Shift performance, grow sustainably Interim Integrated Report for the six months ended 30 September 2013 I Contents Key facts and figures 2 Eskom’s business model 4 About this report 8 Business overview 12 Shareholder compact 18 Performance on strategic objectives 22 Integrated Resource Plan 2010 (IRP 2010) 23 MYPD 3 price determination 24 Becoming a high-performance organisation 26 Leading and partnering to keep the lights on 35 Reducing Eskom’s environmental footprint and pursuing low-carbon growth opportunities 44 Securing future resource requirements, mandate and the enabling environment 47 Implementing coal haulage and the road-to-rail migration plan 49 Pursuing private-sector participation 50 Transformation 51 Ensuring financial sustainability 55 Group interim financial results 66 Appendices 72 Abbreviations, acronyms and glossary IBC Contact details IBC 1 2 3 4 5 6 7 8 Navigation icons 1. Becoming a high-performance organisation 5. Implementing coal haulage and the road-to-rail 2. Leading and partnering to keep the lights on migration plan 3. Reducing Eskom’s environmental footprint and 6. Pursuing private-sector participation pursuing low-carbon growth opportunities 7. Transformation 4. Securing future resource requirements 8. Ensuring Eskom’s financial sustainability The navigation icons above are used throughout the report to link material items, performance and key performance indicators to strategic objectives. II Eskom Holdings SOC Limited 1 Interim Integrated Report – 30 September 2013 Key facts and figures Number Number of employee of employee andand Unplanned Unplanned capability capability loss loss factor factor contractor contractor fatalities fatalities (UCLF) (UCLF)% % 30 30 12 12 Primary Pr 10 10 O Number Number of employee of employee andand Unplanned Unplanned capability capability loss loss factor factor 1 20 20 contractor contractor fatalities fatalities 8 8 (UCLF) (UCLF)% % Number Number of employee of employeeandand 6Unplanned Unplanned capability capability lossloss factor factor Fatalities Fatalities UCLF % UCLF % 30 30 6 12 12 Primary Pr contractor contractor fatalities fatalities (UCLF) (UCLF)% % Inte 10 10 4 10 4 10 O 30 30 12 12 Primary Pr 20 20 28 28 10 10 O 0 0 06 06 Fatalities Fatalities Fatalities Fatalities UCLF % UCLF % UCLF % UCLF % 2010 2010 2011 2011 2012 2012 2013 2013 Half year Half year 2010 2010 2011 2011 2012 2012 2013 2013 Half year Half year 20 20 2013/2014 2013/2014 8 8 2013/2014 2013/2014 Inte 10 10 4 4 6 6 Number Number of fatalities of fatalities for thefor half theyear halftoyear 31 to March 31 March 2 2 Inte Primary Pr Number Number of fatalities of fatalities for thefor half theyear halftoyear 30 to September 30 September 10 10 4 4 0 0 0 0 Safety remains a priority 2010 2010 2011 2011for2012 2013/14. 2012 2013 2013 Half year Half year The generation 2 22010 sustainability 2010 2011 2011 strategy 2012 2012 has 2013 been 2013 Halfimplemented year Half year 2013/2014 2013/2014 2013/2014 2013/2014 to address the deterioration in Eskom’s plant health – UCLF Total Total electricity electricity salessales increased0 from GroupGroup revenues revenues 20105.1% 2010 in2011 March 2011 2008 to 12.12% 2013 2013in March Half year2013 – 0 0 0 Coal uC of2010 Number Number of2010 fatalities 2011 fatalities for the for 2011 half the year 2012 halftoyear 31 to2012 March 2013 2013 Half year 31 March Half year 2012 2012 Half year Number Number of fatalities of fatalities for theforhalf theyear halftoyear 30 to September 30 September 2013/2014 2013/2014 it has since improved to 11.53%. 2013/2014 2013/2014 Primary Pr 300 000 300 000 150 000 150 000 Number Number of fatalities of fatalities for theforhalf theyear halftoyear 31 to March 31 March Number Number of 000 fatalities of fatalities for theforhalf theyear halftoyear 30 to September 30 September Primary Pr 250 000 250 125 000 125 000 Total Total electricity electricity salessales Group Group revenues revenues Coal uC 200 000 200 000 100 000 100 000 Key facts and Rands (millions) Rands (millions) 300 000 150 150 300 000 Total Total electricity electricity salessales 75 000 75 000 Group Group revenues revenues GWh GWh 000 000 150 000 150 000 Coal uC 250 000 100 100 250 000 000 000 50 000 125 50 000 000 125 000 300 000 300 000 150 000 150 000 figures 50 000 200 50 000 000 200 000 25 000 100 25 000 000 100 000 Rands (millions) Rands (millions) 250 000 250 000 125 000 125 000 0 0000 150 000 150 75 000075 00002010 2010 GWh GWh 2010 2010 2011 2011 2012 2012 2013 2013 Half year Half year 2011 2011 2012 2012 2013 2013 2014 2014 200 000 200 000 2013/2014 2013/2014 100 000 100 000 Rands (millions) Rands (millions) 100 000 100 000 50 00050 000 150 000 150 000 75 000Revenues 75 000Revenues for thefor half theyear halftoyear 31 to March 31 March (for the (for 2014 the year 2014 year GWh GWh Electricity Electricity sales for sales thefor half theyear halftoyear 31 to March 31 March forecast forecast numbers numbers are displayed) are displayed) 50 00050 000Electricity Electricity sales for sales thefor half theyear halftoyear 30 to September 30 September 25 00025 000Revenues Revenues for thefor half theyear halftoyear 30 to September 30 September 100 000 100 000 50 00050 000 15 1 0 0 0 0 50 0002010 2010 50 000 2011 2011 2012 2012 2013 2013 Half year Half year 25 0002010 2010 25 000 2011 2011 2012 2012 2013 2013 2014 2014 2013/2014 2013/2014 0 0 0Revenues 0Revenues for thefor half theyear halftoyear 31 to March 31 March (for the (for 2014 the year 2014 year 10 1 2010 Electricity 2010 sales Electricity for the2011 sales half for the2011 31 halftoyear year 2012 31 March to March2013 2013 Half year 2012 Half year forecast2010 2010 forecast numbers are2011 numbers are2011 displayed) 2012 2012 2013 2013 2014 2014 displayed) PCLF% PCLF% Cumulative Cumulative Electricity verified verified Electricity demand sales sales for demand 30 September September 30 to halftoyear theyear half thefor savings savings 2013/2014 2013/2014 electrified electrified of households of households Number Number Revenues Revenues for thefor half theyear halftoyear 30 to September 30 September 15 1 Revenues Revenues for theforhalf theyear halfto year 31 to March 31 March (for the (for2014 the 2014 year year ofElectricity The salesElectricity sales for sales electricity theforhalf theyear forhalfthe to year 31 to March six31 March months to 30 September forecast Eskom’s business are displayed) numbers isnumbers forecast seasonal are displayed) in nature, whereby sales decrease 5 4 000Electricity 4 000Electricity sales for sales theforhalf theyear halfto year 30 to September 30 September 200 000Revenues 200 000Revenues for theforhalf theyear halfto year 30 to September 30 September 2013 amounted to 110 659 giga-watt hours (GWh); this in the summer months, average tariffs are lower and the 15 1 10 1 represents a decrease of 0.1% against the comparative period. majority of repairs and maintenance is executed. 160 000 160 000 PCLF% PCLF% Cumulative 3 000 3 000 Cumulative verified verified demand demand savings savings Number Number of households of households electrified electrified 0 10 1 120 000 120 000 5 PCLF% PCLF% Number Number 24 000 Cumulative Cumulative 000 24 000 000 verified verified demand demand savings savings Number Number of households of households electrified electrified MW MW 200 000 200 000 80 00080 000 5 134 000 160 000 160 000 000143 000 000 000 200 000 200 000 0 40 00040 000 120 000 120 000 0 32 0000 160 000 160 000 0 0 Number Number Number Number 23 000 000 2010 2010 2011 2011 2012 2012 2013 2013 Half year Half year 0 MW MW 2010 2010 2011 2011 2012 2012 2013 2013 Half year Half year 2013/2014 2013/2014 80 00080 000 2013/2014 2013/2014 120 000 120 000 MW 12 000 00021 000 MW Verified Verified MW MW Connections 40 00040 000Connections for thefor half theyear halftoyear 31 to March 31 March EskomEskom target target 80 00080 000Connections Connections for thefor half theyear halftoyear 30 to September 30 September 1 000 0 1 000 0 0 2010 2010 2011 2011 2012 2012 2013 2013 Half year Half year 40 000 40 0002010 2010 2011 2011 2012 2012 2013 2013 Half year Half year 14 1 2013/2014 2013/2014 2013/2014 2013/2014 0 0 0 0 13 1 Verified MW2010 2010 Verified MW 2011 2011 2012 2012 2013 2013 Half year Half year 2010 2010 Connections Connections 2011 for thefor half 2011 half theyear 31 2012 toyear 312012 March to March 2013 2013 Half year Half year EskomEskom target target 2013/2014 2013/2014 2013/2014 2013/2014 Connections Connections for thefor half theyear halftoyear 30 to September 30 September 12 1 Verified Verified MW MW Connections Connections for theforhalf theyear halfto year 31 to March 31 March 14 1 EskomEskom targettarget Average Average monthly monthly operating operating reserves reserves Connections Connections for theforhalf theyear halfto year 30 to September 30 September 11 1 13 1 Since 2004/05, Eskom’s demand-side management interventions Approximately 4.4 million households have been electrified 14 10 1 60 60 have ‘freed up’ 3 706MW or more than six 600MW generations, by Eskom within its supply area since 1991, when the 12 1 13 9 1 the equivalent to that of a typical power station. electrification programme started. 50 50 Average Average monthly monthly operating operating reserves reserves % operating reserves % operating reserves 11 1 12 8 1 2 Eskom Holdings SOC Limited 3 Interim Integrated Report – 30 September 2013 40 40 Average Average monthly monthly operating operating reserves reserves 10 1 60 60 11 7 1 30 30 9 10 1 50 50 Eskom’s business model The business model diagram outlines Eskom’s business model and how it creates value. It includes the inputs in terms of the ‘six capitals’ and its business activities, as well as its outputs and outcomes. Further details of Eskom’s business model are available online at http://integratedreport.eskom.co.za/001. 2 Eskom’s business model Routine maintenance at the Palmiet pumped-storage scheme near Grabouw in the Western Cape 4 Eskom Holdings SOC Limited 5 Interim Integrated Report – 30 September 2013 Economic and social climate Technology Transmission energy losses 2.7% International sales 6 215GWh ZIISCE: Zero Harm, Integrity, Innovation, Sinobuntu, Customer Satisfaction, Excellence Local sales 104 444GWh Relative particulate emissions 0.31kg/MWh sent out IPP capacity installed 1 150MW Generated 120 453GWh 5 million customers Imports 4 405GWh Annualised energy savings 306GWh Policies, procedures and systems Distribution energy losses 7.2% Integrated Resource Plan 2010 Laws, regulations and policies R266 billion funding plan secured for the capital expansion programme 5.4Mt transported by rail Specific water Installed this year: consumption 120MW 1.33L/kWh 511km sent out 290MVA Coal used 62.4Mt Gross maintenance costs of R9.5 billion across Eskom for the six months to 30 September 2013 Pumped storage Internal External Leadership and governance 6 Eskom Holdings SOC Limited 7 Interim Integrated Report – 30 September 2013 Shareholder mandate About this report The September 2013 interim integrated report sets out a contextual review of Eskom’s overall performance for the period 1 April 2013 to 30 September 2013. This report should be read in conjunction with the 3 integrated report for the year ended 31 March 2013 as not all the issues raised in that report are necessarily addressed in this interim report. Structure of this report Securing future resource requirements This report addresses performance in terms of Implementing coal haulage and the road-to- Eskom’s eight strategic objectives, as set out in rail migration plan the corporate plan. This structure reflects the Pursuing private-sector participation manner in which Eskom manages its business and allows for enhanced connectivity of information Transformation within the report. Ensuring financial sustainability The report is structured as follows: Group interim financial results provide The business overview serves as an executive an extract from the condensed interim summary, which primarily sets out the financial statements for the six months ended achievements and challenges faced in the 30 September 2013. The condensed group interim financial statements, with the independent About this report reporting period, future focus areas and changes to Eskom’s risk profile. auditors’ review opinion, are available at http://integratedreport.eskom.co.za/002. The shareholder compact sets out Eskom’s performance against key performance indicators Appendices include links to a list of abbreviations as set by the shareholder. and acronyms, and a glossary. Eskom’s contact details are also included. About the company provides an overview of Eskom’s primary business and client base as While references to supplemental information well as its legal and operating structure. This are provided throughout this report section also outlines Eskom’s purpose, values the following reports can be found at and strategic objectives and addresses changes http://integratedreport.eskom.co.za/003: to the composition of the board and Executive • Eskom’s integrated report for the year ended Management committee. 31 March 2013 Performance on strategic objectives details • Eskom’s annual financial statements for the Eskom’s performance in terms of its eight strategic year ended 31 March 2013 objectives. It also discusses two important • Eskom’s supplementary and divisional report material items – the Integrated Resource Plan for the year ended 31 March 2013, which 2010 (IRP 2010) and the tariff determination provides detailed performance information for the next five years (the Multi Year Price from a divisional perspective Determination three, or MYPD 3) – that have a • The Eskom Development Foundation report bearing on all eight strategic objectives. detailing Eskom’s corporate social investment The eight strategic objectives are: activities for 2013 Becoming a high-performance organisation • The Eskom Factor report detailing Eskom’s broader impact on, and contribution to, society Leading and partnering to keep the lights on Reducing Eskom’s environmental footprint and pursuing low-carbon growth opportunities 8 Eskom Holdings SOC Limited 9 Interim Integrated Report – 30 September 2013 About this report continued Nature of business and customer base Eskom has several operating subsidiaries: Eskom’s purpose, values and strategic objectives Eskom is South Africa’s primary electricity • Eskom Enterprises SOC Limited Eskom’s strategic direction is encapsulated in its purpose statement, eight strategic supplier. The company, which is wholly owned • Escap SOC Limited objectives, and values. For further details on each of Eskom’s objectives please refer to by the South African government, generates, • Eskom Finance Company SOC Limited http://integratedreport.eskom.co.za/005. transmits and distributes electricity to • Eskom Development Foundation NPC Eskom’s purpose, values and strategic objectives industrial, mining, commercial, agricultural and residential customers. It also sells electricity Further details on the legal structure to municipalities, which in turn redistribute it of Eskom Holdings SOC Limited and to businesses and households within their areas. its subsidiaries are available online at http://integratedreport.eskom.co.za/004. Our purpose: Accomplish Legal and operational structure To provide sustainable electricity solutions to grow Eskom’s Eskom’s head office is in Johannesburg. It also has The diagram that follows illustrates Eskom’s the economy and improve the quality of life of purpose operations across South Africa and maintains organisational structure, together with the people in South Africa and the region a small office in London, primarily for quality names of the group executives responsible for control of the equipment being manufactured each function. offshore for the capital expansion programme. Execute strategic Leading and Reducing Securing future Implementing Pursuing pillars Office of the chief executive partnering Eskom’s resource coal haulage private-sector Chief executive to keep the environmental requirements and the participation Brian Dames lights on footprint and road-to-rail Assurance and Forensic pursuing low- migration plan (internal audit) carbon growth opportunities Generation Build foundation Thava Govender Ensuring Becoming a right, build Transmission Transformation Eskom’s financial high-performance capacity Mongezi Ntsokolo sustainability organisation Line functions Distribution ZIISCE: Zero harm, Integrity, Innovation, Sinobuntu, Customer satisfaction, Excellence Ayanda Noah Group Customer Services Foundation: Tsholofelo Molefe Long-term nation building • Electricity for all • Triple bottom-line Human Resources Bhabhalazi Bulunga Corporate governance Changes in Executive Management Technology and Commercial Details on the structure and operation of committee composition in 2013/14 Kannan Lakmeeharan the board and the Executive Management The process to fill the finance director and group Service functions committee, including a review of committees executive for Group Capital vacancies is in progress. Group Capital Dan Marokane and initiatives designed to ensure good Insofar as the finance director post is concerned, governance, statutory compliance and Eskom’s Eskom’s memorandum of incorporation stipulates Finance remuneration philosophy are available online that the board, after obtaining approval from the Caroline Henry at http://integratedreport.eskom.co.za/006. shareholder, will appoint executive directors. Enterprise Development In the interim, Caroline Henry, the senior general Erica Johnson Change in board composition in 2013/14 manager responsible for the Treasury function Strategic Paul O’Flaherty, the finance director and group functions and Dan Marokane, the group executive for Sustainability executive for Group Capital, tendered his Technology and Commercial were appointed to Steve Lennon resignation in November 2012 and vacated his act as chief financial officer and group executive: post on 10 July 2013. Group Capital, respectively. Kannan Lakmeeharan, Refer to the Corporate Governance section alongside, which has details on the changes to the divisional executive for the Office of the chief the composition of the Executive Management committee. executive was appointed to act as group executive for Technology and Commercial. 10 Eskom Holdings SOC Limited 11 Interim Integrated Report – 30 September 2013 Business overview Eskom kept the lights on during the past winter with the help of all South Africans, hard work and disciplined delivery on goals. Eskom is thankful to all consumers who switched off during 4 the peak period from 17:00 to 21:00. In addition, open cycle gas turbines and a reduction by contracted industrial customers were used to meet the energy demand. Response to MYPD 3 determination after reductions still aims to deliver on the eight On 28 February 2013, NERSA approved total strategic imperatives and Eskom’s mandate, revenue of R863 billion over the next five years, subject to certain strategic trade-offs and against an applied revenue of R1 088 billion initiatives that Eskom will have to consider. The resulting in an average annual increase of trade-offs will require a change in the approach 8% in electricity tariffs (this includes 2% for to the operating and business model of Eskom. Independent Power Producers). The regulator’s There are risks that Eskom will have to manage. decision will result in a revenue shortfall of Business Reduced sales volumes will not translate into R225 billion over this period. a proportional reduction of costs. The current Eskom has established a Business Productivity year budget for the open cycle gas turbines was overview Programme to address the revenue shortfall. The goal of the programme is to deliver depleted in the first six months of this financial year. In order to ensure a sustainable generation asset base, Eskom will perform an adequate level sustained productivity improvements that will re-establish a high-functioning Eskom of maintenance on its generation fleet. This may require that Eskom spends more on fuel costs, organisation, close the revenue gap for the over and above that which was granted in the MYPD 3 period as far as possible, without MYPD 3 determination, which will have the compromising Eskom’s sustainability and effect of eroding capacity for other initiatives. establish a sustainable, long-term cost position It may be necessary to stabilise and potentially beyond the next five years. The improvements not enhance performance on certain technical will be delivered through disciplined execution, key performance indicators, for example the individual accountability and performance system average interruption duration index management. However, it must be pointed out (SAIDI) and the system average interruption that the revenue gap cannot be addressed by frequency index (SAIFI). It also implies a freeze efficiencies alone. Critical trade-offs will need in employee numbers and wage increases to be made and this will inevitably lead to being limited to inflation. Eskom is committed a higher risk profile and greater vulnerability. to closing out these uncertainties before the The programme has identified the elements end of the financial year. required to meet the shortfall over the MYPD 3 These opportunities are in the process of being period and is focussing on implementation defined, including the articulation of the trade- thereof. Eskom’s response strategy aims to offs and the implication to Eskom’s mandate close the revenue gap. The reduced capital and objectives. allocation will still deliver the existing capital expansion programme. The revised budget 12 Eskom Holdings SOC Limited 13 Interim Integrated Report – 30 September 2013 Business overview continued System constraints learnings from Medupi and related recovery during the period was 0.34 compared to 0.40 The distribution system average interruption This winter was different – maintenance of the strategies intended to mitigate delays and the previous period. Even though the target frequency index improved from 22.6 interruptions Eskom power stations was also scheduled and achieve the earliest possible synchronisation date. was achieved, the safety of the people remains per annum in September 2012 to 20.1 executed during the winter months. Although a priority to achieve zero harm. interruptions per annum in September 2013. The Ingula transformer hall and dewatering The distribution system average interruption the system was tight, Eskom still managed to shaft are three months behind the optimised Technical performance schedule nine planned maintenance outages, duration index improved from 43.9 hours schedule which will result in possible delays to Eskom has for the past five years succeeded per annum in September 2012 to 37.3 hours eight of which are either complete or in other project timelines. in keeping the lights on. However, in recent per annum in September 2013. These execution, while the remaining outage was The year to date capital spend of R23.4 billion years, the margin between supply and demand improvements are a result of the reliability released in October 2013 – an exceptional is R9.3 billion below budget due to lower has been too narrow to take generating units improvement investments made over the past achievement to meet winter demand and do than planned work performed by the boiler off-line at the pace required for adequate few years. more maintenance than before. supplier, access delays on certain packages scheduled maintenance. This resulted in the While there was sufficient capacity to meet the declining technical performance of the power During the six months to 30 September 2013, at Medupi and obtaining of servitude and 53 600 homes were electrified (September 2012: demand during the day in winter, the power environmental approvals on other projects. stations. The generation sustainability strategy system was exceptionally tight on a number of has been implemented and requires on average 32 216). The integrated demand management There is a concer ted effor t to reduce the strategy achieved demand efficiency savings of evenings, with all available generation in service capital underspend in the six months to that Eskom’s power station fleet should have and contracted industrial customers requested an energy availability factor of 80%, leaving 10% 117MW (September 2012: 220MW). 30 September 2013 by the financial year-end. to reduce demand. On 13 June 2013, the worst for planned maintenance outages and 10% for Supplier development and localisation constrained day this past winter, the actual Funding update unplanned outages. During the six months to 30 September 2013, available reserves over the peak period were The focus of activities remains the funding Maintenance is now also scheduled in the 62.4% of the awarded contracts in the 1.09% short of demand – emergency resources requirements to the end of the committed winter months. The power plant availability of capital expansion programme represented including interruptible load supply options from capital expansion programme and the 78.4% for the six months to 30 September 2013 local content (September 2012: 88.6%). By some industrial customers were required to maintenance of a liquidity buffer of R20 billion. is worse when compared to the 81.2% for the the end of September 2013, 38 423 jobs meet the demand. During July, Eskom successfully raised $1 billion same period in the previous year, as a result of (September 2012: 32 478) had been directly Capital expansion programme through an international bond issuance, which an increase in unplanned unavailability. created by the build projects. The B-BBEE An additional 30MW and 90MW of generation was significantly over-subscribed. attributable spend for the six months to Relative particulate emissions’ performance of 30 September 2013 is 87.6% (September 2012: capacity were commissioned at Grootvlei and 0.31kg/MWh sent out for the six months to Moody’s changed the Eskom stand-alone 72.5%). Komati power stations respectively, 511.1km 30 September 2013 improved compared to credit rating from ‘ba3’ to ‘b1’ on 19 July 2013 of power lines were built and 290MVA of the same period last year (September 2012: Financial performance overview and on 14 October 2013, Standard & Poor’s substation capacity was commissioned. 0.33kg/MWh). The specific water usage affirmed Eskom’s credit rating at BBB, however, Eskom achieved a group net profit for the six The delivery of Medupi Unit 6 remains a key downgraded Eskom’s standalone credit profile performance improved to 1.33L/kWh for the months to 30 September 2013 of R12.2 billion. focal point. The first synchronisation date is by one notch to ‘b-’ from ‘b’. This action was six months to 30 September 2013 compared Eskom achieves higher profits in the first six scheduled for the second half of 2014 and taken primarily in light of increased regulatory to the same period last year (September 2012: months of the financial year due to higher tariffs commercial operation is expected six months and operating risk, and weakened profitability 1.35L/kWh). and energy demand in winter. Electricity sales later. Industrial action continues to impact owing to a less than favourable regulatory Eskom transported 5.4 million tonnes of coal decreased by 0.1% when compared to the construction progress, although contractors decision. Both ratings remain investment grade by rail in the six months to 30 September 2013 prior comparative period – this was mainly are experiencing reasonable labour stability after the shareholder uplift demonstrating compared to 5.0 million tonnes in the same due to a warmer winter. Primary energy through Eskom’s interventions. The technical strong Sovereign support. period last year. costs increased by 25.3% from 22.5c/kWh to issues surrounding welding have largely been 28.3c/kWh mainly due to the cost of open cycle quantified and strategies to remedy and achieve Safety performance The number of transmission system minutes gas turbines, coal usage costs and costs resulting relevant milestone dates are in place. Eskom’s employee safety performance remains lost performance of 1.58 (for incidents of less from start-ups after trips and supplementary a concern as there were two Eskom employee than one system minute) for the period was burn during load loss periods. The coal stock While significant challenges remain at Kusile to and eight contractor employee fatalities for marginally higher than 1.53 in the previous days at 30 September 2013 were 53 days, up meet the target synchronisation in the second the period. The lost-time injury rate achieved comparative period. from the 44 days at 30 September 2012. half of 2015, Eskom is aggressively implementing 14 Eskom Holdings SOC Limited 15 Interim Integrated Report – 30 September 2013 Business overview continued Electricity debtors increased from R16.7 billion A small year-on-year sales growth of 0.6% is Eskom priorities at 31 March 2013 to R20.8 billion at expected for the year ending 31 March 2014. 30 September 2013 as a result of the winter The current energy losses trend, despite Towards a vision Top five performing utility tariffs that came into effect on 1 July 2013. The additional focus being applied, continues allowance for impairment for trade and other to increase. receivables increased by R0.6 billion from Accelerate electrification R4.3 billion to R4.9 billion during the same The outstanding debt trend for Soweto and period. Arrear debt will receive continued municipalities is expected to remain a concern focus in the future as the tariff increases and as in the current economic environment. Engage in the region Grow sustainably the defaulting municipality debt trend persists. The power plant availability is expected to Cash and cash equivalents together with decrease towards the year-end due to planned Pursue low-carbon growth liquid investment in securities, amounted maintenance. However, it is expected that to R43.2 billion as at 30 September 2013 the positive trend for particulate emissions Five-year priorities Reduce environmental (September 2012: R46.3 billion). This liquidity and specific water use will continue for the footprint in existing fleet situation is largely due to the international bond remainder of the year. financing happening earlier than predicted and 2012 – Maximise socio- Licence to operate Eskom’s strategic direction, including its purpose, economic contribution (Regulatory and legal compliance) (MYPD 3 application) is a short-term phasing item only. mandate, strategic objectives and values, remain unchanged for the period 2013/14 to 2017/18. 2012 – Deliver capital Outlook Existing new build Eskom will continue to focus on the five areas expansion Ensure financial The power system will remain tight in summer. highlighted in the March 2013 integrated report sustainability Summer is typically maintenance season, but and in red in the graphic alongside, where step this summer maintenance will increase based Improve operations changes are required to create a solid platform Be a catalyst for private- on the generation sustainability strategy as to ‘shift performance and grow sustainably’. sector participation most of the scheduled maintenance is fixed The Transformation focus area includes the Fix performance Building strong skills and cannot be deferred. Outages will also re-engineering of Eskom, which will be Securing our future be done to ensure that Eskom complies with addressed through the Business Productivity resources and road-to-rail environmental legislation. Programme. Keep the lights on Additional supply and demand-side options Transformation (including re-engineering have been identified to meet medium-term Focus on safety Eskom) electricity demand, but this is dependent on funding restrictions as a result of the MYPD 3 – 8% tariff determination. The open cycle Manage fire-fighting Organisational health gas turbines will run harder during summer subject to budget availability to fund their use. Approximately 2 100MW of interruptible load supply, for up to two hours a week, is available from the aluminium smelters to help manage the frequency of the power system during unexpected events. 16 Eskom Holdings SOC Limited 17 Interim Integrated Report – 30 September 2013 Business overview continued Shareholder compact Below is an overview of performance against Target Actual half The government of the Republic of South Africa the key performance indicators in Eskom’s Key performance year to year to is Eskom’s sole shareholder. The shareholder shareholder compact with the government. areas Key performance indicator Unit Mar 2014 * Sep 2013 representative is the Minister of Public The compact is reported at an Eskom company level. Delivering capital Generation capacity installed Enterprises. Each year, Eskom, in consultation expansion and commissioned MW 100 120 with the Minister of Public Enterprises, agrees on its performance objectives, measures Transmission lines installed Km 770 511.1 and indicators in line with the Public Finance Transmission capacity installed Management Act (PFMA). and commissioned MVA 3 790 290 Generation new build capacity Target Actual half milestones (Medupi, Kusile Days Key performance year to year to and Ingula) deviation 30 5.75 areas Key performance indicator Unit Mar 2014 * Sep 2013 Reducing Relative particulate emissions Kg/MWh 0.36 0.31 Focusing on Employee lost-time environmental sent out safety incident rate Index 0.36 0.34 footprint Specific water consumption4 L/kWh 1.39 1.33 Keeping the Maintenance backlog sent out lights on reduction based on Eskom Technical Governance Implementing Coal road-to-rail migration Mt 11.5 5.4 committee approval1 Number 0 1 coal haulage and the road-to-rail IDM demand savings MW 379 117 migration plan Internal energy efficiency GWh 15 0 Ensuring financial Cost of electricity (excluding R/MWh 453.4 500.27 Being customer sustainability depreciation) centric Customer service index Index 88.7 86.9 Interest cover Ratio 1.18 2.27 Improving Normal unplanned capability Debt/equity (including Ratio 2.17 1.84 operations loss factor (UCLF) % ≤ 10 11.53 long-term provisions) Less: Constrained UCLF2 % n/a – 3.45 FFO as % of total debt % 9.11 8.68 Underlying UCLF 3 % 10 – 8.08 * Forecasted performance to target as at 31 March 2014. Green : indicates target will be achieved and red : indicates that the EAF % 80 78.42 target is at risk and will be aggressively managed until year-end. 1. Refer to page 38 for the maintenance backlog reduction strategy, where the extent of the maintenance backlog is explained. SAIDI Hours 45 37.28 2. Constrained UCLF – this is UCLF that results from emissions and short-term related UCLF due to system constraints to meet the ‘Keep the Lights On’ objective. This is apportioned between the planned capability loss factor (PCLF) and the other capability loss Total system minutes lost for factor (OCLF), which is the energy lost because of unplanned shutdowns. events <1 minutes Minutes 3.4 1.58 3. Underlying UCLF – the difference between normal and constrained UCLF and which is still within Eskom’s control. 4. The specific water performance excludes Komati power station. 18 Eskom Holdings SOC Limited 19 Interim Integrated Report – 30 September 2013 Business overview continued Target Actual half Key performance year to year to areas Key performance indicator Unit Mar 2014 * Sep 2013 Building strong Training spend as % of gross % ±5 7.48 skills (total employee benefit costs pipeline or new Engineer learners Number 2 007 2 269 enrolments) Technician learners Number 780 822 Artisan learners Number 2 619 2 518 Strategic youth development Number 5 000 5 100 programme Maximising Local sourcing in % 52 62.4 Eskom’s procurement 5 socio-economic Procurement from B-BBEE % 75 87.6 contribution compliant Procurement from black youth % 1 1.0 owned Employment equity – disability % 3 2.6 Racial equity in senior % 61 59.5 management, % of black employees Gender equity in senior % 30 28.6 management, % of female Racial equity in professionals % 71 70.5 and middle management, % of black employees Gender equity in professionals % 36 35.5 and middle management, % of female employees * Forecasted performance to target as at 31 March 2014. Green : indicates target will be achieved and red : indicates that the target is at risk and will be aggressively managed until year-end. 5. Measures the local sourcing from the capital expansion projects. An unsafe electricity connection is fixed in Cosmos, Johannesburg 20 Eskom Holdings SOC Limited 21 Interim Integrated Report – 30 September 2013 Performance on strategic objectives This section deals with Eskom’s performance during the six months to 30 September 2013, placed within the context of its eight strategic objectives, as highlighted in ‘About this report’ on page 9. It includes relevant key performance indicators for each objective; actuals for the current period and historical data for comparison; operating highlights and challenges faced; as well as a performance commentary on each key performance area. Unless otherwise stated, future focus areas have 5 remained unchanged since 31 March 2013. Integrated Resource Plan 2010 (IRP 2010) The IRP 2010 sets out South Africa’s long-term energy needs and discusses the generating capacity, technologies, timing and costs associated with meeting that need. The update to the integrated resource plan by the Department of Energy is expected to be available towards the end of 2013. The determination on Eskom’s allocation pursuant to the IRP 2010 is still to be made. Performance on Notwithstanding the absence of an IRP 2010 allocation, Eskom has an aspirational allocation, Coal 3 Development work for a third new coal fired strategic objectives which takes into consideration its ambition to diversify its energy mix. Eskom opted to take the lead in the development of the various powered station began in early 2008 and continued during 2009/10. In March 2010, a decision was made to stop development work generation options in the IRP 2010 and on the project. The project was restarted in acknowledges that it may not be the owner February 2012 with the investigation of the or operator of these proposed generation flexibility and modular build options. Currently, alternatives. This approach was aimed at the project is awaiting PFMA approval from ensuring that ‘execution ready’ options and the Department of Public Enterprises before plans exist for the country. proceeding with site property acquisition and conducting further project development work. The development of the framework which informs how Eskom would pursue new capacity Eskom and the government need to make a options extending up to and beyond 2030 decision on the appropriate water pipe size has, however, been put on hold until Eskom’s for phase 2 of the Mokolo and Crocodile future business model and the outcome of Water Augmentation Project. The process the IRP 2010 review have been finalised. In to purchase properties and restart the view of Eskom’s inability to fund front-end generation environmental impact assessment planning activities of its aspirational IRP 2010 can only commence upon approval from the allocation, Eskom decided to proceed with Department of Public Enterprises. the development at the lowest possible level for the next coal and nuclear power stations to avoid team demobilisation. No long-term commitments are to be made and expenditure Image is to be kept to an absolute minimum. Image description to be placed here 23 Performance on strategic objectives continued Nuclear build programme cutting back of all programme activities The programme has been mobilised and monitored, specifically the implications of the The programme aims to deliver Eskom’s barring those where termination would result staff have been seconded on a full time basis. declining sales volumes – savings targets will be assigned portion of the nuclear power capacity in serious programme setbacks. The critical Governance processes have been implemented amended accordingly. as specified in the Integrated Resource Plan path for this project is being delayed and the and methodologies embedded. The project team is structured in mainly seven key functional The key focus areas for the next six months 2010 on a timely basis. The capacity and timing funding of these limited activities will have to will be: of new nuclear power projects within South be reconsidered. areas, focussing on: • improving efficiency and effectiveness of the • articulation of trade-offs and the implication Africa are guided by the IRP 2010 process, which to Eskom’s mandate and objectives in its 2010 revision called for 9.6GW of nuclear Eskom will continue aligning with government capital programme stakeholders on the short-term funding of the • continued formulation of opportunities to power to be commissioned between 2023 and • reducing external spend through efficient programme and work on securing this funding. save cost 2029. The South African cabinet endorsed the procurement practices, price reduction and Eskom’s MYPD 3 application did not include revision of technical standards • detailed analyses and development of designation of Eskom as the owner-operator a robust business case for each savings as per the Nuclear Energy Policy of 2008 on any capacity expansion projects post the Kusile • reducing revenue losses, improved debt power station. opportunity 7 November 2012. management and f inding additional revenue sources • expedited implementation of ‘quick wins’ Eskom’s funding prioritisation following the • maintenance cost and process optimisation • initiation of the revisions to the Eskom MYPD 3 determination has resulted in the business model • opportunities to reduce direct and indirect employee benefit cost • development of a detailed implementation plan per value package • funding options and balance sheet • revise the Eskom performance model and MYPD 3 price determination optimisation incentive scheme • optimising and reducing the cost of primary energy • continued communication and stakeholder On 28 February 2013, NERSA approved total revenue of R863 billion management over the next five years, against an applied revenue of R1 088 billion Savings opportunities have been identified, • sign-off of all value packages and adjustments however, it must be highlighted that these to divisional budgets resulting in an average annual increase of 8% in electricity tariffs opportunities will be dependent on certain • implementation and monitoring of savings (this includes 2% for Independent Power Producers). The new tariffs trade-offs in terms of Eskom’s mandate and opportunities objectives. These are in the process of being took effect on 1 April 2013 for Eskom customers and from 1 July 2013 defined and consulted with stakeholders. Eskom is confident that the Business for municipal customers. NERSA’s decision will result in a revenue Savings opportunities are in various stages Productivity Programme provides a sound of maturity. It is anticipated that not all basis to address the challenge of financial shortfall of R225 billion over the next five years. opportunities will realise. sustainability into the future. The programme is actively supported by the chief executive The impact of a reduction from the applied productivity and revisions to the Eskom Also, external factors that will result in and the Executive Management committee to increased pressure on cost will be closely ensure focus and delivery. tariff increase of 16% to the NERSA business model and strategy. determined 8% requires significant changes to the Eskom business. Eskom’s response to the A detailed review of the cost base has been overall challenges facing the organisation will conducted. A structured cost management be addressed through the execution of the methodology has been implemented. For Business Productivity Programme. every opportunity a full process is followed, including conceptual definition, detailed The Business Productivity Programme aims analysis, business case development, budget to deliver cost saving opportunities in order adjustment, implementation and tracking of to close the revenue gap resulting from the benefits. International skills and best practices MYPD 3; 8% tariff increase determination are utilised to define opportunities and apply by NERSA. The programme focusses on proven methodologies and processes. the reduction of the cost base, increased Koeberg nuclear power station was completed in 1984 and has been operated safely for the past 29 years 24 Eskom Holdings SOC Limited 25 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Becoming a high-performance organisation Key performance indicators for Eskom’s safety performance Actual Actual Actual Eskom continues its transformation into a utility focused on improved half year to half year to year to customer service; safer, more effective and efficient operations; better Indicator and unit Sep 2013 Sep 2012 Mar 2013 service delivery; talent and skills development and management; Employee lost-time incident rate (LTIR)SC,1, rate 0.34 0.402 0.402 transparency; and consistency in communications. Fatalities (employees and contractors), number 10 11 19 Operating highlights Operating challenges SC Indicator included in the shareholder compact. • The implementation of the generation • Eskom’s safety performance remains a 1. The progressive lost-time incident rate (LTIR) is a proportional representation of the occurrence of lost-time injuries over 12 months sustainability strategy has already seen challenge per 200 000 working hours. 2. Number revised from 0.39 to 0.40 due to the late reporting of incidents. benefits, as the increased opportunity for • The outage plan and backlog is spread over maintenance has enabled several power five years, hence the turnaround in the Two Eskom employees (September 2012: Of the eight contractor employees who lost stations to significantly improve their unplanned capability loss factor performance one) and eight contractor employees their lives, four were due to motor vehicle emissions performance will be gradual (September 2012: 10) died on the job in the accidents, one was struck by an object, one • At 30 September 2013, both Koeberg units • Executing the generation sustainability six months to 30 September 2013, while the was caught between objects, one was due had been simultaneously online for 160 days, strategy, while keeping the lights on in an lost-time incident rate showed improvement. to an electrical contact and another was surpassing the previous record set in 2004 environment where the capital expenditure The two Eskom employees lost their lives due due to an assault. • Sustained improvement in the following key budget to execute the technical plan, is being to a motor vehicle accident and an electrical technical performance measures: reduced contact incident. – No transmission major incidents • Challenges were experienced during winter occurred during the six months to following the failure of a gas insulated 30 September 2013 switchgear installation at Croydon substation, – The excellent line fault performance where high loading prevented normalisation attained during the 2012/13 year has due to outage constraints continued, as the line fault performance • Debt collection remains a key area of was 0.78 line faults per 100km for the concern, both from the municipalities and six months to 30 September 2013 the small power users (September 2012: 0.91 line faults per 100km) Focusing on safety – Network performance as measured by Eskom’s safety principle is that no operating system average interruption duration condition or urgency of service justifies index (SAIDI) and the system average exposing anyone to negative risks arising out interruption frequency index (SAIFI) of Eskom’s business or causing them injury or improved during the six months to damage to the environment. This principle 30 September 2013 applies to all levels of the company, the public and the environment. • The contact centre’s KeyCare performance indicator, which measures Eskom’s interactions with its large industrial customers was above target for the six months to 30 September 2013 Eskom’s customer service is measured via the customer service index 26 Eskom Holdings SOC Limited 27 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Improving operations Generation Koeberg performance Key performance indicators for improving performance Eskom aims to become a world-class generating On 20 February 2013, Koeberg Unit 1 sustained utility, capable of providing electricity without a reactor and turbine trip due to a switchboard Actual Actual Actual busbar fault. The unit was returned to service Indicator half year to half year to year to interruptions due to plant unavailability. Eskom operates 27 power stations with a total nominal on 22 April 2013, and reached full load on and unit Definition of indicator Sep 2013 Sep 2012 Mar 2013 capacity of 41 978MW. 26 April 2013. A partial loss was required for Normal Measures the lost energy due to 11.53 9.98 12.12 a condenser tube-leak repair from 31 May 2013 UCLFSC % unplanned production interruptions Plant performance to 2 June 2013. Koeberg Unit 2 has operated resulting from equipment failures and The UCLF percentage for the six months to continuously since its return from a refuelling other plant conditions 30 September 2013 was both higher than the outage at the end of November 2012. Constrained UCLF that results from emissions and 3.45 2.49 3.41 target and the September 2012 figure. This UCLF % short-term related UCLF due to system had a negative impact on Eskom’s power plant Steam Generator Replacement Project constraints to meet the ‘Keep the Lights On’ availability (EAF percentage). The project to replace Koeberg’s steam objective. This is apportioned between the generator is currently in the final stage of planned capability loss factor (PCLF) and the The higher UCLF percentage is an indication of the procurement process. The project will other capability loss factor (OCLF1) the deteriorating plant health of an ageing power extend Koeberg nuclear power station’s life by Underlying The difference between normal and 8.08 7.49 8.71 station fleet. The following factors contributed 20 years. Negotiations with potential suppliers UCLF % constrained UCLF and that is still within to the high UCLF percentage recorded in the six will start once the board confirms the mandate Eskom’s control months to 30 September 2013: and the necessary approvals are obtained. Planned Planned energy loss is energy that was 9.362/ 7.86 9.10 • Partial load losses contributed 4.47% and capability not produced during a period because of 8.733 continue to increase Transmission loss factor planned shutdowns or load reductions • 94 boiler tube failures (September 2012: 87) Eskom’s power stations generate electricity, (PCLF) % due to causes under plant management contributed 1.97% which then flows through its transmission and control distribution networks to its end customers. The • Major/significant load losses contributed 1.74% Energy EAF measures plant availability, plus 78.42 81.18 77.65 transmission grid comprises 155 substations and availability energy losses not under the control of Generation sustainability strategy approximately 29 300km of transmission lines. factor (EAF)SC plant management (external) and internal The strategy aims to improve technical % non-engineering constraints This network is used whenever Eskom needs to performance in the generation plant over balance electricity supply and demand in real time, Total system Total number of system minutes lost 1.58 1.53 3.52 the long term, in a sustainable manner, whilst trade electricity internationally, or buy energy minutes lost (for incidents of less than one minute) minimising the negative impact on Eskom’s for events from Independent Power Producers (IPPs). ability to ‘keep the lights on’. <1 minuteSC , Technical performance minutes The strategy ensures that the opportunity is The total number of system minutes lost Major Records the number of incidents 0 1 3 created to perform the required maintenance performance (for incidents of less than incidents, with a severity greater than one on the generating plant (within the constraints one system minute) for the six months to number system minute of achieving 80% plant availability), but at the 30 September 2013 was impacted by a SAIDISC, hours System average interruption duration 37.28 43.85 41.89 same time addressing people and process combination of human errors, ageing assets per year index – measures the availability of supply issues. There is a need for a predictable and as well as incidents triggered by customer sustainable power plant performance within SAIFI, events System average interruption frequency 20.10 22.61 22.19 network faults, which exposed transmission per year index – measures the reliability of supply a targeted technical performance of 80:10:10 system vulnerabilities. Focus areas include over the next five years; 80% EAF, 10% PCLF, SC Indicator included in the shareholder compact. initiatives to improve asset management and 1. OCLF – Other capability loss factor is the energy lost because of unplanned shutdowns due to conditions that are outside Eskom’s 9% UCLF and 1% other capability loss factor human performance. generation management control. (OCLF). The target for UCLF and OCLF is a 2. Underlying PCLF – the sum of the normal PCLF and the constrained PCLF (the apportionment of the constrained UCLF that is maximum of 10%. assigned to PCLF). 3. Normal PCLF. 28 Eskom Holdings SOC Limited 29 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Being customer centric Eskom’s customer-centricity programme aims to ensure that its customers are fully satisfied and serviced, and that they consistently rate Eskom highly. Key performance indicators for being customer centric Actual Actual Actual half year to half year to year to Indicator and unit Sep 2013 Sep 2012 Mar 2013 Arrear debt as a percentage of revenue, % 0.90 0.66 0.81 Customer services (large power users – excluding municipalities), average debtors’ days1 16.5 n/a 18.3 Customer services (large power users – municipalities), average debtors’ days1 26.4 n/a 22.4 Customer services (small power users excluding Soweto debt), average debtors’ days 44.3 41.3 48.2 Customer services (large power top customers excluding disputes), average debtors’ days 15.2 14.0 12.3 Customer service index SC 86.9 86.6 86.8 Eskom KeyCare, index 107.3 105.1 105.8 SC Indicator included in the shareholder compact. 1. The Customer Services average debtors’ days target for large power accounts excluding top customer accounts were split into two Regular maintenance strengthens the distribution network different components to distinctively measure municipal performance separately from normal operating large accounts as indicated in the table above with associated targets for the financial year. The new measures have been in place since March 2013. Criminal incidents Technical performance Although no significant incidents have occurred The SAIFI performance improved in Customer service performance R5.1 billion at 31 March 2013 to R7.0 billion as at during the period to 30 September 2013, this the six months to 30 September 2013, Eskom’s customer satisfaction levels are 30 September 2013; R1.2 billion and R2.4 billion remains a risk for Eskom. An incident involving although not achieving the target of ≤20 assessed in terms of a composite index, which of which were arrears as at 31 March 2013 and theft of copper at a substation resulted in an interruptions per annum for 2013/2014. SAIDI measures Eskom’s service to residential, 30 September 2013 respectively. The percentage interruption to a rural supply point. PFMA performance improved in the six months to small and medium customers and the Eskom of municipal arrear debt to total municipal debt approval has been obtained for the Transmission 30 September 2013 and achieved the target of KeyCare rating, which measures the satisfaction has increased from 24% in September 2012 National Security Refurbishment project ≤45 hours per annum for 2013/2014. of Eskom’s large industrial customers. The to 34% in September 2013. The expected investment proposal. This project includes customer service index performance was reduction in total municipal arrear debt in various initiatives to improve and upgrade the The improved distribution network stable, while the Eskom KeyCare measure July 2013 as a result of municipalities receiving security systems at various critical and high-risk performance is driven by the overall planning, showed improvement in the six months to their governmental equitable share income transmission sites in order to mitigate potential coordination and disciplined execution of 30 September 2013. The improvement in didn’t materialise and only limited payments risks, thereby ensuring the integrity of assets and Eskom’s network reliability improvement plans the KeyCare performance is indicative of the were made to Eskom. continuity of supply. and other operational excellence initiatives. regular interactions with top customers to Eskom’s long-term distribution network share critical information on the power system Eskom started the disconnection process in line Distribution objective is to move to the first quartile status and capital expansion programme. with the Promotion of Administrative Justice performance for distributors with similar Act (No 3 of 2000) process to a number of Eskom’s distribution network relays electricity The online vending system was successfully network characteristics. municipalities mainly in Mpumalanga and in the from the transmission network to most of enhanced and went live on 22 July 2013. Free State. Disconnection was averted as the Eskom’s end users. Eskom’s distribution network Municipal arrear debt municipalities have taken appropriate action in South Africa consists of approximately Municipal arrear debt continues to rise. upon receipt of Eskom’s disconnection notice 325 000km of power lines. The total municipal debtors increased from by either paying or making arrangements to 30 Eskom Holdings SOC Limited 31 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued settle their debt. In October 2013, Eskom was • Non-technical losses, particularly theft, has Building strong skills interdicted and restrained from disconnecting been growing across all sectors in Eskom’s Eskom constantly needs to source, develop and retain technically skilled workers at all levels of the the bulk electricity to Thaba Chweu Local customer base, resulting in increases in the company to ensure the sustainability of its business. Municipality in Mpumalanga subject to the energy losses volume outstanding debt or a payment schedule for Key performance indicators for building strong skills such debt, be negotiated and concluded by For internal evaluation purposes the estimated technical losses range from between 60% Actual Actual Actual 18 November 2013. half year to half year to year to and 75% of total losses in the distribution Soweto arrear debt networks, while 100% is estimated for the Indicator and unit Sep 2013 Sep 2012 Mar 2013 The Soweto arrear debt remains a major transmission networks. Training spend as a percentage of gross concern. The total Soweto debt as at employee benefit costsSC,1, % 7.48 n/a n/a 30 September 2013 was R3.5 billion The current harsh economic conditions being experienced across the country also Total engineer learners in the systemSC , number 2 269 2 052 2 144 (31 March 2013: R3.2 billion), which excluded all interest charges raised on these overdue contributes to the deterioration in energy and Total technician learners in the systemSC , number 822 733 835 amounts. revenue losses. Eskom will continue to focus on curbing electricity theft, while ensuring that the Total artisan learners in the system, number SC 2 518 2 040 2 847 The residential revenue management strategy, technical losses are also kept in check. Strategic youth development programme, which includes Soweto, entails the installation number SC 5 100 5 029 5 701 of split metering with protective enclosures Conductor or copper theft continues and converting customers to prepaid with new to plague Eskom. In the six months to SC Indicator included in the shareholder compact. supply group codes to eliminate ghost vending. 30 September 2013, R13.3 million of material 1. New key performance indicator, comparatives not available. This strategy, combined with focussed credit was stolen (September 2012: R10.5 million), 833 incidents were reported (September As at 30 September 2013, there were youth programme, which trains young people management and disconnections should assist 2012: 816) and 118 perpetrators were arrested 5 609 technical learners (engineers, technicians to contribute to the country’s socio-economic in the recovery of outstanding debt. (September 2012: 130). and artisans with three- to four-year learning development, of which 2 590 represent the Energy losses and theft or bursary contracts) in the pipeline, 217 lower young people funded by Eskom. The remainder Energy losses continue to be a challenge for The increase in the value of the material stolen than the 5 826 learners as at 31 March 2013. of the participants are trained by the capital utilities globally, both within developed and remains a serious concern and is an indication There were also 5 100 participants in the expansion programme suppliers. developing economies. As a result of the of organised criminal activity in the conductor increasing production costs within the value theft environment. This is being addressed by chain, it is becoming increasingly important for means of intelligence driven investigations by utilities to manage these losses at acceptable the Hawks special investigating unit, supported levels. Within Eskom the problem becomes by industry and aggressive policing of the even more visible because of the generation market for stolen goods. capacity challenges being experienced. On a positive note, the courts are taking this In the six months to 30 September 2013, type of crime seriously and the sentences being Eskom’s total energy losses were 9.22% meted out to perpetrators are starting to be (September 2012: 8.98%). comparable to the severity of the crime. The distribution energy losses performance The joint industry working group, formed by since March 2013 has deteriorated due to two Eskom, Transnet, Telkom, the South African dominant factors, namely: Police Services, the National Prosecuting Authority, Business Against Crime and the • A significant reduction in sales to high- South African Chamber of Commerce and voltage customers result in an increase in the Industry, continues to positively contribute in distribution losses percentage the fight against crime. Illegal connections not only create revenue problems for Eskom, but also create safety risks 32 Eskom Holdings SOC Limited 33 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Investing in appropriate technologies Leading and partnering to keep the lights on Eskom sees itself as a highly innovative precipitator plants, thereby improving Eskom’s organisation, on par in research and innovation particulate emission performance. Eskom is committed to preventing load-shedding by actively with other leading international power utility companies. Material analysis and support partnering with all key stakeholders, including the people of South Using advanced analysis techniques, it is possible Eskom invested R216.6 million into researching to quantify the risk of power plant breakdowns Africa, in a comprehensive supply-and-demand management strategy. and testing technologies with R41.8 million and to proactively take measures to increase This objective primarily focuses on ensuring security of supply for directly invested in applied research and plant reliability and running time. Most notably, South Africa. R9.8 million into capital pilot and demonstration these techniques were employed in the projects. An initiative is under way to identify identification of Medupi welding compliance efficiency opportunities and refocus the and risk, and in defining an optimal way forward Operating highlights the finalisation of the refurbishment of the portfolio. The portfolio is focussed on 18 high for Eskom. • Avoided load-shedding during the six Songo converter station in Mozambique priority projects for the current year, five of months to 30 September 2013 despite facing • The MYPD 3 determination significantly which are highlighted below. Waterberg coal suitability analysis significant challenges reduced the integrated demand management Eskom is conducting an analysis on Waterberg • Power plant maintenance undertaken during funding, which may put the security of supply Online boiler condition monitoring being coal samples to determine the suitability of the past winter, which is in line with the at risk piloted at Kriel power station this coal for use in the Mpumalanga power strategy towards achieving a sustainable • The key challenge facing the capital expansion By combining measurement data obtained stations. This is of strategic importance as this generation fleet programme is remaining on schedule in the during outages with data streamed from knowledge will affect the procurement and advanced online boiler condition monitoring transport strategies in sourcing coal for the • The energy imports from the Hydro face of contractor issues and labour action equipment the project has developed an Mpumalanga projects. The project is on track Cahora Bassa scheme have been normalised • Contractor performance in addressing innovative, proactive approach to boiler tube and the first samples are undergoing tests. following the repair of damaged towers welding issues on the boilers remains an failure prediction. caused by the floods in Mozambique in 2012 ongoing concern Underground Coal Gasification (UCG) • The return to service power station project • The Ingula transformer hall and dewatering High frequency electrostatic precipitator A strategic partnership agreement with Sasol has been concluded with the successful shaft is about three months behind the being piloted at Lethabo power station has been signed to explore synergies between commissioning of the final 90MW unit at optimised schedule and will result in possible The project aims to improve the particulate the two companies regarding strategic Komati power station. President Jacob Zuma delays to other project timelines capture efficiency of the existing infrastructure opportunities for UCG gas and to leverage the officially declared Grootvlei power station • The timely acquisition of servitudes over at Lethabo power station. If successful the gas handling and gas clean up expertise of Sasol. open on 20 September 2013, following the state owned and tribal land is a challenge as application can be rolled out at all electrostatic commissioning of an additional 30MW on in most cases land is unsurveyed Unit 5 during April 2013 • Integrated demand management initiatives, Keeping the lights on mainly through demand response ‘Keep the lights on’ is a collective term that programmes provide the system operator Eskom uses to refer to the complex interplay with approximately 981MW of dispatchable between the ability of its electricity demand- load for its control and peak reduction management initiatives, both internal and requirements regionally, to reduce South Africa’s energy Operating challenges usage and consequently provide an adequate • Tight operational reserves resulted in a high margin between supply and demand. usage of the open cycle gas turbine fleet • The performance and reliability of the Hydro Cahora Bassa imports may be at risk pending Live-line maintenance on the high-voltage powerlines ensures a healthy national power grid 34 Eskom Holdings SOC Limited 35 Interim Integrated Report – 30 September 2013 120 000 Number 2 000 MW 80 000 1 000 40 000 0 0 2010 2011 2012 2013 Half year 2010 2011 2012 2013 Half year 2013/2014 2013/2014 Performance on strategic objectives Verified MW Eskom target Connections for the half year to 31 March Connections for the half year to 30 September continued Key performance indicators for keeping the lights on Average monthly operating reserves Actual Actual Actual half year to half year to year to 60 Indicator and unit Sep 2013 Sep 2012 Mar 2013 Maintenance backlog reduction based on the 1 n/a n/a 50 Average monthly % operating reserves Eskom Technical Governance committee approvalSC,1, number 40 Demand management savings , MW SC 117 220 595 30 Internal energy efficiency SC , GWh 0 1.0 28.9 20 SC Indicator included in the shareholder compact. 1. The maintenance backlog reduction key performance indicator has been included in the shareholder compact for 2013/14, based on 10 revised definitions of the maintenance backlog, and requiring approval by the Technical Governance committee. This measure tracks the status of approved scheduled backlog maintenance. If the outage has not yet started by the scheduled start date, the measure 0 will be greater than zero. The measure is new and hence comparative figures are not available. Jan – Dec 09 Jan – Dec 10 Jan – Dec 11 Jan – Dec 12 Jan – Sep 13 Managing supply-and-demand constraints of evenings the power system was tight with all Monthly average at 06:00 Monthly average at 15:00 Monthly average at peak Monthly average at 22:00 During the past six months Eskom performed available generation in service and contracted more maintenance than normal as a result of demand requested to reduce load. The average implementing the generation sustainability available operating reserves over the peak While the power system remained tight to offset the growth in sales to the remainder strategy – refer to page 38, which deals with period in June 2013 were under 3% as depicted throughout this period, it was nonetheless of the customer base did not manifest itself as maintenance in further detail. This has created on the graph alongside. On 13 June 2013, the better than expected mainly due to Primary energy cost at strongly this year, resulting in additional demands more pressure on the already tight supply- worst constrained day this past winter, the warmer winter and some savings over peak 30 September 2012 on theandOCGT 2013 fleet. The expectation is that the demand balance and the situation has been actual available reserves over the peak period periods. The reduced demand and demand- OCGT fleet will continue to be extensively further exacerbated by the revenue gap, were 1.09% short of demand – emergency response initiatives (refer to the Demand-side used throughout the forthcoming c/kWh summer Primary energy costs in c/kWh as at 30 September 2012 which has reduced Eskom’s ability to procure resources including interruptible load supply management and energy efficiency section on months subject to the availability22.5of funding. The additional demand and supply side levers. from some industrial customers were required page 40 for more details on these initiatives), costs associated with running the OCGT fleet to meet the demand. including power OCGT costs increased by R2.3 billion (231%) buybacks translated into for the six months to 30 September 2.1 2013 were While there was sufficient capacity to meet the lower-than-expected sales of 110 659GWh for R3.3 billion, an increase of 231% in comparison demand during the day in winter, on a number the six months to 30 Coals usage costs increased by 13.3% September 2013. to the R1.0 billion incurred in the six 1.9 months to 30 September 2012. Open-cycle gas turbines (OCGTs) International purchase costs increased bywere 53% used 0.5 more extensively over the past six months Refer to page 50 for details on electricity mainly as a result of Environmental the implementation levy purchases from IPPs, which have contributed 0.5 to of the generation sustainability strategy. the security of electricity supply. The OCGT averageGas fuelload factor for the six months to 30 September 2013 was 11.4% start-up costs increased by 76% The system outlook remains tight for the0.5coming (September 2012: 3.9%). While electricity summer, with different challenges due to the Other items in aggregate sales volumes decreased slightly, this did not summer load profile. Unlike winter, where 0.3 the necessarily translate into reduced electricity demand increases during the evening peak, Primary energy costs in c/kWh as at 30 September 2013 demand during the peak periods of between the demand profile during summer is28.3 much 17:00 and 21:00; hence the requirement0 for 5flatter (‘Table 10 Mountain’ profile as depicted in 15 20 25 30 OCGT generation during peak periods to meet the figure overleaf) with an increased demand Cents/kWh demand. ACoal lower profile throughout the day, primarily due to air- usage thanEnvironmental normal reduction levy in sales International purchases Open cycle gag turbines Gas fuel start-up costs Other Ankerlig open cycle gas turbine station in Atlantis near Cape Town volumes to key customers in the winter periods conditioning and geysers. 36 Eskom Holdings SOC Limited 37 Interim Integrated Report – 30 September 2013 Number of fatalities for the half year to 31 March Number of fatalities for the half year to 30 September Primary energy costs in c/kWh as at 30 September 2013 28.3 0 5 10 15 20 25 30 Cents/kWh Total electricity sales Group revenues Coal usage Environmental levy International purchases Open cycle gas turbines Gas fuel start-up costs Other 300 000 150 000 Performance on strategic objectives 250 000 125 000 continued 200 000 100 000 Rands (millions) 150 000 75 000 GWh 100 000 50 000 50 000 Summer and winter 25 000 Monthly planned maintenance % 0 load profiles 0 (2011-2013 calendar years) 2010 2011 2012 2013 Half year 2010 2011 2012 2013 2014 40000 2013/2014 Winter: A peak profile – peak Revenues foristhe much halfhigher year to 31 March (for the 2014 year Electricity sales for the half year to 31 March forecast butnumbers are displayed) for a shorter period Electricity sales for the half year to 30 September Revenues for the half year to 30 September 15 35000 10 MW 30000 Summer: Table Mountain profile – load PCLF% Cumulative verified demand savings profile is much flatter, peak of 32 – 33GW, Number of households electrified so if there is a constraint, the system is constrained for the entire day 5 25000 4 000 200 000 160 000 3 000 0 20000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 23:00 02:00 05:00 08:00 11:00 14:00 17:00 Number 20:00 120 000 23:00 02:00 2 000 MW Typical winter day Typical summer day 2011 2012 2013 80 000 1 000 Unlike winter, where residential customers maintenance backlog, 40 000which has resulted in the have the greatest impact, during the summer, deterioration of plant health and environmental As at September 2013, the underlying PCLF the six months to 30 September 2013 was 0 it is primarily 2010 the 2011 commercial 2012 sector 2013 thatHalf canyear performance. 0 2010 2011 2012 2013 Half year (reflecting the energy loss during the period R6.4 billion (September 2012: R3.8 billion). make the biggest difference. The challenge is 2013/2014 2013/2014 because of planned shutdowns) was 9.36% To reduce the maintenance backlog and (including constrained UCLF) and Euro 8.73% Summer is typically maintenance season, but to ensure that there is sufficient generation and USD tosummer maintenance will increase based a ratethis Verified MW ensure the long-term sustainability f the Connections for the half year to 31 March (excluding the constrained UCLF) against capacity Eskom throughout target the day, as Eskom Connections for the half year to 30 September Rand exchange movements on the generation sustainability strategy as generating plant, Eskom has and will continue target of 10%. Gross expenditure on power continues with the maintenance plan and to schedule more maintenance in the winter 14 most of the scheduled maintenance is fixed and focuses on reducing unplanned outages. station maintenance before capitalisation months compared to what had normally been cannot be deferred. and excluding 13 employee benefit costs for Maintenance backlog reduction strategy the case in previous years. Refer to page 29 for Eskom’s coal-fired generating units require further information regarding the generation 12 routine maintenance to ensure that they meet sustainability strategy. their technical performance requirements, Average monthly operating reserves Cross-border electricity sales and purchases 11 A maintenance schedule has been compiled are safe to operate and do not violate to track future scheduled maintenance. In contrast to South African sales, cross-border sales in the six months to 10 environmental laws. Almost two-thirds of 60 During the six months to 30 September 2013, 30 September 2013 were higher than expected, mainly due to the unplanned low Eskom’s power stations are past the mid- nine planned maintenance outages were 9 point of their expected 50 operating lives and availability of the new Morupule B power station in Botswana; in Namibia the dry scheduled. The backlog of scheduled Technical Average monthly % operating reserves they therefore require higher levels of planned season 8 affected output at the Ruacana hydro station; the growth in electricity demand Governance committee related outages is one. in Mozambique has resulted in a reduced surplus of energy available for sale to maintenance work. Like any engine, generating 40 Eight outages are either complete or in the 7 plants need routine maintenance or upgrades other Oct regional 12 Nov 12 utilities, Dec 12 most Jan 13 notably Feb 13 Swaziland; Mar 13 Apr 13andMayLesotho 13 Jun 13has Jul seen 13 considerable Aug 13 Sep 13 process of execution. The remaining outage 30 that require them to be fully or partly taken out load growth. was released on 31 October 2013. EUR USD of service. Cross border energy purchases in the six months to 30 September 2013 were lower 20 More maintenance was done during this winter Since the load-shedding events of 2008, Eskom than in the three preceding years for the same than expected due to Hydro Cahora Bassa operating at a 1 300MW level instead of has committed to keep10 the lights on. While period, as evidenced by the graph which follows. 1 500MW following the inability to restore to full output owing to the failure of the this strategy has ensured that load-shedding This is consistent with the strategy towards reactor at the Songo Converter Station in mid-2012. has been averted to0 date, it has created a Jan – Dec 09 Jan – Dec 10 achievingJan a –sustainable Dec 11 generation Jan – Dec 12 fleet. Jan – Sep 13 Summer and winter load profiles Monthly average at 06:00 Monthly average at 15:00 Monthly average at peak Monthly average at 22:00 38 Eskom Holdings SOC Limited 15 39 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Demand-side management and energy The residential mass rollout programme Delivering capital expansion efficiency continues to be the key residential initiative Continue to pursue the capital expansion programme and spend the resources required to increase Demand-side management interventions contributor, delivering 81MW of verified savings generation capacity, increase transmission network performance and strengthen the distribution encourage customers to use electricity more in the six months to 30 September 2013. network performance and develop comprehensive governance structures around the capital efficiently, so reducing the gap between supply Phase two of the compact fluorescent lamp expansion programme. and demand in the short to medium term. replacement programme is nearing completion with 4.5 million of the targeted 5 million bulbs Key performance indicators for delivering capital expansion During the six months to 30 September 2013, installed; of which 17.7MW savings have been Eskom achieved total evening peak demand Actual Actual Actual verified in the six months to 30 September 2013. half year to half year to year to savings of 117MW (September 2012: In addition to these savings, three suppliers Indicator and unit Sep 2013 Sep 2012 Mar 2013 220MW) and annualised energy savings of have been contracted to procure 5 million 306GWh (September 2012: 813GWh). Eskom compact fluorescent lamps, the first batch of Generation capacity installed and spent R0.7 billion on integrated demand commissionedSC , MW 120 20 261 which is expected at the end of 2013. management initiatives1 during the six months Transmission lines installed , km SC 511.1 427.9 787.1 to 30 September 2013 (September 2012: Eskom contributes to the government’s solar R1.2 billion). water heating initiative, which aims to install Transmission capacity installed and a million solar water heaters by 2014/15. In the commissionedSC , MVA 290 2 250 3 580 The MYPD 3 tariff determination has reduced six months to 30 September 2013, 32 165 solar the available funding for integrated demand Generation new build capacity milestones water heaters have been installed, bringing the (Medupi, Kusile and Ingula)SC , days 5.75 -2.32 43.48 management projects. The Standard Product inception to date total to 319 429 for the rebate and Standard Offer programmes are currently programme and 30 768 for residential contracts. Total capital expenditure (excluding capitalised on hold, and active marketing of integrated interest), R billion 23.4 26.0 60.1 demand management products has been Eskom’s power alert and power bulletin SC Indicator included in the shareholder compact. stopped resulting in a reduction in the pipeline campaigns televised during the evening peak of projects. between 17:00 and 21:00 continue to reduce power demand during the evening peak period. The key challenge facing the capital expansion labour stability. Site attendances have improved Eskom continued the rollout of the The average weekday evening peak impact for programme is remaining on schedule in the face with the exception of sporadic instances of demand response rewards programme to the period under review for all colours (green, of contractor issues and labour action. Between temporary stoppages. sign up customers to reduce demand for orange and red) is 238MW, while the average 2005 and 30 September 2013, the programme compensation should the electricity system has increased Eskom’s generating capacity by Eskom continues to investigate optimal recovery impact for the red flightings in the evening peak processes and progress is being made in this require it. Currently, 579MW of supplemental on the worst constrained day is 324MW. 6 137MW, its transmission lines by 5 198km and 394MW of instantaneous load, as well as and its transmission substation capacity by regard. Productivity issues, however, persist. 8MW of standby generation is available to the No verified internal energy efficiency 24 065MVA. Project cost, time and commercial reviews are system operator for its control and evening savings were recorded in the six months to ongoing with the aim of achieving the target peak reduction requirements. 30 September 2013 (September 2012: 1GWh). Medupi first synchronisation dates, determining cost- There are some projects underway which are The delivery of Medupi Unit 6 remains a critical to-completion and developing action plans for Power buybacks for the six months to expected to deliver 15GWh of savings by the focal point. The first synchronisation of Medupi outstanding dependencies. 30 September 2013 were 1 310GWh financial year-end. Unit 6 has been extended and is expected (September 2012: 1 289GWh), all of which during the second half of 2014. The technical issues surrounding welding on were executed in April and May 2013. The the Unit 6 boiler have largely been quantified costs associated with the power buybacks were Eskom negotiated a new partnering agreement and recovery strategies are now receiving provided for during 2012/13. with contractors and labour. This has restored attention. The aim is to implement solutions 1 Only reflects integrated demand management operating expenses. 40 Eskom Holdings SOC Limited 41 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued to the post-weld heat treatment and weld of 2015, Eskom is aggressively implementing Generation capacity plan, 2013/14 to 2018/19 (capacity installed/first power to the grid) procedure qualification record to meet the recovery strategies intended to mitigate delays project milestones. and achieve the earliest possible synchronisation Year to Year to Year to Year to Year to Year to Year to 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar date, with commercial operation to follow Eskom and its key partners in the Medupi project Project 2014 2015 2016 2017 2018 2019 2020 Total six months thereafter. The schedule has have established the Medupi leadership initiative been strained by the boiler contractor’s poor Grootvlei 30 30 to address the consequence of demobilisation progress in erecting the Unit 1 boiler. (return to of workers and the impact it has on the local service) community and economy of Lephalale. Ingula Komati 90 90 The Ingula transformer hall and dewatering From the more than 250 opportunities (return to shaft is about three months behind the service) identified, six were prioritised and funding of optimised schedule and will result in delays approximately R76 million was committed by to other packages and possibly to project Medupi 1 588 1 588 1 588 4 764 the collaborating partners to kick-start the timelines. The impact is not expected to have a (coal-fired) initiative for the first three years. Many of these major impact on the official schedule, provided Kusile 800 800 1 600 800 800 4 800 initiatives are planned for late 2013 to coincide there are no further slippages. The critical (coal-fired) with the anticipated mass demobilisation. aspect is that the commissioning of the gates Eskom has set aside R150 million in the Medupi Ingula 999 333 1 332 in the surge chambers could be delayed. The (pumped project’s revised business case for the Medupi immediate focus for this project is to complete storage) leadership initiative. the civil works for Unit 3 to enable the erection Sere 100 100 Kusile of the electrical and mechanical plant by wind farm While significant challenges remain to meet December 2013. (renewable) the target synchronisation in the second half Total (MW) 120 2 687 2 721 2 388 1 600 800 800 11 116 The table above represents the first synchronisation dates and total capacities for each new power station unit. Commercial operation occurs several months after the first synchronisation dates in each case. Capital expenditure Summary of capital expenditure by division, excluding capitalised borrowing costs Actual Actual Actual half year to half year to year to Division (R million) Sep 2013 Sep 2012 Mar 2013 Group capital 14 971 17 322 37 690 Generation 3 613 3 095 8 512 Transmission 719 474 893 Distribution 3 517 3 680 8 317 Subtotal 22 820 24 571 55 412 Future fuel 1 153 1 042 2 634 Eskom Enterprises 163 278 376 Other areas including intercompany eliminations (696) 129 1 711 The Ingula pumped storage scheme under construction entails 16km of tunnels and 8km of waterways Total capital expenditure 23 440 26 020 60 133 42 Eskom Holdings SOC Limited 43 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Reducing Eskom’s environmental footprint and pursuing Reducing Eskom’s environmental footprint While a solid reduction of carbon dioxide emissions will only be feasible with a diversification into low-carbon growth opportunities a new-generation fleet, Eskom continues to pursue a range of actions to limit the environmental Improving environmental performance remains a focus area footprint on its existing fleet. Key performance indicators for reducing Eskom’s environmental footprint for Eskom. Actual Actual Actual Operating highlights other cases where there is insufficient water, half year to half year to year to • Improved relative particulate emission and sorbent or finances available to implement Indicator and unit Sep 2013 Sep 2012 Mar 2013 water use performance when compared to compliance to the standards. The first round Relative particulate emissionsSC , kg/MWh the equivalent period last year of public meetings for this exemption took sent out 0.31 0.33 0.35 • The Sere wind farm construction has gained place in July 2013. An atmospheric impact momentum and the first foundations for the study, which assesses the impact of the Specific water consumptionSC,1, L/kWh sent out 1.33 1.35 1.42 wind turbine generators have been poured proposed higher emission levels on the Environmental legal contraventions in terms of and the first consignment of equipment has regional quality is being done as part of the the Operational Health Dashboard2, number 0 1 1 arrived at the Saldanha port exemption application SC Indicator included in the shareholder compact. • Eskom has actively participated in the • Eskom’s ability to significantly address 1. The specific water performance excludes Komati power station. governmental processes to develop carbon the reduction of its carbon emissions by 2. In defined circumstances where the management of a legal contravention indicates specific management issues or failings, it is budgets, adaptation plans, measuring and diversifying its energy mix in the medium recorded on the Eskom Operational Health Dashboard. evaluation protocols, greenhouse gas term remains constrained by the absence of an enabling environment for large scale Reducing particulate and gaseous emissions Reducing environmental contraventions reporting (carbon dioxide, methane, nitrous development of additional renewable The generation sustainability strategy and The environmental compliance framework is oxide, sulphur hexafluoride, hydro fluoro energy projects the associated increased opportunity for being implemented. Zero environmental legal carbons) procedures and mitigation plans maintenance have resulted in improved contraventions in terms of the Operational for the country. Eskom is providing active • Eskom provided extensive comments on emissions performance at several stations. Health Dashboard (OHD) have been identified advice, drafting submissions and participating National Treasury’s carbon tax proposal. during the six months to 30 September 2013 in government’s international climate change Extensive work was done on this and Reducing water consumption (September 2012: 1). One potential OHD negotiation process positive engagement with National Treasury The improved specific water consumption legal contravention associated with ash • Eskom took second place in this year’s Sunday continues. The implementation of a carbon performance can in part be attributed to an water spills at Hendrina power station is Times top brand survey for ‘companies that tax, however, remains a challenge to the increase in the proportion of energy generated presently under investigation. There have do the most to look after South Africa’s economy as it will impact electricity tariffs by the dry cooled stations. Despite the been 15 environmental legal contraventions environment and natural resources’ improved performance, cooling water leaks and registered during the six months to high demineralised water usage have negatively 30 September 2013 (September 2012: 12). Operational challenges affected performance. • Eskom has initiated a process to request exemption from the minimum emission Ground water action plans are being developed standards, which are applicable for existing for all the power stations based on the plant standards in 2015 and new plant reviews that were conducted in March 2013. standards in 2020. Eskom is applying for Three new water use licences were issued a postponement from the minimum emission by the Department of Water Affairs, while standards for some plant and exemption in 26 applications are outstanding. 44 Eskom Holdings SOC Limited 45 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Reducing Eskom’s carbon footprint Securing future resource requirements, mandate and the Eskom remains committed to reducing its Investing in renewable energy enabling environment carbon footprint and helping the country Concentrating solar power (CSP) transition to a cleaner energy mix by pursuing demonstration plant Eskom needs to optimally identify, develop, source, procure and deliver low-carbon sources of generation capacity. Eskom continues the project development the required amounts of primary energy (water, coal, uranium, limestone work on its 100MW CSP plant near Upington Climate change strategy in the Northern Cape. The plant is based and natural gas) to its power stations at the required locations, in the Eskom’s adaptation strategy is in the process of on a tower design with molten salt as the required quality, at the right time and at minimum cost. being implemented throughout the business. heat transfer and storage medium. This will The strategy, which details how Eskom will provide some stability to the system given its respond to and prepare for the impacts of Operating highlights three years. The low water levels result in dispatchable characteristics and address supply additional operating expenditure as water climate change, is industry leading. Eskom • The Komati Water Scheme Augmentation constraints during times of peak demand. has to be transferred to these schemes has been invited to international meetings Project was commissioned and declared The basic designs are complete, revised to present this strategy and has participated operational on 5 June 2013 • The Kilbarchan Colliery is currently decanting environmental authorisation has been received in discussions to prepare business views on • Coal stock days increased to 53 days at the mine affected water from the Department of Environmental Affairs, the issue. and the commercial documentation to shortlist end of September 2013 (September 2012: • Despite the overall coal quality being on the engineering, procurement and construction 44 days) target, coal-related losses were experienced Eskom is actively participating in government’s contractor has been prepared and will be • Overall system coal quality measured by at Arnot and Tutuka power stations due to process to implement the national climate issued to the market once Eskom receives a calorific value was as planned inconsistent coal quality and supply change response policy. Current discussions are focussed on assessing the potential reduction response to its request for exemption from the • Significant progress in the execution of the • Coal stockyard space constraints were of emissions by different sectors and on carbon Preferential Procurement Policy Framework Coal Supply Strategy experienced at Lethabo, Hendrina, Camden tax. Eskom has done emission reduction Act (PPPFA) from National Treasury. • Four medium-term contracts were signed and Komati power stations scenario work and plans to update this work for coal supply to the Kusile power station • Production performance of cost-plus Future wind, CSP and photovoltaic mines continue to be a challenge leading to in the coming year, so that its contribution is during the commissioning phase programme development volumes being augmented through more relevant and factually based. In addition, there In anticipation of an IRP allocation, Eskom has Operational challenges expensive short to medium-term coal supply have been constructive engagements with the commenced prefeasibility development work • Nooitgedacht Dam and the Usutu system agreements National Treasury with regards to the design of associated with its future build; this includes are at their lowest water levels in the past the carbon tax. resource identification and environmental To ensure Eskom takes a holistic view of all scanning. This will minimise scheduled delays its projects, Eskom’s Executive Management once Eskom’s allocation of future renewable committee recently approved a socio-economic projects is announced. Moreover, Eskom is development policy and strategy. The policy developing photovoltaic projects at its sites supports Eskom’s drive for sustainable socio- for self-consumption and exploring solar economic growth through the provision augmentation options at its power stations. of electricity. The new coal conveyor at Medupi power station measures 5.2km in length to the Exxaro mine 46 Eskom Holdings SOC Limited 47 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Key performance indicators for securing future resource requirements, mandate and the Implementing coal haulage and the road-to-rail migration plan enabling environment Actual Actual Actual Eskom’s long-term ambition is to reduce the volume of coal half year to half year to year to transported by road to power stations. Indicator and unit Sep 2013 Sep 2012 Mar 2013 Eskom will continue to reduce the movement challenge due to the operational performance Coal burnt, Mt 62.39 62.60 122.95 of coal trucks on the road through various constraints experienced by both Eskom and Coal purchased, Mt 65.62 65.24 126.44 initiatives, with the aim of improving the cost Transnet Freight Rail. Operational inefficiencies and safety of coal logistics and ultimately were experienced across all Eskom rail services. Coal stock days 53 44 46 ensuring the security of coal supply. Eskom is In June 2013, the rail deliveries were affected by also investigating ways in which any economic a series of derailments on the Transnet Freight Securing Eskom’s coal requirements Coal contracting status for Kusile impact to road transporters as a result of the Rail Natcor rail line. Progress continues on securing long-term coal migration from road-to-rail and their employees Coal operations and quality and limestone supply agreements for Kusile can be mitigated (Road Change-over Strategy). Actual road delivery costs increased in the Arnot and Tutuka’s cost-plus mines continue to power station. Four coal supply contracts have six months to 30 September 2013 due to the experience production issues. The excessive been signed to date for delivery to meet the Operating highlights fluctuation in diesel costs, increased delivery on stone contamination and resultant poor coal planned commissioning date. The temporary • Up to the end of September 2013, longer routes, road-to-rail under-performance quality from the New Denmark Colliery supply coal delivery solution project to alter the Free Carrier Arrangement (FCA) coal and rerouting due to coal unavailability at to Tutuka is being addressed through the delivery of coal to the Kusile stockyard through transporters achieved 64 days without a certain sources. current screening and X-ray sorter de-stoning an offloading facility and trucking has been fatality, while delivered coal transporters pilot project at the Tutuka stockyard. Eskom continues to drive and implement driver approved, and is on schedule to meet the achieved 78 days safety awareness with both FCA and delivered Coal security commissioning date. Operational challenges transporters. A road transportation safety During the six months to 30 September 2013, Securing Eskom’s water requirements • During the six months to 30 September 2013, response plan has been developed from an in Eskom made representations before the there were 13 public fatalities resulting from depth review of the current road operations. Minerals Portfolio committee public hearings in Water operations FCA and delivered coal transporters, and Parliament to debate the Mineral and Petroleum Several pipe connections on phase 1 of the Eskom is also implementing a safety drive to two contractor fatalities relating to FCA coal Resource Development Amendment draft Mokolo and Crocodile Water Augmentation curb coal road transportation over weekends transporters bill. The draft bill takes the discussions on Project have been completed, which have as a review of fatalities indicated that there coal security and declaring coal as a strategic allowed for partial water delivery to Medupi. • Both Eskom and Transnet Freight Rail is a significant increase in fatalities during resource into consideration. Full water delivery is expected in June 2014. continue to experience operational the weekend. This drive intends to stop challenges in regard to rail deliveries transporters loading at mines at 18:00 on Coal Supply Strategy Negotiations in relation to phase 2 of the Although more coal was transported by rail Fridays, with the power stations remaining During the period under review, Eskom started Mokolo and Crocodile Water Augmentation in the six months to 30 September 2013 open until 22:00 to ensure that the trucks have to implement a set of actions to give effect Project are underway and the water supply compared to that in the comparative period offloaded. The transporters resume loading at to the Coal Supply Strategy. One of these agreement with the Department of Water in 2012, coal deliveries by rail remain a the mines at 06:00 on Sundays. actions is the creation of a mine development Affairs is expected to be signed in March 2014. fund to advance black emerging coal and The projected water delivery date has moved limestone mining projects, which will be tabled from December 2018 to December 2019. Key performance indicators for migrating coal transport from road-to-rail for approval by December 2013. To date, This is not expected to impact the retrofit of Actual Actual Actual 12 contracts have been signed in accordance flue gas desulphurisation capability at Medupi half year to half year to year to with Eskom’s Black Emerging Miners Strategy, power station, as the first two units can be Indicator and unit Sep 2013 Sep 2012 Mar 2013 which was launched in December 2012. retrofitted from the water available from the Coal road-to-rail migrationSC , (additional existing water resource. tonnage transported on rail), Mt 5.4 5.0 10.1 SC Indicator included in the shareholder compact. 48 Eskom Holdings SOC Limited 49 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Pursuing private-sector participation Transformation Eskom acts as a catalyst for Independent Power Producers (IPPs) to Eskom is aligned to the government’s development and workplace participate in South Africa’s electricity industry, so enhancing South transformation goals. Transformation initiatives include internal Africa’s security of electricity supply. transformation, supplier development and localisation, corporate social investment, and skills and leadership development. Operating highlights connected to the grid on 27 September 2013 Operating highlights • The capping of the headcount numbers • Eskom signed power purchase agreements and commissioning is in progress • The Eskom Development Foundation has as part of the MYPD 3 response strategy for 1 041MW capacity with IPPs as part approved funding for projects to the value of has restricted the opportunities for of the second bid submission under the Operational challenges R81.6 million transformation and other initiatives Department of Energy’s (DoE) renewable • Funding approval has not been obtained • The B-BBEE (broad-based black economic • The expiry of Eskom’s exemption from the energy IPP procurement programme to extend existing municipal baseload and empowerment), BWO (black woman Preferential Procurement Policy Framework Short-Term Power Purchases (STPPP) owned) and BYO (black youth owned) • In June 2013, contracts for 1 005MW of Act (PPPFA) has required a review and IPP contracts, which are expiring in attributable spend as a percentage of total the DoE open-cycle gas turbine (‘Peakers’) amendment to a number of commodity December 2013 measured procurement spend continues programme were signed strategies and targets to improve • The first project under the renewable • Eskom and its recognised trade unions are energy IPP procurement programme was Operational challenges currently involved in a wage dispute • Delivering on contracted electrification Purchasing and installing IPP capacity connections, which are substantially higher Key performance indicators for pursuing private-sector participation than previous years Actual Actual Actual half year to half year to year to Indicator and unit Sep 2013 Sep 2012 Mar 2013 IPP capacity installed1, MW 1 1502 1 083 1 135 1. Short- to medium-term contracts, municipal generation and wholesale electricity pricing system. 2. Excludes 85MW of contracted capacity not in operation. The total approved contracted IPP capacity 1 685GWh) at an average cost per unit of as at 30 September 2013 amounts to 84c/kWh (September 2012: 80c/kWh). The 4 707MW, which includes the Department of amount paid for IPP and municipal purchases Energy’s renewable energy IPP procurement amounted to R1.6 billion for the six months programme. Eskom purchased 1 866GWh to 30 September 2013 (September 2012: of energy from IPPs during the six months R1.3 billion). to 30 September 2013 (September 2012: Early childhood development is one of the key focus areas for the Eskom Development Foundation 50 Eskom Holdings SOC Limited 51 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Maximising Eskom’s socio-economic contribution Eskom’s supplier localisation drive is complemented by its corporate social investment, which Eskom’s Medupi Leadership Initiative aims to improve society at large through targeted direct investments into community education, health and developmental projects. Eskom’s most direct and widespread contribution to social The initiative, which is aimed at helping unskilled and semi-skilled workers find improvement is in the rollout of government’s universal electrification programme. employment after completion of the power station project near Lephalale, is setting the precedent as the largest post-construction work opportunity programme of its Key performance indicators for maximising Eskom’s socio-economic contribution kind in South Africa. Actual Actual Actual Eskom launched the Medupi Leadership Initiative in collaboration with its key partners half year to half year to year to in the Medupi project, including Murray & Roberts, Aveng, Alstom Africa, Hitachi Indicator and unit Sep 2013 Sep 2012 Mar 2013 Africa, Basil Read, LPS Consortium, Lesedi and Actom. Corporate social investment, Rm committed 81.6 69.9 194.3 The initiative comprises job-enabling opportunities and job opportunity initiatives that Job creation, number 38 423 32 478 35 759 Eskom, along with its partners, are funding. Sector Education and Training Authorities (Setas) have also committed to co-funding some courses. Total number of electrification connections, number 53 600 32 216 144 558 Percentage of broad-based black empowerment Local supplier development includes skills Electrification spend against total measurable procurement development and job creation. Since capital Approximately 4.4 million households have spendSC , % 87.6 72.5 86.3 expansion contracts started being awarded, been electrified by Eskom within its supply area Local sourcing in procurement SC,1, % 62.4 88.6 80.2 a total of 8 009 (September 2012: 6 397) since 1991, when the electrification programme Procurement from black owned entities, % 25.5 16.1 22.1 contractor employees have been trained in started. Meeting universal access to electricity various trades. targets depends on the availability of funding Procurement from black woman owned via the integrated national electrification entities, % 6.2 4.0 4.7 Eskom B-BBEE attributable expenditure programme. To accelerate the universal performance access programme the Department of Energy Procurement from black youth owned Initiatives implemented to ensure B-BEEE entitiesSC , % 1.0 0.9 1.0 has increased its funding commencing this compliance have been successful and financial year. SC Indicator included in the shareholder compact. have allowed Eskom to make significant 1. Measures the local sourcing from the capital expansion projects. progress in its procurement activities to Improving internal transformation its transformation objectives in this regard. Eskom seeks a balanced workforce that Corporate social investment Localisation, job creation and skills The Eskom company’s total measured taps into the knowledge and skills of all The Eskom Development Foundation NPC is development through the capital expansion procurement spend was R65.9 billion for demographics of South Africa. This will support responsible for the corporate social investment programme the six months to 30 September 2013 Eskom’s objective of driving high performance strategy. While committed spend for corporate The annual target for local content in capital (September 2012: R60.8 billion), of which and support the government in its objective of social investment initiatives was up in the six expansion contracts awarded is 52%. R57.7 billion (September 2012: R44.1 billion) opening job opportunities to all South Africans. months to 30 September 2013 compared to During the six months to 30 September 2013, was attributable to B-BBEE. the equivalent period last year, the spend was lower than budget as no new initiatives have a total of 290 contracts were awarded in the been approved due to budgetary uncertainties. capital expansion programme amounting to R2.6 billion (September 2012: R1.2 billion). The Refer to www.eskom.co.za/csi for more local content committed, from these awarded information on Eskom’s corporate social contracts in the capital expansion programme, investment initiatives. amounted to R1.6 billion (September 2012: R1.0 billion). 52 Eskom Holdings SOC Limited 53 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Key performance indicators for improving internal transformation Ensuring financial sustainability Actual Actual Actual half year to half year to year to Eskom’s financial sustainability relies on being able to balance its Indicator and unit Sep 2013 Sep 2012 Mar 2013 revenue with its costs in a manner that allows for sustainable growth. Employment equity – disability (company)SC 2.6 2.4 2.6 Group interim financial results, which Operational challenges Racial equity in senior management SC , % of black have been extracted from the condensed • Bridging the R225 billion revenue shortfall employees (company) 59.5 57.9 58.3 interim financial statements for the period resulting from the 8% MYPD 3 tariff increase ended 30 September 2013 are provided • The impact of the credit rating downgrades Racial equity in professionals and middle in this report starting on page 66. Eskom’s on the cost of and access to funding management SC , % of black employees (company) 70.5 68.7 69.6 statutory annual financial statements for • Eskom is required to comply with the Gender equity in senior management , % of SC the year ended 31 March 2013 are available provisions of the Preferential Procurement female employees (company) 28.6 26.2 28.2 at http://integratedreport.eskom.co.za/007. Policy Framework Act (PPPFA). However, Gender equity – professionals and middle Operating highlights these provisions are contradictory to World management SC , % of female employees • Successfully raised R8.3 billion cash from Bank procurement processes, which must (company) 35.5 33.9 34.6 domestic bond issues and issued a $1 billion be followed for all development funding SC Indicator included in the shareholder compact. international bond during July 2013 institutions funded projects. Eskom has submitted an application for an exemption • The new EL30 inflation linked bond and the Employment equity and people with The Eskom company currently has 1 107 to the Preferential Procurement Policy ES42 vanilla bond have been well received by disabilities employees with recognised disabilities Framework Act (PPPFA). All procurement the market The Eskom group employs 46 624 people (September 2012: 1 022 in the company). for these projects is on hold until the decision including fixed term contractors. Post the While the disability percentage of 2.6% is below is finalised MYPD 3 tariff determination by NERSA, it target, it is still well above the national norm of became apparent that Eskom cannot grow 0.7% and the government’s 2% target for the its headcount and strategies have been put in public service. place to maintain the current headcount. Eskom and its recognised trade unions are The current employment equity plan (signed currently involved in a wage dispute, which has in 2010) expired in March 2013. In consultation been referred to the CCMA for resolution. with the Department of Labour and organised Even though the provision of electricity has labour, a decision was taken to extend the been declared an essential service that prohibits current plan by one year. The extension will employees from engaging in industrial action, enable sufficient time to do a proper analysis, employees on some Eskom sites embarked on development of and consultation on the long- various forms of unprotected industrial action. term employment equity plan. This was signed The interest arbitration is scheduled for the by the chief executive, supported by the Unions week of 25 to 29 November 2013 at the CCMA and submitted to the Department of Labour. offices in Johannesburg. There remains an opportunity to focus on the recruitment of designated groups at senior management, professionals and middle management. Actual performance at these levels is still below the targets. Wind turbine components for the Sere wind facility are offloaded at the Saldanha Bay harbour 54 Eskom Holdings SOC Limited 55 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued Key performance indicators for ensuring financial sustainability Primary energy costs The cost of primary energy as a percentage of The primary energy costs for the six months electricity revenue was 41.0% (September 2012: Actual Actual Actual to 30 September 2013 for the group amounted 34.7%). half year to half year to year to to R31.3 billion (September 2012: R25.0 billion). Indicator and unit Sep 2013 Sep 2012 Mar 2013 The cost of primary energy increased by The costs include the environmental levy Company of R4.4 billion paid to the government 25.3% from 22.5c/kWh in the six months (September 2012: R3.8 billion). to 30 September 2012 to 28.3c/kWh for the Cost of electricity (excluding depreciation)SC , six months to 30 September 2013: R/MWh 500.27 428.41 496.35 Interest cover SC , ratio 2.27 1.27 0.27 Primary energy cost at Debt /equity (including long-term provisions)SC , 30 September 2012 and 2013 ratio Number of employee and 1.84 Unplanned 1.74 capability 1.96 loss factor contractor fatalities (UCLF) % FFO as % of total debt SC , % 8.68 9.15 8.55 30 12 Primary energy costs in c/kWh as at 30 September 2012 22.5 Electricity revenue per kWh (including environmental levy), c/kWh 68.97 10 64.89 58.49 OCGT costs increased by R2.3 billion (231%) 2.1 Electricity operating cost per kWh (including 20 8 Coals usage costs increased by 13.3% 1.9 depreciation), c/kWh 55.29 47.01 54.15 Fatalities UCLF % 6 Group International purchase costs increased by 53% 0.5 10 4 Working capital ratio 0.89 1.01 0.68 c/kWh Environmental levy 0.5 2 Free funds from operations (FFO), Rm 23 323 22 257 18 110 0 0 Gas fuel start-up costs increased by 76% 0.5 Gross2010debt/EBITDA 2011 ratio 2012 2013 Half year 2013/2014 10.61 2010 9.07 2011 16.16 2013 2012 Half year 2013/2014 Other items in aggregate 0.3 Debt service cover ratio 1.52 3.85 2.01 Number of fatalities for the half year to 31 March Number Primary energy costs in c/kWh as at 30 September 2013 28.3 of fatalities SC Indicator for the half included yearshareholder in the to 30 September compact. 0 5 10 15 20 25 30 Results of operations Cents/kWh Total electricity sales Group revenues Eskom has achieved a group net profit for environmental levy) granted by NERSA with Coal usage Environmental levy International purchases Open cycle gas turbines Gas fuel start-up costs Other the six months to 30 September 2013 of effect from 1 April 2013 for non-municipal 300 000 150 000 R12.2 billion (September 2012: R12.6 billion). customers and from 1 July 2013 for municipal Refer to the ‘Managing supply-and-demand from 44 913 as at 30 September 2012 to The 250 000 seasonality of Eskom’s business should customers, resulted in a 6.3% average increase 125 000 constraints’ section on page 36 for further 46 624 employees at 30 September 2013. be considered when reviewing the half year in electricity revenue per kWh. 200 000 100 000 details regarding the use of open cycle gas results. Due to higher tariffs, higher energy Group gross employee costs (before Rands (millions) Sales and revenue75 000 turbines and to the section on ‘Cross-border demands 150 000 and comparatively less maintenance capitalisation) for the six months to GWh Revenue for the group for the six months electricity sales and purchases’ on page 39. activities 100 000 conducted in winter, Eskom achieves 50 000 30 September 2013 amounted to R15.6 billion to 30 September 2013 was R77.8 billion higher profits in the first six months of the year. Operating costs (September 2012: R14.0 billion). Group 50 000 (September 2012:25R73.4 000 billion). Monthly Group and company operating costs planned consist employee costs of maintenance % of R2.6 billion (September 2013: The operating profit for the six months to 0 The sales of electricity 0 for the six months to 2013 the following: (2011-2013 calendar R2.3 years) billion) were capitalised to capital projects 30 September 2010 20132011 before 2012fair value 2013 gains Half and year 2010 2011 2012 2014 2013/2014 30 September 2012 amounted to 110 659GWh, during the six months to 30 September 2013. losses on embedded derivatives and net finance Employee benefits costsElectricity for the Eskom representing a decrease ofhalf year Revenues for the 0.1% when to 31 March (for the 2014 year sales for the half yeargroup was R17.0 billion to 31 March forecast numbers are displayed) Group employee numbers, which include fixed (September 2012: Electricity sales R20.7 for the half year tobillion). 30 September compared to the prior Revenuescomparative for the half year to 30 period September (110 766GWh). Sales of electricity have been term contractors 15 increased by 1 711 employees When compared to the same period last affected by a relatively mild winter. year, the 8.0% tariff increase (including the 10 PCLF% Cumulative verified demand savings Number of households electrified 56 Eskom Holdings SOC Limited 57 Interim Integrated Report – 30 September 2013 5 4 000 200 000 Other items in aggregate 0.3 0 Coal OCGT's Envi- Gas fuel Inter- Other Primary energy costs in c/kWh as at 30 September 2013 28.3 usage ronmental start-up national levy costs purchases 0 5 10 15 20 25 30 2012 2013 Cents/kWh Coal usage Environmental levy International purchases Open cycle gas turbines Gas fuel start-up costs Other Performance on strategic objectives continued Arrear debt is now scheduled during the winter. Group Gain on embedded derivatives The borrowing costs capitalised for the Group arrear debt was 0.90% of repairs and maintenance costs of R3.0 billion The net impact on the income statement group was R6.1 billion for the six months external revenue for the sixMonthly monthsplanned to maintenance (September% 2012: R1.8 billion), that were of changes in the fair value of the embedded to 30 September 2013 (September 2012: 30 September 2013 (September 2012: 0.66%). calendar (2011-2013 classified years)as major overhauls, were capitalised. derivatives (relating to the remaining two R13.9 billion). Unwinding of interest for the group Refer to page 31 for details on the municipal Please refer to page 30 for further details on special pricing agreements) for the group amounted to R1.4 billion (September 2012: and Soweto arrear debts. the power plant maintenance initiatives. was a fair value gain for the six months R1.1 billion). to 30 September 2013 of R1.9 billion Other15operating expenses Refer to page 36 for integrated demand Taxation (September 2012: R0.7 billion). The embedded Group other operating expenses for the six management initiatives and costs that are The effective tax rate for the six months to derivative liabilities for the group amounted to months to 30 September 2013 amounted to included in ‘other operating expenses’. 30 September 2013 was 28.4% for the group R9.6 billion (September 2012: R4.8 billion). The R9.1 billion, 10 (September 2012: R10.0 billion). increase in the embedded derivative liabilities (September 2012: 28.5%), which is in line with Net fair value loss on financial instruments, Other operating expenses consist primarily the current statutory tax rate of 28%. PCLF% excluding embedded derivatives year on year, is mainly due to the decision at of repairs and maintenance and integrated 31 March 2013, to account for the full term The net fair value loss on financial instruments, Liquidity and capital resources demand5 management costs. of the underlying special pricing agreement excluding embedded derivatives, was R1.0 billion Cash and cash equivalents together with The company’s gross repairs and maintenance for the six months to 30 September 2013 contracts. liquid investment in securities, amounted expenditure 0 before capitalisation and excluding (September 2012: R1.3 billion) for the group. to R43.2 billion as at 30 September 2013 Jan Feb The decrease of R1.9 billion in the embedded employee benefit costs Marfor the Apr six May monthsJun TheJul costsAug Sep vary from Oct period Nov to period Dec due to the derivative liability from March 2013 to (September 2012: R46.3 billion). to 30 September 2013 was R9.5 billion timing of the placement of related procurement September 2013 is mainly due to changes in Cash flows from operating activities (September 2011 2012: R6.32012 billion). The 2013 significant contracts and exchange rate fluctuations. the USD:ZAR exchange rate and changes in The group’s net cash inflow from increase in repairs and maintenance costs interest rates. The euro and US dollar to rand exchange rate operating activities for the six months are due to the generation sustainability movements are presented on the graph below: to 30 September 2013 was R19.6 billion programme and the fact that maintenance Net finance cost r After capitalising borrowing costs and including (September 2012: R18.2 billion). The cash 14 unwinding of interest on provisions, the generated from operations was offset by an Euro and USD to net finance charges for the group for the six increase in working capital since 31 March 2013, Rand exchange rate movements months to 30 September 2013 was R1.9 billion primarily due to the increase in debtors due (September 2012: R3.8 billion). to the tariff increase of 8% and higher winter 14 tariffs. The group’s working-capital ratio was 13 Gross finance income for the six months 0.89 as at 30 September 2013 compared to to 30 September 2013 was R1.1 billion 0.68 as at 31 March 2013. 12 (September 2012: R1.7 billion) for the group. Cash flows used in investing activities 11 Gross finance cost for the group for the six Cash flows used in investing activities for 10 months to 30 September 2013 was R7.6 billion the six months to 30 September 2013 were (September 2012: R18.2 billion). As there was no R24.5 billion (September 2012: R26.7 billion) 9 change in the price path during the six months for the group. The group capital expenditure to 30 September 2013, no remeasurement of cash flows included in this line item, excluding 8 the government loan was required. Included capitalised interest, amounted to R23.2 billion 7 in gross finance cost for the six months to (September 2012: R26.2 billion) primarily Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 30 September 2012 was a remeasurement due to the progress of the capital expansion EUR USD of the government loan of R9.6 billion, programme. For the detail on the capital which further impacted the borrowing costs expenditure incurred for the six months to capitalised for the same period. 30 September 2013 refer to the table on page 43. Summer and winter 58 Eskom Holdings SOC Limited load profiles 59 Interim Integrated Report – 30 September 2013 15 Performance on strategic objectives continued Cash flows from financing activities and the maintenance of a liquidity buffer of R300 billion borrowing programme as at 30 September 2013 The net cash inflows from financing activities R20 billion. The borrowing programme is being Amount for the six months to 30 September 2013 were executed in terms of Eskom’s current approved Funding of secured R24.5 billion (September 2012: R16.4 billion) corporate plan. Sources Drawdowns Drawdowns supported for the group. The raising of borrowings and Apr 2010 – Secured Apr 2010 – Apr 2013 – Drawdowns by the the issuing of securities have been managed Funds for the next 12 to 18 months will be sourced mainly from a combination of issuing Sources Sep 2013 to date Mar 2013 Sep 2013 to date government to match the reduced capital expenditure. The debt-to-equity ratio for the group domestic and international bonds, Export Bonds 90.0 60.9 44.8 16.1 60.9 38.2 (including long-term provisions) was 1.72 as at Credit Agency backed financing, development Commercial 30 September 2013 (September 2012: 1.63). financing institutions financing and the paper1 70.0 70.0 30.0 5.0 35.0 – domestic commercial paper market. New The free funds from operations as a percentage opportunities from alternative funding sources Export credit of gross debt was 8.86% for the group as at and products, such as preference share type agencies 32.9 32.9 19.4 1.1 20.5 – 30 September 2013 (September 2012: 9.39%). funding, syndicated loans and project-based World Bank 27.8 27.8 8.6 1.7 10.3 27.8 The gross debt/EBITDA for the group was funding will also be explored and considered AfDB 20.9 20.9 13.3 0.9 14.2 20.9 10.61% (September 2012: 9.07%). to complement the current sources. During the period under review Eskom created a Development Funding progress Bank of new medium-term note programme for Southern Africa 15.0 15.0 7.0 1.0 8.0 – Treasury continues to focus its activities on international bond issues and during July 2013 the funding requirements to the end of the raised USD1 billion in the international market. Shareholder committed capacity expansion programme loan 20.0 20.0 20.0 – 20.0 20.0 Other/new sources 23.4 18.4 1.0 3.3 4.3 4.9 Totals (R billion) 300 265.9 144.1 29.1 173.2 111.8 Percentages 88.6 65.1 42.1 (% of (% of (% of R300bn) secured) secured) 1. Commercial paper is issued for up to one year and then redeemed and reissued for the same net amount. The commercial paper is thus by definition not fully secured for the full period, however, Eskom’s long-term observations and past trends support a high level of confidence that Eskom will be able to rollout the redemptions each year. For this reason, the gross value of the commercial paper is shown under the ‘secured’ column in the borrowing programme table above. As at 30 September 2013, R266 billion or 88.6% As at the end of September 2013, Eskom had of the R300 billion borrowing programme had sufficient liquidity reserves, which in terms been secured. The R300 billion borrowing of the latest projections and assuming no programme is based on the original funding further drawdowns, would cover Eskom for requirements as at April 2010 and covers the approximately 150 days. period 1 April 2010 to 31 March 2017. Further funding requirements, including those resulting Further major focus areas, from a new funding from the lower than expected MYPD 3 point of view includes: tariff determination are not included in this • Co-financing by development finance borrowing programme. institutions such as the AFD (Agence Française de Développement) The newly constructed ash dam at Medupi power station is funded by the World Bank 60 Eskom Holdings SOC Limited 61 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued • KFW and the European Investment Bank to of R3 billion nominal issuance and commenced Rating rationale: finance the concentrating solar plant project with the issue of a new EL30 inflation-linked bond from July 2013. Eskom’s base assumption Business risk: fair Financial risk: highly leveraged • Monitoring the effects of the funding initiatives on the ratios that impact on on commercial paper is that as the issues RSA’s dominant electricity utility High leverage due to largely debt-funded Eskom’s credit ratings mature, based both on investor appetite and capital expenditure programme • Domestic bond markets where Eskom was the current market conditions, Eskom will Regulated revenues across the electricity Ratios likely to remain weak due to challenging able to raise R8.3 billion gross funding during roll them over to a new maturity date and value chain regulatory determination for 2013/14 – 2017/18 the six months to 30 September 2013 ultimately refinance the projected commercial Execution risk on a very large capital Substantial funding requirements from 2015/16 paper issuance before or by each year-end. expenditure programme onward In addition, Eskom has supplemented its During the 2013/14 financial year, Eskom aims Rising regulatory risk as tariff increases are vanilla bond issuance with the inflation linked to start increasing the commercial paper being curtailed instruments. At the end of June 2013, Eskom issuance towards R15 billion, which will then be Elevated operational risk due to tight reached the issue limit of the EL29 inflation- rolled annually. electricity reserve margin in South Africa linked bond, currently capped at a maximum The downward revision of Eskom’s stand- Moody’s revised downwards its assessment Eskom’s stand-alone credit ratings as at 14 October 2013 alone credit profile reflects the weakening of of the standalone credit quality of Eskom Eskom’s credit metrics due to its largely debt (expressed as a baseline credit assessment, or Standard Fitch funded capital expansion programme being BCA) to ‘b1’ from ‘ba3’. This reflects: Rating & Poor’s Moody’s Local Currency National scale insufficiently covered by tariff increases and due • greater uncertainty over the evolution of Foreign currency BBB Baa3 – AA+ to rising operational costs. This revision also Eskom’s investment programme and financial reflects Standard & Poor’s view of the rising profile over the medium term Local currency BBB Baa3 BBB+ F1+ business risk in light of regulatory and operating • limited potential for improvement in Eskom’s Stand-alone b- b1 B None risks and weakened profitability owing to an weak financial metrics, as had previously unfavourable regulatory decision. The negative been targeted by Eskom, following the Outlook Negative Negative Stable Stable outlook reflects the possibility of a downgrade conclusion of the tougher MYPD 3 review Action date 14 Oct 2013 19 Jul 2013 11 Jan 2013 16 Jan 2013 if Eskom’s Standard & Poor’s weakens further; if for the period April 2013 – March 2017 the Sovereign is downgraded; or if Standard & Affirmation date 14 Oct 2013 19 Jul 2013 2 Aug 2013 2 Aug 2013 • the significant challenges facing Eskom in Poor’s revise their assessment of the likelihood relation to the management of operating of extraordinary government support. Standard & Poor’s costs in the context of a very stretched The ‘BBB’ rating reflects Standard & Poor’s opinion that there is an ‘extremely high’ likelihood that Moody’s electricity system until new generation the Republic of South Africa would provide timely and sufficient extraordinary support to Eskom in On 19 July 2013, Moody’s reaffirmed Eskom’s comes on-stream and the execution of a the event of financial distress. On 14 October 2013, Standard & Poor’s downgraded the stand-alone Baa3 rating and a negative outlook was large investment programme credit profile of Eskom to ‘b-’ (from ‘b’) which revises the company’s business risk profile to ‘weak’ maintained. The affirmation of the Baa3 rating While Moody’s expect Eskom to take measures from ‘fair’. The ‘BBB’ foreign and local currency ratings were affirmed as was the ‘highly leveraged’ with a negative outlook reflects Eskom’s as far as possible to limit the impact of lower financial risk profile. continued critical strategic and economic tariffs, manage the operating and capital costs, importance to the government of South and engage with both the shareholder and the Africa, as well as its engagement in a significant regulator to find appropriate solutions in this investment programme to expand and upgrade respect, nonetheless, given the committed the country’s electricity infrastructure to meet capital expansion programme, Eskom’s financial the country’s changing power needs. profile could remain rather stretched for the foreseeable future. 62 Eskom Holdings SOC Limited 63 Interim Integrated Report – 30 September 2013 Performance on strategic objectives continued The negative outlook on the ratings is in Fitch’s view of future developments that could line with the outlook on the South African lead to positive rating actions for Eskom include government’s recently affirmed ratings. a positive action on the Sovereign’s rating, providing that the strength of the parent Fitch subsidiary linkage does not weaken. On 2 August 2013, Fitch affirmed Eskom’s long-term local currency Issuer Default Rating The rating agency also maintain that a decline in (IDR) rating at ‘BBB+’. The national long-term government support or a negative rating action and short-term ratings were also affirmed at on the Sovereign rating would likely result in ‘AA+(zaf)’ and ‘F1+(zaf)’, respectively. The a negative rating action for Eskom; and that outlook on the IDR and the national long-term failure to achieve more cost-reflective tariffs, in rating remains stable. the absence of increased government support, The affirmation continues to reflect the resulting in an unsustainable financial profile alignment of Eskom’s ratings with those of the and putting the company’s ability to service Sovereign. In Fitch’s view, the ties between its debt at risk, may also result in a negative Eskom and the shareholder are likely to remain rating action. strong in the foreseeable future. Fitch view the unsupported creditworthiness of Eskom as commensurate with the ‘B’ rating category, reflecting the constraint of significant and increasing leverage as a result of the recent tariff determination and operational cost pressure, as well as the execution risks associated with the capital expansion programme. Eskom has mobile units to serve customers in outlying areas 64 Eskom Holdings SOC Limited 65 Interim Integrated Report – 30 September 2013 Group interim financial results for the six months ended 30 September 2013 The group interim financial results have been extracted from the condensed interim financial 6 statements for the period ended 30 September 2013 that have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS), the presentation and disclosure requirements of IAS 34 Interim Financial Reporting, and in the manner required by the Companies Act of South Africa, 71 of 2008. The condensed group interim financial statements have been prepared under the supervision of the acting chief financial officer, CM Henry CA(SA). These condensed interim financial statements have been reviewed by the independent auditors KPMG Inc and SizweNtsalubaGobodo Inc and have been approved by the board of directors on 28 November 2013. The condensed group interim financial statements, with the review opinion issued by the independent auditors, are available at http://integratedreport.eskom.co.za/008. Currency of financial statements Group interim financial results The condensed group interim financial statements are expressed in South African rand (R). The following are approximate values of R1.00 to the selected currencies and one unit of the selected currencies to the rand: One unit of the selected currency R1.00 to the selected currencies to the rand 30 September 31 March 30 September 30 September 31 March 30 September 2013 2013 2012 2013 2013 2012 EUR 0.07 0.08 0.09 13.60 11.82 10.68 USD 0.10 0.11 0.12 10.05 9.21 8.28 GBP 0.06 0.07 0.07 16.22 13.96 13.38 CHF 0.09 0.10 0.11 11.11 9.70 8.83 JPY 10.00 10.00 9.09 0.10 0.10 0.11 Currency Abbreviation Euro EUR United States dollar USD Pound sterling (United Kingdom) GBP Image Swiss franc CHF Image description to be placed here Japanese yen JPY 67 Condensed group statement of Condensed group statement of financial position financial position continued at 30 September 2013 at 30 September 2013 Reviewed Audited Reviewed Reviewed Audited Reviewed 30 September 31 March 30 September 30 September 31 March 30 September 2013 2013 2012 2013 2013 2012 Rm Rm Rm Rm Rm Rm Assets Equity Non-current assets 402 416 378 775 358 920 Capital and reserves attributable to owner Property, plant and equipment and of the company 123 446 109 139 115 666 intangible assets 366 366 344 271 327 400 Liabilities Investment in equity-accounted investees 322 296 283 Non-current liabilities 294 950 264 446 262 680 Future fuel supplies 7 741 8 121 6 631 Debt securities 124 879 106 526 97 854 Investment in securities 8 339 8 574 10 316 Borrowings 95 582 84 250 100 706 Loans receivable 8 716 8 425 8 187 Embedded derivatives 8 211 10 095 3 609 Derivatives held for risk management 7 672 5 420 2 615 Derivatives held for risk management 13 840 1 500 Other assets 3 260 3 668 3 488 Deferred tax 21 354 15 806 18 758 Current assets 79 241 53 241 73 154 Deferred income 11 989 10 907 10 138 Inventories 14 584 12 251 10 855 Employee benefit obligations 11 099 10 282 9 180 Investment in securities 4 659 8 776 8 609 Provisions 17 334 20 087 15 847 Loans receivable 75 114 107 Other liabilities 4 489 5 653 5 088 Derivatives held for risk management 3 709 1 906 539 Current liabilities 63 269 58 439 53 742 Trade and other receivables 17 477 14 925 19 072 Debt securities 2 604 2 517 7 937 Other assets 8 544 4 649 6 572 Borrowings 13 715 9 663 6 863 Cash and cash equivalents 30 193 10 620 27 400 Embedded derivatives 1 402 1 386 1 232 Non-current assets held-for-sale 8 8 14 Derivatives held for risk management 621 572 2 763 Total assets 481 665 432 024 432 088 Employee benefit obligations 3 169 3 629 3 780 Provisions 6 779 6 648 2 162 Trade and other payables 26 354 28 999 23 115 Taxation – 9 13 Other liabilities 8 625 5 016 5 877 Total liabilities 358 219 322 885 316 422 Total equity and liabilities 481 665 432 024 432 088 68 Eskom Holdings SOC Limited 69 Interim Integrated Report – 30 September 2013 Condensed group income statement Condensed group statement for the six months ended 30 September 2013 of cash flows for the six months ended 30 September 2013 Reviewed Reviewed Reviewed Reviewed six months six months Audited six months six months Audited ended ended year ended ended ended year ended 30 September 30 September 31 March 30 September 30 September 31 March 2013 2012 2013 2013 2012 2013 Rm Rm Rm Rm Rm Rm Cash flows from operating activities Revenue 77 815 73 368 128 869 Profit before tax 17 087 17 673 7 040 Primary energy1 (31 266) (24 973) (60 748) Adjustment for non-cash items 8 876 12 300 22 620 Net employee benefit expense (12 989) (11 628) (23 599) Changes in working capital (12 256) (10 092) (828) Depreciation and amortisation expense (5 920) (4 722) (9 968) Cash generated from operations 13 707 19 881 28 832 Net impairment loss (682) (486) (1 011) Net cash flows (used in)/from financial trading assets (3 317) (854) 1 701 Other operating expenses (9 111) (10 045) (23 123) Net cash flows from/(used in) financial trading Operating profit before net fair value loss liabilities 4 853 (173) (2 317) and net finance (cost)/income 17 847 21 514 10 420 Net cash flows from/(used in) current derivatives held for risk management 4 469 (586) (331) Other income 197 516 1 155 Income taxes paid (87) (86) (216) Net fair value loss on financial instruments, Net cash from operating activities 19 625 18 182 27 669 excluding embedded derivatives (998) (1 292) (1 655) Cash flows used in investing activities Net fair value gain/(loss) on embedded Proceeds from disposal of property, plant derivatives 1 868 698 (5 942) and equipment 51 45 36 Operating profit before net finance Acquisitions of property, plant and equipment (cost)/ income 18 914 21 436 3 978 and intangible assets (21 639) (25 244) (55 381) Net finance (cost)/ income (1 853) (3 785) 3 027 Expenditure on future fuel supplies (1 444) (926) (2 533) Share of profit of equity-accounted investees, Increase in non-current loans receivable (291) (752) (990) net of tax 26 22 35 Other cash flows from investing activities (1 197) 148 460 Profit before tax 17 087 17 673 7 040 Net cash used in investing activities (24 520) (26 729) (58 408) Income tax (4 846) (5 044) (1 857) Cash flows from financing activities Profit for the period 12 241 12 629 5 183 Debt raised 29 475 17 804 31 120 Attributable to: Debt repaid (4 819) (2 021) (7 149) Owner of the company 12 241 12 629 5 183 Decrease in investment in securities 4 050 3 756 5 047 Decrease in finance lease liabilities (14) (5) (31) Interest received 1 257 1 470 2 765 Interest paid (5 481) (4 632) (9 968) Net cash from financing activities 24 468 16 372 21 784 Net increase/(decrease) in cash and cash equivalents 19 573 7 825 (8 955) Cash and cash equivalents at beginning of the period 10 620 19 450 19 450 Cash and cash equivalents at beginning of period attributable to non-current assets held-for-sale – 125 125 1. Primary energy relates primarily to the acquisition of coal, uranium, water, gas and diesel that are used in the generation of electricity Cash and cash equivalents at end of the period 30 193 27 400 10 620 together with the environmental levy. 70 Eskom Holdings SOC Limited 71 Interim Integrated Report – 30 September 2013 Appendices Abbreviations, acronyms and glossary 7 For a list of abbreviations, acronyms and a glossary of terms used in this report refer to http://integratedreport.eskom.co.za/009. Telephone Websites and email Eskom head office +27 11 800 8111 Eskom website www.eskom.co.za contact@eskom.co.za Eskom Strategic +27 11 800 2323 Eskom integrated http://integratedreport.eskom.co.za/010 Marketing report Eskom media desk +27 11 800 3304 Eskom media desk mediadesk@eskom.co.za +27 11 800 3309 +27 82 805 7278 Eskom Development +27 11 800 6128 Eskom www.eskom.co.za/csi Appendices Foundation Development Foundation csi@eskom.co.za Investor relations +27 11 800 2775 Investor relations lerato.mashinini@eskom.co.za Ethics office +27 11 800 3700 Ethics office ethics@eskom.co.za advisory service +27 11 800 4816 advisory service +27 11 800 3187 Confidential 0800 11 27 22 Eskom envhelp@eskom.co.za reporting line environmental National sharecall 08600 ESKOM Promotion PAIA@eskom.co.za number (08600 37566) of Access to Information Act Physical address Postal address Eskom Eskom Megawatt Park PO Box 1091 2 Maxwell Drive Johannesburg Sunninghill 2000 Sandton 2157 Eskom Holdings Secretariat Eskom Holdings SOC Limited Annamarie van der Merwe Company registration number: (Interim Company Secretary) 2002/015527/06 PO Box 1091 Johannesburg 2000 72 Eskom Holdings SOC Limited Interim Integrated Report – 30 September 2013 www.eskom.co.za