved the target. The incident accounted for 0.78% UCLF for the year. Unit 4, which is in extended inoperability from 1 October 2022 Due date performance is calculated for units that were on until its expected return in the second quarter of the 2025 At the start of the financial year, 79 outages were scheduled for outage for more than 21 days and for reliability outages longer A flue gas duct failure was experienced at Kusile Unit 1 on financial year) recorded an EAF of over 75% for the year. the financial year. By the end of the year, 45 of those outages than 14 days. For the year under review, only 33.33% of outages 23 October 2022 while the unit was offline for repairs. Units 2 have been completed, 17 were in execution, eight were met their due date (2022: 50.94%), significantly below the and 3 were also affected. The incident has made around Coal-fired stations recorded an average energy utilisation cancelled and nine have been deferred to the 2024 financial target of 80%. Once an outage slips against the due date, it is 2 100MW unavailable to the power system, worsening the factor (EUF) of 95.59% for the period, with EUF over 90% year. Furthermore, an additional 30 short-term outages have then measured as UCLF. Outage slips contributed 3.18% to already constrained system performance. On 18 March 2023, at all 15 coal-fired stations. Compared to expected average been completed. In this case, short-term refers to corrective UCLF for the year (2022: 39.99%). we received approval from the Department of Forestry, EUF performance of around 75% over the long term, and maintenance to avoid an increased risk of availability loss, and Fisheries and the Environment (DFFE) to commence considering the age of Eskom’s fleet, the actual EUF remains does not depend on the duration of the outage. Post-outage UCLF is a key measure to track outage construction of temporary stacks. However, approval to substantially above the international norm. This has negative effectiveness on units that undergo general overhauls, mini operate the temporary stacks is dependent on a favourable technical implications, which is reflected in the rising plant When scheduling outages, consideration is given to system overhauls and interim repairs, and is measured up to 60 outcome of the Minimum Emission Standard (MES) breakdowns, thereby leading to the declining EAF. capacity constraints, plant risks, and the availability of spares days after a unit synchronises to the grid after maintenance. postponement and atmospheric emission licence (AEL) and resources. Post-outage UCLF has deteriorated further compared to the variation process. previous year. 102 103 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure continued The temporary stacks have been completed, with the FGD root causes, such as outsourcing critical maintenance, procuring Koeberg long-term operation project generation performance and plant availability. During the latter bypassed. This allows us to return the units to the grid in spares and executing recovery plans. Efforts continue to sustain The long-term operation (LTO) activities to enable Koeberg half of the year, based on the input of the new Board, the line with the approved national environmental exemptions performance gains. to operate its 1 854MW capacity for another 20 years beyond recovery plan was refocused. and conditions. During this time, the necessary steps will be 2024 continue according to schedule, in line with the IRP 2019 implemented to mitigate the impact of SO2 emissions on air expectations for continued energy security beyond 2024. Following engagements with Exco, the Business Operations KOEBERG PERFORMANCE quality. Two of the units have been returned to service, with Performance Committee (BOPC) and the Board, Generation Koeberg Nuclear Power Station continues to operate within the last expected to return in November 2023. The return of consolidated the recommendations and will better manage the the required safety parameters, at the lowest marginal primary the units should reduce grid constraints and have a positive Extending the station’s operating life is an investment recovery programme going forward. This includes the people, energy cost of our base-load stations. impact on reducing loadshedding to the country, although the into sustainable and low-carbon electricity generation process and plant actions that need to be executed to realise units’ output may be lower while utilising the temporary stacks. infrastructure, with nuclear producing no greenhouse the plan. The Nuclear Safety Review Board (NSRB), comprising This is to comply with environmental restrictions associated gas emissions during operation. Over its lifecycle, experienced senior nuclear executives from various countries, with operating the temporary stacks, coupled with the nuclear produces about the same amount of carbon The purpose of the recovery plan is to: conducts independent bi-annual safety reviews. The NSRB uncertainty of using the temporary stacks. dioxide-equivalent emissions per unit of electricity • Drive the implementation of key enablers to expedite plant conducts a review of all aspects of Koeberg’s operations, with as wind, and one-third of the emissions per unit of recovery and ensure that recovered performance is sustained particular emphasis on those activities which may affect the The permanent repair of the damaged stack is expected to be electricity when compared to solar. safe operation of the station and the protection of the staff, • Evaluate risks and ensure timely implementation of risk completed by December 2024. Once completed, the units are public and the environment. It also provides recommendations mitigation measures expected to operate at the full load of 799MW each, with the on priorities and areas for improvement based on members’ The replacement of the steam generators was identified in the • Track implementation plans of emerging plant risks and FGD reintroduced. professional experience. licence application for long-term operation of Koeberg that was station recovery plan progress at the six priority and two The incident accounted for 1.79% UCLF for the financial year. submitted to the National Nuclear Regulator (NNR) as being a additional stations Koeberg Unit 2 returned to service on 7 August 2022 from prerequisite for the station to operate safely beyond its original • Perform analysis and assessments of issues affecting its last refuelling outage, but was manually shut down on licensed operating period of 40 years beyond 2024. The NNR recovery, and expedite plans accordingly 19 August 2022 due to a control rod slipping, associated with It should be noted that since commercialisation, Kusile accepted the licence modification for further processing. Should • Evaluate recovery plan effectiveness and strategy the reactor pressure vessel head replacement. After returning Unit 4 has been operating with an average of about the NNR award the licences to Koeberg to operate beyond optimisation and realignment to service six days later, the unit was automatically shut 158MW not being available, due to absorber clogging 2024, the station will continue to operate safely and reliably for • Integrate the response to Generation operational fleet–level down again on 3 September 2022 when one of the control (which also caused the flue gas duct failure at the another 20 years. risks, such as finance, procurement, HR and the like rods slipped during a further scheduled reactor control rod other three units). This is being addressed by planned • Optimise and enhance business processes, and drive manoeuvrability test, resulting in an automatic reactor scram The LTO safety case was submitted on schedule to the NNR interventions, with the output remaining constrained innovation and grid separation. Following extensive troubleshooting with for their evaluation in July 2022. As expected, no safety until a permanent solution is identified. The current unit the OEM, the unit returned to service on 25 September 2022 concerns that would preclude long-term operation were loss is below 100MW. We recognise that the unreliable and unpredictable with National Nuclear Regulator (NNR) approval. identified. The NNR is assessing the safety case to ensure that performance of our coal fleet is not acceptable and one of the It is anticipated that the unit will continue to deliver it meets national and international regulatory requirements, Koeberg Unit 2 had been online for 145 days when the turbine main causes of loadshedding, together with the lower-than- constrained output in the immediate future; it will standards and practices for LTO, to enable them to issue an tripped on 17 February 2023 during the replacement of a failed expected IPP capacity being available. We acknowledge the only deliver the full load of 799MW, confirmed by the amendment to the current licence. electronic module on the turbine protection system. The unit negative impact this has on the South African economy and the commissioning test results, once a permanent solution lives of South Africans. was resynchronised and back at full power within 20 hours. The NNR has completed the first round of public engagement has been implemented. As part of the operation and maintenance regime of operating generation units, and will determine if further engagement is needed. In the Koeberg Unit 1 had been online for 408 days when it was interim, Eskom is focusing on public awareness activities aimed Nevertheless, it is important to recognise the causes of the management makes informed decisions on the amount shut down on 10 December 2022 for the start of outage 126, current situation. Although there are many factors, both within of energy that a unit sends out, depending on the at communicating the safety of Koeberg to the South African a planned long-duration refuelling outage that includes the public and completing the commitments that were stipulated and outside our control, the root cause is the late decision to management of various unit and station factors, such as replacement of the three steam generators, but excludes the allow Eskom to build new capacity, coupled with the slower pace transient factors, load demand, station requirements, in the safety case. These commitments are being monitored to reactor vessel head replacement, which was done previously. The ensure that emerging risks to timeous completion are identified of bringing online IPP capacity compared to the IRP 2019. This primary inputs, reliability maintenance plans, continuous scope of work for the steam generator replacement was rigorously necessitated running the plant at exceptionally high load factors plant improvements and plans to correct plant defects as early as possible to enable mitigative actions to be taken. scrutinised by two independent teams to optimise the outage over an extended period while the lack of maintenance space, as (whether latent and/or operational). duration in the months prior to commencement of the outage. well as funding constraints due to a lack of cost-reflective tariffs Benchmarking Eskom remains a member of the World Association of Nuclear over many years, meant that safety and statutory maintenance The old steam generators have been removed and were Operators (WANO) and the Institute of Nuclear Power was correctly prioritised over reliability and performance Partial load losses have increased significantly compared to transported to on-site storage by early April 2023, where they will Operations (INPO). South Africa remains a member of the enhancement work, together with mid-life refurbishment that is the previous year and are worse than target. Partial load be packaged and dismantled for final disposal at a national nuclear International Atomic Energy Agency (IAEA). These affiliations essential to ensure the performance of ageing plant. losses contributed 13.12% UCLF for the year (approximately waste repository. The three new steam generators were fitted facilitate the definition of standards, sharing best practice, 41% of total UCLF). Kendal, Majuba, Kriel, Tutuka and Duvha into their final location during April, ready for welding activities and conducting periodic safety reviews, training personnel and We are committed to turning around the performance if the contributed 60% of total partial load losses for the year. Draught support structures that still need to be erected around them. benchmarking performance. The most recent routine WANO fleet, led by the new Board and the newly appointed Minister plant, mills, turbine, gas cleaning and feed water plant were peer review of Koeberg was carried out from 16 August to of Electricity. Our recovery relies on three levers: the areas with the highest contribution to partial load losses, The outage has been significantly delayed due to resourcing 2 September 2021, the outcome of which was favourable. • EAF recovery accounting for 80% of partial losses. Disappointingly, most challenges and unexpected technical challenges experienced • Additional capacity stations have not been able to clear their partial load losses as as part of the steam generator replacement project. Due to For the review period, Koeberg’s benchmarked performance planned during outages. Of the 18 outages that were planned to • Government enablers ongoing delays the unit is only expected to be back on full load has deteriorated due to the impact the recent outages have reduce partial losses, only five units have shown tangible gains. during November 2023. had on the availability of the units. This was driven mainly EAF recovery will be achieved by improving the generation by the refuelling outage on Unit 2 during 2022, followed fleet’s EAF performance through effective implementation of Stations continued to experience challenges with plant Unit 2 will undergo a similar long outage to replace its three by the Unit 1 long-duration refuelling and steam generator redundancy (especially mills, feed pumps, air heaters and the EAF recovery programme to achieve an EAF level of 65% steam generators at the end of its next refuelling cycle, replacement outage, which commenced on 10 December 2022. condensers). The impact of common plant unreliability (such as at the end of March 2024, in support of average EAF of 60% rescheduled to start after Unit 1 returns from outage. The last coal and ash/dust plant, and cooling towers) has stabilised after a overall for the 2024 financial year, moving towards an average replacement steam generator was delivered to Koeberg during The previous Generation recovery plan aimed to address number of recovery measures were put in place to address the of 65% EAF for the 2025 financial year. December 2022. critical pain points to allow for fast-tracked improvement in 104 105 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure continued The EAF recovery plans rely on several focus areas, including being deferred to after March 2023. Unfortunately, due to the ENERGY SUPPLIED BY IPPS STORAGE PROGRAMME plant condition, capacity, skills and experience, reducing fraud inherent unreliability and unpredictability of the coal units, We procure renewable energy from IPPs under ministerial The RFP for the procurement of 513MW of battery energy and corruption, policies and procedures, funding, environmental other challenges at these stations resulted in other losses, determinations, under DMRE’s RE-IPP Programme. Since storage under the Energy Storage IPP Programme was released compliance, coal and new build defects. Improvement in plant therefore the net gain was minimal. inception of the Renewable Energy IPP (RE-IPP) Programme to the market on 7 March 2023. The closing date for bid condition, in particular, requires augmented maintenance, and in 2011, a total of 89 renewable IPP projects with capacity submissions was 2 August 2023, although the preferred bidders each site has identified projects envisaged to reduce load losses. Approximately 5 400MW is expected to be recovered over of 6 106MW are already in operation (2022: 5 826MW). All have not been announced. the next 24 months; based on an EAF level of around 60%, projects under bid window 1, 2, 3, 3.5, 4 and 4B projects are Although all stations are driving this improvement, the focus this translates to about 3 242MW. All these projects and the connected to the grid. We also procure energy from two IPP The Transmission board has approved Eskom as the buyer of is on the six priority stations that would provide the biggest associated gains are centrally tracked and are being verified by OCGT peakers, with capacity of 1 005MW. the capacity and ancillary services based on the risk allocation benefit to the system with an improved EAF, namely Duvha, an external service provider reporting directly to the Board. as contained in PPA, subject to certain conditions. Kendal, Kusile, Majuba, Matla and Tutuka, as well as Arnot Eskom is looking to procure energy under a number of IPP and Kriel. Station-specific plant-related actions are being We have to repeat that we cannot resolve loadshedding on programmes to add to the available generation capacity. SHORT-TERM PURCHASE PROGRAMMES consolidated to allow continuous tracing and monitoring. These our own. At least 4 000–6 000MW of additional dispatchable However, the delays in bringing capacity online under the In response to the energy crisis, two programmes were include capacity recovery projects and critical projects to capacity is required urgently. various IPP programmes continue to add pressure on the need launched for short-term energy purchases from domestic sustain performance. to run our ageing plant at unsustainable levels, often requiring generators, namely the Standard Offer and Emergency Financial constraints remain a concern, but the situation will be the use of expensive OCGTs to make up the shortfall. Generation programmes. Approximately 1 522MW has been recovered at Duvha, significantly improved the debt relief measures announced by Kendal, Matla and Tutuka in the latter half of the 2023 financial National Treasury. Our recovery also relies on several external RE-IPP PROGRAMME The Standard Offer provides a mechanism for Eskom to year against a target of 1 862MW. The shortfall was a result concessions, levers and enablers required to support the Preferred bidders for the RE-IPP bid window 5 were purchase energy from customers with their own generation of outages that slipped and did not return in time, or outages turnaround. announced on 28 October 2021, with 25 projects identified or other independent generators at the avoided cost of totalling 2 583MW (comprising 1 608MW wind and 975MW Eskom generation (including power purchase commitments). solar photovoltaic). The Board approved the conclusion of We are targeting 1 000MW, and budget is available to run GENERATION RECOVERY PLAN power purchase agreements (PPAs) with the preferred bidders the programme until July 2028. Approvals for the mechanism +65% subject to stipulated conditions. Nineteen projects totalling were required from government departments and NERSA, all of which have been obtained. The first contract for 100MW 60% EAF 1 759MW have reached legal close. Of these, nine projects have reached financial close and are in the construction under the Standard Offer has been signed and went into EAF phase; these are anticipated to come online late in 2024. The operation on 1 May 2023. Additional applications have been WORLD-CLASS PERFORMANCE received but none of these have achieved legal close yet. remaining projects are anticipated to achieve financial close by End of 2025 financial year and December 2023, with the scheduled commercial operations beyond The Emergency Generation Programme allows for the EXECUTION EXCELLENCE dates expected to be achieved by June 2025. End of 2024 financial year Kusile fully operational purchase of energy from existing generators where additional SET UP FOR SUCCESS Focus on the next priority Return Medupi 4 from long-term Preferred bidders for RE-IPP bid window 6 were announced capacity would be available at an appropriate price. We are stations forced outage on 8 December 2022. Initially only five photovoltaic projects targeting 800MW, and budget and cost recovery mechanisms Set up the enabling structures Closure of old stations per Kriel and Arnot were identified (totalling 860MW), with no wind projects are in place until 31 March 2025. Even though the cost of Turnaround plans approved dates War room Successful execution of having been selected due to constraints in connecting these production could exceed the Eskom standard tariff, the cost Continuous focus on current and of this generation would still be lower than Eskom’s marginal Reliability maintenance Koeberg 1 and 2 outages to the grid. Another eligible bidder was announced as future skills Sustain excellent Medupi preferred, bringing the total capacity awarded to 1 000MW. cost of generation (mostly from OCGTs) and would mitigate Maintain performance at current Ensure successful implementation flagship stations performance At the time of bid submission, the projects had received cost against loadshedding. The programme has received internal and of Koeberg steam generator Medupi, Lethabo, Matimba and Embed principles of operational replacement and long-term estimate letters from Eskom for grid connection, but with no external government and regulatory approvals. Contracts have Peaking excellence operation projects commitment of grid capacity required under the cost estimate been finalised and awarded. Contracts have been awarded to Focus on top 6 priority stations Address internal skills gaps Commercial operation of letters. By the time of bid evaluation, the grid capacity had been five participants, of which one project of 60MW has signed a Return of Kusile 1, 2 and 3 taken up by other projects (with firm commitments under PPA, commencing operation on 31 July 2023. Tutuka, Duvha, Majuba, Kusile, Kusile 5 and synchronisation of Synchronisation of Kusile 5 budget quotations) intended to supply private offtakers, with Matla, Kendal Kusile 6 Return of Duvha 2 Eskom supplying the grid capacity. Commercial close for the bid window 6 projects will be staggered in line with anticipated The difference between the two programmes is that Execution of Koeberg 1 outage Source external specialised skills issuance of budget quotations. in the Standard Offer, Eskom sets the price – either dynamically day-ahead or for a year – and customers can choose whether to supply at that price. Under the RISK MITIGATION IPP PROCUREMENT PROGRAMME Continuous execution of culture transformation and strategic levers including operational excellence Emergency Generation Programme, suppliers bid a The bid evaluation for the Risk Mitigation IPP Procurement price and volume – either month-ahead, week-ahead Programme (RMIPPPP) resulted in 11 preferred bidders being or day-ahead – and Eskom chooses whether to take up identified for total capacity of 1 996MW. Eskom concluded the energy. PPAs with three of the projects on 2 June 2022. The remaining PPAs are expected to be concluded as and when the projects are able to achieve legal and financial close, given various challenges faced by the bidders, such as cost increases after bid submission and delays in obtaining environmental and other authorisations. 106 107 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure continued ENERGY CAPACITY AND PURCHASES International sales volumes decreased by 14% year-on- Generation Regulation exemption has been obtained from IPP capacity available and the energy procured under various IPP programmes for the year to 31 March 2023 is set out in the following table. year, primarily due to load curtailment implemented on DMRE, with Eskom being designated procurer and buyer of firm power supply agreements and suspension of non-firm capacity and energy. While NERSA concurrence of DMRE’s Target Target Target Target Actual Actual Actual supply agreements. Sales were further affected by improved section 34 determination is awaited, we are developing a request Measure and unit 2026 2024 2023 met? 2023 2022 2021 performance of some customers’ own generation performance, for proposal. Our Corporate Plan makes provision for the as well as others purchasing more of their required power from successful sourcing of this power from the 2025 financial year. Total capacity, MW 17 326 11 080 9 144 7 110 6 831 6 083 SAPP markets at rates lower than ours. Total energy purchases, GWh 108 478 28 538 22 622 17 957 15 972 13 525 NETWORK PERFORMANCE International purchases increased by 2% year-on-year, due Our network is made up of transmission infrastructure, with Total spent on energy, R million 228 555 61 837 49 221 43 400 36 714 32 470 to increased offtake from Cahora Bassa, coupled with higher high-voltage lines evacuating energy from our power stations, Lease accounting adjustment, R million2 (16 588) (2 392) (2 886) n/a (1 635) (1 511) (1 638) purchases from the SAPP markets to mitigate against system and our distribution network, which distributes electricity from Total expenditure, R million 211 968 59 445 46 335 41 765 35 203 30 832 constraints. the transmission network and IPPs to customers. Redistributors Weighted average cost, c/kWh3 211 217 218 242 230 240 (municipalities and metros) supplied by Eskom manage their POWER IMPORTS own distribution networks. 1. The 2026 target is the cumulative target over the next three years. Given Eskom’s generation constraints, the focus has shifted 2. For accounting purposes, the capacity charges for the Avon and Dedisa IPP gas peakers are treated as arrangements that contain a lease in terms of IFRS 16. Refer to note 2.8 in the annual financial statements for the related accounting policy. For future targets, the assumption is that the RMIPPPP projects will be treated on from growing export sales to developing a bilateral power IR Detail of our transmission and distribution infrastructure is the same basis. import strategy to supplement capacity. Furthermore, a New set out on page 168 3. The weighted average cost is calculated on the total amount spent on energy, before the IFRS 16 lease adjustment. Target Target Target Target Actual Actual Actual The IPP OCGT peakers continue to contribute to system IPP operational capacities by type at 31 March 2023, MW Measure and unit 2026 2024 2023 met? 2023 2022 2021 stability to minimise or avoid loadshedding during periods 51 (1%) of generation capacity constraints. Utilisation of the peakers 500 (7%) Number of system minutes lost <1, minutesSC, 1 3.53 3.53 3.53 4.71 2.88 3.48 increased 22% year-on-year, to produce 1 098GWh (2022: Number of major incidents >1 minute, number 2 2 2 1 2 2 899GWh), while renewable IPPs provided 16 859GWh of 1 005 (14%) System average interruption duration index (SAIDI), non-dispatchable energy (2022: 15 073GWh) against a target 38.0 38.0 38.0 35.5 35.5 35.4 hoursSC of 19 399GWh. This, together with 2 627GWh from the 3 342 (47%) System average interruption frequency index (SAIFI), RMIPPPP programme that was not available, led to a shortfall 17.0 18.0 19.0 11.8 12.3 13.2 events of 5 167GWh for the year, which had to be made up through Restoration time, %2 91.8 91.3 90.0 92.2 93.4 92.5 the use of Eskom and IPP-owned OCGTs. Distribution energy losses, % SC 9.77 9.48 9.44 9.74 9.62 10.11 The IPP OCGT peakers recorded an annual load factor of 2 212 (31%) 1. One system minute is equivalent to interrupting the whole of South Africa at maximum demand for one minute. 12.5% (2022: 10.2%) against a contractual minimum obligation 2. Restoration time analyses the time it takes to restore supply during an unplanned outage by measuring the percentage of dispatched work orders where power is of 1%; renewable IPPs recorded an average load factor of 29.8% restored within 7.5 hours. (2022: 29.8%). Wind Concentrating solar power Solar PV Biomass, hydro and landfill Diesel Transmission system reliability performance has deteriorated Transmission is increasing the asset renewal investment IR Refer to "Our interaction with the environment - Investing since September 2022, with an abnormal number of progressively over a five-year period to the required in renewable energy" on page 124 for the breakdown of energy supplied by renewable IPPs interruptions occurring due to several factors: switchgear sustainability level to mitigate the risk of equipment failures. failures arising from frequent operation for loadshedding, The increased capital budget allocation will advance the control cable theft at substations, increased line faults, implementation of the 2022 Transmission Development Plan IPP capacity of 279MW of wind-based energy was commissioned CROSS-BORDER SALES AND PURCHASES OF protection maloperations as well as restoration delays. as well as asset renewal, which forms part of the Transmission during the year, against a target of 580MW for the RE-IPP ELECTRICITY The focus is on a review of maintenance practices given sustainability improvement initiatives. Transmission is targeting Programme and 1 733MW from other expected programmes. The Southern African Power Pool (SAPP) supports reliable loadshedding operating requirements, sustaining high levels the installation of 3 184km of high-voltage lines and 15 395MVA We expect 100MW of renewable capacity and 3 796 MW from and economical electricity supply to member countries by of maintenance execution, restoration response, line fault in transformer capacity over the next five years. The focus is on other programmes to be commissioned during the coming year. coordinating the planning and operation of the electric power reduction, as well as replacement of assets in poor condition. project development and expanding supplier capacity to enable system among member utilities. Nine of the 12 SAPP member The aim is to maintain system reliability below 3.53 system the delivery of the increased asset creation objectives. countries are interconnected. minutes lost per year over the medium term. Distribution network performance remained resilient despite INTERNATIONAL SALES AND PURCHASES The transmission network suffered a major incident increased levels of loadshedding, theft and vandalism, and interruption at a substation in October 2022 due to a surge notwithstanding capital constraints. Loadshedding has a Target Target Target Target Actual Actual Actual GWh 2026 2024 2023 met? 2023 2022 2021 arrestor failure, thereby impacting customers in Emalahleni. negative impact on the health and reliability of plant, due to Furthermore, the improvement in line fault performance increased duty cycles and associated switching currents, which International sales 31 661 10 673 11 306 11 437 13 298 13 497 attained in the first half of the year was eroded due to a lead to premature equipment failures. Although loadshedding International purchases 32 205 10 753 8 678 8 654 8 500 8 812 substantial increase in bird-related faults since October 2022, events are excluded from availability measures, failures outside to 2.70 faults per 100km (2022: 2.56). This is attributed the designated blocks are not excluded, thereby negatively Net (purchases)/sales (544) (80) 2 628 2 783 4 798 4 685 to changing rainfall patterns due to the La Niña weather impacting performance measures. Furthermore, not only 1. The 2026 target is the cumulative target over the next three years. phenomenon which increased bird-associated risks due to do theft, vandalism and overloaded equipment result in bird streamers as well as nesting on towers. The installation of interruptions, they also deplete resources at the expense of bird guards is being pursued in identified risk areas, resulting in funding required to attend to normal events. positive improvements. 108 109 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure continued There are ongoing concerns regarding network failures caused The business continues to focus on enhancing the restoration losses amounted to 19.2TWh for the year (2022: 19.8TWh), losses. Previously, non-technical losses were estimated to be by illegal connections, overloading of the network, theft and of supply process and feedback to customers using technology. continuing the reduction mainly in non-technical losses due to 30% of total losses while in the revised model, the non- vandalism of electrical equipment, as well as difficulty in restoring As envisaged, the rollout of upgraded enterprise digital our continued interventions. technical portion is estimated at almost 70%. power to unsafe areas. Despite these setbacks, operational assistant devices to field staff has contributed to productivity efficiencies and execution of the maintenance programme have and efficiency gains in scheduling and work order management. Network constraints and overloading contribute to technical As a result of the sustained high levels of non-technical losses, resulted in customers experiencing fewer incidences of supply losses on our ageing networks. To better manage technical innovative strategies are required to manage losses while interruptions and sustained network availability (after accounting In future, Distribution will focus on three areas of operations, losses, the impact of voltage and phase imbalances are ensuring financial sustainability. Distribution is executing its for loadshedding and major event exclusions per NERSA namely network or grid services, retail services and distribution evaluated to determine feeders where potential reductions in losses curtailment strategy through various initiatives to limit standards). However, significant grid investment is required to system operations with energy trading. technical losses may be achieved by investigating and correcting non-technical energy losses. These include carrying out meter sustain and improve network performance going forward. imbalances, among other initiatives. refurbishments and performing meter audits on all customer categories, installing smart and prepaid meters, as well as Theft of copper cable, overhead aluminium conductor as exploring options for a new vending platform and enhancing well as pylon tower members resulted in financial losses and controls around the platform. We also pursue legal action impacted operations. Effective risk management, intelligence against those who supply illegal prepaid meters or tokens. ENERGY WHEELING IN THE FUTURE gathering, stakeholder engagement and the deployment of The energy crisis has precipitated significant opportunities for customers, distributed energy resource (DERs) operators innovative security technologies are being pursued to mitigate DELIVERING CAPACITY EXPANSION and IPPs to establish power generation facilities of varying sizes. This shift will lead to further sales losses due to the security threats. A pilot project has yielded positive results. The We commenced our capacity expansion programme in reduction in volumes supplied by Eskom. Consequently, a new energy trading economy is emerging, and the distribution socio-economic challenges in the country contribute to the 2005 to increase installed generation capacity by 17 134MW grid will play a crucial role in facilitating it. increase in theft and vandalism of network equipment, illegal by building new power stations and reinstating mothballed connections and customers’ inability to pay for services, with stations. Furthermore, the programme aimed to strengthen The grid will provide traders, prosumers, DERs and IPPs with a means of transporting energy under their contracts conductor theft constituting the highest number of incidents. the transmission network, by building high-voltage power of sale. In exchange for this service, the distribution company will charge a system use or “wheeling” fee. Wheeling is The focus remains on proactive and effective risk management, lines totalling 9 756km and increasing transformer capacity by available on high-, medium- and low-voltage networks; it can be likened to a courier fee for transporting goods (in this intelligence gathering, stakeholder engagement, arrest and 42 470MVA. i case, energy) that do not belong to the transporter. successful prosecution, as well as the deployment of new technologies to help combat these incidents. Since inception to 31 March 2023, installed generation capacity The initiative is expected to be revenue-neutral, as it aims to provide the distribution business with a secure source has increased by 15 529MW, transmission lines by 8 548km and of income even as Eskom’s energy sales volumes decline. By offering wheeling services, the distribution company can Losses due to conductor theft, cabling and related equipment transmission substation capacity by 39 505MVA. The programme amounted to R197 million for the year (2022: R316 million), is expected to be completed by the 2028 financial year. generate revenue, while helping to facilitate the growth of a new energy trading economy. The final design of the arising from 2 522 incidents (2022: 3 226 incidents). We energy market depends on a number of factors, including the type of dispatch (centralised or decentralised), the pricing continue to collaborate with SOCs that are similarly affected, To date, the Medupi project has incurred capital expenditure structures used, and the regulatory frameworks in place, all of which will impact distribution wheeling. industry role players, the South African Police Service and the of R127.8 billion (2022: R125.4 billion) against the revised National Prosecuting Authority, to combat these losses. These approved value of R145 billion, excluding the cost of the flue Distribution already has a wheeling framework in place, but plans to refine and improve the framework and pricing actions led to 167 arrests (2022: 244). gas desulphurisation (FGD) retrofit at Medupi, estimated at a structure (subject to NERSA’s approval) to ensure that the distribution business revenue remains stable in future. further R38.4 billion. The Kusile project has incurred capital The cost of non-technical losses is estimated at R5 607 million expenditure of R150.8 billion to date (2022: R146.1 billion) (2022: R5 343 million) for the year, which has a significant against the revised approved value of R161.4 billion, including financial and operational impact on Eskom. The increase is due the FGD plant being installed during construction. These values Given the significant challenges in adequately balancing the The DDMP intends to achieve 1 450MW demand reduction to a revised model being applied to calculate non-technical exclude capitalised borrowing costs. national supply and demand of electricity, we are frequently capability through the demand-side management and demand forced to implement loadshedding to protect the power response interventions over the next three years. system. To mitigate these risks, we have launched the Distribution Demand Management Programme (DDMP) to ENERGY LOSSES AND EQUIPMENT THEFT Target Target Target Target Actual Actual Actual assist in this regard. Through the DDMP, the energy efficiency We experience both technical and non-technical losses on our Measure and unit 2026 2024 2023 met? 2023 2022 2021 demand-side management programme has been reactivated networks. Technical energy losses are an inherent consequence Generation capacity installed and commissioned and the demand response programme is being up expanded to 1 600 800 800 799 794 1 598 of electricity network operation, arising from power flows (commercial operation), MWSC include mid-segment customers and residential smart metering. through equipment such as cables, overhead lines, transformers Transmission lines installed, kmSC 841.0 166.0 140.0 326.1 180.5 65.6 and substation equipment used to transfer electricity. The role of demand-side management is to influence the Transmission transformer capacity installed and 6 790 160 – n/a – 1 065 750 electricity demand profiles of end-use customers for the Transmission lines experience energy lost as heat when commissioned, MVA SC, 1 benefit of local, regional and national power system needs. electricity is transmitted, which is classified as technical losses. 1. No target was set for transformer capacity for the 2023 financial year due to the unavailability of the local factory, and the long lead times associated with Demand response provides the System Operator with Distribution lines also experience technical losses, together procurement overseas. flexibility and reliability to maintain adequate daily operating with non-technical losses in the form of electricity theft, illegal 2. The 2026 target is the cumulative capacity or lines to be commissioned and/or installed over the next three years. reserve margins to cater for unforeseen circumstances that connections, tampering and bypassing of electricity meters, as could affect the stability of supply. well as the purchase of electricity tokens from unregistered or illegal vendors. Non-technical losses account for approximately Kusile Unit 4 achieved commercial operation on 31 May 2022, expectation, despite not operating at full capacity until a The intended benefits of the DDMP are to: 70% of total losses, and include meter reading and billing errors. earlier than the scheduled date of January 2023, following first permanent solution is implemented, as indicated earlier. • Reduce the usage of expensive OCGTs, especially during synchronisation of the unit to the grid on 23 December 2021; evening peak times Energy losses on our networks have increased to 11.76% the unit was successfully handed over to Generation to form Transmission lines installed by far exceeded the target, due to • Minimise the impact of loadshedding overall (2022: 11.43%), with 9.74% relating to the distribution part of the commercial fleet. Although the final rated capacity excellent contractor performance on the Namaqualand Juno- • Optimise the national system profile through load environment (2022: 9.62%) and 2.32% to transmission lines of the unit is 1MW lower than planned, the unit is considered Gromis line. Furthermore, construction was completed on a management/peak clipping and energy efficiency measures (2022: 2.31%). Nevertheless, the level of distribution losses to have been delivered in line with the shareholder compact number of projects, with minor works in progress. is low in comparison to other prominent African economies, • Create system flexibility and provide additional reliability where figures range from 20%–30%. Distribution energy services to the Transmission System Operator 110 111 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure continued Group funded capital expenditure (excluding capitalised borrowing costs) per division Since inception, the completed interventions to correct the The forecast for the completion of the first phase of the major plant defects have resulted in a steady improvement in effective correction of the major plant defects at Medupi Target Target Target Actual Actual Actual the availability and reliability of units at Medupi and Kusile. At and Kusile is December 2023, mainly to make provision for Division, R million 2026 2024 2023 2023 2022 2021 Medupi, the EAF is at 85%, measured over 12 months (excluding the Medupi milling plant rollout. Additional plant defect Generation 80 902 29 528 19 929 24 517 22 093 17 823 the impact of Unit 4 that is offline for turbine repairs following corrections, undertaken by Eskom with or without third party Transmission 34 792 5 960 4 666 3 543 3 028 1 866 the incident in August 2021). This is an improvement of at least involvement, is forecast for completion after 2027, depending Distribution 14 498 2 297 2 636 2 603 2 433 2 388 20% since the effective correction of the major plant defects, on the extent of technical solutions and outage availability. with some units running close to full load. Subtotal 130 192 37 785 27 231 30 663 27 554 22 077 The latest total estimated cost for the defects correction Future fuel (coal and nuclear) 13 291 3 227 1 515 2 861 2 418 1 495 A major defect correction programme was established in of all Medupi and Kusile units, based on the best available Other areas including subsidiaries and intergroup eliminations 7 491 2 246 1 590 425 251 374 collaboration with the original boiler contractor, Mitsubishi information, ranges from R3.7 billion to R5.3 billion, excluding Heavy Industries (MHI), to test, develop and implement Eskom costs for DCS defects correction. The cost of executing Total Eskom group funded capital expenditure1 150 974 43 258 30 336 33 949 30 223 23 946 technical solutions at all the Medupi and Kusile units. Medupi the major defects correction plan is managed within the 1. Capital expenditure includes additions to property, plant and equipment, intangible assets and future fuel, but excludes strategic spares, construction stock and Unit 3 was used as a pilot for the initial implementation of boiler Board-approved Medupi and Kusile project budgets. The capitalised borrowing costs. Figures noted above are based on internal reporting, and do not necessarily align to the IFRS movement on property, plant and modification solutions that required an extended unit outage for liable parties/contractors will be held to account within the equipment as disclosed in the annual financial statements. execution. The major plant defect modifications required unit provisions of the relevant contracts and will be fully responsible 2. The 2026 target is the cumulative capital expenditure targeted over the next three years. An amount of R43.3 billion is targeted in 2024, with R47.6 billion in 2025 and R60.1 billion in 2026. outages of 75 days on average to allow the engineering teams to for the related major plant defect costs once liability has been implement the plant modifications safely without interruption. determined. Eskom has incurred R417 million on correcting boiler plant defects at Medupi and Kusile, which is being funded Capital expenditure for the period was R3.6 billion higher At Kusile Unit 5, seven key commissioning milestones have Rollout of the major boiler plant defect solutions for Medupi from operational maintenance expenditure. than budget. The Generation overspend relates mainly to been achieved successfully to support first synchronisation and Kusile, agreed with the contractor in 2020, have been the battery energy storage systems project, which was not of the unit. However, the gas air heater (GAH) fire incident completed. At Medupi, the gas air heater (GAH), pulse jet OTHER PROJECTS originally budgeted to commence in the 2023 financial year, as on 17 September 2022 resulted in a discontinuation of fabric filter (PJFF) and milling plant modifications by the boiler contractor have been implemented on all six units, DEDICATED RAILWAY FOR RAILING COAL TO well as higher than expected spend on outages, critical spares all commissioning activities, negatively impacting the MAJUBA POWER STATION and refurbishment projects to address poor plant performance. commissioning schedule by about a year. Detailed inspections except for the long-lead milling modifications done during mill rebuild outages, with 22 of 30 completed. At Kusile, GAH, The coal tippler facility at Majuba Power Station has been The future fuel overspend relates to deferral from the previous revealed that the fire had damaged about 25% of the GAH commissioned and is scaling up deliveries, with two trains year of projects at Matla and Kriel power stations. rotor heat transfer packs. The GAH OEM was contracted to PJFF and milling plant modifications have been completed on Units 1 to 5. Modifications on Unit 6 are being rolled out delivering 8 400 tons each day, the equivalent of 247 road assist with identifying the root cause and to repair the GAH. truckloads. Generation is in the process of repairing the during construction before commercial operation. Additional MEDUPI AND KUSILE PROJECT PERFORMANCE vandalised overhead traction equipment (OHTE) on the To date, the OEM has completed various tests and modifications on the GAH and PJFF are being developed to At Medupi, five units are in full commercial operation, connected Palmford rail line, whereafter the number of trains can be measurements, and removed the burnt material and opposite further increase the plant performance. and supplying energy to the national grid, with Unit 4 expected increased to six trains per day. Construction work on the to be offline until the second quarter of the 2025 financial year, element packs to maintain the balance of the GAH rotor. The yard automation was completed in November 2022 and the replacement phase involves cutting out the damaged rotor Further technical discussions on improving solutions to all following the generator explosion in August 2021. The sixth and yard automation was energised and the line commissioned on sections and welding in new sections, which will be followed plant areas agreed between Eskom and MHI management are last unit achieved commercial operation on 31 July 2021. The 12 April 2023. by the reinstatement of the element packs and associated progressing well, with seven additional solutions for testing on focus is on completing the remaining balance of plant (outside auxiliaries. Given the delays, first synchronisation of the unit the gas air heater formulated and planned for evaluation. Rollout plant) scope of works, remedial works, the resolution of claims Site infrastructure vandalism by criminal elements continues, is forecast for November 2023, with commercial operation of the solutions will commence after successful evaluation. and project close-out. although Eskom security mitigation measures are in place to expected by May 2024. prevent this vandalism. The implementation of upgrades and hardware modifications Kusile is fitted with wet FGD technology plant as an Steady progress has been made in executing the commissioning of the distributed control system (DCS) on Medupi Units 4 atmospheric emission abatement technology to make it more Due to delays caused by infrastructure vandalism, the Board- activities on Unit 6. Four key commissioning milestones have to 6 and balance of plant by Eskom and General Electric have environmentally responsible. The FGD plant removes oxides approved commercial operation date of the project is now been achieved successfully to support first synchronisation of sufficiently resolved the repeated card failures defect. of sulphur, in line with current international practice, to ensure March 2024, from the original target date of December 2022. compliance with air quality standards. the unit. However, schedule slippage has been experienced due to the long lead-time for spares ordering and delivery from At Kusile, four units have achieved commercial operation. Mitsubishi Heavy Industries (MHI). Treatment actions are in However, Units 1 to 3 are offline due to the flue gas duct place to deal with these challenges. Commercial operation of failure in October 2022; Unit 4 is the only unit online. Unit 6 is forecast for February 2025. Optimisation of the FGD plant to support Unit 4 was completed in February 2023, although the unit will not operate The target for full project completion of Kusile is May 2027. at full capacity until a permanent solution is implemented. CORRECTING MAJOR DESIGN AND Units 1 to 3 have been offline since 23 October 2022, following CONSTRUCTION DEFECTS AT MEDUPI the failure of the flue gas duct that supports the three units and AND KUSILE is part of the west chimney stack. We continue to track a number of major defects at both Medupi and Kusile. The effective correction of the major plant defects will IR Refer to “Generation performance – Unplanned losses” on ensure that the units achieve contractual levels of performance. page 103 for a discussion of the repairs 112 113 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our infrastructure continued BATTERY ENERGY STORAGE SYSTEMS (BESS) The current approved project cost/execution release approval to operate at minimum generation levels has not been easily REMOTELY PILOTED AIRCRAFT SYSTEMS (RPAS) The distributed battery storage project supports (ERA) for wet FGD, approved in 2018, is R38.4 billion, excluding obtainable, however, the remainder of the coal-fired fleet is RPAS (drones) can be used for power line inspection in transformational aspects by demonstrating large-scale interest during construction (IDC). However, the 2018 wet FGD scheduled for assessment during the 2024 financial year. conjunction with traditional inspection methods. Twelve RPAS deployment in support of the South African renewable energy cost will be revised and updated after conclusion of the RFP to can conduct inspections equivalent to that by one helicopter, strategy and addresses local system challenges. The project is cater for escalations and market dynamics. CONTAINERISED MICROGRIDS thereby lowering the cost of these inspections. The units can co-financed by the World Bank, New Development Bank and The project entails the deployment of smart microgrid solutions also be used for sinkhole monitoring where ground-based African Development Bank. The World Bank loan facility was The 2018 approval indicated full project completion by which are quickly deployable, require low maintenance and patrols cannot easily obtain access, as well as for fault finding extended to December 2023, due to Eskom demonstrating March 2031. However, the latest proposed schedule, pending are self-sustaining at the lowest cost possible. These are smart and conductor inspection. commitment and good progress towards project execution. Board approval, indicates a forecast date for first unit CO rural microgrids with battery, PV and inverter technology during the second half of 2027 and final unit CO during the for the supply and storage of electricity. The work is being The research work on RPAS line inspection demonstrated a The contracts for the first three packages under the 800MWh latter half of 2029, with full project completion targeted for integrated with the Komati repurposing initiatives to commission cost saving compared to ground-based inspection operations. Phase 1 were signed in May and June 2022. Construction March 2032. However, the project schedule is highly dependent a microgrid assembly line on site. For the year, Distribution RT&D is continuing with the research on RPAS focusing on data activities at Pongola and Elandskop began in September and on the technology chosen after the anticipated RFP process, installed 21 containerised microgrids. A total of 216 microgrid analytics. However, RPAS inspections have their limitations, such October 2022 respectively, and at Hex in November 2022. and the power station outage plan. installations are targeted over the next five years. as being unable to detect certain issues that require closer visual Construction at Hex was completed in June 2023, with inspection, such as damaged hardware or worn-out nuts and completion of Elandskop and Pongola targeted for the third The World Bank approved the extension of the Medupi CRITICAL PEAK DAY PRICING (CPDP) bolts that need to be tightened, which can lead to failure and quarter of the 2024 financial year. Construction at Skaapvlei, FGD implementation deadline from 30 June 2025 to The proposed solution targets the curtailment of demand outages. As a result, a combination of RPAS and foot patrols by Graafwater and Paleisheuwel commenced during October 2023. 30 June 2027 and has also been sensitised to the revised date through critical peak day pricing. The benefit to Eskom is an initial existing staff will be necessary to ensure that all components are of February 2030. Updates are submitted to the World Bank reduction of 50MW, with the potential for greater reduction in inspected, and that the line inspection standard is met. The tender for the last package closed in September 2023 and on a regular basis. future. A pilot study has been concluded and analysis of the data bid evaluations have commenced. Since Package 4’s forecast is in progress to inform the way forward. completion of December 2023 is beyond the loan facility Meeting the atmospheric emission license (AEL) conditions and date of June 2023, the World Bank will not fully fund this lender timelines remains at high risk. We continue to engage package; however, the New Development Bank and African with the DFFE, DPE, DMRE and other stakeholders in respect Development Bank will fund the shortfall. of a possible extension. FUTURE FOCUS AREAS Concluding the cross-border bilateral power import Continuing to execute the legal separation programme programme, to increase exports and grow revenue The NERSA licences for the Phase 1 packages have been RT&D PROJECTS in Transmission, Distribution and Generation, focusing and profitability by retaining and increasing profitable awarded. The Research, Testing & Development (RT&D) Department is on legal, regulatory and policy issues electricity exports to neighbouring countries focused on operational recovery of our three line divisions in Phase 2 at Distribution substations is on hold, due to the the short term. In the medium term, the strategy seeks to assist Pursuing additional dispatchable generation capacity Improving transmission system reliability and suspension of funding for new capital projects as part of the business in transitioning away from coal, and in the long of 4 000MW–6 000MW to support the stability of the reducing line faults, while executing the Transmission Government’s debt relief conditions. However, the Komati term, to assist the business in being a leading clean and green power system, create space for reliability maintenance Development Plan and Transmission sustainability PV and BESS projects of 600MWh will continue, as there is energy company to enable competitiveness, sustainability, and reduce the need for loadshedding improvement initiatives approved funding and financing for Komati. profitability and new growth areas. Driving execution of the refocused Generation recovery Prioritising investment in distribution network plan to recover plant performance over the medium to infrastructure and executing maintenance and MEDUPI FGD RETROFIT Progress on some of our high priority projects is set out below. long term operational plans to ensure the sustainability of network performance and available capacity in future years, to The initial business case for Medupi Power Station was approved Successfully executing the Koeberg steam generator COAL SULPHUR REDUCTION enable indiscriminate grid access to embedded IPPs and based on a commitment to install six units of fully operational FGD replacement outages and the LTO project to extend the Testing of raw coal samples utilising an X-ray transmission other energy resources to facilitate energy exchange in equipment, to be retrofitted within six years of commissioning life of the station sorting technique was conducted on coal from two sources, the evolving energy market each unit during general overhaul outages. Ensuring improved environmental performance, one from Medupi and another from Mpumalanga. Both samples with specific focus on water use, emissions and Installing smart meters for all new customer connections Implementing the proposed FGD project supports: tested have produced promising conceptual results, in terms of environmental legal contraventions and converting existing small power meters to smart pyrite sulphur reduction and minimal yield loss. The successful meters, to enable customers to manage consumption and • Eskom’s air quality strategy to reduce environmental Using generating plant approaching end-of-life to lead completion of the conceptual phase recommends more support the business in reducing energy losses emissions as well as compliance with atmospheric emissions the Just Energy Transition (JET), using repurposing and detailed assessment of representative samples to support a Driving demand-side management initiatives to support standards repowering as an alternative to full decommissioning of business case to demonstrate the technology application. power station sites. Thereafter, JET will be used as the the constrained power system • The conditions of the lenders linked to the Medupi loan agreement of 2010 key enabler to set the course for a Generation of the Completing the Medupi and Kusile power stations UTILISATION OF COAL FINES future in line with the approved Corporate Plan within the Board-approved revised full project Given the risks associated with the preferred strategy of being A contract was placed in December 2022 with a supplier to completion dates of the 2026 and 2028 financial years Contracting additional capacity under the Emergency technology agnostic, the market will be approached using a compress coal fines into briquettes and supply it to Eskom for a respectively, together with effectively correcting all Generation and Standard Offer programmes, and single-stage procurement strategy with a main option of wet FGD. full-scale plant demonstration of co-firing. The processing of the major plant defects on new units at Medupi and Kusile developing other programmes to alleviate short-term The contracting strategy of a single Engineering, Procurement 25kt sample will be done by mini-batch production, with supply of to enable technically acceptable new plant performance capacity constraints and Construction (EPC) contract remains the same as previously the full volume expected during the 2024 financial year, after which Effectively executing the Generation emission-control full-scale testing will commence. Facilitating financial and legal close for projects in the approved. This allows for technology and project execution risk and technical plan projects Risk Mitigation IPP Procurement Programme and bid allocation or transfer to the EPC contractor. Driving completion of the battery energy storage windows 5 and 6 of the RE-IPP Programme FLEXIBILITY OF COAL-FIRED UNITS (1 440MWh of storage capacity), subject to funding The change in strategy was conditionally approved by IFC The baseline testing of existing coal-fired units to benchmark Supporting DMRE’s IPP Office to execute additional programmes such as the battery storage programme constraints given the debt relief conditions, and Medupi in March 2023, pending confirmation of funding availability. minimum generation and ramp-rates to accommodate FGD projects The request for proposal will be issued to the market by renewable energy penetration is critical. To this end, Medupi and bid window 7 of the RE-IPP Programme December 2023, whereafter tender evaluations will commence. Unit 1, Duhva Unit 5, Kusile Unit 3 and Kriel Unit 6 have been evaluated. Given the constrained state of the system, approval 114 115 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our interaction with the environment VALUE CREATED Coal optimisation savings in support Distribution Division has converted The Birdlife Science and Innovation of the turnaround plan exceeded 4 303 poles to bird-friendly poles Programme continued a variety of the target (target of 2 190) conservation projects sponsored by Eskom and other sponsors VALUE PRESERVED VALUE ERODED Criminal charges related to Kendal Power Station’s The year-on-year coal unit cost increase performed High coal demand from more expensive power particulate emissions remain, with preparation within target stations due to generation performance challenges ongoing for postponed court proceedings Eskom’s CO2 emissions declined by 9.5% from 2022 in Reduction in production at certain cost-plus mines Environmental legal contraventions and failure of line with the decline in EAF, dipping to below 200Mt due to delays in capital expansion projects and business systems far exceeded internal tolerance for the year for the first time since 2004, after peaking production challenges levels, with most related to water and air quality around 233Mt in 2014 regulations Lack of new mining investment and execution of The water consumption target for the year was achieved current mining rights, with minimal funding for Open and overdue actions for environmental carbon-intensive technology, thereby signalling compliance notices received from the authorities, No environmental legal contravention incidents reported disinvestment by multinationals in the South African together with incidents recorded, continue to place in Distribution and Transmission divisions for the year. coal industry Eskom at risk for criminal sanction Transmission recorded no legal contravention incidents for the last five years Recorded the worst relative emissions performance for local air pollutants since 1995 Transmission and Eskom Rotek Industries have successfully phased out polychlorinated biphenyl– containing equipment and materials (PCBs) ahead of the global phase-out date of 31 December 2023. Eskom Rotek Industries has been PCB free since 2011 As an electricity utility, the focus is on effective SECURING OUR RESOURCE REQUIREMENTS The volumes and value of coal purchased over the past year environmental management and compliance. We are We mainly use coal, nuclear fuel, fuel oil, diesel and water as were made up as follows: also conscious of the need to diversify our energy mix in primary energy to generate electricity. We have to source, terms of the resources that we use to meet supply, as well procure and deliver these resources to our power stations in Coal volumes Value of coal purchased as the related technologies that are being deployed, the the necessary amounts, at the required quality, at the right time waste and emissions that we discharge, and the impact and at optimal cost. of our operations on the communities surrounding our 29% infrastructure. Not least, “environmental” encompasses SECURING OUR COAL REQUIREMENTS 34% 36% our carbon emissions as well as taking the lead in climate COAL SUPPLY STRATEGY change initiatives and ensuring that we manage risk and As one of the most significant items on the income statement 42% our ability to recover from disaster incidents. and given that our generation capacity is still fossil fuel–driven, coal management – in terms of an affordable price, sufficient We have initiatives in place to reduce our environmental volumes and appropriate quality – are key focus areas that footprint in several areas, such as projects to reduce particulate influence both our financial and operational sustainability. Our emissions; less efficient units being taken out of service Primary Energy Department is engaging mines to ensure that when possible to reduce water use; and utilising dry-cooled delivery and assurance controls are in place to ensure the technology in our newer coal-fired stations, namely Matimba, correct quality and quantity of coal is delivered to the power 30% 29% Kendal, half of Majuba, Medupi and Kusile. To improve air station fleet. Cost-plus Fixed-price quality, units at Medupi and Kusile are commissioned with Cost-plus Fixed-price fabric filter plants to reduce particulates, as well as low Our long-term coal strategy favours dedicated long-term coal Short-/medium-term contracts Short-/medium-term contracts NO x technology to reduce NO x emissions. Kusile is also contracts with coal delivered by conveyor, which must also take commissioned with flue gas desulphurisation (FGD) technology the quality specification of coal for the various power stations to reduce SO2, while Medupi will be retrofitted with FGD after into account and be aligned with the 2035 station shutdown plan. completion. Koeberg Nuclear Power Station uses very little fresh water, and nuclear is considered a low-carbon technology. 116 117 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our interaction with the environment continued We continued the move away from more expensive short- and Coal quality The average coal purchase price increase was mainly due to We will continue to engage the Department of Water and medium-term contracts to cost-plus and long-term fixed-price Coal-related load losses accounted for 0.73% OCLF for contractual price escalations, largely linked to double-digit Sanitation (DWS) and Rand Water on options to meet and contracts. This resulted in the year-on-year increase in the the year (2022: 0.64%), due to factors such as poor quality increases in mining input costs due to higher diesel costs secure water requirements for: average cost per ton of coal being limited to 9.2% (2022: 2.1%). coal from cost-plus mines or coal contaminated by stones, and the weakening currency. Coal stock days have declined • Long-term water security including the implementation combined with heavy rainfall in the Mpumalanga region during due to lower than planned deliveries from short- and of bulk water supply infrastructure such as the Lesotho Our top 10 coal suppliers are set out below. There is one new the final quarter of the year. Matla contributed 74% of the total medium-term contracts which can be attributed to supplier Highlands Water Project Phase 2 and the Mokolo Crocodile entrant to the list since last year. coal-related losses, while Camden and Majuba contributed underperformance and logistics challenges. Water Augmentation Project Phase 2 another 12% and 8% respectively. • Existing and new power generation, including renewables, Supplier Contract type At year end, six power stations – Arnot, Camden, Hendrina, hydro and gas-fired power stations requiring water-use Initiatives such as verification sampling and coal contamination Grootvlei, Kriel and Tutuka – had stock below their individual Exxaro Coal Mix of cost-plus and fixed-price licences and allocations monitoring have led to an improvement in coal quality, minimum stockholding levels (2022: two). This was mainly Seriti Coal Mix of cost-plus and fixed-price • Emissions abatement technologies requiring water, including specifically for short- and medium-term suppliers across the due to higher coal burn than planned; lower than anticipated Universal Coal Fixed-price flue gas desulphurisation (FGD) retrofits system. We keep working with coal suppliers to reduce coal- rail deliveries due to poor Transnet Freight Rail (TFR) rail Wescoal Fixed-price • Water supply asset lifecycle management to improve related losses. In the long term, the goal remains determining performance; undersupply from existing suppliers due Glencore Fixed-price plant performance, to ensure that the network of water coal quality at the point of delivery. to stoppages brought on by high rainfall in January and HCI Coal Fixed-price infrastructure and inter-basin transfer infrastructure and February 2023; and community protest action around the Mbuyelo Fixed-price assets are adequately operated and maintained to meet our Investment in cost-plus mines Delmas area, which negatively impacted coal deliveries in the African Exploration Mining daily water needs and maintain the long-term assurance of Fixed-price Where necessary, we will invest in cost-plus mines to support last quarter. and Finance Corporation supply level at 99.5% achievement of contractual supply, to ensure optimal cost of Mwelase Mining Fixed-price coal and security of coal supply from dedicated coal resources. IMPLEMENTING COAL HAULAGE AND THE • Water supply contract renewals to meet the end-of-life of Sudor Coal (new) Fixed-price We will only consider recapitalising mines where long-term existing power stations ROAD-TO-RAIL MIGRATION PLAN benefits can be demonstrated through increased volumes Three power stations are partially supplied by coal on rail, • Repurposing of decommissioned power stations and the Just Under our long-term coal procurement strategy, we issued of acceptable quality coal, thereby limiting the amount of Energy Transition, including the tied coal mines namely Majuba, Tutuka and Grootvlei. requests for proposal (RFPs) to the market for supply to Arnot, coal required on more expensive short- and medium-term • Optimisation of the variable water costs and water quality Camden, Duvha, Kriel, Kusile, Matla and Tutuka, with some contracts. We were unable to achieve the shareholder target for coal from multiple sources within the annual operating rules set contracts being awarded. Implementation of the long-term delivered by rail, due to several factors: by DWS strategy is progressing, with coal requirements largely secured Negotiations on the extension of existing cost-plus agreements • At Majuba, rail capacity was reduced from six to three trains • Climate change adaptation and risk for the next 18 to 24 months. The shortfall, considering for Lethabo, Kendal, Matla and Tutuka continue. updates to both supply and demand, has been reduced to per day due to vandalism and cable theft on the railway line • Drought risk mitigation projects 0.7 billion tons of uncontracted coal to cover the projected supplying Majuba, necessitating the use of diesel locomotives. However, the weekly delivery performance has not yet Total water usage is expected to decrease over the next remaining life of all coal-fired power stations. reached 21 trains per week. Majuba received 14 to 17 trains decade and beyond as wet-cooled coal-fired power stations per week on average shut down, the dispatch of dry-cooled stations increases, and TECHNICAL PERFORMANCE • Due to low coal demand at Tutuka, the tied colliery can the transition towards renewable, nuclear and gas energy meet the station’s coal demand via conveyor, resulting in no supply takes place. An overall decrease in water use is Target Target Target Target Actual Actual Actual rail deliveries to Tutuka since May 2022 projected in line with the decommissioning plans of coal- Measure and unit 2026 2024 2023 met? 2023 2022 2021 fired power stations. However, the retrofitting of emissions • Grootvlei has received no deliveries by rail since April 2022, abatement technology will increase the water use of the Coal burnt, Mt1 n/a 99.52 101.96 n/a 102.38 110.30 104.87 as TFR failed to appoint a new offloading contractor after remaining coal fleet. We have provided water demand inputs Coal purchased, Mt n/a 106.08 102.30 n/a 98.42 108.70 109.96 expiry of the previous contract on 31 March 2022 to DWS to allow for its water catchment planning and water Coal purchase R/ton, % increaseSC 10.0 10.0 10.0 9.2 2.1 3.0 reallocation strategy. These water scenarios will be updated Coal stock days 92 96 79 65 76 82 Rail operations to Arnot Power Station were planned to start when needed. during the financial year. However, additional repair work is Normalised coal stock days, budgeted standard 31 31 31 29 42 50 required on the Eskom portion of the rail line leading to the daily burn2 As our water use decreases into the future, the unit cost of power station. The station is busy with the commercial process water may increase due to the fixed costs of managing the Road-to-rail migration (additional tonnage transported to appoint a contractor to assist with the repairs. n/a n/a 4.7 2.5 2.5 3.6 water supply infrastructure. on rail), Mt SC, 3 Regrettably, coal haulage by road resulted in one public fatality 1. From 1 April 2022, pre-commissioning burn is no longer capitalised to the asset and instead recognised in primary energy cost. However, pre-commissioning burn For a discussion of our water usage, refer to “Reducing during the year (2022: 20), and no contractor fatalities were IR is still excluded from the figures reported above. The current year coal burnt figure excludes 492kt burnt during the commissioning of Kusile Unit 4 (2022: 811kt). water consumption” on page 123 in this section 2. Normalised coal stock days exclude coal at Medupi. recorded (2022: three). Given the impact of our coal haulage 3. The road-to-rail target indicates the amount of coal to be transported by rail for the year. Given the poor performance of the rail network, the shareholder has operations on road safety and road conditions, we continue to decided to no longer target this as a shareholder compact KPI, starting from the 2024 financial year. promote road safety and participate in road safety awareness The Integrated Vaal River System (IVRS) storage was above 4. Future targets shown as n/a are dependent on system requirements. campaigns in collaboration with the Mpumalanga government. 100% at 27 March 2023 (28 March 2022: 100.8%). The IVRS level continues to remain high due to good rainfall in the SECURING OUR WATER REQUIREMENTS catchment areas, but it is likely to remain in deficit until Phase 2 Coal generation, as well as nuclear, gas, hydro and renewables of the Lesotho Highlands Water Project is commissioned by will continue to be reliant on a high assurance of water supply, 2027. The project was officially launched in May 2023, and high availability of water infrastructure and appropriate quality construction of the Polihali Dam is under way. Other initiatives of water to maintain security of supply. Existing water supply such as water conservation and water demand management agreements ensure security of supply to existing coal-fired are required to mitigate against future water security risks in generation power stations. These agreements, where required, the IVRS. will be modified or renewed in accordance with the lifespan of our power stations. 118 119 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our interaction with the environment continued The Mokolo River System supplies raw water to Matimba and The recent threat to Westinghouse’s ability to supply nuclear NEMA section 30 incidents) to the authorities. A total of 71 In the past, we committed to retrofitting several power stations Medupi power stations. The Mokolo Dam level stood at 101.5% fuel for use at Koeberg from the USA to South Africa via section 30 incidents were reported during the year (2022: 76). with emission reduction technologies, such as fabric filter plant at 27 March 2023 (2022: 100.8%). Therefore, the likelihood Sweden has been negated by the reissuing of the licence to (FFP), low NOx burners and/or FGD, to reduce emissions under of water curtailments to Eskom remains low, although the Westinghouse by the US Nuclear Regulatory Commission. It is estimated that all coal-fired units have operated in postponement applications granted by the then Department risk remains until the Mokolo Crocodile Water Augmentation non-compliance with their allowable daily particulate matter of Environmental Affairs. Full compliance with the new plant Project Phase 2A is commissioned. The project will augment emission limits on 1 109 operating days (for all units) combined standards would cost in the region of approximately R340 billion, AFS For further information on nuclear fuel balances, refer to water supply to Lephalale, as well as to Matimba and Medupi note 10 on future fuel supplies and note 13 on inventories in during the year (2022: 174 days). The substantial increase is which Eskom, and the country, simply cannot afford, given the lack and Exxaro’s Grootegeluk mine. The earliest water delivery the consolidated annual financial statements due to deteriorating plant performance at multiple stations, of appetite for funding of coal-based technologies and Eskom’s date from MCWAP Phase 2A remains October 2028 due to especially Kendal, as well as system constraints, which forced existing debt burden and reliance on Government support. delays in securing project funding and subsequent procurement stations to choose between running units to meet demand and delays by DWS. At this stage, the delay is not expected to REDUCING OUR ENVIRONMENTAL thereby reduce loadshedding, or operating in compliance with Our revised Emission Reduction Plan confirms that we will affect the Medupi FGD project, which is also delayed. FOOTPRINT particulate matter emission limits. focus on emission reduction projects in respect of particulate We measure our environmental performance through a matter at seven power stations (Kendal, Matimba, Lethabo, SECURING OUR NUCLEAR FUEL REQUIREMENTS number of KPIs, including relative particulate emissions, Kendal operated in non-compliance with its daily limit on Tutuka, Duvha, Matla and Kriel); nitrogen oxide reduction Existing contracts with Westinghouse and Framatome for the atmospheric emission licence compliance, specific water 733 operating days (for all units) in the year, primarily due to projects at three stations (Majuba, Lethabo and Tutuka); supply of nuclear fuel fabrication services and the delivery of consumption and the number of reported legal contravention dust handling plant challenges, which cause the electrostatic and sulphur dioxide reduction at Medupi and Kusile. The fabricated nuclear fuel are sufficient to meet Koeberg’s nuclear incidents as a result of significant failures of business systems, precipitators to operate at reduced efficiency, resulting in emission projects are undertaken in the context of the 2035 fuel demand until 2025. We also hold contracts valid until 2028 and red data bird mortalities on our infrastructure. more particulate matter being emitted. Tutuka operated in strategy and existing JET plans which will see the shutdown for the supply of enriched uranium product, which is used in non-compliance on 191 operating days due to multiple unit of nine stations by 2035 with a reduction in total emission nuclear fuel fabrication. Refer to page 170 for information on the environmental shutdown and startups, with the limited availability of spares load, supporting a Just Energy Transition; it should be noted IR affecting the ability to complete the required maintenance on that these plans are under review, given the response to the implications of using or saving electricity the emission control plant. Matla operated in non-compliance electricity crisis. We will also continue to implement the air on 74 operating days: the station has struggled with poor coal quality offset programme. quality, dust handling plant issues and an unreliable slurry/ash Target Target Target Target Actual Actual Actual removal plant. Kriel has a monthly emission average which was Eskom applied to the Department of Forestry, Fisheries and the Measure and unit 2026 2024 2023 met? 2023 2022 2021 exceeded for three months, resulting in 72 days of operation Environment (DFFE) in August 2020 for suspension, alternative Relative particulate emissions, kg/MWh sent out SC 0.26 0.30 0.30 0.70 0.34 0.38 in non-compliance to an indicative daily limit. Kriel also had limits and/or postponement under the Minimum Emission Atmospheric emission licence (AEL) compliance, % SC 93.00 91.00 90.00 87.40 89.00 n/a a damaged ash conveyor which caused ash backlogs in the Standards (MES). We received a decision in November 2021 dust handling plant. Duvha operated in non-compliance on which, if implemented, would result in the closure of power Specific water consumption, ℓ/kWh sent out SC, 1 1.36 1.38 1.39 1.39 1.45 1.42 19 operating days, Matimba on 12 operating days, and Lethabo stations and an equivalent loss of capacity of 16 000MW Net raw water consumption, Mℓ n/a n/a n/a n/a 256 430 283 610 270 736 on 8 operating days. immediately and a further 10 000MW after 2025. This lost Environmental legal contraventions reported as a result of capacity cannot be supplied by the remaining fleet, requiring an 1 1 1 10 7 7 At year end, 13 coal-fired units were operating in non- unsustainable increase in loadshedding. significant failure of business systems, number2 compliance with indicative average monthly particle matter Carbon dioxide (CO2), Mt 3 n/a n/a n/a n/a 187.5 207.2 206.8 emissions limits (2022: eight units), placing 7 691MW at risk We submitted an appeal to the authorities in December 2021 Nitrous oxide (N2O), t4 n/a n/a n/a n/a 1 438 1 561 1 527 of censure or closure by the authorities (2022: 4 766MW). for those stations that received unfavourable decisions, Methane (CH4), t n/a n/a n/a n/a 1 483 1 466 1 442 Some notable reasons for operating in non-compliance were requesting the Minister of DFFE to consider our motivation Carbon dioxide equivalent (CO2e), Mt 3 n/a n/a n/a n/a 187.9 207.7 207.3 malfunctions at the dust handling, slurry and ash plants, as well for a balanced and sustainable way forward. In March 2022, Sulphur dioxide (SO2), kt 3 n/a n/a n/a n/a 1 449 1 671 1 604 as excessive emission exceedances during unit start-ups. the Minister agreed to invoke a consultative process in Nitrogen oxide (NO x as NO2), kt4 n/a n/a n/a n/a 743 822 804 accordance with the provisions of section 3A of the National Particulate emissions, kt n/a n/a n/a n/a 129.32 66.65 71.35 In the prior year, we developed a new KPI for inclusion in Environmental Management Act, 1998, allowing all appellants, the 2023 shareholder compact to track AEL compliance in stakeholders and interested and affected parties to participate. 1. Relative particulate emissions values and specific water consumption include Medupi Units 2, 3, 4, 5 and 6 as well as Kusile Units 1 and 2. Units are only included one year after achieving commercial operation, therefore Kusile Unit 4 is still excluded. Kusile Unit 3 has been included since 1 April 2022 and Medupi Unit 1 since terms of (i) average emission limit compliance; (ii) number of The Minister also established a National Environmental 1 August 2022 when the units became official. NEMA section 30 submissions; (iii) emission monitor status; Consultative and Advisory Forum to review the MES decisions 2. These relate to specific cases of environmental legal contravention incidents that are of very high significance in terms of the impact on the environment and/or (iv) gaseous monitor reliability; and (v) general AEL compliance and make recommendations on the matter, after consultation on Eskom in that they have a material business impact and illustrate a significant failure of business systems. based on internal reviews and assessments completed. We with a range of stakeholders. 3. Emission figures are calculated based on coal characteristics and power station design parameters using coal analysis and coal burnt tonnages. Figures include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups. have assessed our overall AEL compliance at power stations at 4. N2O and NO x reported as NO2 are calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. 87.40% (2022: 89%). The KPI did not meet the target of 90%, Based on our initiatives, we requested legal indulgence from full 5. No target is set for net raw water consumption or for emission volumes. Therefore, the target for these measures is shown as not applicable. due to the poor emissions performance and challenges with MES compliance; a fleet approach to emissions load reduction; managing emission monitoring systems. and consideration of various other factors, such as the JET, ambient air quality and other contributors to health impacts, PARTICULATE AND GASEOUS EMISSIONS COMPLIANCE WITH ATMOSPHERIC EMISSION water use, increased production of waste, funding constraints, The production of electricity by burning coal produces MINIMUM EMISSION STANDARDS LICENCES security of supply, and the tariff impact of full compliance. four major pollutants in the form of emissions: particulate Minimum Emission Standards (MES) for South Africa were Atmospheric emissions include any emissions that result in matter (PM), carbon dioxide (CO2), sulphur dioxide (SO2) published in 2013, and amended in 2018. They stipulate air pollution; it includes particulate and gaseous emissions. The forum has held public consultations for all stations. We and nitrogen oxides (NO x). The National Environmental emission limits, which require Eskom to reduce gaseous The authorities issue atmospheric emission licences (AELs) to made a formal submission to the forum in January 2023 based Management: Air Quality Act, 2004 (NEM:AQA) requires emissions of sulphur dioxide and nitrogen oxides, as well power stations, which allow us to emit atmospheric pollutants on the Eskom 2035 JET and approved Emission Reduction Plan. the installation of technology to reduce emissions. We have as particulate matter. These aim to protect people and the within certain limits. The forum was expected to issue a report in February 2023, implemented pollution reduction technology since the early environment by providing reasonable measures for the but the Minister has granted an extension to August 2024. After 1980s to substantially reduce particulate matter emissions. prevention of pollution and ecological degradation, and to Coal-fired stations operate in general compliance with emission receiving a recommendation, the Minister will rule on the appeal ensure ecologically sustainable development while promoting limits in their AELs. However, non-compliance with these limits and DFFE will issue revised decisions to Eskom where needed. justifiable economic and social development. Further details of particulate and gaseous emissions are occurs; these are reported to the authorities as required. Our Until then, stations continue to operate under existing licence IR AELs require us to report emergency incidents (referred to as available in the technical statistical table on pages 160 to 161 conditions. 120 121 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our interaction with the environment continued Emission reduction projects Unit 4 underwent an outage to replace the ESPs, and a In the Sharpeville area, where a waste project is planned, ERI Environmental Compliance Steering Committee, has not yet Work continues to implement the emission reduction projects planned outage on Unit 3 commenced in August 2023. has been appointed to undertake the work, which should begin led to the envisaged decrease in such events. to improve MES compliance. After multiple delays, funding for Kendal contributes significantly to Eskom’s poor emissions by March 2024. projects at Tutuka and Medupi have been confirmed. Several performance. The station reports on progress to the REDUCING ENVIRONMENTAL LEGAL projects will be delivered after 2025, and work to optimise authorities monthly as required. Funding for partially implementing phase 2 of the project was CONTRAVENTIONS units for delivery before this date continues. Units may be obtained with an initial focus on two settlements near Tutuka A total of 105 environmental legal contravention incidents required to shut down if they do not comply with the required The criminal case against Eskom in respect of the AEL non- and Kendal. were recorded against a tolerance level of 17, with the reasons standards by 31 March 2025. compliance between April 2015 and April 2019 is ongoing. indicated below (2022: 65). Generation was responsible for At the latest hearing in February 2023, the matter was GASEOUS EMISSIONS 97 of the incidents (2022: 58), with seven recorded in Group Good progress has been made on particulate matter (PM) postponed for a pre-trial hearing that was held on 12 May 2023, Capital and one in ERI. SO2 emission limits projects, and it is foreseen that all of these projects will be at which a request was made to move to the Middelburg Five non-compliances with daily SO2 limits were recorded, all completed by 2025. High Court. Eskom appeared in court on 7 July 2023 for this 3 at Tutuka, caused by coal and combustion issues. Medupi and request. The matter has been set down to commence trial on Matimba complied fully with their monthly SO2 limit during We have installed various emission abatement technologies at 1 November 2023. the year. our stations. These include: • Electrostatic precipitators (ESPs) at Duvha, Kendal, Komati, Offset programmes NOx emission limits Kriel, Lethabo, Matimba, Matla and Tutuka After extensive delays, good progress is being made in No non-compliances of NO x limits were recorded during the 44 • SO3 flue gas conditioning plants to improve the efficacy of implementing the air quality offset programme, which aims to year (2022: 66). 2023 ESPs at the stations mentioned before, except at Tutuka reduce particulate matter emissions in communities adjacent to our power stations and thereby improve ambient air quality, 58 • Fabric filter plant at Arnot, Camden, Duvha, Grootvlei, ASHING FACILITIES AND ASH UTILISATION by insulating homes with ceilings, switching households from Hendrina, Kusile, Majuba and Medupi The largest source of physical waste from our operations is ash coal to electricity and liquid petroleum gas, and addressing the • Boilers with low NO x design at Kendal and Matimba burning of waste. produced from the combustion of coal by our power stations. • Low NO x burners at Camden, Kusile and Medupi Our power stations produced 30.20Mt of ash (2022: 32.90Mt), • Flue gas desulphurisation at Kusile (FGD at Medupi will be To date, 1 250 out of the planned 3 700 households have been with Lethabo and Matimba the biggest contributors. Ash sold retrofitted) completed in KwaZamokuhle near Hendrina. The project is from six stations in terms of our ash utilisation strategy is used 5 expected to be completed by July 2024. in the manufacture of bricks, cement, soil amelioration, road Water Air quality construction and mine backfilling. Ash sold reduced slightly to 5 Environmental impact assessments RELATIVE PARTICULATE EMISSIONS The programme in Ezamokuhle near Majuba started later, where 2.6Mt for the year (2022: 2.8Mt). Initially, relative particulate emission performance improved since 178 out of a planned 2 100 households have been completed. March 2022 due to the completion of focused maintenance of The project is expected to be completed by March 2024. REDUCING WATER CONSUMPTION 7 generating plant. However, performance deteriorated due to Eskom is classified as a strategic water user. As such, our water damage suffered during the industrial action during June and 2022 supply is assured in the short to medium term. We continue to July 2022, coupled with poorly performing plant. Performance implement comprehensive strategic water management action has not shown a turnaround by the end of the year, given that plans at all coal-fired power stations to reduce water use and system constraints increased. The year-end performance at On 23 October 2022, Kusile Power Station experienced ensure compliance, given the significant quantities of water we 0.70kg/MWhSO is worse than similar performance seen in the a failure on the west stack, which limited the power consume, mostly in our generation operations. 48 late 1990s, prior to the implementation of emission upgrades at stations like Duvha, Matla, Matimba and Lethabo. station’s ability to operate three already commissioned generating units: Units 1, 2 and 3. These units can SPECIFIC WATER USAGE Water Air quality The poor performance is mainly attributed to the dismal each provide around 720MW to the national grid and Water performance has shown some improvement year-on- Environmental impact assessments performance at Kendal, accounting for almost 40% of the potentially reduce loadshedding by multiple levels. We year, and met the shareholder target for the year. Despite Waste emissions for the year. The station experienced several have implemented a number of measures to reduce the this, water performance across the generation fleet remains challenges, including the dust handling plant and SO3 plant impact of this loss of capacity. Key to these efforts is negatively affected by leaks and overflows of tanks from units; Of the environmental legal contravention incidents, 10 were issues, and was allowed to continue to operate to minimise the construction of three temporary stacks which will lower or lack of water recovery from on-site dams for reuse escalated as being a result of significant failure of business loadshedding given the severe system constraints. Other operate without the already constructed FGD plants due to poor water quality, as a result of contamination with systems (2022: seven). Eight of these incidents were water- significant contributors to the poor performance were Tutuka, causing a predicted increase in SO2 emissions in the area ash and oil; ashing with cooling water to control cooling water related, due to dam overflows caused by excessive rainfall, and Matla, Duvha and Lethabo. However, six of the 15 coal-fired around the station. chemistry; slow progress in correcting malfunctions; and two related to emissions exceedances by Kendal and Tutuka; power stations – Arnot, Hendrina, Kusile, Majuba, Matimba i In June 2023 we received the necessary approvals long lead times to address root causes of spillages and losses Generation Division was responsible for nine of the incidents. and Medupi – achieved their emission targets at year end. through discharge of polluted water into the environment (dam from DFFE and the Nkangala District to operate the Without the excessive emissions at Kendal, the performance is overflows). We are not achieving our intent of achieving zero Eskom has made progress towards meeting DFFE’s legislative temporary stacks at increased sulphur dioxide emissions estimated at 0.46kg/MWhSO. liquid effluent discharge and compliance with legislation. requirement for Eskom to phase out PCB-containing equipment levels while repairs to the west stack are under way. The environmental approvals were issued on condition and material by the deadline of 31 December 2023. Transmission Kendal emission challenges A significant contributor to water performance challenges is Division and Eskom Rotek Industries no longer have any that we implement measures to minimise the impact the poor technical performance of coal-fired stations, thereby Kendal experienced multiple challenges, for example ash PCB-containing equipment or materials. Generation Division of the increased emissions on public health, which we limiting the opportunity to implement corrective measures, build-up inside the electrostatic precipitator (ESP) casings. is finalising the disposal of the last two units, while Distribution will comply with. The decision was appealed, but the together with ageing plant. The station also experienced ash removal constraints resulting Division has concluded the disposal of the final three units. postponement decision was upheld. We returned in an ash backlog, leading to all units at Kendal operating in Kusile Units 3 and 1 to service by October 2023 Regrettably, 58 water-related legal contravention incidents non-compliance at different times throughout the year. using the temporary stacks, with Unit 2 to follow in were registered during the year, in non-compliance with the IR Detail on the disposal of ash, asbestos, PCB-containing November 2023, thereby alleviating pressure on the National Water Act, 1998 (2022: 48). Focused monitoring of material, as well as used nuclear fuel and nuclear waste is Kendal continues to implement the emission recovery plan set out in the technical statistical table on pages 160 to 161 power system. Permanent repairs to the west stack are the effective implementation of water management action agreed to as a condition of the AEL compliance directive issued planned to be completed by December 2024. plans, both at power station level and by the Generation in 2019. Repairs have been completed on Units 1, 2, 5 and 6, although the ESP on Unit 5 has been damaged again. 122 123 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our interaction with the environment continued PROVISIONS FOR ENVIRONMENTAL Renewable IPP production, GWh For Eskom, a key aspect of the JETP is the allocation of 70% CLIMATE FUNDING RESTORATION AND REHABILITATION of the funds to commissioning renewable energy projects, As part of the debt relief measures announced in the 2023 253 (2%) We provide for the environmental obligations related to the 1 511 (9%) upgrading the country’s transmission grid and improving National Budget Speech, National Treasury set out conditions decommissioning of: municipal distribution systems. This allocation is crucial as it that affect Eskom’s role in South Africa’s JET. Among supports the planned decommissioning of many of our coal- others, capital expenditure is restricted to transmission and • Nuclear plant and rehabilitation of the associated land, fired power stations by 2034. By prioritising renewable energy distribution activities. No greenfield generation projects as well as managing spent nuclear fuel assemblies and and investing in infrastructure upgrades, Eskom can facilitate a will be allowed during the debt relief period. Furthermore, radioactive waste smoother and more sustainable energy transition. Transmission should allow for extensive private sector • Other generating plant and rehabilitation of the associated land participation in the development of the transmission network. • Cost-plus mines, where we have a contractual or 4 914 (29%) The JET-IP is managed by Government at the Presidency level, constructive obligation to reimburse coal suppliers. It covers 10 181 (60%) and there is uncertainty at this stage on how the funds will be As a result, Eskom’s JET capex need for 2023 to 2030 has been the estimated closure cost, including pollution control and disbursed, whether they will be project specific, and whether reduced from around R383 billion to around R76 billion. rehabilitation of the associated land Eskom will be allocated a portion of those funds. The allocation of funds to Eskom would allow for the delivery of Transmission There are many questions regarding spend on repurposing We have raised the following provisions relating to and Distribution development plans, as well as continued and repowering, the potential for public-private partnerships, environmental rehabilitation and restoration: delivery of planned repurposing and repowering initiatives. establishing partnership structures to prepare for build after the debt relief period, and whether the embargo is likely to Actual Actual Actual Wind Solar PV SOUTH AFRICA’S RESPONSE TO CLIMATE CHANGE extend beyond 2026. R million 2023 2022 2021 CSP Biomass, hydro and landfill In response to the Paris Agreement, which requires governments to put forward pledges and targets to cut carbon emissions to The Climate Investment Funds (CIF) has allocated $350 million Power station-related limit warming by 2030, South Africa has set its own nationally environmental restoration – 21 824 18 269 17 317 We will be leasing land at power stations, or in close of concessional funding for the potential repurposing and proximity to them, to IPPs to establish new PV and wind determined contribution, which sets out the target range for nuclear plant repowering of the Hendrina, Grootvlei and Camden power generation capacity, specifically in Mpumalanga where grid carbon emissions in the medium to long term, aiming for a stations. The World Bank has approved a $497 million Power station-related access is available. There are also a number of projects under pathway based on an average temperature increase of 1.5°C concessional loan for Eskom to implement the Komati environmental restoration 15 863 16 293 14 811 development in the Eastern, Western and Northern Cape. above pre-industrial levels. The target range is between repurposing and repowering project, which is under way. – other generating plant 398–510Mt CO2e by 2025, and between 350–420Mt CO2e by The World Bank has pledged a further $411 million to 2030, based on a “peak, plateau and decline” trajectory to 2050. Mine-related closure, pollution RESPONDING TO CLIMATE CHANGE develop Camden, Hendrina and Grootvlei as public-private 13 113 15 303 15 259 control and rehabilitation Many believe that climate change remains the greatest As part of our JET strategy, we have committed to reaching net partnerships; fund microgrids (although the amount is yet to be challenge facing humanity right now. The world has seen zero emissions by 2050, while promoting net job creation. specified); and provide a $215 million concessional loan to fund Total 50 800 49 865 47 387 record-high temperatures recently, coupled with more battery energy storage projects. New Development Bank has frequent and severe weather events. If nothing is done, climate approved a facility of R6 billion for phase 1 and 2 of the battery change will endanger the lives and livelihoods of hundreds of CARBON TAX energy storage project. The R1.4 billion for phase 1 has been AFS Refer to note 28 in the consolidated annual financial Under the Carbon Tax Act, 2019 (CTA), carbon tax is levied on statements for more information millions of people around the world and have a devastating negotiated and approved by National Treasury. impact on ecosystems. greenhouse gas (GHG) emissions, to encourage consumers to reduce consumption of carbon-intensive products and shift the We’re engaging with the Development Bank of Southern Africa INVESTING IN RENEWABLE ENERGY One of the key initiatives being driven worldwide is phasing country onto a low-carbon pathway. However, generators of (DBSA) on our pipeline of JET projects. To date, DBSA has Our own investment in renewable generating capacity is out coal-fired electricity production. In South Africa, the speed electricity from fossil fuel are allowed a deduction equal to the supported Eskom with R13 billion in direct funding and has modest, with just one wind facility and six hydroelectric at which coal-fired production can be phased out depends on renewable energy premium incurred through RE-IPP purchases invested over R19 billion in the RE-IPP Programme. Furthermore, stations. However, through the Just Energy Transition, we the rate at which replacement generation capacity – renewable in the same tax period. DBSA has committed R6.8 billion for the Risk Mitigation IPP aim to introduce more renewable capacity, mainly through generation with battery storage – can be rolled out, as well Procurement Programme. DBSA has communicated interest to repowering and repurposing of our end-of-life stations, to as the support required to enable that, be it funding, skills, To achieve electricity price neutrality as envisioned in the fund up to R20 billion worth of JET projects. reach our long-term objective of attaining net zero emissions regulations or logistics. National Budget Speech, Generation’s GHG emitting activities by 2050, with an increase in sustainable jobs. (code 1A1a) will need to claim the renewable energy premium ESKOM’S RESPONSE TO CLIMATE CHANGE OUTCOMES OF COP27 from the RE-IPP contracts once the National Transmission Our climate change strategy is an integral component of our The outcomes of the 2022 United Nations Climate Change Company South Africa commences operation. We provided overarching environmental strategy and has evolved since 2005, For information on the capacity of our power stations and a IR breakdown of capacity supplied by IPPs, refer to pages 166 Conference (COP27) have significant implications for South comments on the draft Taxation Laws Amendment Bill to and was recently integrated into our JET strategy. Our climate to 167 Africa, particularly in terms of transitioning away from coal- ensure that the transitional provisions would cater for this. change initiatives are focused on compliance with evolving dependent electricity generation. One notable decision from climate change legislation and ensuring sustainable development The deduction of the renewable premium against the 1A1a liability COP27 is the establishment of a fund aimed at supporting best practices to maintain our social licence to operate. During the year, Eskom’s Sere Wind Farm contributed has been extended to 31 December 2025. This would result in the developing countries in addressing loss and damage caused by 214GWh to the national grid (2022: 253GWh), at an average first carbon tax liability to Eskom arising in the 2026 financial year, climate change. This provides an opportunity for South Africa We are guided by national and international best practice, load factor of 23.54% (2022: 27.54%), which aligns to with the first cash payment expected the following year. to access funding for its own mitigation and adaptation efforts. frameworks, legislation and regulations that inform our climate expectations for wind-based renewable plant. It attained an change response, which embodies the JET strategy aspirations average availability factor of 67.48% (2022: 77.84%), influenced From 1 January 2023, our transmission and distribution GHG The $8.5 billion Just Energy Transition Partnership (JETP) to reduce our carbon footprint and implement adaptation by operational challenges which have since been resolved. emitting activities attract carbon tax. was announced at COP26, followed by the release of a JET initiatives to ensure the continued resilience of our systems, Investment Plan (JET-IP) immediately before COP27. infrastructure and assets. Furthermore, we continue to purchase renewable energy POLLUTION PREVENTION PLANS from IPPs, with the main sources being wind and solar power, The JETP has been formulated as an investment plan to guide We submitted our 2022 annual progress report for the In this regard, a number of areas are important: although biomass, landfill gas and small hydro technologies also the allocation of funds provided by partner countries such as implementation of the GHG pollution prevention plan to • Greenhouse gas reporting and implementation of pollution contribute. Renewable IPPs contributed 16 859GWh during the United Kingdom, the United States, Germany and France. DFFE by the deadline of 31 March 2023. This progress report prevention plans the year (2022: 15 073GWh), which constitutes 7.8% of energy These funds are intended to facilitate South Africa’s transition highlighted the risk to planned station shutdown dates because • Carbon tax and the carbon budget available for distribution for the year. away from coal and towards cleaner energy sources. of the shortage of generation capacity and the resulting • Effective implementation and monitoring of our adaptation loadshedding, which may require shutdown dates to be deferred. plans 124 125 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our interaction with the environment continued • Socio-economic impact assessment studies to understand OVERVIEW OF TASK FORCE ON CLIMATE- To ensure effective management of climate-related issues, Our 2035 strategy has three primary objectives: to foster a the impact of power station shutdown on affected RELATED FINANCIAL DISCLOSURES several subcommittees/positions have been established, competitive energy industry, modernise our power system, and communities, supporting our social licence to operate We are committed to continually improving the including the Risk Subcommittee, which is part of Exco, the strive for net zero carbon emissions by 2050 while increasing • Shaping decision-making based on climate change and understanding of the financial impacts associated with climate Risk and Resilience Governance Committee, the JET Office sustainable job creation. To achieve these goals, we adopt a sustainable development best practices through effective change. We further recognise the critical importance of and the Climate Change and Sustainable Development (CCSD) sustainable development approach that aligns with our strategic reporting and disclosure Eskom’s role in implementing the United Nations’ Sustainable senior manager. framework across various sustainability dimensions, including Development Goals (SDGs). Our focus on the long-term climate change and environmental issues. These dimensions are We have proactively started the process of complying with the sustainability of the company addresses climate change For more on how we govern climate-related risks and an integral part of our key strategic imperatives, supporting our SR national framework for sustainable development. emerging requirements from the proposed Climate Change risks, opportunities and constraints facing the business. opportunities, please refer to the sustainability report Bill for state-owned companies to prepare adaptation plans. Our commitment to the United Nations Global Compact To date, Generation Division and Eskom Rotek Industries further strengthens our dedication to sustainable and socially To balance immediate and long-term risks and opportunities, (ERI) have developed adaptation plans and are implementing responsible practices in the context of the global crisis and STRATEGY we consider various time horizons when making strategic these plans. Transmission has developed a draft climate change South Africa’s developing socio-economic environment. We recognise the potential short-, medium- and long-term decisions that benefit the organisation, our stakeholders and and adaptation framework which is under development. impacts of climate-related risks on our business, strategy the environment. The Distribution adaptation plan is expected to be completed Eskom’s long-term objective is to strive for net zero emissions and financial planning. In response, we have developed a during the 2024 financial year. by 2050 with an increase in sustainable jobs, through comprehensive 2035 strategy that guides us through the Given the useful lives of our infrastructure, and the fact that participation in the Just Energy Transition, which will position changing energy landscape and ensures our position as a climate-related issues often manifest over the medium to The JET Office has been established to drive the JET strategy the company at the forefront of the global effort to combat sustainable power utility. longer term, we apply the following timeframes in managing in leading, directing, and enabling the transition towards net climate change. climate-related risks and opportunities: zero carbon emissions by 2050 while managing Eskom’s socio- economic impact and contribution towards South Africa’s just GOVERNANCE energy transition. In collaboration with Eskom’s Clean Energy The Board is responsible for oversight and implementation of This horizon focuses on the current situation and immediate future scenarios. During this Unit, the JET Office will lead and partner on projects and Eskom’s business strategy, which incorporates the objective to SHORT TERM 1–3 years timeframe, immediate actions and decisions that need to be taken to address the most initiatives speaking to: strive for net zero emissions by 2050. The Board is supported pressing risks and opportunities in the short term are prioritised • Just elements: doing better for people and the planet, and by the Audit and Risk Committee (ARC) and the Social, Ethics growing localisation and industrialisation and Sustainability Committee (SES), which regularly review • Energy elements: cleaner, sustainable, reliable electricity and evaluate the company’s progress on climate-related issues The medium term includes the scenarios that may materialise by 2030, which includes provision through regular reports from the management and discussions the reassessment of the JET. During this period, Eskom will focus on medium-term • Transition elements: transformational change of business with experts in the field. This process ensures that the Board MEDIUM TERM 3–7 years investments and strategic initiatives that will shape our future and address the risks and models, attracting green financing and its committees are kept abreast of the latest developments opportunities that are likely to emerge in the next decade • Enablers supporting collaboration and are equipped to make informed decisions on climate- related matters. Refer to “Our role in communities – Just Energy Transition” on The long-term horizon refers to the long-term goals of the JET strategy (2030–2050) IR The Board and its committees are responsible for considering LONG TERM 7–30 years page 145 for more information on our JET initiatives, including and the life span of Eskom’s assets the impact of climate-related issues when evaluating and the repowering and repurposing of Komati Power Station guiding the organisation’s overall strategy, key initiatives, risk management policies, annual budgets and business plans. This includes ensuring that performance objectives are aligned with We recognise that climate change is not just an environmental issue but also a business issue with far-reaching effects on the electricity Approximately 22GW of installed coal-fired capacity the organisation’s goal of achieving net zero emissions by 2050 grid. Our operations – from generation, transmission and distribution – to end-user demand, are at risk of incurring significant financial will be retired by 2035 in line with Eskom’s focus on and monitoring the implementation and progress towards losses due to climate-related risks. The impacts of these risks are location- and sector-dependent. pursuing the JET. This will result in additional strain on meeting these objectives, including those related to reducing the system and the need for new generating capacity. emissions. The Board and its committees also play a crucial Eskom is exposed to a range of physical climate risks, which include extreme weather events. The shutdown of coal-fired stations is aligned with our role in monitoring and managing climate-related risks and climate change policy and JET. The shutdown of coal- opportunities. Physical risk Description Risk types considered Financial impact fired stations will be supported by the development of new, less carbon-intensive generating capacity such as Inability to safeguard assets and Inability of the line divisions to Physical risks Increased direct costs IR For more on the roles and responsibilities of the various operations against extreme implement divisional adaptation Risk drivers Associated costs to manage and gas and renewables. Generation has adopted a position committees, refer to “Governance, leadership and ethics – weather events plans to ensure the resilience monitor the adverse impacts of that recommends pursuing a progressive business Board and its committees” from page 58 Increased severity and of assets and operations to climate change model, allowing it to continue pioneering the JET and extreme weather events frequency of extreme weather, participating in the IRP 2019 for renewable and nuclear (Priority II risk rating) cyclones and floods Damage to infrastructure, with energy as well as gas, while focusing on a structured Furthermore, Exco plays a critical role in governing, supporting supply interruptions resulting in approach to the shutdown of the coal fleet. and regularly engaging in discussions surrounding the increased cost management of JET initiatives and climate change-related Beyond 2035, only six coal-fired power stations and one matters. The progress and implementation of these initiatives are regularly assessed through the monthly JET Steering In order to mitigate physical risks associated with climate change, we have developed a strategic approach. The Integrated Risk and nuclear station will continue to operate. Four additional Resilience Management Procedure for Adaptation to Climate Change Planning guides the development of adaptation plans for Eskom’s coal-fired power stations will be shut down by 2050, Committee, as well as Exco and Board meetings, ensuring that the organisation remains on track towards its climate line divisions and Eskom Rotek Industries (ERI) to ensure resilience and adaptation. These adaptation plans are closely monitored and while the remaining two coal-fired stations may be shut integrated into daily operations to ensure that they remain effective. down prior to the 50-year design life being realised. goals. Priority climate-related risks are actively tracked and monitored to ensure they are being effectively addressed. 126 127 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our interaction with the environment continued Eskom is also exposed to transition risks across its value chain. Transitional risk Description Financial impact Opportunity Description Financial impact Failure to meet the Eskom faces the transitional risk of inadequate Decreased access to capital: The increased demand Pursuit of partnerships The opportunity to expand Eskom’s renewables Increased access to capital: Forming partnerships and 2030 JET targets transition from a coal-based power system to a for a faster transition away from fossil fuels is and funding solutions presence through public-private partnerships and harnessing available funding solutions (concessional lower-carbon and climate-resilient company due to restricting access to funding, which is needed to (short term) leverage available technical and funding solutions in or grant) to enable the transition market changes, as well as regulation and policy transition to low-carbon energy sources response to the global climate crisis is exemplified by compliance. Failing to meet these targets could have Increased debt: Eskom may need to explore debt the South African Just Transition deal reached at adverse effects on Eskom’s reputation, financial funding, private sector partnerships and green COP26 performance, and competitiveness in the evolving financing with concessional financiers offering energy market (Priority I risk rating) The large-scale rollout Accelerated investment in clean and renewable Increased access to capital: The availability of green potentially favourable terms to manage debt and of cleaner and greener energy technologies, such as solar PV, energy storage financing to support the rollout of cleaner and ensure uninterrupted power supply during the shift technologies (short and microgrids, is crucial for creating a credible, greener technologies is indicative of the global to cleaner energy sources term) green electricity sector that powers South Africa’s support for decarbonisation and enables us to add Climate change The changing legislation, such as national regulations The financial impact of climate change legislation economic recovery significant capacity to address our generation legislation around energy transition and resilience, has the includes increased direct costs for Eskom, such as shortfall at affordable costs potential to impact Eskom’s activities. These include the expected rising costs for coal, environmental Increased revenues resulting from increased demand the Climate Change Bill, Carbon Tax Act, carbon abatement capital expenditures, and taxes on for products and services: increase in customers budgets and GHG reporting regulations fossil-based generation. The long-term projected demanding cleaner and greener electricity escalation poses a threat to the long-term viability of coal generation as renewable energy becomes more Repowering and Accelerate the closure of less efficient and higher Increased access to capital: To fund the repowering cost-effective repurposing existing emitting stations, and use existing land to support and repurposing of the existing Eskom fleet, we will coal-fired power green energy generation, ancillary services and require financial capital through either debt funding Operational stability The ageing coal fleet poses a transition risk to These risks may be quantified in future stations that will be shut related community-orientated projects or equity. Eskom will need to either borrow from Eskom’s operations, including economic trade-offs down (medium term) the markets or leverage green financing and/or between maintenance and decommissioning; lack of public-private partnerships capital for new plant, upgrades and delayed maintenance; and the impact of environmental Re-energise the Established Special Economic Development Zones Decrease in direct costs: Eskom will need to leverage authorisations on coal supply and costs manufacturing sector and Renewable Energy Development Zones are key public-private partnerships for skills development (medium term) to reigniting industrialisation and the local (upskilling or reskilling), job creation and local Carbon tax and carbon budgets create additional manufacture of renewable components manufacturing opportunities financial risks Operational stability The opportunity to establish a stable grid with a high These may be quantified in future The use of OCGT technology as peaking plant and (medium term) penetration of intermittent renewable energy for grid stability also pose transitional risks due to sources and upgrade combined-cycle gas turbine pressure to eliminate GHG emissions and the high (CCGT) plants presents a significant opportunity for associated operational costs Eskom to reduce carbon emissions and enhance Grid instability The high penetration of intermittent renewable These risks may be quantified in future operational efficiency in the South African energy sources in the grid has the potential to cause electricity sector grid instability Grid defection Customers with their own generation capacity may These risks may be quantified in future choose to leave the grid. While Eskom provides We are actively quantifying the financial implications of climate- We quantify the impacts arising from environmental aspects backup services to these users, Eskom is not related risks and opportunities on our long-term sustainability of our business activities undertaken within different divisions, compensated for this service, which may lead to and performance while expanding our understanding of including the generation, transmission and distribution of financial losses how these factors will affect our financial planning processes electricity, through our environmental management systems. In and overall performance. Through climate-related scenario doing so, we determine environmental materiality. Key material analysis, we assess the impact of climate change on our financial climate change topics include GHGs, particularly carbon While we do not currently report the quantified financial impact of climate-related risks on our business, we are committed to position, including revenues, costs, assets and liabilities. This dioxide emissions; JET and the move away from coal; renewable improving in this area. information helps us identify strategic impacts and necessary energy; water and waste. management actions, as well as informing our long-term We also recognise numerous climate opportunities and have integrated those into our business strategy. It is critical that we manage strategy and financial planning. Risk accountability lies with owners across divisions and these opportunities to address long-term sustainability risks. To seize the opportunities that come with transitioning to a low-carbon corporate functions, ensuring risk management is integrated economy, we are actively pursuing the connection between electrification and decarbonisation. We have identified various short- and into decision-making processes. Divisions align their Risk and RISK MANAGEMENT medium-term climate-related opportunities that we can tap into. Resilience Management Plans with business plans, supported We prioritise risk management, also in relation to climate by a unified risk management information system. Appropriate change, and have established risk structures within each division treatment plans with due dates are in place for climate-related to ensure a comprehensive and integrated approach. Our risks. The implementation of treatment plans is expected to robust process for managing climate-related risks follows our reduce risk ratings to more acceptable levels given our risk Integrated Risk Management Standard that encompasses all appetite. The implementation of these treatment plans is risk types impacting our strategic objectives. Climate change monitored and tracked at Exco and Board level. is recognised as a Priority 1 risk, prompting regular reviews to assess the effectiveness of risk treatments, including our JET strategy and climate measures. For further detail on risk management, refer to IR “Our strategic context – Integrating risk and resilience” from page 46 128 129 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our interaction with the environment continued METRICS AND TARGETS Carbon footprint The decrease in Eskom’s overall carbon footprint is due to Aligned with the goals of the Paris Agreement, Eskom has lower production, as well as the shutting down of Komati FUTURE FOCUS AREAS intensified efforts to mitigate and adapt to climate change, Power Station when it reached its end of life in October 2022. Extending cost-plus contracts to match power utilising metrics and targets as indicators of progress. A carbon footprint estimates the total GHG emissions stations’ useful lives and utilising dedicated coal Performance is measured through various metrics, including (including scope 2 and 3) caused by an organisation The primary source of GHG emissions from Eskom is the reserves for supply to other stations, including GHG emissions data, legislative compliance, and Eskom expressed in tons of carbon dioxide equivalent (tCO2e). stationary combustion of fossil fuels, mainly coal, at our power reinvesting in cost-plus mines to enable contractual Factors 1 and 2, which track energy sold and generated This provides insights into the sources and magnitude stations to generate electricity. The emissions from coal- supply and more. This will ensure optimal cost of respectively. Water consumption and ash utilisation are also of GHG emissions, thereby allowing us to improve the based power plants vary, with higher emissions at stations like coal and security of coal supply from dedicated coal important metrics reflecting waste management efforts. management thereof. Matimba and lower emissions at Komati. Peaking stations have resources relatively low emissions due to their smaller size and limited Extending existing long-term fixed-price contracts Refer to “Information on the environmental implications of usage during peak times. As part of our continual improvement for designated power stations, with the option to IR using or saving electricity” on page 170 for information on We calculated our annual carbon footprint for the 2022 in reporting, efforts are under way to update our carbon supply other power stations Factors 1 and 2 calendar year, using the same methodology as the carbon footprint calculations, including plans to incorporate additional footprint study conducted for 2021. The footprint was data in the future. Sourcing uncontracted coal for the remaining life of calculated in line with the globally recognised GHG Protocol: power stations using the open tender process Eskom acknowledges the significant impact of climate A Corporate Accounting and Reporting Standard. Since the In 2022 we have incorporated delivery of coal to site by rail, Striving to move coal as economically as possible, change on the energy sector and is committed to driving calculation of our carbon footprint covers a different scope and which is the second highest source of emissions, with purchased leaning towards a tied colliery model delivering coal decarbonisation and facilitating transformation. As a key player, may utilise different assumptions to the regulated reporting electricity being the third highest source of emissions (also not by conveyor, with rail and road transportation being Eskom aligns its aspirations with international and national requirements, the results are not directly comparable. included previously). We have noted a significant increase in the less preferred options frameworks such as the Paris Agreement and the SDGs, while emissions from waste disposal and non-combustion product Engaging with DFFE and the MES Forum, to facilitate fulfilling its mandate as a state-owned entity. Efforts are under The results of the carbon footprint study for the 2022 calendar use, due to improvement in reporting and data collation. an optimal outcome for the availability of generation way to improve GHG data quality, identify feasible mitigation year, compared to the results for the two previous years, are capacity to meet the needs of the country, now and measures and enhance disclosure of the financial impact of presented in the table below. Fossil fuel combustion, including Electricity purchased from IPPs is accounted for as scope 3 into the future climate-related risks. coal, diesel and kerosene consumption, accounted for more emissions, because it is not produced by Eskom. However, the than 97% of the emissions. purchased electricity being transmitted and distributed along Continuing to drive a combination of focused GHG emissions our infrastructure incurs some losses before reaching the end interventions, such as increased training; assurance We continue to submit an annual GHG report to DFFE based user. These losses are therefore reported as scope 2 emissions. reviews on risk assessment and root cause analysis; on their technical guidelines for scope 1 emissions. These non-conformity management; skills assessments; are based on the 2006 Intergovernmental Panel on Climate CDP disclosure priority waste management practices; and Change (IPCC) GHG Guidelines and 2019 IPCC Refinements. The Carbon Disclosure Project (CDP) provides the global biodiversity processes financial sector with the most complete source of self- Influencing operational practices at power stations reported corporate environmental data from more than to reduce raw water use and to lower emissions, 2022 2021 2020 7 000 of the world’s largest companies. It considers the impact thereby improving legal compliance through visible GHG emissions by source, tCO2e calendar year calendar year calendar year and management of issues related to climate change, water functional leadership and improved oversight security and deforestation. The information assists investors, Addressing instances of non-compliance and Scope 1 corporations and regulators in making informed decisions on Stationary combustion2 193 157 386 207 230 321 201 260 329 shortcomings to ensure full compliance with licences investing in particular industries, sectors and countries. and permits Eskom fleet vehicles 71 623 78 138 37 810 Fugitive emissions 65 712 52 841 73 904 We continue to voluntarily disclose our climate change Leading the Just Energy Transition by using Waste disposal 81 972 3 366 3 820 performance on the Carbon Disclosure Project (CDP), a global generating plant approaching the end-of-life, through Non-combustion product use 9 689 3 12 platform for investors, companies, cities, states and regions to repurposing and repowering as alternatives to manage their environmental impacts. full decommissioning of power station sites. The Scope 2 priorities are to fast-track the repowering project Electricity and heat purchased3, 4 85 171 – – implementation at Komati Power Station, and to Scope 3 work with the Presidential Task Team to finalise the Electricity purchased from IPPs3 494 263 – – financing deal announced at COP26 Coal delivery to site – road 264 993 252 743 238 338 Coal delivery to site – rail3 4 635 759 – – Generation Division waste3 35 – – Business travel – use of employee vehicles 8 598 6 003 6 669 Business travel – air travel 3 621 937 1 008 Business travel – vehicle rental 627 1 216 2 225 Total5 198 879 449 207 625 568 201 624 115 1. Years refer to calendar years, and not financial years as indicated elsewhere in the report. 2. For coal, an Eskom-specific annual weighted average net calorific value of 0.01901TJ/ton fuel was used based on the actual measured value for 2022. 3. Not calculated in previous years due to the limitations of the tool used at the time. 4. As electricity generation is Eskom’s main activity, scope 2 emissions are in principle accounted for as scope 1 direct emissions under the GHG Protocol. However, in 2022 we have included estimated energy losses on the transmission and distribution grids relating to electricity purchased from IPPs as scope 2. 5. Due to different scopes and input assumptions, the results are not directly comparable with our CO2 emissions reported in the table on page 160. 130 131 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our people VALUE CREATED Contributed to Government’s Launched a renewable energy Implemented two talent Developed and implemented a For the 2023 financial year, annual cost-of-living adjustments of youth employment service (YES) training facility at Komati Power development programmes to create crowdsourcing platform to source implemented cost-of-living 7% for non-managerial employees, programme through fixed-term Station to begin upskilling and a future-fit talent pool and build skills to support Eskom’s operational adjustments of 7% for all employees to ensure organisational stability employment of 523 black youth reskilling employees to support the leadership skills recovery up to senior management level while we focus on the turnaround Just Energy Transition (JET) plan For the 2024 to 2026 financial years, concluded a three-year collective agreement with trade unions, with VALUE PRESERVED VALUE ERODED Optimised employee benefit costs and headcount, with Recorded four fatalities among employees and salaries and benefits of R32.3 billion provided to 39 601 contractors, as well as an increase in lost-time employees by year end (2022: R33 billion to 40 421 incidents employees) Experienced a wage dispute with organised labour Completed an organisation-wide skills audit with over during the 2022 salary negotiations, leading to 50% participation, to develop a fit-for-purpose skills unlawful and unprotected industrial action which strategy negatively impacted the already constrained power system Revised the strategic workforce plan in September 2022 in line with Eskom’s 2035 strategy Lack of financial incentives for high-performing employees over several years, leading to skills and Invested in learning and development of staff, with leadership retention risks training spend of R1.1 billion (2022: R0.9 billion) Loss of institutional knowledge and risk to succession Achieved learner intake targets, with 474 new learners planning due to high staff turnover entering the learner pipeline (2022: 335) Significant leadership changes, creating potential Continued the focus on diversity, thereby meeting most organisational instability and negatively impacting transformation targets despite financial constraints employee morale Our people are critical to achieving our mandate and Driving a high-performance ethical culture through Eskom’s 1:1:6:10 culture transformation programme, which is strategic objectives. Eskom requires a multi-skilled, Thrust 1 characterised by the six culture cornerstones of accountability, operational excellence, people prioritisation, financial prudence, capable, efficient, flexible, innovative, passionate, a values-driven culture and customer centricity, as well as through leadership that can competently execute Eskom’s strategy motivated and engaged workforce to deliver on its turnaround plan. Building critical capabilities through a comprehensive skilling, upskilling and reskilling framework, to produce a multi-skilled, Thrust 2 The Board has identified several human capital challenges that flexible and innovative workforce that can easily adapt to future market demands and the new world of work need to be addressed, such as low staff morale, lack of skills in some areas, leadership quality and instability, lack of trust, employees operating in a climate of fear, crisis fatigue and Increasing employee productivity by optimising the organisational structure, utilising technology and data analytics, and burnout. Thrust 3 creating a compelling employer brand to nurture a culture of engaged, committed and responsive employees Addressing these challenges, amid the restructuring of the electricity supply industry and the operational and financial challenges that we are facing, has informed the five thrusts of Managing employee-related costs by addressing people inefficiencies, reviewing the approach to rewards and benefits, our human resources strategy: Thrust 4 employing flexible work practices and job redesign, as well as incentivising productivity Realising the diversity dividend by creating a multi-gender, ethno-cultural, multi-generational and racially diverse workforce in Thrust 5 a responsible and sustainable manner, aligned to shareholder targets 132 133 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our people continued OUR WORKFORCE Occupational level breakdown, % Learner pipeline, number of learners Existing learning and development initiatives include internal COMPOSITION OF OUR WORKFORCE and external training interventions, internal transfers and 2 000 Group headcount, including permanent staff and fixed-term Top management and senior promotions, opportunities for further studies as well as on-the- <1% contractors, reduced to 39 601 at year end (2022: 40 421), management 223 1 568 job training for our people. Further studies enable employees against a budget of 42 595. A total of 2 705 employees exited Middle 1 500 151 to obtain qualifications related to their line of work, with the management and 17% aim of building skills and expanding the leadership potential the organisation during the year, mainly through natural professionals 274 attrition, resulting in a gross staff turnover rate of around 6.7% within our workforce, particularly at lower occupational levels. 1 000 272 (2022: 7.9%), which is higher than the industry norm of 4%. We Skilled 54% 648 TRAINING SPEND recruited 1 885 new employees from the external market to replace natural attrition, particularly core and critical skills in Semi-skilled 500 R1 077 million on training, comprising 3.57% of gross 27% Generation. employee benefit costs (2022: R855 million and 2.7%) Unskilled <1% 0 FURTHER STUDIES The movement in our headcount over recent years is shown Artisans Engineers Plant Technicians Non- Total below, along with the age, occupational and divisional operators technical pipelines 795 employees enrolled, of which 55% are women and 2% breakdown of our workforce at year end. Succession planning and talent development programmes are are persons with disabilities Excluding youth employment service (YES) programme learners who are in place to support the organisation in maintaining leadership externally funded. Includes 708 bargaining unit employees and 87 managerial Change in group headcount continuity, particularly at top and senior management levels. In employees addition, the learner pipeline programme continues to balance We enrolled 474 new learners during the year, against a Over two-thirds pursuing a bachelor degree or higher 50 000 -15.1% out the ageing workforce. shareholder compact target of 290. To reinforce our learner qualifications 47 500 pipeline and contribute to broader social responsibility needs, 45 000 Divisional breakdown, % a further 523 fixed-term contractors were employed through INTERNAL RECRUITMENT the youth employment service (YES) programme, focusing on 7 373 -2.0% 42 500 2 595 internal hires and promotions, to support the 13% providing work experience to previously unemployed black 7 007 redeployment, upskilling and reskilling of staff youth in entry-level and non-professional roles. 6 625 40 000 5 731 34 518 5 083 37 500 6% 41 873 31% Learner intake, number of learners In September 2022, the Eskom Academy of Learning (EAL) 39 292 37 765 35 000 launched an accredited renewable energy training facility at 36 124 34 690 32 500 Komati Power Station, in partnership with the South African 30 000 2023 90 Renewable Energy Technology Centre and the Global Energy 2019 2020 2021 2022 2023 2028 target Alliance for People and Planet. The facility aims to develop skills 135 Eskom ERI Target and capabilities in the renewable energy sector in South Africa, 2% and support the implementation of the JET strategy. We have reviewed our workforce plan to ensure that staffing 8% 474 40% The EAL has commenced with its flagship Introduction to requirements support our strategic objectives. The workforce learners renewables course at Komati, together with courses for welding plan accommodates an increase in headcount over the next and soft skills training. To date, twenty community members five years, in line with benchmarking and to capacitate Eskom Generation Distribution 105 have been trained and accredited as solar PV installers, with in becoming a future-fit organisation in support of the legal Group capital Support functions further training and accreditation of Eskom employees planned separation, the implementation of clean energy technology and Transmission ERI for the next round. Just Energy Transition. 144 Over three-quarters of employees (including direct support The upskilling and reskilling of employees at ageing power Age breakdown, % staff ) are involved in the generation, transmission and Artisans Technicians stations, together with the training of beneficiaries from the distribution of electricity to customers. As the new build Engineers Sector-specific surrounding communities, is critical for enabling a just transition 50 Average age: 43.74 (2022: 43.69 and 2021: 42.62) programme comes to an end and ageing coal-fired power in line with Eskom’s repowering and repurposing plans. stations are decommissioned, repurposed and repowered, 40 LEARNING AND DEVELOPMENT employees are being upskilled, reskilled and redeployed to Two new talent development programmes have been The changing world of work, JET and the evolving energy other areas of the business to limit job losses. implemented to strengthen our talent pools, build and 30 industry have necessitated the upskilling and reskilling of our workforce. In July 2021, we commenced with a skills audit to retain leadership skills, and improve succession planning and 20 DEVELOPING OUR WORKFORCE identify skills and competency gaps against existing and future leadership continuity. The top talent programme is focused LEARNER PIPELINE requirements. Despite experiencing initial delays due to low on general and executive management positions, while the 10 Our learner pipeline programme aims to address some of our participation, the skills audit was concluded in October 2022, millennial talent programme is aimed at middle and senior future skills needs and create a foundation for balancing the with participation from over 50% of the workforce. management positions. A total of 39 participants were selected, 0 18–29 30–39 40–49 50–59 60+ ageing workforce profile with an appropriate talent pipeline. based on nominations from divisional talent boards. The It also contributes to the national objectives of poverty An upskilling and reskilling framework has been created, which, programmes commenced in October 2022 and will run until 2021 2022 2023 reduction, economic transformation and job creation in terms together with the results of the skills audit, is being used to March 2024, whereafter the next cohorts will be selected. In of the National Skills Development Plan 2030. develop an implementation plan to address the identified addition, management development programmes for senior skills and competency gaps through future-fit career paths, and middle management and supervisors continue to be The pipeline comprised 1 568 learners at year end redeployment strategies and training interventions. Divisional implemented, with over 600 employees completing these (2022: 1 238), representing 4.6% of the permanent Eskom learning committees are revising their training plans to prioritise courses to date. company workforce (target: 2.5%). critical training needs over the next financial year, which will be captured into employees’ individual development plans. 134 135 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our people continued In November 2022, a crowdsourcing digital platform The achievement of transformation targets continues to be During the year, a 1.5% salary adjustment backdated to reinstatement of previous conditions of service, was accepted was launched to attract a talent pool of highly skilled and hindered by attrition and ongoing financial challenges. Based on 1 July 2021 was awarded to bargaining unit employees based by the trade unions and implemented for bargaining unit experienced candidates to assist in Eskom’s operational our estimates, it would have cost approximately R140 million to on an arbitration award from the Commission for Conciliation, employees from 1 July 2022. recovery. By year end, 16 individuals were appointed in the address the transformation gaps for the year. Mediation and Arbitration (CCMA). The adjustment related to first intake to resolve specific technical challenges in the the 2021 Central Bargaining Forum (CBF) negotiations. A 7% salary adjustment was also implemented for middle Generation business and enable the transfer of knowledge The overall gender ratio of our workforce has improved management/professionally qualified employees and senior and skills to employees in existing teams. A second round of slightly to 65% male and 35% female (2022: 66% and 34%), Regrettably, a deadlock was reached with organised labour management from 1 October 2022. Top management received shortlisting is under way to place additional candidates based with the aim to achieve 50:50 representation by 2030. during the 2022 CBF negotiations, leading to Eskom declaring no adjustments. on business needs. Female representation in Exco remains a highlight, with five a dispute with the CCMA in June 2022. Consequently, out of the nine members at year end being female. Further unlawful and unprotected industrial action was experienced Executive remuneration is discussed under “Governance, IR TRANSFORMING OUR WORKFORCE improvement in employment equity performance is expected at many power stations from 22 June to early July 2022. After leadership and ethics – Remuneration and benefits” on We remain committed to building a more diverse and inclusive to be achieved through the implementation of learning and recommencing negotiations, an increase of 7%, along with the page 65 workforce which reflects the demographics of the country, in development programmes targeted at women, delivered line with our employment equity plan. Targets for employment through partnerships with academic institutions. We are also equity are negotiated with organised labour for a period of developing a Women Accelerator Programme, which will aim three years, with the most recent targets set for 2023 to 2025. to broaden female leaders’ understanding of the Eskom value chain, create a networking platform and provide practical work Processes are under way to institute disciplinary measures Generation employees per power station Racial equity by level of employment, % opportunities for women to acquire leadership skills. against 1 864 Generation employees and 254 Distribution employees who participated in the unprotected industrial 59 120 We are committed to ensuring equitable representation of action, were absent from work without leave or committed 387 persons with disabilities across all occupational levels. Group other forms of misconduct during the strike action. 100 417 disability equity has improved slightly to 2.96% (2022: 2.94%), 80 although this was a result of the reduction in overall headcount A total of 99% of Generation disciplinary cases have been as the number of employees with disabilities reduced to 1 171 completed, with 144 employees found not guilty and 62 60 (2022: 1 188). The national target prescribed by the Department charges against 10 employees dropped. Most scheduled 1 864 hearings in Distribution have been delayed due to objection employees 100.00 of Employment and Labour is 2%, although our internal target is 93.92 93.09 98.91 88.89 119 i 82.39 77.92 83.59 75.00 76.92 87.74 86.90 40 3.3%, in line with the White Paper on the Rights of Persons with by organised labour regarding the disciplinary process. 143 Disabilities. Initiatives to improve awareness and accessibility, Altogether, Eskom has concluded disciplinary measures 20 including the use of virtual platforms and physical equipment against over 90% of employees involved, with sanctions 0 for persons with disabilities, are being implemented to improve ranging from written warnings valid for six months to a final 133 285 Top Senior Middle Skilled Semi- Unskilled management management management skilled performance in the coming year. written warning valid for 12 months. The principle of “no and work no pay” was implemented where applicable. 120 139 professionals Target Actual almost met target (within 5% threshold) OUR EMPLOYEE VALUE PROPOSITION Actualequity met target REMUNERATION AND BENEFITS Arnot Camden Duvha Hendrina Gender by levelActual did not meet target of employment, % We want to attract and retain skilled, high-performing employees Kendal Kriel Lethabo Matimba 50 and provide market-related remuneration, benefits and conditions Matla Medupi of service, within the guidelines set by the shareholder. 40 Managerial employees receive a guaranteed package, including 30 benefits such as medical aid, pension, dread disease cover, group life and death benefits. The 2023 CBF negotiations with organised labour commenced 1 July 2023 to 30 June 2026. In addition, the parties agreed to a 45.65 37.43 in April 2023, to conclude salary adjustments and changes to 7% increase in the housing allowance per year over the three- 45.01 42.01 41.07 40.92 20 36.89 38.79 33.33 Bargaining unit employees receive a basic salary, which includes the conditions of service, effective from 1 July 2023. year period, as well as a once-off taxable payment of R10 000 28.33 28.61 22.00 10 a thirteenth cheque (referred to as an annual bonus but for the first two years. This is the first time in a more than a structured as part of the guaranteed cost to company) as well In the first round, NUM and NUMSA requested a 15% increase in decade that all parties have reached a collective agreement 0 as other benefits, such as pension, medical aid, death benefits, basic salary, while Solidarity requested an increase of CPI (average during the CBF negotiation process and is testament to the Top Senior Middle management management management Skilled Semi-skilled Unskilled as well as housing, cell phone and car allowances, subject to of 7.1%) plus 3%. The unions also requested additional benefits strengthening of partnerships with our trade unions. and qualifying criteria. Around 82% of our workforce is covered by which would increase the overall cost of employment. Eskom professionals collective bargaining agreements with trade unions. proposed an offer of 3.75%, which was rejected by all trade unions. Eskom subsequently approved a 7% increase in managerial Target Actual almost met target (within 5% threshold) remuneration costs from 1 October 2023, of which a 4% Actual met target Actual did not meet target Following three rounds of negotiations, we reached a collective cost-of-living adjustment was guaranteed for all managerial Given Eskom’s poor financial results over recent years, agreement with our trade unions for a period of three years employees and the remaining 3% was made available for Our group and company employment equity performance no incentive bonuses have been paid to employees to provide stability while we focus on the turnaround plan. managers to utilise their discretion and award to employees IR at senior management level, as well as at professional and since 2018. Furthermore, the conditions attached to the The agreement includes a 7% cost-of-living adjustment per based on performance, correcting income differentials and middle management levels, is set out in the statistical tables Government support we’ve received have limited our year for all bargaining unit employees, which shall apply from retaining high performers. on pages 162 to 165 autonomy around decisions related to remuneration and benefits, which may affect our ability to attract and ORGANISATIONAL EFFECTIVENESS Group racial equity at senior management level, as well as racial retain talent. No incentive bonuses were allowed to be We aim to drive organisational effectiveness and a sense of and gender equity at middle management/professionally qualified paid in the 2023 financial year. The conditions allow for belonging and connectedness to Eskom by fostering a high- levels have improved over the past year, although gender equity market-related remuneration adjustments, provided performance ethical culture, engaging with employees and at senior management level has worsened. Improving gender that they do not negatively impact Eskom’s financial offering a rich employee value proposition (EVP). equity and representation of persons living with disabilities across position. all occupational levels remain areas of focus. 136 137 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our people continued Our comprehensive EVP focuses on retention levers beyond Employee engagement initiatives continue to be delivered Effective performance management practices are important The employee assistance programme (EAP) continues to rewards and recognition, including providing market-related through various platforms, including leadership site visits, for enabling our aspirational culture and improving employee add value through counselling and psychosocial support remuneration packages and competitive benefits in terms of executive interviews and communiqués, together with morale. We are developing an integrated system of incentives programmes. Over the past year, mental health was identified leave, health and death benefits, learning and development employee events to promote recognition and celebrate success and consequence management, linked to key performance as the most common problem affecting employees who opportunities within South Africa and abroad, diverse career across the organisation. Internal communication platforms, indicators, to foster a high-performance ethical culture. We contacted the EAP. In response, we launched a digital opportunities and exposure to large-scale projects and new including digital publications and surveys, enable employees to continue to prioritise performance management to support a application, LiveWell, in March 2023 to aid employees in dealing technologies. To support employee wellbeing, flexible work stay up to date with business developments and engage with high-performing, productive workforce. with mental health and stress-related challenges. An EmpowerU practices have been implemented to allow qualifying employees initiative was implemented from April 2023, to support our leadership. Employees’ views and perceptions are valuable to work remotely with occasional on-site requirements, HEALTH AND WELLNESS employees with the stresses related to the changes taking for informing our people management strategies as we drive depending on operational needs and the type of work The health and wellbeing of our people are important to place in the organisation, and was subsequently expanded to performed. EVP wellness offerings include psychosocial our turnaround plan. These engagement initiatives all play a key provide psychosocial support to employees in preparation us. Our health and wellness programmes are intended to programmes and resources to help employees and their role in rebuilding morale by improving the sense of employees’ empower employees to make healthy and safe choices for the constrained winter months. The initiative is focused families prioritise physical and mental health as well as adapt connection to the business and one another. through prevention, treatment, care and support, education on leadership support and coaching, enhancing employee to the new way of work. Loyalty and reward programmes and partnership. The early detection and prevention of assistance programmes as well as strengthening of workplace have also been made available to employees to unlock financial SR Refer to Eskom’s 2023 sustainability report for further occupational and lifestyle diseases and injuries is managed relations, particularly with trade unions. savings with partnering companies. information on our employee engagement initiatives through periodic medical surveillance, fitness-for-duty assessments and other wellness initiatives. FOCUS ON SAFETY We remain committed to entrenching a culture of Zero Harm Levels of sick leave across the organisation remain well within and continue to pursue various initiatives, such as training and our tolerance levels. All employees with high absenteeism rates awareness, safety assessments, contractor workshops and are referred to Eskom clinics for assessment and support. public safety campaigns, to address safety risks. Our operations ESKOM CULTURE TRANSFORMATION PROGRAMME are subject to strict legal, regulatory and licence conditions relating to occupational health and safety. 1 1 6 10 Our response to the COVID-19 pandemic has been integrated into normal business operations, following We use the lost-time injury rate (LTIR) to assess our safety the relaxation of South Africa’s lockdown measures in performance, together with the number of fatalities among June 2022. employees and contractors. The LTIR target reflected in the table below indicates our tolerance level, as our true target is 1 Purpose 1 Aspirational culture 6 Culture cornerstones 10 Key levers of organisational culture zero, in line with our value of Zero Harm. Powering growth High-performance Accountability Empowerment Target Target Target Target Actual Actual Actual sustainably culture Operational Governance and ethics Measure and unit 2026 2024 2023 met? 2023 2022 2021 excellence Teamwork People prioritisation Engagement Fatalities (employees and contractors), number – – – 4 6 11 Financial prudence Fatalities (public), number – – – 16 21 20 Wellness Values-driven Technology Lost-time injury rate, index (including occupational diseases) 0.30 0.30 0.30 0.26 0.24 0.22 culture – groupSC Change agility Customer centricity Celebration Sadly, we recorded one employee fatality (2022: four) and three contractor fatalities (2022: two) during the year, despite our Leadership commitment to safety. The causes of these fatalities are shown below. Strategy 11 11 1 1 In February 2022, we launched Eskom’s 1:1:6:10 culture Since June 2022, Exco has adopted culture commitment KPIs transformation programme, which is a key enabler for for each division, in line with the six culture cornerstones. delivering a high-performance ethical culture to drive our Progress against these commitments is being tracked and turnaround plan. reported monthly through divisional culture dashboards. 2023 2022 As Eskom, we have one purpose – to power growth Over the past year, the majority of divisions have made sustainably – which can only be achieved by adopting a significant progress in adopting the 1:1:6:10 culture 22 2 transformation through the Eskom change agent network, 3 high-performance ethical culture. Our cultural aspiration is 3 2 which includes over 170 divisional change champions who are supported by six cornerstones which should be reflected in actively driving change management processes in each division. everything we do, including how employees interact with one The 1:1:6:10 culture transformation has also been embedded Electrical contact Fall from height another, and with our customers, suppliers, business partners, into our learning and development programmes and strategic Electrical contact Vehicle accidents key stakeholders and the public. These cornerstones are initiatives, including Eskom’s 2035 strategy, turnaround plan Struck by/caught between objects Inhalation of fumes supported by 10 culture levers that will foster our aspirational and the Just Energy Transition. We have held a total of high-performance culture over the medium to long-term. 87 leadership engagement sessions and 14 culture workshops to drive greater awareness, accountability and alignment across the organisation. 138 139 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our people continued IN MEMORIAM FUTURE FOCUS AREAS Driving a high-performance ethical culture through We offer our sincere condolences to Eskom’s culture transformation programme the families, friends and colleagues of the Implementing talent development programmes to following persons who lost their lives in improve leadership continuity, quality and stability as service to Eskom and our customers: well as succession planning Malusi Hutchinson Mabhude Improving consequence management and Thozamile Abram Malothani accountability to address non-compliance with Xolile Mvelase procedures, poor operational practices and discipline Gideon Jacobus Johannes Diederiks van Metzinger Becoming an employer of choice by improving processes and practices linked to remuneration and benefits, employee wellbeing and transformation The main causes of lost-time incidents are falls from the same level, occupational diseases, vehicle accidents and incidents Improving employee morale and reviewing related to being struck by or caught between objects. A total of performance management principles, while aligning to 23 occupational diseases were confirmed for the year (2022: 15). the conditions attached to the Eskom Debt Relief Act As in the past, these relate mainly to noise-induced hearing loss Building critical capabilities for a multi-skilled, incidents, which account for more than 70% of cases. flexible, innovative and diverse workforce, informed by Eskom’s skills audit Public fatalities are discussed under “Our role in Fostering a future-fit and productive organisation IR communities – Public safety” on page 145 that can adapt to future market needs and support the Just Energy Transition Managing employee benefit costs, in particular overtime Employing data analytics and digitisation to enhance employee productivity, reduce costs, enable more effective decision-making, and improve monitoring and reporting of human resource matters 140 141 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our role in communities VALUE CREATED Recorded total measured Connected 102 590 previously Approved 22 projects, grants Undertook socio-economic impact procurement spend (TMPS) of disadvantaged households and and donations to the value of assessment studies and launched R206.2 billion, of which 72.8% farm dweller houses to the grid R63 million, assisting 438 094 a pilot project for repowering and was spent with B-BBEE compliant (2022: 97 947) beneficiaries through CSI repurposing of Komati Power Station suppliers (2022: R176.8 billion and programmes to deliver on the Just Energy Transition 75.89%) VALUE PRESERVED VALUE ERODED Continued to exceed target customer service levels Failed to meet customer needs at times due to poor generating plant performance affecting reliability of Maintained a B-BBEE score of level 4, exceeding the supply shareholder target of level 6 Recorded 16 public fatalities, with electrical contact Contributed R3.67 billion to supplier development incidents being the primary cause through subcontracting to small and medium-sized enterprises (SMEs), against a shareholder target of Experienced a decline in customer numbers across R5 billion most categories Failed to achieve procurement equity spend targets for most supplier categories Eskom adds value to the lives of ordinary South to improve transparency and enhance our engagement with stakeholders as we transition to a Just Energy future, to rebuild Number of customers Africans through our commercial mandate, to provide electricity supply in an efficient and sustainable manner. and strengthen the public’s confidence and trust in Eskom. 7 250 000 We also have a duty to deliver on our developmental +1.5% responsibilities through economic empowerment, skills CUSTOMER CENTRICITY 7 000 000 +1.6% We are exploring the implementation of demand response development and transformation. We aim to enhance customer value and the customer +2.1% programmes for customers willing to reduce energy usage experience by embracing customer centricity through our 6 750 000 +3.4% during peak hours, electric vehicle charging programmes, 1:1:6:10 culture transformation programme. This entails as well as digitalisation, energy management and smart grid 7 074 672 We are committed to protecting members of the public from 6 969 164 services to empower customers and allow them to better 6 857 029 understanding customer needs, preferences and behaviours 6 500 000 exposure to the hazards of our operations and infrastructure. manage overall energy usage. 6 716 201 and utilising technology to deliver solutions that meet or 6 497 372 exceed our customers’ expectations. A company’s reputation affects its social licence to operate, 6 250 000 Effective tariff structures that meet both our and our its access to customers and the support it receives from its customers’ needs will also have to be developed. A pilot Customer service delivery is measured on a continuous basis stakeholders. We acknowledge that Eskom’s reputation has 6 000 000 programme has been running since 1 April 2021, to offer a using a range of perception-based surveys. 2019 2020 2021 2022 2023 declined significantly over the past decade and are striving “green” tariff to customers interested in purchasing renewable The growth in customer numbers has been steadily slowing in energy from Eskom at a premium. A pool of 300GWh of recent years. The number of residential customers increased renewable energy was offered per year. The pilot programme Target Target Target Target Actual Actual Actual during the year due to Eskom’s electrification programme, concluded on 31 March 2023; pricing structures and specifics of Measure and unit 2026 2024 2023 met? 2023 2022 2021 together with other new connections, although every other the planned offer are being developed based on findings from local customer category has experienced a decline year-on- the pilot. Key Customer Delight, % 80.0 80.0 80.0 88.4 85.0 86.2 year given the poor economic conditions being experienced. Customer Delight, index 3.6 3.0 3.0 3.6 3.6 3.5 Refer to https://www.eskom.co.za/eas/renewable-energy/ Detailed customer information, including sales per for further information IR customer category, is set out in the supplementary Key Customer Delight performance, which measures the outages and the resolution of customer issues or queries. We information on page 169 satisfaction of large industrial customers, remains above target. are pleased to have achieved our customer service targets OUR CONTRIBUTION TO SUPPLIER Regrettably, poor generating plant performance continues to and continue to enable ease of access by promoting the use of DEVELOPMENT impact reliability of supply for key customers. customer self-service channels. Customers are seeking greater energy independence by We support sustainable supplier development, localisation and supplementing their energy needs with renewable and other self- industrialisation by leveraging procurement spend to deliver The Customer Delight index is a composite customer generation options. Eskom intends to diversify its product and on Government’s policies and transformation objectives. Chat to Alfred, our friendly customer chatbot, at any time perception measure, based on customer satisfaction following service offering to meet customer needs and remain relevant, Regrettably, our contribution has been negatively impacted by a at https://alfred.eskom.co.za/chatroom/ interaction with customer care channels, and operational competitive and sustainable amid an evolving energy industry. lack of funding for socio-economic programmes, together with performance metrics related to billing accuracy, planned spend with suppliers who are not B-BBEE compliant. 142 143 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Our role in communities continued Eskom’s B-BBEE certificate was renewed in January 2023. We Group and company procurement equity performance is JUST ENERGY TRANSITION By 2030, the Komati repowering and repurposing project is IR maintained a B-BBEE recognition level of 100% and a B-BBEE set out in the non-technical statistical tables on pages 162 We define our Just Energy Transition as a transition towards a expected to create approximately 430 full-time jobs, 7 700 status of level 4, which is an affirmation of our commitment to to 165 low-carbon, climate-resilient economy and society in a manner temporary jobs and train 200 people annually. In total, 370MW South Africa’s transformation agenda despite our challenges. that secures the future and livelihoods of workers and their of renewable energy – including wind and solar – and battery Procurement spend with black-owned and black youth-owned communities. To do so in a manner that is “just” requires us to storage is planned to be deployed at Komati. Our contribution to nation building includes enterprise and ensure socio-economic development is not eroded and that suppliers declined to 42.48% (2022: 47.08%) and 4.26% (2022: supplier development initiatives agreed with the shareholder. sustainable jobs are created throughout this transition. PUBLIC SAFETY 5.40%) of TMPS respectively, but achieved the targets of 40% Enterprise development was negatively impacted by a lack We are committed to entrenching a culture of Zero Harm, and 2% for the year. Regrettably, targets for procurement of funding to implement meaningful interventions, such as which includes the safety of the public. Sadly, we recorded spend with black women-owned suppliers, black persons living IR Refer to “Our strategic context – Our strategy and incubations for SMEs. The only initiatives we could deliver 16 public fatalities, excluding coal haulage incidents, during the with disabilities, qualifying small enterprises and exempted turnaround plan” on page 42 for more information during the year were supplier workshops, most of which were year (2022: 21), with 13 due to electrical contact. enterprises were not met due to previously compliant suppliers held online. Supplier development is largely dependent on choosing not to renew their B-BBEE certificates. In support of this strategy, we have commissioned socio- subcontracting by main suppliers to SMEs; performance was We continue to conduct nationwide public safety campaigns negatively affected by limited subcontracting opportunities. We economic impact assessment (SEIA) studies to understand the to educate the public on how to use electricity safely and Furthermore, Eskom’s TMPS includes procurement spend on have developed an enterprise and supplier development plan impact of the decommissioning, repurposing and repowering of correctly, including raising awareness about the hazards of renewable IPP contracts with entities that are not B-BBEE to address performance going forward. power stations on the economy and society within surrounding illegal connections and overloading electrical plugs, and the compliant, which affects overall performance on procurement communities. The initial studies were conducted at Komati, risk of purchasing prepaid electricity from ghost vendors. Our equity measures. These contracts were concluded in terms LOCAL CONTENT Hendrina and Grootvlei power stations in Mpumalanga. The safety campaigns also encourage the public to report and avoid of DMRE’s Renewable Energy Independent Power Producer Komati SEIA was published and public consultations on the low-hanging power lines, meter tampering and vandalism of Awarded 1 424 contracts worth R70.1 billion (RE-IPP) Programme, over which Eskom had no control. outcomes concluded, while the draft reports for the Hendrina electrical infrastructure in their communities. Eskom-wide local content contracted of R61 billion and Grootvlei studies have been prepared but are not yet We are seeking to resolve the classification of IPP expenditure (87.02%) published. Studies for Camden, Arnot, Kriel, Matla, Duvha, with DMRE and the Department of Trade, Industry and Tutuka and Kendal have been completed. With support from the Department of Basic Education, Competition or to reduce procurement equity targets in line 217 contracts contributed local content and local Eskom made electricity safety material available on the with the planned growth of IPPs. manufacturing in designated sectors The Komati Power Station SEIA study can be accessed E-Classroom website for teachers, parents and learners Local content for designated sectors of R41.4 billion online to access as a free resource. (59.09%) The proposed socio-economic solutions are multi-faceted and seek to mitigate the negative effects of the energy transition through upskilling and reskilling of staff and qualifying FUTURE FOCUS AREAS MAXIMISING OUR SOCIO-ECONOMIC CONTRIBUTION Restoring our reputation and the public’s confidence beneficiaries from surrounding communities, together with the Target Target Target Target Actual Actual Actual development of local enterprises and value chains to support and trust in Eskom Measure and unit 2026 2024 2023 met? 2023 2022 2021 South Africa’s renewable energy and alternative green industries. Diversifying our product and service offerings to Altogether, we are targeting the upskilling of 2 400 beneficiaries adapt to changing customer needs Total electrification connections, number SC 266 174 85 474 101 899 102 590 97 947 106 669 from surrounding communities in Mpumalanga through various Improving reliability of supply, restoration time and Corporate social investment committed spend, R millionSC 425.0 137.3 131.0 63.0 75.1 67.4 initiatives over the next three years. billing accuracy to aid in customer retention Corporate social investment, number of beneficiaries 3 106 250 750 000 725 000 438 094 785 085 802 635 Implementing an enterprise and supplier KOMATI REPOWERING AND REPURPOSING development strategy for industrialisation initiatives 1. The 2026 target is the cumulative target over the next three years. With the shutdown of Komati Power Station’s last coal-fired unit in October 2022, the station is serving as a pilot for the Improving procurement equity performance repowering and repurposing of a power station on Eskom land with designated groups by reducing B-BBEE ELECTRIFICATION CORPORATE SOCIAL INVESTMENT using existing infrastructure. The pilot includes the installation non-compliant spend Since 1991, we have connected approximately 5.9 million The Eskom Development Foundation NPC (the Foundation), of agrivoltaic plant, to demonstrate the simultaneous use of Expanding electricity access to rural and remote previously disadvantaged households and farm dweller houses our wholly owned subsidiary, is responsible for delivering key land for power generation and agriculture, a microgrid assembly areas through containerised microgrids in our licensed areas of supply through DMRE’s Integrated developmental objectives in the communities in which we plant, as well as a renewable energy training facility. The training Leveraging strategic partnerships to achieve greater National Electrification Programme. This programme enables operate and maximising the impact of our socio-economic facility was launched in September 2022, while development CSI impacts Eskom to provide a direct contribution to delivering universal contribution. CSI initiatives focus on improving quality of life of the strategy for the microgrid assembly plant is in progress. access to electricity in South Africa. through rural infrastructure development, skills development, Construction of the 500kW agrivoltaic plant was completed Establishing a grant funding process to enable business incubation, education, social upliftment, health, in the second quarter of the 2024 financial year and is now crowdsourcing of low-cost, sustainable energy Several challenges prevent the electrification of rural parts of philanthropy and welfare programmes. awaiting commissioning. Completion of the aquaponics system, solutions for communities the country, including the high cost of extending the electricity together with community training on the use of the system, is Delivering on the Komati repurposing and network to remote areas, mostly due to difficult terrain and Unfortunately, inadequate technical oversight on infrastructure- targeted for February 2024. repowering project and concluding socio-economic the low density of rural populations. related initiatives and insufficient resources continue to prevent impact assessments in support of our JET strategy us from executing all of our planned initiatives on time. The The establishment of community-based agricultural small, Based on the success of our containerised microgrid pilot Continuing to raise awareness and educate the Foundation remains committed to optimising the value, impact medium and micro enterprises is also under way, with up to projects in Ficksburg, Free State and Lynedoch, Western Cape, public on the safe and correct use of electricity and sustainability of its programmes given financial constraints. 100 community members being screened to participate in we are planning the deployment of microgrids to provide the pilot. The community will undergo training on enterprise electricity to rural and remote areas which are difficult to A selection of our flagship CSI projects is highlighted in development, ethics, basic finance and small business reach or expensive to electrify through conventional means. SR Eskom’s sustainability report, which is available online operations. In July 2023, we successfully commissioned a microgrid in Swartkopdam, Northern Cape, providing clean and reliable electricity to 39 households. A total of 216 microgrid installations are targeted over the next five years. 144 145 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Abbreviations AEL Atmospheric emissions licence ARC Audit and Risk Committee B-BBEE Broad-based black economic empowerment BOPC Business Operations Performance Committee CAGR Compound annual growth rate CCMA Council for Conciliation, Mediation and Arbitration COGTA Department of Cooperative Governance and Traditional Affairs CSA Coal supply agreement CSI Corporate social investment DFFE Department of Forestry, Fisheries and the Environment DFI Development finance institution DWS Department of Water and Sanitation DMRE Department of Mineral Resources and Energy DoA Delegation of authority DPE Department of Public Enterprises EAF Energy availability factor (see glossary) EBITDA Earnings before interest, taxation, depreciation and amortisation and fair value adjustments ECA Export credit agency ERI Eskom Rotek Industries SOC Ltd ESP Electrostatic precipitator EUF Energy utilisation factor (see glossary) Exco Executive Management Committee FFP Fabric filter plant FGD Flue gas desulphurisation GCE Group Chief Executive GCFO Group Chief Financial Officer GCOO Group Chief Operating Officer Supplementary GDP Gross domestic product GE Group executive GW Gigawatt = 1 000 megawatts information GWh Gigawatt-hour = 1 000MWh GSC Governance and Strategy Committee (formerly Board Strategy Committee) HCR Human Capital and Remuneration Committee (formerly People and Governance Committee) IEA International Energy Agency IFC Investment and Finance Committee 147 Abbreviations 149 Glossary of terms 152 Leadership qualifications and directorships IFRS International Financial Reporting Standards 156 Board and Exco meeting attendance 158 Statistical tables 166 Plant information IPP Independent power producer (see glossary) IRP Integrated Resource Plan 169 Customer information 170 Environmental implications of using or saving electricity King IV TM King IV Report on Corporate Governance for South Africa, 2016 kℓ Kilolitre = 1 000 litres 171 Sustainability KPIs selected for reasonable assurance KPI Key performance indicator kt Kiloton = 1 000 tons 174 Independent sustainability assurance report kV Kilovolt = 1 000 volts kWh Kilowatt-hour = 1 000 watt-hours (see glossary) 177 PFMA and procurement information required by National Treasury IBC Contact details kWhSO Kilowatt-hour sent out 146 147 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Abbreviations continued Glossary of terms LPU Large power user LTIR Lost-time injury rate (see glossary) Arrear debt as percentage of Gross arrear debt written off (relating to electricity receivables only) divided by gross electricity revenue MES Minimum Emission Standards revenue multiplied by 100 Mℓ Megalitre = 1 million litres Base-load plant Largely coal-fired and nuclear power stations, designed to operate continuously MOI Memorandum of Incorporation Cash interest cover (ratio) Provides a view of the company’s ability to satisfy the interest burden on its borrowings by utilising cash mSv Millisievert generated from operating activities. It is calculated as net cash from operating activities divided by net interest paid (interest paid on financing activities less interest received from financing activities) Mt Million tons MVA Megavolt-ampere Current 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, payments received in advance, MW Megawatt = 1 million watts provisions, employee benefit obligations and taxation liabilities) MWh Megawatt-hour = 1 000kWh Daily peak Maximum amount of energy demanded by consumers in one day MWhSO Megawatt-hour sent out Debt/equity including long-term Net financial assets and liabilities plus non-current retirement benefit obligations and non-current MYPD Multi-year price determination provisions provisions divided by total equity NDP National Development Plan 2030 Debt service cover (ratio) Cash generated from operations divided by (net interest paid from financing activities plus debt NERSA National Energy Regulator of South Africa securities and borrowings repaid) NNR National Nuclear Regulator Decommission To remove a facility (e.g. reactor) from service and either store it safely or dismantle it OCGT Open-cycle gas turbine (see glossary) Demand side management Planning, implementing and monitoring activities to encourage consumers to use electricity more efficiently, including both the timing and level of demand OCLF Other capability loss factor OEM Original equipment manufacturer EBITDA margin EBITDA as a percentage of revenue (excluding revenue not recognised due to uncollectability) OHS Occupational health and safety Electricity operating costs per Electricity-related costs (primary energy costs, employee benefit costs plus net impairment loss and MWh other operating expenses, less other income) divided by total electricity sales in GWh multiplied by PAIA Promotion of Access to Information Act, 2000 1 000 PAJA Promotion of Administrative Justice Act, 2000 Electricity revenue per kWh Electricity revenue (including electricity revenue not recognised due to uncollectability) divided by total PCLF Planned capability loss factor kWh sales multiplied by 100 PFMA Public Finance Management Act, 1999 Embedded derivative Financial instrument that causes cash flows that would otherwise be required by modifying a contract PPA Power purchase agreement according to a specified variable such as currency PV (Solar) photovoltaic Energy availability factor (EAF) Measure of power station availability, taking account of energy losses not under the control of plant management and internal non-engineering constraints RCA Regulatory clearing account Energy efficiency Programmes to reduce energy used by specific end-use devices and systems, typically without affecting RE-IPP Renewable energy independent power producer services provided RMIPPPP Risk Management Independent Power Producer Procurement Programme Energy utilisation factor (EUF) Ratio of actual electrical energy produced during a period of time divided by the total available energy SADC Southern African Development Community capacity. It is a measure of the degree to which the available energy capacity of an electricity supply SAIDI System average interruption duration index network is utilised. Available energy capacity refers to the capacity after all unavailable energy (planned and unplanned energy losses) has been taken into account, and represents the net energy capacity made SAIFI System average interruption frequency index available to the System Operator or national grid SALGA South African Local Government Association Fatality A fatality is an incident occurring at work, or arising out of or in connection with the activities of SAPP Southern African Power Pool persons at work, or in connection with the use of plant or machinery, in which or in consequence of which, any person (an employee, contractor, or member of the public) dies, regardless of the time SARS South African Revenue Service intervening between the injury and/or exposure to the cause and death. The date of the incident will SCOA Standing Committee on Appropriations reflect the date on which the incident occurred, irrespective of the date of death SCOPA Standing Committee on Public Accounts Forced outage Shutdown of a generating unit, transmission line or other facility for emergency reasons or a condition in SES Social, Ethics and Sustainability Committee which generating equipment is unavailable for load due to unanticipated breakdown SIU Special Investigating Unit Free basic electricity Amount of electricity deemed sufficient to provide basic electricity services to a poor household (50kWh per month) SOC State-owned company SPU Small power user Free funds from operations Cash generated from operations adjusted for working capital TMPS Total measured procurement spend Gross debt Debt securities and borrowings plus finance lease liabilities plus the after-tax effect of provisions and employee benefit obligations UAGS Unplanned automatic grid separations Gross debt/EBITDA ratio Gross debt divided by earnings before interest, taxation, depreciation, amortisation and fair value UCLF Unplanned capability loss factor (see glossary) adjustments WANO World Association of Nuclear Operators 148 149 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Glossary of terms continued Independent non-executive A director who: Return on assets EBIT divided by the regulated asset base, which is the sum of property, plant and equipment, trade and director • Is not a full-time salaried employee of the company or its subsidiary other receivables, inventory and future fuel, less trade and other payables and deferred income • Is not a shareholder representative Sustainability Refers to practices that can be maintained without harming the environment, society or the economy, • Has not been employed by the company and is not a member of the immediate family of an individual and considers future generations. It involves finding a balance between the needs of the present and the who is or has been, in any of the past three financial years, employed by the company in any executive ability of future generations to meet their own needs capacity System minutes Global benchmark for measuring the severity of interruptions to customers. One system minute is • Is not a professional advisor to the company equivalent to the loss of the entire system for one minute at annual peak. A major incident is an • Is not a significant supplier or customer of the company interruption with a severity ≥1 system minute • Is not receiving remuneration contingent on the performance of the company Technical losses Naturally occurring losses that depend on the power systems used Independent power producer Any entity, other than Eskom, that owns or operates, in whole or in part, one or more independent (IPP) power generation facilities Unit capability factor (UCF) Measure of availability of a generating unit, indicating how well it is operated and maintained Kilowatt-hour (kWh) Basic unit of electric energy equal to one kilowatt of power supplied to or taken from an electric circuit Unplanned capability loss factor Energy losses due to outages are considered unplanned when a power station unit has to be taken out steadily for one hour (UCLF) of service and it is not scheduled at least four weeks in advance Load Amount of electric power delivered or required on a system at any specific point Used nuclear fuel Nuclear fuel irradiated in and permanently removed from a nuclear reactor. Used nuclear fuel is stored on site in used fuel pools or storage casks Load curtailment Typically, larger industrial customers reduce their demand by a specified percentage for the duration of a power system emergency. Due to the nature of their business, these customers require two hours’ Watt The watt is the International System of Units’ (SI) standard unit of power. It specifies the rate at which notification before they can reduce demand electrical energy is dissipated (energy per unit of time) Load management Activities to influence the level and shape of demand for electricity so that demand conforms to the Wheeling Refers to the movement of electricity between international customers through Eskom’s network, present supply situation, long-term objectives and constraints without the power being available to customers on the South African grid Loadshedding Scheduled and controlled power cuts that rotate available capacity between all customers when demand is greater than supply in order to avoid blackouts. Distribution or municipal 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 injured employee or contractor unable to perform his/her regular/normal work on one or more full calendar days or shifts other than the day or shift on which the injury occurred. It includes occupational diseases and fatalities Lost-time injury rate (LTIR) Proportional representation of the occurrence of lost-time injuries over 12 months per 200 000 working hours Major incident An interruption with a severity ≥1 system minute Maximum demand Highest demand of load within a specified period Non-technical losses Energy losses due to electricity theft through illegal connections, tampering and bypassing of electricity meters as well as the purchase of electricity tokens from unregistered or illegal vendors. It includes meter reading and billing errors Occupational disease/illness Any confirmed disease/illness arising out of, and in the course of, an employee’s employment, that is listed in Schedule 3 of the Compensation for Occupational Injuries and Diseases (COID) Act, 1993, or any other condition as determined by an occupational medical practitioner Off-peak Period of relatively low system demand Open-cycle gas turbine (OCGT) Liquid fuel turbine power station that forms part of peak-load plant and runs on kerosene or diesel. Designed to operate in periods of peak demand Outage Period in which a generating unit, transmission line, or other facility is out of service Peak demand Maximum power used in a given period, traditionally between 7:00 and 10:00 as well as 18:00 to 20:00 in summer; and 6:00 to 9:00 as well as 17:00 to 19:00 in winter Peaking capacity Generating equipment normally operated only during hours of highest daily, weekly or seasonal loads Peak-load plant Gas turbines, hydroelectric or a pumped storage scheme used during periods of peak demand Primary energy Energy in natural resources, e.g. coal, diesel, uranium, sunlight, wind and water Pumped storage scheme A lower and an upper reservoir with a power station/pumping plant between the two. During off-peak periods the reversible pumps/turbines use electricity to pump water from the lower to the upper reservoir. During periods of peak demand, water runs back into the lower reservoir through the turbines, generating electricity Reserve margin Difference between net system capability and the system’s maximum load requirements (peak load or peak demand) 150 151 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Leadership qualifications and directorships Mr Clive (CR) le Roux (71) Mr Bheki (B) Ntshalintshali (69) BOARD OF DIRECTORS Independent non-executive director Independent non-executive director at 31 March 2023 Appointed to Board in October 2022 Appointed to Board in October 2022 Mr Mpho (PM) Makwana (52) Dr Rod (RdeB) Crompton (70) Qualifications and designations Qualifications and designations Chairman Independent non-executive director B Sc Electrical Engineering (cum laude) Comparative Industrial Relations Independent non-executive director Appointed to Board in January 2018 (University of Witwatersrand) (Ruskin College) Appointed to Board in October 2022 Advanced Executive Diploma in Diploma in Industrial Relations Qualifications and designations Leadership (Unisa) (Allenby College) Qualifications and designations BA (University of KwaZulu-Natal) B Admin (Hons) (University of Pretoria) Diploma in Higher Education Directorships Directorships Postgraduate Diploma in Retail (University of KwaZulu-Natal) None Cubah Properties (Pty) Ltd Management (University of Stirling) BA (Hons) (University of KwaZulu-Natal) National Labour and Economic Development Institute NPC Ph D Humanities (University of Ms Ayanda (APZ) Mafuleka (43) Directorships KwaZulu-Natal) Independent non-executive director Dr Mteto (M) Nyati (58) ArcelorMittal South Africa Ltd Independent non-executive director Boardroom Alliance (Pty) Ltd Directorships Appointed to Board in October 2022 Boardroom Alliance Africa (Pty) Ltd South African National Energy Association (SANEA) Appointed to Board in October 2022 BTE Renewables (Pty) Ltd Qualifications and designations B Com Management (University of Qualifications and designations Epitome Investments (Pty) Ltd B Sc Mechanical Engineering Invicta Holdings Ltd Ms Fathima (FBB) Gany-Ahmed (47) KwaZulu-Natal) Independent non-executive director B Compt (Hons) (Unisa) (University of KwaZulu-Natal) Limpopo Economic Development Agency Ph D (Honoris Causa) Information Nedbank Group Ltd Appointed to Board in October 2022 Chartered Accountant (SA) Certificate in Advanced Financial Technology Management (University of Platinum Group Metals Ltd Johannesburg) South African Forestry Company SOC Ltd Qualifications and designations Management (University of Johannesburg) B Accounting Sciences (Unisa) Directorships B Compt (Hons) (Unisa) Directorships Accelerated Growth Partners (Pty) Ltd Mr Calib (C) Cassim (51) Certificate of Theory in Accounting (Unisa) Lighting Hope Joy Holdings (Pty) Ltd Ammoa (Pty) Ltd Acting Group Chief Executive Chartered Accountant (SA) Rand Water Foundation NPC Business Systems Group (Africa) (Pty) Ltd Executive director Advanced Certificate in Auditing Massmart Holdings Ltd Appointed to Board in July 2017 Certificate in Strategy Design (GIBS) Mr Leslie (LA) Mkhabela (50) Nedbank Group Ltd Certificate in Strategy Execution (GIBS) Independent non-executive director Northern Jungle Trading 270 (Pty) Ltd Qualifications and designations Telkom SA SOC Ltd B Com (University of KwaZulu-Natal) Directorships Appointed to Board in October 2022 Wazo Investments (Pty) Ltd B Accounting Sciences (Unisa) Kunjali Consulting (Pty) Ltd Kunjali Investment Holdings (Pty) Ltd Qualifications and designations Chartered Accountant (SA) South African Airways SOC Ltd B Juris (University of Limpopo) Ms Tryphosa (T) Ramano (51) Master of Business Leadership (Unisa) South African Post Office SOC Ltd LLB (University of Limpopo) Independent non-executive director Directorships Directorships Escap SOC Ltd Appointed to Board in October 2022 China Africa Joint Arbitration Centre Eskom Enterprises SOC Ltd Mr Lwazi (LL) Goqwana (47) Johannesburg NPC Qualifications and designations Eskom Finance Company SOC Ltd Independent non-executive director Dunocol (Pty) Ltd B Com (University of Cape Town) National Transmission Company South Africa SOC Ltd Mkhabela Huntley Attorneys Inc Postgraduate Diploma in Accounting Appointed to Board in October 2022 Jordigraph (Pty) Ltd (University of Cape Town) Mr Martin (JM) Buys (65) Qualifications and designations Khomanani Group (Pty) Ltd Chartered Accountant (SA) Acting Group Chief Financial Officer B Sc (Hons) Mechanical Engineering The Arbitration Foundation of Southern Africa NPC Executive director (University of Cape Town) Directorships Denel SOC Ltd Appointed to Board in March 2023 MBA (Milpark Business School) Dr Tsakani (TL) Mthombeni (43) GBVF Response Fund1 NPC Pr Eng (Engineering Council of Independent non-executive director Hiroscope (Pty) Ltd Qualifications and designations B Com (University of North West) South Africa) K2021862248 (South Africa) (Pty) Ltd Appointed to Board in October 2022 B Rat (University of North West) Kwaheri Psychiatry (Pty) Ltd Directorships Longmarket Capital Chartered Accountant (SA) Qualifications and designations Infrastructure Specialist Group (Pty) Ltd Magommake Legacy (Pty) Ltd Master of Business Leadership (Unisa) B Sc (Hons) Electrical Engineering Lavipix (Pty) Ltd Public Investment Corporation SOC Ltd M Com Taxation (University of Pretoria) (University of Cape Town) National Society of Black Engineers of South Africa NPC Solidarity Response Fund NPC M Sc Electrical Engineering Directorships Paminar (Pty) Ltd Tumaini Psychiatry (Pty) Ltd (Clarkson University) Eskom Rotek Industries SOC Ltd Rocla (Pty) Ltd The International Women’s Forum South Africa NPC Ph D Electrical Engineering Technicrete ISG (Pty) Ltd Urithi Psychiatry (Pty) Ltd (Clarkson University) Technicrete Mining Services (Pty) Ltd University of Pretoria Zepide Group (Pty) Ltd Directorships KPTL Investments (Pty) Ltd Mr Mpho Makwana will step down as Chairman of the Board at the end of October 2023, having served one year in the position. Thereafter, Dr Mteto Nyati will take over. Ages are shown at 31 March 2023. Mr Martin Buys, acting Group Chief Financial Officer, was appointed as an executive director on 21 March 2023. Only active directorships and memberships are reflected. 152 153 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Leadership qualifications and directorships continued BOARD OF DIRECTORS continued EXECUTIVE MANAGEMENT COMMITTEE at 31 March 2023 at 31 March 2023 Dr Busisiwe (B) Vilakazi (39) Mr Calib (C) Cassim (51) Ms Faith (FS) Burn (54) Ms Elsie (EM) Pule (55) Independent non-executive director Acting Group Chief Executive Chief Information Officer Group Executive: Human Resources Appointed to Board in October 2022 Appointed to Exco in July 2017 Appointed to Exco in May 2020 Appointed to Exco in November 2014 Qualifications and designations 21 years in Eskom 2 years in Eskom 25 years in Eskom B Sc Electrical Engineering (University of Witwatersrand) Qualifications and designations Qualifications and designations Qualifications and designations M Sc Engineering B Com (University of KwaZulu-Natal) B Sc Mathematics and Computer Science BA Social Work (University of the North) (University of Witwatersrand) B Accounting Sciences (Unisa) (University of Johannesburg) BA (Hons) Psychology MBA (University of Witwatersrand) Chartered Accountant (SA) B Sc (Hons) Mathematics (University of Pretoria) Ph D Engineering Science Master of Business Leadership (Unisa) (University of Johannesburg) M Sc Business Engineering (University of Oxford) M Sc Mathematics (University of Johannesburg) (Warwick University) Directorships Directorships Escap SOC Ltd Master of Business Leadership (Unisa) Directorships Macsteel Service Centres SA (Pty) Ltd Eskom Enterprises SOC Ltd Certified Internal Auditor (CIA) Eskom Finance Company SOC Ltd Madzivha a Vhumatshelo NPC Eskom Finance Company SOC Ltd Directorships Eskom Rotek Industries SOC Ltd Milpark Bee Investment (Pty) Ltd National Transmission Company South Africa SOC Ltd Hlahlamelisa International Ministry NPC Ndilantswa Group (Pty) Ltd Kingdom Consultant Center NPC Ms Jainthree (J) Sankar (51) Stadio Holdings Ltd Mr Martin (JM) Buys (65) South African National Blood Services NPC (SANBS) Chief Procurement Officer Vhathabi Consulting (Pty) Ltd Acting Group Chief Financial Officer Appointed to Exco in March 2021 Appointed to Exco in March 2023 Ms Mel (M) Govender (41) Dr Claudelle (C) von Eck (52) Group Executive: Legal and 29 years in Eskom Independent non-executive director 36 years in Eskom Compliance Qualifications and designations Appointed to Board in October 2022 Qualifications and designations Appointed to Exco in October 2021 B Com (Unisa) Qualifications and designations B Com (University of North West) B Com (Hons) Business (Unisa) B Rat (University of North West) 1 year in Eskom National Diploma in Electrical Engineering BA Psychology (University of Witwatersrand) Chartered Accountant (SA) Qualifications and designations (Durban University of Technology) Diploma in Business Management Master of Business Leadership (Unisa) LLB (University of KwaZulu-Natal) MBA Sustainable Business (Institute of Accounting and Commerce) M Com Taxation (University of Pretoria) (University of Southern Queensland) Certified director Directorships Directorships Master of Project Management Eskom Rotek Industries SOC Ltd None (University of Southern Queensland) Master of Business Leadership (Unisa) D Phil Leadership (Change Management) Directorships (University of Johannesburg) Mr Jan (JA) Oberholzer (64) Ms Nthato (N) Minyuku (44) None Directorships Group Chief Operating Officer Group Executive: Government Brave Inflexions (Pty) Ltd and Regulatory Affairs Mapungubwe Institute for Strategic Reflection NPC Appointed to Exco in July 2018 Mr Vuyolwethu (V) Tuku (47) Appointed to Exco in October 2020 Group Executive: Transformation MVE Horizons Human Capital Solutions cc 30 years in Eskom 2 years in Eskom Management Office (including from 1983 to 2008) Qualifications and designations Qualifications and designations Appointed to Exco in July 2020 B Sc Electrical Engineering B Architectural Studies 2 years in Eskom (University of Pretoria) (University of Witwatersrand) Master of Business Leadership (Unisa) Master of City Planning and Urban Design Qualifications and designations Executive Program (University of Michigan) (University of Cape Town) B Sc Electrical Engineering Leadership in Context (GIBS) (University of Cape Town) Directorships Directorships MBA (University of Witwatersrand) Eskom Enterprises SOC Ltd South African Maritime Safety Authority Eskom Rotek Industries SOC Ltd Directorships Jafram Projects (Pty) Ltd Genesis Strategy Partners Wild Senna Investments (Pty) Ltd Ms Nthato Minyuku and Ms Mel Govender resigned in April 2023, and exited Eskom on 30 April and 30 June 2023 respectively. Ms Natasha Sithole and Ms Winile Madonsela are acting in the respective positions while the recruitment processes are under way. Ages are shown at 31 March 2023. Mr Jan Oberholzer’s term came to an end on 30 April 2023 when he reached retirement age. The Group Chief Operating Officer position was removed from the organisational structure thereafter. Only active directorships and memberships are reflected. 154 155 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Board and Exco meeting attendance ATTENDANCE AT BOARD AND COMMITTEE MEETINGS ATTENDANCE AT EXCO MEETINGS for the year ended 31 March 2023 for the year ended 31 March 2023 Business Human Social, Number Audit Operations Governance Capital and Investment Ethics and of meetings and Risk Performance and Strategy Remuneration and Finance Sustainability Members Divisional responsibility attended Members Board Committee Committee Committee1 Committee2 Committee Committee Total number of meetings 15 Total number of meetings 22 17 5 9 7 15 5 Current executives Current directors Mr Calib Cassim1 Acting Group Chief Executive 15/15 Non-executive directors Mr Martin Buys2 Acting Group Chief Financial Officer 5/5 Mr Mpho Makwana (Chairman)3 16/17* 7/7* Mr Jan Oberholzer3 Group Chief Operating Officer 14/15 Dr Rod Crompton 21/22 17/17 5/5 2/2 3/3 Ms Fathima Gany-Ahmed 16/17 12/12* 7/7 5/5 3/3 Ms Faith Burn Chief Information Officer 13/15 Mr Lwazi Goqwana 16/17 4/5 8/10 Ms Mel Govender 4 Group Executive: Legal and Compliance 13/15 Mr Clive le Roux 16/17 5/5 5/5 9/10 3/3 Ms Nthato Minyuku 4 Group Executive: Government and Regulatory Affairs 13/15 Ms Ayanda Mafuleka 12/17 10/12 3/5 Ms Elsie Pule Group Executive: Human Resources 12/15 Mr Leslie Mkhabela 16/17 11/12 5/5 3/3 Ms Jainthree Sankar Chief Procurement Officer 12/15 Dr Tsakani Mthombeni 16/17 5/5 9/10 3/3 Mr Vuyolwethu Tuku Group Executive: Transformation Management Office 15/15 Mr Bheki Ntshalintshali 16/17 6/7 4/5 3/3* Former executives Dr Mteto Nyati 17/17 5/5* 6/7 5/5 7/10 Mr André de Ruyter Former Group Chief Executive 9/10 Ms Tryphosa Ramano 15/17 2/5 5/7 10/10* Dr Busisiwe Vilakazi 17/17 11/12 5/5 3/3 1. Mr Calib Cassim, Group Chief Financial Officer, was appointed as acting Group Chief Executive with effect from 24 February 2023. 2. Mr Martin Buys was appointed as acting Group Chief Financial Officer with effect from 10 March 2023. Mr Buys was subsequently appointed as an executive Dr Claudelle von Eck 17/17 12/12 7/7 5/5* 2/3 director, in the position of acting Group Chief Financial Officer, on 21 March 2023. Executive directors 3. Mr Jan Oberholzer’s term came to an end on 30 April 2023 when he reached retirement age. The Group Chief Operating Officer position was removed from the organisational structure thereafter. Mr Calib Cassim 21/22 <16/17> <0/2> <8/8> <4/6> <13/15> 4. Ms Nthato Minyuku and Ms Mel Govender resigned in April 2023, and exited Eskom on 30 April and 30 June 2023 respectively. Ms Natasha Sithole and Ms Winile Madonsela are acting in the respective positions while the recruitment processes are under way. Mr Martin Buys4 <1/1> <2/2> <2/2> <1/1> <1/2> Former directors Prof. Malegapuru Makgoba 5 5/5 2/2 2/2 2/2 Dr Banothile Makhubela5 4/5 5/5 2/2 Ms Busisiwe Mavuso6 3/5 1/2 5/5 Dr Pulane Molokwane 5 2/5 5/5 2/2 Prof. Tshepo Mongalo5 4/5 4/5 2/2 Mr André de Ruyter7 18/18 <7/15> <2/2> <4/6> <2/5> <5/9> <2/5> Attendance as reflected above refers to directors who were members of that committee during the year to 31 March 2023 and reflects changes in committee composition during the year. The number of meetings excludes in-committee meetings and workshops. * denotes the chair of the Board or committee at 31 March 2023. <> denotes meetings attended as an official. 1. Following the appointment of the new Board on 1 October 2022, the committee’s mandate was revised to include governance-related matters previously dealt with at the People and Governance Committee. The name of the committee was changed from the Board Strategy Committee to the Governance and Strategy Committee. 2. Following the appointment of the new Board on 1 October 2022, the committee’s mandate was revised and the name of the committee was changed from the People and Governance Committee to the Human Capital and Remuneration Committee. 3. Resigned as Chairman of the Board at the end of October 2023, having served one year in the position. Thereafter, Dr Mteto Nyati will take over. 4. Appointed as an executive director, in the position of acting Group Chief Financial Officer, on 21 March 2023. 5. Term ended on 30 September 2022. 6. Resigned on 27 September 2022. 7. Resigned in December 2022 and agreed to serve an extended notice period until 31 March 2023. The Board and Mr De Ruyter subsequently reached a mutual agreement to revert to the original notice period of 28 February 2023. He was not required to serve the balance of his notice period and was released with immediate effect on 22 February 2023. 156 157 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Technical statistics Measure and unit 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Customer statistics Arrear debt as % of revenue, % 4.80 3.91 3.24 3.69 4.30 RA 2.73RA 2.42 1.14 2.17 1.10 Debtors days – municipalities, average debtors days 179.3 149.6 140.7 116.1 94.3 RA 76.6RA 53.3RA 42.9 47.6 32.7 Debtors days – large power top customers excluding disputes, average debtors days 14.5 14.6 15.0 14.6 13.5RA 13.9RA 15.3RA 15.5 16.8 14.5 Debtors days – other large power users (<100GWh p.a.), average debtors days 16.3 17.5 17.5 17.0 17.2RA 16.6RA 16.8 RA 16.2 17.0 16.9 Debtors days – small power users (excluding Soweto), average debtors days 46.2 47.7 50.1 44.1 42.6RA 43.4 RA 48.8 RA 48.2 49.1 50.2 Key Customer Delight, %1 88.4 85.0 86.2 81.5 81.7 79.5 107.0 104.3RA 108.7 108.7 Sales and revenue Total sales, GWh2 188 401 198 281 191 852 205 635 208 319 212 190 214 121 214 487 216 274 217 903 (Reduction)/growth in GWh sales, % (5.0) 3.4 (6.7) (1.3) (1.8) (0.9) (0.2) (0.8) (0.7) 0.6 Electricity revenue, R million 257 837 244 461 202 644 197 307 177 312 174 905 175 094 161 688 146 268 136 869 Growth in revenue, % 5.5 20.6 2.7 11.3 1.4 (0.1) 8.3 10.5 6.9 8.1 Electricity output Power sent out by Eskom stations, GWh (net) 191 307 205 688 201 400 214 968 218 939 221 936 220 166 219 979 226 300 231 129 Coal-fired stations, GWh (net) 171 131 184 568 183 553 194 357 200 210 202 106 200 893 199 888 204 838 209 483 Hydroelectric stations, GWh (net) 3 060 1 943 1 387 688 1 029 709 579 688 851 1 036 Pumped storage stations, GWh (net) 4 081 4 743 4 795 5 060 4 590 4 479 3 294 2 919 3 107 2 881 Gas turbine stations, GWh (net) 3 018 1 826 1 457 1 328 1 202 118 29 3 936 3 709 3 621 Wind energy, GWh (net) 214 253 305 283 328 331 345 311 1 2 Nuclear power station, GWh (net) 9 803 12 355 9 903 13 252 11 580 14 193 15 026 12 237 13 794 14 106 IPP purchases, GWh 17 957 15 973 13 526 11 958 11 344 9 584 11 529 9 033 6 022 3 671 Wheeling, GWh 2 904 2 499 2 310 2 491 2 750 2 266 2 910 3 930 3 623 3 353 Energy imports from SADC countries, GWh 8 654 8 500 8 812 8 568 7 355 7 731 7 418 9 703 10 731 9 425 Total electricity available (generated by Eskom and purchased), GWh 220 822 232 660 226 048 237 985 240 388 241 517 242 023 242 645 246 676 247 578 Consumed by pumped storage stations, GWh3 (5 504) (6 434) (6 625) (6 629) (5 981) (6 031) (4 808) (4 046) (4 114) (3 862) Total available for distribution, GWh2 215 318 226 226 219 423 231 356 234 407 235 486 237 215 238 599 242 562 243 716 Supply and demand Total Eskom power station capacity – installed, MW 52 451 51 866 51 115 49 517 48 029 48 039 46 407 45 075 44 281 44 189 Total Eskom power station capacity – nominal, MW 46 788 47 145 46 466 45 117 44 172 45 561 44 134 42 810 42 090 41 995 Total IPP power station capacity – nominal, MW 7 110 6 831 6 083 5 206 4 981 4 779 5 027 3 392 2 606 1 677 Peak demand on integrated Eskom system, MW 30 808 31 953 31 470 32 948 34 256 35 457 34 122 33 343 34 768 34 971 Peak demand on integrated Eskom system, including load reductions and non-Eskom generation, MW 34 666 35 005 34 155 34 510 35 345 35 769 34 913 34 499 36 156 36 026 Loadshedding implemented, number of days 280 RA 65 47 46 30 0 0 81 37 5 Asset creation Generation capacity installed and commissioned, MW 799 RA 794 RA 1 598 RA 1 588 RA 0 RA 2 387RA 1 332RA 794 RA 100 RA 120 RA Transmission lines installed, km 326.1RA 180.5RA 65.6RA 127.9RA 378.7RA 722.3RA 585.4RA 345.8 RA 318.6RA 810.9RA Transmission transformer capacity installed and commissioned, MVA – RA 1 065RA 750 RA 250 RA 540 RA 2 510 RA 2 300 RA 2 435RA 2 090 RA 3 790 RA Total capital expenditure – group (excluding capitalised borrowing costs), R billion 33.9 30.2 23.9 23.4 33.9 48.0 60.0 57.4 53.1RA 59.8 RA Safety Employee lost-time injury rate (LTIR) – group, index4 0.26RA 0.24RA 0.22RA 0.30 RA 0.31RA 0.24 0.39 0.30 0.33 0.31 Fatalities (employees and contractors), number 4 6 11 9 7 14 10 17 10 23RA Employee fatalities, number 1 4 3 – 3 3 4 4 3 5RA Contractor fatalities, number 3 2 8 9 4 11 6 13 7 18 RA Plant performance Energy availability factor (EAF), % 5 56.03RA 62.02RA 64.19RA 66.64RA 69.95RA 78.00 RA 77.30 RA 71.07RA 73.73RA 75.13RA Planned capability loss factor (PCLF), % 5 10.39RA 10.23RA 12.26RA 8.92RA 10.18 RA 10.35RA 12.14RA 12.99 9.91RA 10.50 RA Unplanned capability loss factor (UCLF), % 5 31.92 25.35 20.04 22.86 18.31 10.18 9.90 14.91RA 15.22RA 12.61RA Other capability loss factor (OCLF), % 5 1.66 2.40 3.51 1.58 1.56 1.47 0.66 1.03 1.14 1.76 Unit capability factor (UCF), % 5 57.69 64.42 67.70 68.22 71.51 79.47 78.00 72.10 74.87 76.90 RA Generation load factor, % 5 45.7 49.5 49.0 52.6 54.4 55.9 57.9 58.8 61.5 62.8 OCGT load factor, % 14.3 8.7 6.9 6.3 5.7 0.6 0.1 18.6 17.6 19.3RA Unplanned automatic grid separations (UAGS trips), number 5 736RA 697RA 527RA 594RA 517 333 444 469 575 527 Integrated Eskom system load factor (EUF), % 5 81.5 79.8 76.3 79.0 77.8 71.6 75.0 82.7 83.4 83.6 1. This measure was introduced in 2020 and is calculated on a 12-month moving average. Prior to 2020, the comparatives are for Eskom KeyCare. 5. The calculation of KPIs include Medupi Units 2, 3, 4, 5 and 6 as well as Kusile Units 1 and 2. Units are only included one year after achieving commercial operation, 2. The difference between electricity available for distribution and electricity sold is mainly due to energy losses. therefore Kusile Unit 4 is still excluded. Kusile Unit 3 has been included since 1 April 2022 and Medupi Unit 1 since 1 August 2022. 3. Used by Eskom for pumped storage facilities and synchronous condenser mode of operation. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 174 to 176 of the integrated report. 4. The employee LTIR includes occupational diseases and fatalities. 158 159 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Technical statistics continued Measure and unit 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Primary energy Coal stock, days 65 76RA 82 81 67 68 74 58 51 44RA Road-to-rail migration (additional tonnage transported on rail), Mt 2.5RA 2.5RA 3.6RA 7.5RA 8.2RA 11.6Q 13.2Q 13.6RA 12.6RA 11.6RA Coal purchased, Mt 98.4 108.7 110.0 119.3 118.3 115.3 120.3 118.7 121.7 122.0 Coal burnt, Mt 102.4 110.3 104.9 108.6 113.8 115.5 113.7 114.8 119.2 122.4 Average calorific value, MJ/kg 19.42 19.64 19.82 19.08 19.24 19.81 20.05 19.57 19.68 19.77 Average ash content, % 32.13 31.39 31.24 29.65 30.98 30.92 28.62 28.19 27.63 28.56 Average sulphur content, % 0.79 0.83 0.82 0.78 0.84 0.87 0.84 1.07 0.80 0.87 Overall thermal efficiency, %1 30.56 30.05 30.61 30.65 30.99 31.22 31.20 31.08 31.44 31.30 Diesel and kerosene usage for OCGTs, Mℓ 937.5 580.4 458.7 426.2 385.0 37.8 10.0 1 247.8 1 178.6 1 148.5RA Network performance Total system minutes lost for events <1, minutes 4.71RA 2.88 RA 3.48 RA 4.36RA 3.16RA 2.09RA 3.80 RA 2.41RA 2.85RA 3.05RA Major incidents, number 1 2 2 3 3 0 0 1 2 0 RA System average interruption frequency index (SAIFI), events2 11.8 12.3RA 13.2RA 14.4 RA 14.9RA 17.5RA 18.9RA 20.5RA 19.7RA 20.2RA System average interruption duration index (SAIDI), hours2 35.5RA 35.5RA 35.4RA 36.9RA 38.0 RA 34.9RA 38.9RA 38.6RA 36.2RA 37.0 RA Total energy losses, % 11.8 11.4 11.8 9.9 9.7 9.1 8.9 8.6 8.8 8.9 Transmission energy losses, % 2.3 2.3 2.3 2.2 2.2 2.0 2.2 2.6 2.5 2.3RA Distribution energy losses, % 9.7RA 9.6RA 10.1RA 8.8 RA 8.5RA 7.7RA 7.6RA 6.4 6.8 7.1RA Environmental statistics Emissions Relative particulate emissions, kg/MWh sent out 3, 4, 5 0.70 RA 0.34RA 0.38Q 0.47RA 0.47RA 0.27RA 0.30 RA 0.36RA 0.37RA 0.35RA Carbon dioxide (CO2), Mt4 187.5RA 207.2RA 206.8 RA 213.2RA 220.9RA 205.5RA 211.1RA 215.6RA 223.4 233.3RA Carbon dioxide equivalent (CO2-eq), Mt4 187.9 207.7 207.3 214.0 221.7 – – – – – Sulphur dioxide (SO2), kt4 1 449 1 671 1 604 1 721 1 853 1 802 1 766 1 699 1 834 1 975RA Nitrous oxide (N2O), t4 1 438 1 561 1 527 2 826 2 844 2 642 2 782 2 757 2 919 2 969 Nitrogen oxide (NO x) as NO2, kt6 743 822 804 851 890 859 885 893 937 954RA Methane (CH4), t4 1 483 1 466 1 442 – – – – – – – Particulate emissions, kt 129.32 66.65 71.35 94.92 99.87 57.13 65.13 78.37 82.34 78.92RA Water Specific water consumption, ℓ/kWh sent out 3 1.39RA 1.45RA 1.42RA 1.42RA 1.41RA 1.30 RA 1.42RA 1.44RA 1.38 RA 1.35RA Net raw water consumption, Mℓ 256 430 283 610 270 736 286 553 292 344 276 335 307 269 314 685 313 078 317 052 Waste Ash produced, Mt 30.20 32.90 30.84 32.04 33.23 31.65 32.61 32.59 34.41 34.97RA Ash sold, Mt 2.6 2.8 3.1 2.9 2.8 2.7 2.8 2.7 2.5 2.4 Ash recycled, % 12.0 11.0 10.1 9.1 8.4 8.6 8.5 8.3 7.3 7.0 RA Asbestos disposed, tons 171.1 39.5 22 475.8 59.8 464.1 144.9 383.0 274.5 991.0 458.0 Material containing polychlorinated biphenyls thermally destroyed, tons 96.2 46.5 134.3 238.3 43.1 26.3 61.9 59.8 0.0 10.2 Nuclear Public individual radiation exposure due to effluents, mSv7 0.0022 0.0010 0.0014 0.0004 0.0026 0.0012 0.0005 0.0006 0.0010 0.0012 Low-level radioactive waste generated (steel drum), cubic metres 164.6 158.9 147.6 159.3 188.3 164.2 162.9 176.1 164.1 180.7RA Low-level radioactive waste disposed of, cubic metres 348.3 98.1 117.0 98.3 99.0 118.8 108.0 213.1 377.6 324.0 RA Intermediate-level radioactive waste generated (concrete drum), cubic metres 18.3 34.2 31.2 22.3 20.8 20.8 11.4 33.4 27.6 28.7RA Intermediate-level radioactive waste disposed of, cubic metres 192 88 18 38 0 0 0 0 138 178 RA Used nuclear fuel, number of elements discharged 8 48 56 116 48 56 116 60 56 112 48 Used nuclear fuel, number of elements discharged, cumulative figure 2 729 2 681 2 625 2 509 2 461 2 405 2 289 2 229 2 173 2 061 Legal contraventions Environmental legal contraventions, number 105 65 81 59 24 30 29 20 20 34RA Environmental legal contraventions reported as a result of significant failure of business systems, number 9 10 7 7 5 2 2 0 1 1 2RA 1. Only power stations where all units have achieved commercial operation are included in the calculation. Therefore, Kusile Power Station is excluded from this KPI. 7. The limit set by the National Nuclear Regulator is ≤ 0.25mSv. 2. SAIDI and SAIFI are reported after allowing for exclusions defined in the National Regulated Standards adopted from 1 April 2018. 8. The gross mass of a nuclear fuel element is approximately 670kg, with Uranium mass typically between 462kg and 464kg. 3. The calculation of KPIs include Medupi Units 2, 3, 4, 5 and 6 as well as Kusile Units 1 and 2. Units are only included one year after achieving commercial operation, 9. Specific cases of environmental legal contravention incidents that are considered to be of very high significance in terms of their impact on the environment therefore Kusile Unit 4 is still excluded. Kusile Unit 3 has been included since 1 April 2022 and Medupi Unit 1 since 1 August 2022. and/or on Eskom are recorded as incidents as a result of a significant failure of business systems. Prior to 2022, referred to as “legal contraventions reported in 4. Figures are calculated based on coal characteristics and power station design parameters using coal analysis and coal burnt tonnages. Figures include coal-fired terms of the Operational Health Dashboard”. and gas turbine power stations, as well as oil consumed during power station start-ups. For carbon dioxide emissions, it also includes the underground coal RA Reasonable assurance provided by the independent assurance provider. Refer to pages 174 to 176 of the integrated report. gasification pilot plant. Q Qualified by the independent assurance provider. 5. At power stations with unusually high particulate emission levels, such as Kendal Power Station, the monitors often exceed their maximum limits. In instances where these ranges are exceeded, particulate emissions will be reported at the maximum of the monitor range. From February 2019, it is possible that actual emissions exceeded reported emissions based on measurements. 6. NO x reported as NO2 is calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. 160 161 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Non-technical statistics: Company Measure and unit 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Finance1 Electricity revenue per kWh (including environmental levy), c/kWh 141.38 127.32 111.04 101.86 90.01 85.06 83.60 76.24 67.91 62.82 Electricity operating costs, R/MWh 1 188.81 992.80 906.36 803.01 729.26 634.69 662.98 628.00 600.72 535.08 EBITDA margin, % 14.99 20.67 15.48 17.65 16.21RA 24.48 20.32 19.13 16.28 16.15 EBITDA, R million 38 908 51 178 31 633 35 199 29 168 43 428 35 989 30 932 23 811 22 101 Cash interest cover, ratio 1.27 1.63 0.81 0.90 0.91RA 1.18 RA 1.73 1.64 1.62 2.14 Debt service cover, ratio 0.56 0.71 0.29 0.49 0.46 0.84 1.37 1.09 0.82 1.28 Current ratio 0.90 0.89 0.94 0.82 0.99 1.04 0.86 0.86 0.82 0.70 Gross debt/EBITDA, ratio 12.47 8.87 14.48 15.22 17.08 10.26 11.39 11.71 13.84 12.59 Debt/equity (including long-term provisions), ratio 2.08 2.00 2.24 2.68 3.50 RA 2.77RA 2.22RA 1.71 2.67 2.12 Gearing, % 68 67 69 73 78 73 69 63 73 68 Free funds from operations, R million 44 941 61 075 41 470 39 465 27 318 39 064 46 336 37 954 36 032 29 528 Free funds from operations after net interest paid, R million 12 466 29 053 4 864 818 (7 897) 8 017 19 776 16 260 20 343 18 455 Free funds from operations as % of gross debt, % 9.26 13.46 9.06 7.37 5.48 RA 8.77RA 11.30 RA 10.48 RA 10.93 10.61 Building skills Headcount (including fixed-term contractors) 34 518 34 690 36 124 37 765 39 292 41 316 41 940 42 767 41 787 42 923 Training spend as % of gross employee benefit costs, % 3.57RA 2.70 RA 2.58 RA 3.67RA 3.85RA 5.21RA 4.89RA 4.45RA 6.18 RA 7.87RA Learner intake – Engineers, number2 144 RA 58 RA 0 RA 16RA 10 1 241 1 480 895 1 315 1 962RA Learner intake – Technicians, number2 105RA 51RA 0 RA 11RA 3 838 1 209 415 826 815RA Learner intake – Artisans, number2 135RA 106RA 0 RA 91RA 0 1 815 2 155 1 955 1 752 2 383RA Total learner intake (including plant operators and sector-specific)2 474 335 0 118 21 726Q 3 048Q 1 370 – – Transformation Socio-economic contribution Total number of electrification connections, number3 102 590 RA 97 947RA 106 669RA 163 613RA 191 585RA 215 519 207 436 158 312 160 933 202 780 Procurement equity Local content contracted (Eskom-wide), % 4 87.02 86.89 65.99Q 92.84 Q 91.51RA 87.16RA 73.37Q 75.22Q 25.13 40.80 RA Local content contracted (new build), % 4 73.08 57.53 56.94 88.53 81.14RA 85.59RA 85.78Q 84.04 RA 33.62LA 54.60 RA B-BBEE attributable expenditure, R billion 152.3 131.4 98.8 97.1 80.3 97.0 137.3 132.0 120.8 125.4 RA Black-owned (BO) expenditure, R billion 83.6 78.6 50.1 43.7 48.8 53.5 50.4 51.0 47.5 43.6RA Black women-owned (BWO) expenditure, R billion 13.2 14.6 17.4 14.6 18.1 19.7 17.3 30.2 8.9 9.6RA Black youth-owned (BYO) expenditure, R billion 7.7 7.9 4.4 3.7 3.1 3.4 1.7 1.3 0.9 1.3 RA Procurement from B-BBEE compliant suppliers, % 5 73.44 RA 73.35RA 62.34RA 61.57RA 54.41Q 74.24RA 100.75RA 83.08 RA 88.89RA 93.90 RA Procurement from BO suppliers, % 40.29 43.85 31.62 27.70 33.08Q 40.93RA 36.98 RA 30.98 RA 34.91 32.70 RA Procurement from BWO suppliers, % 6.35 8.13 10.98 9.27 12.28Q 15.08 RA 12.67RA 17.72RA 6.61 7.20 RA Procurement from BYO suppliers, % 3.70 4.43 2.76 2.32 2.10 Q 2.58 RA 1.25RA 0.82RA 0.64LA 1.00 RA Procurement spend with suppliers owned by black persons living with disabilities (BPwD), 0.18 0.14 0.15 0.12 0.15Q 0.11RA 0.02RA 0.01RA – – % of TMPS Procurement spend with qualifying small enterprises (QSE), % of TMPS 3.90 4.01 3.36 3.37 4.47Q 7.80 RA 7.67RA 4.03RA 6.74 11.90 Procurement spend with exempted micro enterprises (EME), % of TMPS 4.73 6.24 6.83 9.12 13.32Q 9.32RA 10.15RA 4.81RA 5.12 – Employment equity Disabilities, number of employees 1 049 1 057 1 113 1 198 1 265 1 292 1 263 1 271 1 294 1 283RA Employment equity – disability, % 3.04 3.05RA 3.08 RA 3.16RA 3.22RA 3.13RA 3.01RA 2.97RA 3.12RA 2.99RA Racial equity in senior management, % black employees 76.38 76.80 RA 73.67RA 70.72RA 69.44RA 67.97RA 65.77RA 60.90 RA 61.58 RA 59.50 RA Racial equity in professionals and middle management, % black employees 83.60 81.71RA 80.18 RA 78.06RA 76.25RA 75.35RA 73.60 RA 71.98 RA 72.28 RA 71.20 RA Gender equity in senior management, % female employees 42.33 43.89RA 42.63RA 41.71RA 39.90 RA 38.25RA 36.69RA 28.07RA 29.83RA 28.90 RA Gender equity in professionals and middle management, % female employees 41.57 40.59RA 39.69RA 38.99RA 38.63RA 38.06RA 36.65RA 36.01RA 36.10 RA 35.80 RA 1. Ratios impacted by the restatements in the annual financial statements were restated where possible. 2. The definition of learners was changed from 1 April 2018, to account for learners only once when they sign up, and not continuously for the duration of their contract. 3. Electrification connections includes farmworker connections. 4. Local content is measured as procurement of locally manufactured/produced goods and services as a percentage of total contracts awarded for all Eskom company procurement. The definition of local content reported in terms of the shareholder compact in the directors’ report measures local content from designated sectors as a percentage of total contracts awarded for all Eskom company procurement. 5. This measure was renamed to “Preferential procurement” in the shareholder compact from 2020. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 174 to 176 of the integrated report. Q Qualified by the independent assurance provider. LA Limited assurance provided by the independent assurance provider. 162 163 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Non-technical statistics: Group Measure and unit 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Finance1 Electricity operating costs, R/MWh 1 183.24 981.94 895.05 791.04 712.87 622.41 651.98 617.02 587.97 528.70 EBITDA margin, % 14.66 21.39 15.96 18.46 17.46 25.57 21.19 20.29 16.54 17.23 EBITDA, R million 38 045RA 52 954RA 32 608 RA 36 816RA 31 417 45 359 37 532 32 811 24 186 23 586 Cash interest cover, ratio 1.29RA 1.69RA 0.85RA 0.94RA 0.94 1.22 1.73 1.73 1.75 2.15 Debt service cover, ratio 0.58 RA 0.76RA 0.30 RA 0.52RA 0.47 0.87 1.37 1.14 0.91 1.24 Current ratio 0.89 0.90 0.95 0.82 1.00 1.03 0.85 0.83 0.81 0.71 Gross debt/EBITDA, ratio 12.64 8.54 13.98 14.43 15.73 9.74 10.84 10.95 13.60 11.77 Debt/equity (including long-term provisions), ratio 1.87 1.81 2.03 2.44 3.17 2.58 2.11 1.65 2.50 2.00 Gearing, % 65 64 67 71 76 72 68 62 71 67 Free funds from operations, R million 43 847 63 795 42 972 41 120 29 047 40 022 47 571 39 443 36 179 31 158 Free funds from operations after net interest paid, R million 11 567 31 904 6 496 2 606 (5 940) 9 147 21 148 17 927 20 564 20 139 Free funds from operations as % of gross debt, % 9.12 14.11 9.42 7.74 5.88 9.06 11.69 10.98 11.00 11.22 Building skills Headcount (including fixed-term contractors) 39 601 40 421 42 749 44 772 46 665 48 628 47 658 47 978 46 491 46 919 Transformation Socio-economic contribution Corporate social investment committed spend, R million 63.0 RA 75.1RA 67.4RA 123.8 RA 132.4 Q 192.0 RA 225.3 103.6 115.5 132.9RA Corporate social investment, number of beneficiaries 438 094 785 085 802 635 1 479 395 933 139 1 116 044 841 845 302 736 323 882 357 443RA Procurement equity B-BBEE attributable expenditure, R billion 150.1 134.2 100.4 101.7 84.5 102.3 127.7 125.0 116.0 119.4 RA Black-owned (BO) expenditure, R billion 87.6 83.2 53.8 46.9 52.1 57.6 53.9 52.9 49.4 45.8 RA Black women-owned (BWO) expenditure, R billion 14.9 16.4 19.0 15.6 18.8 20.9 19.4 30.8 9.3 9.8 RA Black youth-owned (BYO) expenditure, R billion 8.8 9.5 5.4 4.1 3.5 3.9 2.0 1.4 0.9 1.3RA Procurement from B-BBEE compliant suppliers, %2 72.80 75.89 64.51 65.97 58.66 80.25 98.25 81.65 89.39 91.80 RA Procurement from BO suppliers, % 42.48 47.08 34.60 30.38 36.17 45.20 41.49 33.61 34.41 35.30 RA Procurement from BWO suppliers, % 7.21 9.26 12.24 10.10 13.07 16.41 14.92 19.30 6.49 7.50 RA Procurement from BYO suppliers, % 4.26 5.40 3.46 2.65 2.41 3.05 1.52 0.94 0.63 1.00 RA Procurement spend with suppliers owned by black persons living with disabilities (BPwD), 0.18 0.16 0.22 0.17 0.22 0.20 0.02 0.01 0.00 0.00 % of TMPS Procurement spend with qualifying small enterprises (QSE), % of TMPS 4.39 4.91 4.29 4.08 5.17 8.86 8.91 4.62 6.75 15.09 Procurement spend with exempted micro enterprises (EME), % of TMPS 5.86 7.88 8.07 9.77 14.01 10.21 11.24 5.89 5.78 – Employment equity Disabilities, number of employees 1 171 1 188 1 252 1 348 1 416 1 441 1 396 1 311 1 325 1 305RA Employment equity – disability, % 2.96 2.94 2.93 3.01 3.03 2.96 2.93 2.73 2.89 2.77RA Racial equity in senior management, % black employees 76.92 76.67 73.72 71.00 69.80 68.31 65.80 61.06 61.70 59.30 RA Racial equity in professionals and middle management, % black employees 83.59 81.68 80.10 78.04 76.22 75.27 73.50 71.68 71.77 70.60 RA Gender equity in senior management, % female employees 42.01 43.33 41.99 41.73 39.85 38.20 36.58 28.13 29.82 28.80 RA Gender equity in professionals and middle management, % female employees 40.92 39.91 38.95 38.24 37.89 37.47 35.98 35.11 35.29 34.90 RA 1. Ratios impacted by the restatements in the annual financial statements were restated where possible. 2. This measure was renamed to “Preferential procurement” in the shareholder compact from 2020. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 174 to 176 of the integrated report. Q Qualified by the independent assurance provider. 164 165 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Plant information POWER STATION CAPACITIES Total at 31 March 2023 nominal capacity The difference between installed and nominal capacity reflects auxiliary power consumption and reduced capacity caused by the age Name of station MW of the plant. Nominal capacity of Eskom-owned power stations 46 788 Total Total Independent power producers (IPP) capacity 7 110 Number and installed capacity installed nominal Years commissioned, of generator sets capacity capacity Biomass 25 Name of station Location first to last unit MW MW MW Concentrating solar power 500 Base-load stations Gas/liquid fuel 1 005 Coal-fired (15) 44 598 39 099 Hydroelectric 18 Landfill 8 Arnot Middelburg Sep 1971 to Aug 1975 6x370 2 220 2 100 Solar PV energy 2 212 Camden1, 3 Ermelo Mar 2005 to Jun 2008 3x200; 1x196; 2x195; 1x190; 1x185 1 561 1 481 Wind 3 342 Duvha 2 Emalahleni Aug 1980 to Feb 1984 5x600 3 000 2 875 Grootvlei1, 3 Balfour Apr 2008 to Mar 2011 4x200; 2x190 1 180 570 Total nominal capacity available to the grid – Eskom and IPPs 53 898 Hendrina 3 Middelburg May 1970 to Dec 1976 5x200; 1x195; 1x191; 1x170; 1x167 1 723 1 098 Kendal4 Emalahleni Oct 1988 to Dec 1992 6x686 4 116 3 840 1. Former moth-balled power stations that have been returned to service. The original commissioning dates were: Komati1, 8 Middelburg Mar 2009 to Oct 2013 4x100; 4x125; 1x90 990 – • Camden was originally commissioned between August 1967 and September 1969 • Grootvlei was originally commissioned between June 1969 and November 1977 Kriel Bethal May 1976 to Mar 1979 3x430; 3x500 2 790 2 640 • Komati was originally commissioned between November 1961 and March 1966 Kusile 4 Ogies Aug 2017 to Mar 2021 4x799 3 196 2 880 Due to technical and/or financial constraints, some units at these stations have been derated. Under construction 2x800 – – 2. The Duvha Unit 3 recovery project was cancelled, and the unit removed from the installed base. Lethabo Vereeniging Dec 1985 to Dec 1990 6x618 3 708 3 558 3. Certain units are under reserve storage and their capacity removed from the nominal base, in line with the Generation 2035 shutdown plan. Majuba4 Volksrust Apr 1996 to Apr 2001 3x657; 3x713 4 110 3 807 4. Dry-cooled unit specifications based on design back-pressure and ambient air temperature. 5. Pumped storage facilities are net users of electricity. Water is pumped during off-peak periods so that hydroelectricity can be generated during peak periods. Matimba4 Lephalale Dec 1987 to Oct 1991 6x665 3 990 3 690 6. Use restricted to periods of peak demand, dependent on the availability of water in the Gariep and Vanderkloof Dams. Matla Bethal Sep 1979 to Jul 1983 6x600 3 600 3 450 7. Installed and operational, but not included for technical performance KPIs. Medupi4, 9 Lephalale Aug 2015 to Jul 2021 5x794; 1x790 4 760 3 600 8. All of Komati’s units were shut down in line with the Generation 2035 shutdown plan, with the last unit shut down by 1 November 2022. Tutuka Standerton Jun 1985 to Jun 1990 6x609 3 654 3 510 9. Medupi Unit 4 has been placed in extended inoperability from 1 October 2022 to 31 August 2024 and has been removed from the nominal base. 10. Small hydro stations were placed in reserve storage from 1 April 2021. Nuclear (1) Koeberg Cape Town Jul 1984 to Nov 1985 1x970; 1x964 1 934 1 854 Peaking stations 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 (3)5 2 732 2 724 Drakensberg Bergville Jun 1981 to Apr 1982 4x250 1 000 1 000 Ingula Ladysmith Jun 2016 to Feb 2017 4x333 1 332 1 324 Palmiet Grabouw Apr 1988 to May 1988 2x200 400 400 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 Total used for capacity management purposes 52 290 46 686 Renewable energy Wind energy (1)7 Sere Vredendal Mar 2015 46x2.2 100 100 Total capacity including renewable energy 52 390 46 786 Other hydroelectric stations (4)7 61 2 Mbashe10 Mbashe River 3x14 42 – First Falls10 Umtata River 2x3 6 – Ncora Ncora River 2x0.4; 1x1.6 2 2 Second Falls10 Umtata River 2x5.5 11 – Total Eskom power station capacities (30) 52 451 46 788 Available nominal capacity – Eskom-owned 89.20% 166 167 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Plant information continued Customer information POWER LINES AND SUBSTATIONS IN SERVICE at 31 March 2023 Category 2023 2022 2021 2020 2019 Category 2023 2022 2021 2020 2019 Number of Eskom customers Power lines Distributors 799 799 804 805 800 Transmission power lines, km1 33 194 33 193 33 158 33 027 32 698 Residential1 6 944 488 6 833 928 6 720 150 6 577 905 6 358 523 Commercial 50 846 52 736 52 880 52 909 52 556 765kV 2 784 2 784 2 784 2 784 2 784 Industrial 2 560 2 601 2 649 2 684 2 705 533kV DC (monopolar) 1 032 1 032 1 032 1 032 1 035 Mining 906 926 945 961 981 400kV 19 916 19 916 19 760 19 743 19 421 Agricultural 74 608 77 692 79 115 80 451 81 303 275kV 7 395 7 342 7 342 7 228 7 218 Rail 454 471 475 475 493 220kV 1 352 1 352 1 351 1 351 1 351 International 11 11 11 11 11 132kV 714 766 889 889 889 7 074 672 6 969 164 6 857 029 6 716 201 6 497 372 Distribution overhead power lines, km 363 603 363 286 358 100 351 023 347 284 Electricity sales per customer category, GWh 132kV and higher 27 378 27 265 26 441 24 777 24 666 Distributors 79 480 83 831 82 354 85 898 87 168 44 to 88kV 2 22 219 22 359 21 367 20 767 20 735 Residential1 9 177 10 520 10 949 11 293 11 748 33kV 2 3 879 3 851 3 730 3 563 3 420 Commercial 9 376 9 872 9 696 10 486 10 558 1 to 22kV 310 127 309 811 306 561 301 916 298 463 Industrial2 44 635 45 220 40 973 45 696 48 785 Mining 27 843 28 030 26 991 28 703 28 972 Distribution underground cables, km 8 376 8 339 8 288 7 734 7 651 Agricultural 4 785 5 382 5 461 5 770 5 796 132kV and higher 70 97 97 86 86 Rail 1 668 2 128 1 931 2 600 2 831 44 to 88kV 2 205 215 209 190 189 International 11 437 13 298 13 497 15 189 12 461 33kV 2 330 323 323 4 4 188 401 198 281 191 852 205 635 208 319 1 to 22kV 7 771 7 704 7 659 7 454 7 372 International sales to countries in southern Africa, GWh 11 437 13 298 13 497 15 189 12 461 Total all power lines, km 405 173 404 818 399 546 391 784 387 633 Botswana 370 851 785 1 261 247 Total transformer capacity, MVA 301 893 301 381 310 123 306 949 297 512 Eswatini 609 713 677 1 011 766 Lesotho 416 341 324 426 292 Transmission, MVA 3 155 820 155 250 154 500 153 135 152 415 Mozambique 8 228 8 215 8 263 8 358 8 339 Distribution and reticulation, MVA 146 073 146 131 155 623 153 814 145 097 Namibia 622 1 653 1 493 2 013 1 518 Zambia 25 6 78 238 258 Total transformers, number 415 288 414 568 420 455 391 231 385 085 Zimbabwe 1 152 1 456 1 791 1 245 456 Transmission, number 453 451 449 446 444 Short-term energy market 3 15 63 86 637 585 Distribution and reticulation, number 414 835 414 117 420 006 390 785 384 641 Electricity revenue per customer category, R million Distributors 111 414 105 369 90 228 85 656 77 231 1. Transmission power line lengths are included as per distances from the Geographic Information System. Residential1 18 052 18 680 16 924 16 069 14 771 2. Under NRS048 part 6, 33kV lines were reclassified in 2019 from high to medium voltage. Prior year figures have not been restated. 3. Base of definition: transformers rated ≥30MVA and primary voltage ≥132kV. Commercial 17 622 16 723 14 304 14 067 12 385 Industrial2 53 269 48 204 37 026 37 946 36 168 Mining 39 958 36 630 30 708 29 968 26 550 Agricultural 11 660 11 600 10 262 9 839 8 682 Rail 3 374 3 477 2 977 3 323 3 119 International 10 699 11 450 10 383 12 229 8 241 Gross electricity revenue 266 048 252 133 212 812 209 097 187 147 Less: Revenue capitalised4 – – (3 991) (5 683) (3 393) Less: Revenue not recognised5 (15 774) (14 215) (12 112) (10 190) (8 914) Add: Recognised on the cash basis6 7 563 6 543 5 935 4 083 2 472 Electricity revenue less capitalised revenue per note 31 in the 257 837 244 461 202 644 197 307 177 312 annual financial statements 1. Prepaid electricity and public lighting are included under the residential category. 2. IPP network consumption is included under the industrial category. 3. 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. 4. From 1 April 2022, revenue from the sale of production, while testing generating plant not yet commissioned, is no longer capitalised to the plant and instead recognised as revenue in the income statement. The figure for 2022 has been restated (previously R1 074 million capitalised, now recognised as revenue). 5. The principle of only recognising revenue if it is deemed collectable at the date of sale, as opposed to recognising the revenue and then impairing the customer debt when conditions change, has been applied since 2015. External revenue of R15 774 million was thus not recognised at 31 March 2023. 6. Under IFRS 15, certain supplies to distributors were recognised on the cash basis, due to uncertainty around collectability at the time of sale. 168 169 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Environmental implications of using or Sustainability KPIs selected for reasonable saving electricity assurance FACTOR 1 Deloitte has been engaged to provide reasonable assurance on selected sustainability KPIs for the year ended 31 March 2023. These Figures are calculated based on total electricity sales by Eskom, which is based on the total available for distribution (including KPIs are reported based on internally developed measure specification documents setting out measurement criteria, which are linked purchases), after excluding losses through Transmission and Distribution (technical losses), losses through theft (non-technical to process control manuals. losses), our own internal use and wheeling. Thus to calculate CO2 emissions, divide the quantity of CO2 emitted by electricity sales: 187.5Mt of CO2 ÷ 188 401GWh sales = 1.00 tons per MWh All KPIs refer to Eskom company, except for the lost-time injury rate and the financial sustainability measures which reflect group performance. FACTOR 2 Figures are calculated based on total electricity generated, which includes coal, nuclear, pumped storage, wind, hydro and gas turbines, All but one of the 42 KPIs scoped for reasonable assurance received an unqualified opinion. but excludes the total consumed by Eskom. Thus the quantity of CO2 emissions, divided by (electricity generated less Eskom’s electricity consumption): IR Refer to the independent sustainability assurance report from page 174 for further information 187.5Mt of CO2 ÷ (191 307GWh generated less 5 504GWh own consumption) = 1.01 tons per MWh The selected KPIs and corresponding performance for the year ended 31 March 2023 are as follows: Figures represent the 12-month period from 1 April 2022 to 31 March 2023. Unit of Actual Factor 1 Factor 2 If electricity consumption is measured in: Key performance indicator measure Measurement criteria 2023 (total energy (total energy sold) generated) kWh MWh GWh TWh Focus on safety Coal use 0.54 0.55 kilogram ton thousand tons (kt) million tons (Mt) Lost-time injury rate (employees only)SC Rate Proportional representation of lost-time injuries over 12 months per 0.26RA Water use1 1.36 1.38 litre kilolitre megalitre (Mℓ) thousand megalitres 200 000 working hours. The measure includes occupational diseases Ash produced 160 163 gram kilogram ton thousand tons (kt) but excludes third party at fault incidents and all passengers in Particulate emissions 0.69 0.70 gram kilogram ton thousand tons (kt) commuting incidents CO2 emissions2 1.00 1.01 kilogram ton thousand tons (kt) million tons (Mt) Improve plant operations SO x emissions2 7.69 7.80 gram kilogram ton thousand tons (kt) NO x emissions3 3.95 4.00 gram kilogram ton thousand tons (kt) Energy availability factor (EAF)SC % Measures power station availability, taking account of energy losses 56.03RA not under the control of plant management and internal non- 1. Volume of water used at all Eskom power stations. engineering constraints 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 Planned capability loss factor (PCLF) % Energy losses due to planned maintenance on power station units 10.39RA 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, and tonnages of coal burnt. Unplanned partial load losses Average Unplanned breakdowns of power station units due to causes under 6 057RA (UCLF PLL) MW the control of plant management that do not lead to the unit being entirely out of service Multiply electricity consumption or saving by the relevant factor in the table above to determine the environmental implication. Unplanned automatic grid separations Number The number of UAGS trips recorded in all cases where energy 736RA Example 1: Water consumption Example 2: CO2 emissions (UAGS) trips of trips delivered to the grid or pumping is interrupted by a protection control system and/or human error Using Factor 1 Using Factor 1 Used 90MWh of electricity Used 90MWh of electricity Post-philosophy outage unplanned % Unplanned breakdowns of power station units that occur within sixty 35.75RA 90 x 1.36 = 122.4 90 x 1.00 = 90.0 capability loss factor (PPO UCLF)SC days after the unit has returned from an outage Therefore 122.4 kilolitres of water used Therefore 90.0 tons CO2 emitted Outage readiness indicator (ORI) % Measures readiness for a planned outage three months prior to the 70.25Q Using Factor 2 Using Factor 2 at T-3SC breaker being opened; scored on an internal assessment of various indicators Used 90MWh of electricity Used 90MWh of electricity 90 x 1.38 = 124.2 90 x 1.01 = 90.9 Boiler tube failure rateSC Rate Measures boiler tube failures which occur when a boiler tube’s 2.17RA Therefore 124.2 kilolitres of water used Therefore 90.9 tons CO2 emitted pressure boundary is broken by a leak or rupture, based on number of failures per unit per year System minutes lost <1SC Minutes Measures the sum of system minutes lost for interruptions caused by 4.71RA Transmission Division. It excludes major incidents with a severity of one minute or more Transmission lines installedSC km New high-voltage transmission lines installed on the Eskom network 326.1RA Transmission transformer capacity MVA New transformer capacity installed and commissioned at transmission – RA installed and commissionedSC substations Payment levels excluding Soweto % Total payments received on invoiced amounts, including interest but 95.03RA interest SC excluding Soweto interest Distribution total energy lossesSC % Energy losses from technical and non-technical reasons. The latter 9.74 RA includes losses due to electricity theft through illegal connections, tampering and bypassing of electricity meters as well as the purchase of electricity tokens from unregistered or illegal vendors. It includes meter reading and billing errors 170 171 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Sustainability KPIs selected for reasonable assurance continued Unit of Actual Unit of Actual Key performance indicator measure Measurement criteria 2023 Key performance indicator measure Measurement criteria 2023 Total electrification connectionsSC Number New connections of previously disadvantaged households and farm 102 590 RA Socio-economic impact: industrialisation and localisation dweller houses in Eskom’s licensed areas of supply under the electrification programme funded by DMRE Preferential procurement SC % Procurement of goods and services from B-BBEE compliant suppliers. 73.44 RA Calculated as a % of total measurable procurement spend System average interruption duration Hours The average duration of interruptions on the distribution network 35.5RA index (SAIDI)SC experienced by customers during a year Local content SC % Procurement of locally manufactured and/or produced goods and 59.09RA services as a percentage of total contracts awarded Focus on the system B-BBEE score levelSC Number Based on the Codes of Good Practice on Broad-Based Black Level 4 RA Loadshedding implementedSC Number Scheduled and controlled power cuts that rotate available capacity 280 RA Economic Empowerment of days between all customers when demand is greater than supply to protect the integrity and stability of the grid to avoid a blackout Enterprise development SC R million Value of enterprise development initiatives provided to new and 0.13RA existing black-owned enterprises Primary energy optimisation Supplier development SC R billion Value of initiatives undertaken and contracts awarded or 3.67RA Migration of coal delivery volume from Mt Tonnage of coal transported on rail rather than by road 2.5RA subcontracted to qualifying enterprises road to railSC National industrial participation % Percentage of contracts with an import content of $5 million or 100 RA Coal purchases Rand/ton % increaseSC % Determined by comparing the current average fleet purchase price of 9.2 RA programmeSC more, which leverage Eskom’s procurement to promote industrial coal against the previous year’s actual price development and increase the competitiveness, capability and capacity of the local supply base Reduce environmental footprint in existing fleet Socio-economic impact: other Relative particulate emissionsSC kg/MWh The mass of particulates emitted from Eskom’s coal-fired power 0.70 RA sent out stations per unit of energy sent out Research and development SC % Percentage of NERSA-allocated research funding invested in 123.6RA operational and strategic research and development Specific water usage SC ℓ/kWh The amount of raw water used for power generation per unit of 1.39 RA sent out energy sent out CSI committed spendSC R million Total amount committed or paid towards corporate social investment 63.0 RA Atmospheric emission licence (AEL) % Annual average of AEL compliance, scored on an internal assessment 87.40 RA Legal separation complianceSC of various indicators per power station Business separation key milestones: Date Generation is a legal operating subsidiary of Eskom by NoRA Carbon dioxide emissions (from fossil Mt CO2 Tonnage of CO2 emitted through fossil fuel generation 187.5RA Generation legal separationSC 31 December 2022 fuel generation) Business separation key milestones: Date Distribution is a legal operating subsidiary of Eskom by NoRA Deliver capital expansion Distribution legal separationSC 31 December 2022 Generation capacity installed and MW New power station units installed and commissioned on the Eskom 799 RA SC Indicates that a KPI is included in the shareholder compact. commissioned (commercial operation)SC network RA Reasonable assurance provided by the independent assurance provider. Q Qualified by the independent assurance provider. Ensure financial sustainability EBITDA SC R million Earnings before interest, tax, depreciation and amortisation 38 045RA Cash interest cover ratio SC Ratio Operating cash flows available to service net interest on borrowings 1.29RA Debt service cover ratio SC Ratio Operating cash flows available to service net interest and capital 0.58 RA repayments on borrowings Savings from turnaround initiativesSC R million Cost saving and/or other income initiatives recorded against a 27 765RA baseline through Eskom’s turnaround plan Socio-economic impact: human capital New learner intake: artisansSC Number Total number of new learners, including artisans, engineers, 135RA technicians and sector-specific learners New learner intake: engineers SC Number 144 RA New learner intake: techniciansSC Number 105RA New learner intake: sector-specific SC Number 90 RA Training expenditure as % of budgeted % Training and development cost as a percentage of budgeted gross 3.57RA gross employee benefit expenseSC employee benefit expense 172 173 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Independent sustainability assurance report INDEPENDENT ASSURANCE PRACTITIONER’S REASONABLE ASSURANCE REPORT ON SELECTED DIRECTORS’ RESPONSIBILITY In making those risk assessments we have considered internal KEY PERFORMANCE INDICATORS TO THE DIRECTORS OF ESKOM HOLDINGS SOC LTD The directors are responsible for the selection, preparation controls relevant to Eskom’s preparation of the selected KPIs. We have undertaken a reasonable assurance engagement on selected key performance indicators (KPIs), as described below, and and presentation of the selected KPIs in accordance with A reasonable assurance engagement also includes: presented in the integrated report of Eskom Holdings SOC Ltd (Eskom) for the year ended 31 March 2023. This engagement was reporting criteria. This responsibility includes the identification • Evaluating the appropriateness of quantification methods, conducted by a multidisciplinary team including environmental, safety, social and assurance specialists with relevant experience in of stakeholders and stakeholder requirements, material issues, reporting policies and internal guidelines used and the sustainability reporting. commitments with respect to sustainability performance and reasonableness of estimates made by Eskom design, implementation and maintenance of internal controls • Assessing the suitability in the circumstances of Eskom’s use SUBJECT MATTER relevant to the preparation of the integrated report that is of the applicable reporting criteria as a basis for preparing We have been engaged to provide a reasonable assurance opinion in our report on the following selected KPIs, marked with RA in the free from material misstatement, whether due to fraud or the selected information integrated report. The selected KPIs described below have been prepared in accordance with Eskom’s internal reporting guidelines error. The directors are also responsible for determining the • Evaluating the overall presentation of the selected (reporting criteria), which are set out on pages 171 to 173. appropriateness of the measurement and reporting criteria in sustainability performance information view of the intended users of the selected KPIs and for ensuring that those criteria are publicly available to users. We believe that the evidence we have obtained is sufficient and Key performance indicator and unit of measure Deliver capital expansion appropriate to provide a basis for our qualified opinion. OUR INDEPENDENCE AND QUALITY Lost-time injury rate (employees only), rate Generation capacity installed and commissioned (commercial operation), MW MANAGEMENT BASIS FOR QUALIFIED OPINION Improve plant operations We have complied with the independence and other ethical The “outage readiness indicator (ORI) at T-3” measures the Ensure financial sustainability requirements of the Code of Professional Conduct for Registered readiness of the planned philosophy outage three months Energy availability factor (EAF), % EBITDA, R million Auditors issued by the Independent Regulatory Board for before the relevant units are released for philosophy Planned capability loss factor (PCLF), % Auditors (IRBA Code), which is founded on fundamental maintenance. This KPI is reported as a percentage, calculated Cash interest cover ratio principles of integrity, objectivity, professional competence Unplanned partial load losses (UCLF PLL), average MW from the overall average percentage score of the respective Debt service cover ratio and due care, confidentiality and professional behaviour. The T-3 readiness assessments conducted across the relevant Unplanned automatic grid separations (UAGS) trips, number IRBA Code is consistent with the corresponding sections of units for the year under review in terms of the KPI scope. The of trips Savings from turnaround initiatives, R million the International Ethics Standards Board for Accountants’ scoring within the assessment involves physical inspection of Post-philosophy outage unplanned capability loss factor Socio-economic impact: human capital International Code of Ethics for Professional Accountants (including infrastructure, replacement parts and system information at the (PPO UCLF), % International Independence Standards). time of the assessment being conducted. The documentation New learner intake: artisans, number Outage readiness indicator (ORI) at T-3, %1 and inspection of information by the assessment team is viewed New learner intake: engineers, number Deloitte & Touche applies the International Standard on at the specific point in time, however, the relevant supporting Boiler tube failure rate, rate1 Quality Management 1, which requires the firm to design, New learner intake: technicians, number documentation was not maintained. In addition, judgement is implement and operate a system of quality management, Systems minutes lost <1, minutes applied to scoring certain elements of the assessment from New learner intake: sector-specific, number1 including policies or procedures regarding compliance with the discussions held between the assessment team and site Transmission lines installed, km ethical requirements, professional standards and applicable Training expenditure as % of budgeted gross employee benefit management. This judgement applied was not comprehensively legal and regulatory requirements. Transmission transformer capacity installed and commissioned, MVA expense, % documented by the assessment team. Payment levels excluding Soweto interest, % Socio-economic impact: industrialisation and localisation ASSURANCE PRACTITIONER’S RESPONSIBILITY We were unable to substantiate Eskom’s reported value of Our responsibility is to express a reasonable assurance 70.25% by alternative means. As a consequence, we were Distribution total energy losses, % Preferential procurement, % opinion on the selected KPIs based on the procedures we unable to obtain sufficient and appropriate evidence to Total electrification connections, number Local content, % have performed and the evidence we have obtained. We determine whether any adjustments were needed to the conducted our assurance engagement in accordance with the “outage readiness indicator (ORI) at T-3” and resultantly unable System average interruption duration index (SAIDI), hours B-BBEE score level, number International Standard on Assurance Engagements (ISAE) 3000 to conclude on the KPI figure reported. Focus on the system Enterprise development, R million1 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information and, in respect of greenhouse QUALIFIED REASONABLE ASSURANCE OPINION Loadshedding implemented, number of days 1 Supplier development, R billion1 gas emissions, in accordance with the International Standard on In our opinion, except for the possible effects of the matter Primary energy optimisation National industrial participation programme, % Assurance Engagements (ISAE) 3410, Assurance Engagements referred to in the “Basis for qualified opinion” paragraph above, on Greenhouse Gas Statements, issued by the International the selected KPIs as set out in the “Subject matter” paragraph Migration of coal delivery volume from road to rail, Mt Socio-economic impact: other Auditing and Assurance Standards Board. These standards above for the year ended 31 March 2023 are prepared, in all Coal purchases Rand/ton % increase, % Research and development (% of NERSA-allocated spend), % require that we plan and perform our engagement to obtain material respects, in accordance with the reporting criteria. reasonable assurance about whether the selected KPIs are free Reduce environmental footprint in existing fleet CSI committed spend, R million from material misstatement. OTHER MATTERS Relative particulate emissions, kg/MWh sent out Legal separation Our report includes the provision of reasonable assurance on A reasonable assurance engagement undertaken in accordance Specific water usage, ℓ/kWh sent out Business separation key milestones: Generation legal separation, date1 selected KPIs, as indicated in the “Subject matter” paragraph with ISAE 3000 (Revised) and ISAE 3410 involves performing above, on which we were previously not required to provide Atmospheric emissions licences (AEL) compliance, %1 Business separation key milestones: Distribution legal separation, procedures to obtain evidence about the measurement of assurance. This includes the “outage readiness indicator at T-3”, date1 the selected KPIs and related disclosures in the integrated Carbon dioxide emissions (from fossil fuel generation), Mt CO2 on which we express a qualified opinion. report. The nature, timing and extent of procedures selected depend on the auditor’s professional judgement, including the 1. We were not required to provide assurance on these selected KPIs in the prior year. assessment of the risks of material misstatement of the selected KPIs, whether due to fraud or error. 174 175 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Independent sustainability assurance report continued Disclosure of information under the PFMA The maintenance and integrity of Eskom’s website is the responsibility of Eskom’s management. Our procedures did In terms of the requirements of National Treasury Instruction 4 was justified from a business perspective, value was received, not involve consideration of these matters and, accordingly, of 2022/23, irregular as well as fruitless and wasteful expenditure the breaches were deliberate or accidental, or the breaches we accept no responsibility for any changes to either the under the Public Finance Management Act, 1999 (PFMA) happened unknowingly or in good faith. information in the integrated report or our independent previously disclosed in the annual financial statements of the reasonable assurance report that may have occurred since the Irregular expenditure is incurred when the related transaction mandated institution and not addressed must remain in the initial date of its presentation on Eskom’s website. register and annual report of the mandated institution and is recognised in terms of International Financial Reporting addressed in terms of Annexure A to the instruction. Standards (IFRS). The irregular expenditure is removed from RESTRICTION OF LIABILITY the cumulative balance through a process of condonation Our work has been undertaken to enable us to express a The instruction requires that detailed information be reported by the relevant authority, recovery or removal. Irregular reasonable assurance opinion on the selected KPIs to the in the integrated report; only expenditure relating to the expenditure is reported in the following categories: directors of Eskom in accordance with the terms of our current and comparative financial years will be reported in engagement, and for no other purpose. We do not accept or the annual financial statements. All information reported USE OF SOLE SOURCE previously in the annual financial statements are therefore State-owned entities are required to procure goods and assume liability to any party other than Eskom, for our work, still reported in the integrated report. The instruction further services in a manner that is fair, equitable, transparent, for this report, or for the conclusion we have reached. requires reporting inclusive of value added tax (VAT). Eskom competitive and cost-effective. Expenditure was incurred on has historically reported all amounts excluding VAT and has awards which did not follow proper tender processes where continued to do so in the current year, due to limited time awards were incorrectly allocated to predetermined suppliers. and resources to recalculate amounts, particularly on opening balances and multi-year contracts that continue to incur INCORRECT CLASSIFICATION AS EMERGENCY expenditure in the current and comparative years. PROCUREMENT Irregular expenditure was incurred where emergency Deloitte & Touche The external auditor’s report for the 2022 financial year was purchases did not meet the National Treasury requirements for Registered Auditors qualified as it related to previous disclosures in the annual emergency procurement. financial statements of irregular expenditure, fruitless and Per Jyoti Vallabh wasteful expenditure and losses due to criminal conduct. TENDER PROCESSES NOT ADHERED TO AND Chartered Accountant (SA) Furthermore, the prior year auditor’s report called out material INSUFFICIENT DELEGATION OF AUTHORITY Registered Auditor findings in Eskom’s compliance with specific matters and key Irregular expenditure was incurred where incorrect tender Partner legislation, as well as significant internal control deficiencies. processes were followed and/or transactions were executed 30 October 2023 Another qualified opinion was raised for the 2023 financial year. without the appropriate approvals. Eskom is actively seeking ways to enhance PFMA compliance 5 Magwa Crescent by developing a proactive and effective approach to address MODIFICATIONS EXCEEDING ALLOWED AMOUNTS Waterfall City, Waterfall National Treasury required that their approval be obtained PFMA audit qualifications. The organisation’s PFMA compliance Private Bag X6, Gallo Manor, 2052 status is continuously assessed. We have identified gaps and for any modification made from 1 May 2016 to 1 April 2022 South Africa areas where PFMA compliance has been a challenge and will to an original contract where the value of the modification continue to analyse the root causes of non-compliance issues was more than 20% or R20 million for construction-related to address them effectively. A detailed action plan to address goods, works or services, and 15% or R15 million for all other the qualification is under development with clear objectives, goods or services. The group did not initially comply with this timelines, and responsible individuals or teams, the progress of requirement predominately due to a misinterpretation of the which will be monitored regularly. instruction note. The requirement to obtain National Treasury approval for these transactions has since been repealed through From an improvement perspective, it is key to update Eskom’s the PFMA SCM National Treasury Instruction 3 of 2021/22, PFMA Policy and Procedure to align with changing regulations effective 1 April 2022. Expansions and variations of contracts are and best practice. Upon completion of the necessary updates, reported to National Treasury on a monthly basis. Eskom will ensure that employees are aware of and trained on the updated policy. Through continuous PFMA training for Refer to pages 183 to 184 for a summary of expansions, staff at all levels, it will help ensure that employees understand IR deviations and variations during the past year their responsibilities and the importance of PFMA compliance. Eskom will continue to seek ways to enhance and strengthen internal controls to improve PFMA compliance. These PPPFA: INCORRECT TENDER PROCESS APPLIED measures will aid in fostering a culture of transparency and The Preferential Procurement Policy Framework Act, 2000 accountability within Eskom while ensuring that individuals (PPPFA) requires that the preferential points calculation responsible for PFMA non-compliances and non-conformances is determined inclusive of VAT. Certain procurement was are held accountable for their actions. incorrectly done where the preferential points calculation was determined exclusive of VAT. Refer to note 51 in the annual financial statements for AFS further information TAX NON-COMPLIANCE The PPPFA regulations stipulate that suppliers must be compliant with SARS regulations. IRREGULAR EXPENDITURE Irregular expenditure is defined as expenditure, other than DESIGNATED SECTORS unauthorised expenditure, incurred in contravention of or Where local production and content is of critical importance that is not in accordance with a requirement of any applicable in the award of tenders in designated sectors, such tenders legislation. The scope includes transgressions of any laws and must be advertised with a specific tendering condition that regulations regardless of whether or not the expenditure only locally produced goods, services or works or locally 176 177 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Disclosure of information under the PFMA continued manufactured goods that meet the stipulated minimum EXPENDITURE NOT IN ACCORDANCE WITH threshold for local production and content will be considered. NATIONAL TREASURY INSTRUCTIONS Contracts were awarded to suppliers despite them having 1. Current year expenditure (d) Prior year expenditure disclosed for the first time Irregular expenditure incurred due to non-compliance with in 2023 declared a local content threshold that was below the required National Treasury instructions. Description, R million Note 2023 2022 stipulated threshold as per the Department of Trade, Industry Expenditure relating to prior years is reflected as prior and Competition’s list of designated materials. Expenditure confirmed in the year errors in line with the disclosure guidance from BREACH OF MORE THAN ONE LEGISLATIVE current year (a) 5 030 8 451 National Treasury, requiring the recalculation of the CONTRACTS AWARDED WITHOUT FOLLOWING REQUIREMENT Prior year errors for 2022 figures for the opening balance and comparative year In certain instances, transgression of more than one legislative Note 2 – (1 129) expenditure. CIDB REQUIREMENTS expenditure requirement was identified. Expenditure incurred in 2022 The group did not always comply with the Construction Industry – 3 080 Development Board (CIDB) regulations regarding the advertising confirmed in 2023 Three incidents make up 91% of the prior year irregular of tenders, grading of contractors and publishing of awards. expenditure confirmed in 2023: R7 534 million relates Total current year 5 030 10 402 to provision of information technology services; expenditure R5 975 million relates to engineering and project management services; and R1 396 million relates to IRREGULAR EXPENDITURE (a) Expenditure for the current year non-compliance on national security contracts. Not Expenditure of R2 565 million incurred in 2023 relates condoned to new matters, of which 80% is comprised of an 3. Irregular expenditure condoned, recovered, Opening Total and Closing isolated incident relating to the non-application of the removed and written off Description, R million balance Confirmed incurred Condoned removed Recovered balance requirements of the National Industrial Participation Eleven matters to the value of R246 million were 2023 Programme (NIPP). The remaining amount incurred in condoned during the financial year (2022: 17 matters of Use of sole source 4 891 108 4 999 4 999 2023 relates to existing multi-year contracts that will R527 million). One matter of R4 million was recovered Incorrect classification as emergency continue to attract irregular expenditure until condoned. (2022: Nil) and one matter of R2 million that was not 647 – 647 (4) 643 procurement condoned, was removed (2022: Nil). No irregular Tender processes not adhered to and 2. Prior period errors 19 814 729 20 543 (245) (2) 20 296 expenditure not recovered and written off was reported. insufficient delegation of authority Modifications exceeding allowed amounts 8 967 138 9 105 9 105 2022 PPPFA: Incorrect tender process applied 880 2 882 882 2022 opening Details of current and previous year irregular Tax non-compliance 5 289 142 5 431 (1) 5 430 Description, R million Note expenditure balance expenditure (under assessment, determination Designated sectors 313 113 426 426 and investigation) Expenditure relating to prior Contracts awarded without following CIDB (b) (705) 705 1 164 47 1 211 1 211 years disclosed in 2022 Description, R million Note 2023 2022 requirements Reallocation of expenditure Expenditure not in accordance with National (c) (480) 480 Irregular expenditure under 498 – 498 498 to the financial year incurred Note 4 699 394 Treasury instructions assessment or determination Restatements reflected by Breach of more than one legislative (c) 56 (248) Irregular expenditure under 43 884 3 751 47 635 47 635 management Note 5 1 requirement investigation 176 Prior year expenditure Other 26 – 26 26 confirmed and disclosed (d) – 16 384 Total 875 395 Total 86 373 5 030 91 403 (246) (4) (2) 91 151 in 2023 Note 1 Note 3 Note 3 Note 3 Total prior year errors (1 129) 17 321 4. Irregular expenditure under assessment or determination Prior (b) Prior year expenditure disclosed in 2022 Opening period As Total Closing It should be noted that figures disclosed are estimated. Expenditure relating to prior years disclosed in the 2022 Quantification of actual irregular expenditure incurred Description, R million balance errors restated Confirmed incurred Condoned balance annual financial statements is reflected as prior year takes place during the determination process. Irregular 2022 errors in line with the disclosure guidance from National expenditure under assessment or determination relating Use of sole source 3 899 108 4 007 884 4 891 4 891 Treasury, requiring the recalculation of the figures for the to prior year incidents is estimated at R774 million. Incorrect classification as emergency opening balance and comparative year expenditure. 391 254 645 6 651 (4) 647 procurement Tender processes not adhered to and 5. Irregular expenditure under investigation 10 218 8 099 18 317 1 506 19 823 (9) 19 814 (c) Adjustments to amounts previously disclosed insufficient delegation of authority In the event that a suspicion of fraudulent, corrupt or There were 85 restatements to the 2023 opening Modifications exceeding allowed amounts 8 660 21 8 681 286 8 967 8 967 other criminal conduct arises during the assessment balances processed by management, the net effect of PPPFA: Incorrect tender process applied 860 13 873 7 880 880 and determination phase, the matter is referred to a which is a reduction of R192 million (2022 opening Tax non-compliance 4 713 498 5 211 78 5 289 5 289 mandated investigative function. In certain instances, balance: negative R248 million; 2022 expenditure: Designated sectors 19 259 278 35 313 313 the suspected criminal conduct does not stem from the R56 million). The opening balances on several incidents Contracts awarded without following CIDB assessment and determination process, such as matters 1 733 (524) 1 209 282 1 491 (327) 1 164 were verified and corrected where appropriate. requirements that are directly reported to the Forensic and Anti- Expenditure not in accordance with National Corruption Department or other investigative units. 497 497 1 498 498 In addition, allocation of additional expenditure disclosed Treasury instructions Irregular expenditure under investigation relating to prior Breach of more than one legislative was previously done based on general principles applied 28 169 8 590 36 759 7 312 44 071 (187) 43 884 at group consolidation level. In some instances, this led to years is estimated at R4 million. requirement Other 18 3 21 5 26 26 inclusion of the expenditure incurred against the incorrect financial year in the expenditure analysis. The weakness Total 59 177 17 321 76 498 10 402 86 900 (527) 86 373 has been addressed through the use of a new divisional Note 2 Note 1 Note 3 reporting approach for 2023 reporting. 178 179 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Disclosure of information under the PFMA continued Details of current and previous year disciplinary contracts. A sanction of suspension without pay was action or criminal steps taken as a result of issued on one matter relating to 2022 and one relating to (b) Expenditure disclosed in 2022 investigative function. In certain instances, the suspected irregular expenditure continuing expenditure. One employee was dismissed for Expenditure relating to prior years disclosed in the 2022 criminal conduct does not stem from the assessment and a 2022 matter. Description, R million 2023 2022 annual financial statements is reflected as prior year determination process, such as matters that are directly The disciplinary process is in progress for 34 incidents errors in line with the disclosure guidance from National reported to Forensic and Anti-Corruption Department or Written warning issued 40 643 Treasury, requiring the recalculation of the figures for the other investigative units. Fruitless and wasteful expenditure incurred in 2023, 33 incidents incurred in 2022 and Suspension without pay 3 8 44 incidents relating to continuing expenditure on multi- opening balance and comparative year expenditure. under investigation relating to prior years is estimated at Dismissal – 1 year contracts. R2 917 million, of which 96% relates to overpayments on Disciplinary action pending or in (c) Prior year expenditure disclosed for the first time the Kusile project that is handled by an investigative unit. 4 693 8 901 progress No disciplinary sanction was issued due to various in 2023 No disciplinary sanction issued 294 849 reasons, including where the responsible employees left Expenditure relating to prior years is reflected as prior Details of current and previous year disciplinary Total 5 030 10 402 the organisation; disciplinary action was deemed not year errors in line with the disclosure guidance from action or criminal steps taken as a result of fruitless appropriate and other corrective action was applied; or National Treasury, requiring the recalculation of the and wasteful expenditure the employee was found not guilty during the disciplinary figures for the opening balance and comparative year Written warnings were issued in three matters relating process. This was the case in one matter for 2023, 21 expenditure. Seventy-five matters relating to fruitless Description, R million 2023 2022 to 2023, in 17 matters relating to 2022 incidents, and 12 matters for 2022 and 13 matters relating to continuing and wasteful expenditure incurred in prior years were Written warning issued 1 1 for matters with continuing expenditure on multi-year expenditure. confirmed in 2023. Disciplinary action pending or in 104 2 progress During 2023, an investigation report was concluded FRUITLESS AND WASTEFUL EXPENDITURE confirming and quantifying overpayments to the value of Total 105 3 Opening Total Closing R1.6 billion on construction contracts for the Kusile build Description, R million balance Confirmed incurred Recovered balance project. Fruitless and wasteful expenditure of R1.5 billion Written warnings were issued in four matters incurred was incurred over the period 2014 to 2021, leading to a in 2023 and 16 relating to 2022 incidents. A sanction of 2023 restatement of the 2022 opening balance. The remaining suspension without pay was issued on one matter relating Project management 4 231 102 4 333 (1) 4 332 R102 million was incurred in 2023 and is disclosed to 2022. The disciplinary process is in progress for five Procurement and contract management 1 621 – 1 621 – 1 621 accordingly in the annual financial statements. incidents for 2023 and 17 matters relating to 2022. Interest and penalties 11 – 11 – 11 Other 799 3 801 (1) 800 3. Fruitless and wasteful expenditure recovered or There were six matters relating to 2022 where no Total 6 662 105 6 767 (2) 6 765 written off disciplinary action was taken due to various reasons, Recoveries were achieved on 53 matters during the including where the responsible employees left the Note 1 Note 3 organisation; disciplinary action was deemed not financial year, either partial or in full. Losses on 32 matters were written off as irrecoverable. appropriate and other corrective action was applied; Prior or the employee was found not guilty during the Opening period As Total Closing Details of current and previous year fruitless disciplinary process. Description, R million balance errors restated Confirmed incurred balance and wasteful expenditure (under assessment, 2022 determination and investigation) MATERIAL LOSSES THROUGH CRIMINAL CONDUCT Project management 2 615 1 616 4 231 – 4 231 4 231 Material losses caused by criminal conduct and any disciplinary, Procurement and contract management 1 617 4 1 621 – 1 621 1 621 Description, R million Note 2023 2022 civil or criminal action taken in respect of such losses Interest and penalties 3 7 10 1 11 11 Fruitless and wasteful are reported in terms of the Significance and Materiality Other 733 64 797 2 799 799 expenditure under Framework as agreed upon with the Minister of Public Note 4 49 2 761 Enterprises. In previous financial years, the disclosure included assessment or Total 4 968 1 691 6 659 3 6 662 6 662 determination all losses, regardless of materiality. This year, the disclosure Note 2 Note 1 Fruitless and wasteful includes incidents that exceed the materiality threshold expenditure under Note 5 4 4 individually or as a class of closely related items. investigation 2 765 Losses incurred 1. Current year expenditure 2. Prior period errors Total 53 Description, R million Note 2023 2022 Description, R million Note 2023 2022 2022 2022 opening 4. Fruitless and wasteful expenditure under assessment Theft of conductors, cabling Expenditure confirmed in the or determination and network-related (a) 197 316 (a) 105 26 Description, R million Note expenditure balance current year It should be noted that figures disclosed are estimated. equipment Prior year errors for 2022 Expenditure disclosed Estimated non-technical Note 2 – (26) (b) (26) 26 Quantification of actual fruitless and wasteful expenditure (b) 5 607 5 343 expenditure in 2022 energy losses1 incurred takes place during the assessment and Expenditure incurred in 2022 Prior year expenditure Fraud and corruption (c) 81 14 – 3 (c) – 1 665 determination process. Fruitless and wasteful expenditure confirmed in 2023 confirmed in 2023 Malicious damage to property (a) 49 under assessment or determination relating to prior years 122 Total current year Total prior year errors (26) 1 691 is estimated at R682 million. Attempted theft (a) 25 5 105 3 expenditure 5 727 Total material losses 6 032 5. Fruitless and wasteful expenditure under investigation (a) Expenditure for the current year In the event that a suspicion of fraudulent, corrupt or 1. Prior year figure restated. Fruitless and wasteful expenditure incurred in 2023 is other criminal conduct arises during the assessment and comprised of nine incidents (2022: 40 incidents, restated). determination phase, the matter is referred to a mandated 180 181 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Disclosure of information under the PFMA continued Expansions and deviations reported to Losses recovered Description, R million Note 2023 2022 (b) Estimated non-technical energy losses Non-technical energy losses relate to losses due to electricity theft through illegal connections, tampering National Treasury Theft of conductors, cabling and bypassing of electricity meters, as well as the As part of measures to enhance compliance, transparency and Most of the transactions were concluded in Generation. Of and network-related 9 18 purchase of electricity tokens from unregistered or accountability in Supply Chain Management (SCM), National concern is that of those, 248 transactions were treated as equipment illegal vendors. The management of non-technical losses Treasury issued PFMA SCM Instruction Note 3 of 2021/2022 urgent and 81 as emergencies, with a further 117 using a sole Estimated non-technical focuses on ensuring that all energy supplied is accounted that came into effect on 1 April 2022. This introduced or single source. 225 447 energy losses for, including initiatives to minimise non-technical energy changes for the treatment of procurement, making provisions Fraud and corruption – 1 losses. The reported losses represent the estimated cost for handling deviations from competitive bidding through The definitions of the procurement mechanisms are contained Malicious damage to property – – of non-technical energy lost. procurement by other means, as well as for expansion and in National Treasury’s instruction note. The breakdown per Attempted theft 1 1 variation of contracts. Eskom engaged National Treasury on the transaction category is shown below. Non-technical energy losses are determined by applying requirements and training was provided. Total recoveries on material (d) 235 467 a scientific approach to measure total energy losses as 306 losses the difference between energy produced and energy This resulted in Eskom being able to procure to address sold. Technical energy losses are derived based on known operational challenges, without prior approval from National (a) Theft of conductors, cabling and network-related factors of the electrical grid such as conductor resistance, Treasury. For the 2023 financial year, there was increased usage equipment, malicious damage to property and and transformer and equipment losses. The residual of of procurement from original equipment manufacturers (OEMs), attempted theft losses is attributed to non-technical losses. A review was measures to address urgent procurement, as well as dealing with 127 103 Actions to combat losses through criminal conduct are conducted of the methodology to split energy losses into modifications of contractual arrangements as needed. managed in collaboration with other affected state- technical and non-technical losses. The non-technical 62 owned entities, industry role players, law enforcement energy losses previously reported were increased by Eskom understand that these transactions are to be handled 7 1 and criminal justice agencies such as SAPS, the NPA, etc. R3 052 million from R2 291 million to R5 343 million as it in light of the Section 217 of the Constitution of the Republic Urgent Sole Emergency Informal Single Limited was found that the pattern of the change in non-technical of South Africa, 1996, which requires state-owned entities to source source Some of the initiatives being pursued include but are not losses already existed at 31 March 2022. procure goods and services in a manner that is fair, equitable, limited to the following: transparent, competitive and cost-effective. These transactions The number of contracts and amounts per division for • Realignment of security contracts (scope and (c) Fraud and corruption must be seen as the exception for procurement, not the norm. deviations and procurement by other means are set out below, resources) and optimisation of deployment Eskom concluded 56 investigations into fraud during the The relevant supply chain procedures have been amended broken down by contract currency, with the total Rand amount year (2022: 65). The internal control measures in the to cater for these provisions, including the monitoring and also being shown. • Improving Eskom asset disposal process and strategies affected areas have been reviewed and enhancements reporting thereof. • Focusing on asset management and protection, by researching and implementation of innovative solutions, recommended for implementation to the accountable line Division No Rand amounts Euro amounts managers. This includes controls, disciplinary, criminal and As required by the instruction note, Eskom provides regular such as unique marking and tracking capabilities reporting to National Treasury as these transactions are Generation 447 11 804 011 569.43 11 871 240.00 civil proceedings against those involved. • Driving for policy and legislative changes to address concluded. National Treasury reports across state-owned Distribution 79 555 379 523.19 – scrap and market regulation (d) Losses through criminal conduct recovered entities quarterly. Transmission 60 99 056 236.91 – • Introduction of integrated, intelligent and SMART Eskom recovered R235 million of material losses due Corporate 13 591 547 142.61 – security technologies and systems, to reduce to criminal conduct (2022: R467 million). Most of the In line with the requirements of the instruction note, Group Capital 7 322 049 460.42 – dependence on the human factor such as the use of value relates to non-technical energy losses. Eskom 880 transactions reflect commitments for contracts placed the Total 606 R13 372 043 932.56 €11 871 240.00 drones, intelligent cameras and alarm systems invoiced R346 million of additional revenue during the divisions during the financial year. • Focused strategies and projects on revenue losses, Average exchange year (2022: R752 million), of which R225 million has been 1.00 17.69 including metering, vending, tampering, disruptive DEVIATIONS AND PROCUREMENT BY OTHER rate received (2022: R447 million). operations Converted Rand MEANS R13 372 043 932.56 R210 002 235.60 value • Minimising the breaches that allow easy access to sites/ In total, 606 transactions were completed for deviations and assets by improving housekeeping, appropriate storing procurement by other means. These include emergency Total Rand value R13 582 046 168.16 of material and equipment, as well as well-functioning procurement, urgent procurement, single source and sole delay and deterring solutions to prevent or minimise source procurement. the impact CONTRACTUAL AGREEMENT EXPANSIONS • Deploying robust security systems that can detect and The figure below depicts the number of deviations and AND VARIATIONS prevent the crime and provide evidence that can be procurement by other means for the 2023 financial year In total, 274 contract expansions and variations were concluded used for disciplinary or criminal processes per division. during the financial year. • Ensuring consistent and continuous screening and 447 137 vetting of contractors and staff to prevent and minimise insider threat involvement and collusion • Arresting perpetrators and working with relevant role players to build strong cases and dockets that lead to convictions 50 32 37 79 60 18 13 7 Generation Distribution Transmission Corporate Group Generation Distribution Transmission Corporate Group Capital Capital 182 183 ESKOM HOLDINGS SOC LTD Integrated report 2023 Who we are Leadership reports Our strategic context Governance, leadership and ethics Performance review Supplementary information Expansions and deviations reported to National Treasury continued Contact details The number of contracts and amounts per division for expansions and deviations are set out below, broken down by contract currency, with the total Rand amount also being shown. Telephone numbers Websites and email addresses Division No Rand amount Euro amount USD amount Yen amount Eskom head office +27 11 800 8111 Eskom website www.eskom.co.za Generation 137 45 925 739 318.67 3 593 027.04 13 734.00 248 615 944.00 Contact@eskom.co.za Distribution 50 1 308 510 096.28 – – – Eskom Media Desk +27 11 800 3343 Eskom Media Desk MediaDesk@eskom.co.za Transmission 18 43 785 271.61 – – – +27 11 800 3378 Corporate 32 430 686 644.15 14 700.00 – – +27 11 800 6103 Group Capital 37 938 972 631.50 – – – Investor Relations +27 11 800 2775 Investor Relations InvestorRelations@eskom.co.za Total 274 R48 647 693 962.51 €3 607 727.04 $13 734.00 ¥248 615 944.00 Eskom whistle-blowing hotline 0800 112 722 Forensic investigations Investigate@eskom.co.za Average exchange rate 1.00 17.69 17.02 0.1255 Converted Rand value R48 647 693 962.51 R63 820 691.34 R233 752.68 R31 201 300.97 DPE whistle-blowing hotline 0800 111 628 DPE whistle-blowing website www.thehotlineapp.co.za DPE@thehotline.co.za Total Rand value R48 742 949 707.50 Eskom Development Foundation +27 11 800 8111 Eskom Development www.eskom.co.za/csi Foundation CSI@eskom.co.za National call centre 08600 ESKOM or Promotion of Access to PAIA@eskom.co.za 08600 37566 Information Act requests Customer SMS line 35328 Customer Service CustomerServices@eskom.co.za Facebook EskomSouthAfrica YouTube EskomOfficialSite Twitter Eskom_SA MyEskom Customer app Physical address Postal address Eskom Megawatt Park PO Box 1091 2 Maxwell Drive Johannesburg Sunninghill 2000 Sandton 2157 Group Company Secretary Company registration number Office of the Company Secretary Eskom Holdings SOC Ltd PO Box 1091 2002/015527/30 Johannesburg 2000 Feedback on or queries relating to our report may be directed to IRfeedback@eskom.co.za Our suite of reports covering our integrated results for 2023 is available at https://www.eskom.co.za/investors/integrated-results/ 184