the Eskom factor Contents ƒ Chairman’s reflection 02 ƒ Commitment by the Chief Executive 03 ƒ Executive summary 04 ƒ Acknowledgements 06 Introduction 08 Setting The Scene 12 ƒ Eskom’s operational and policy context Methodology 16 The Eskom Factor 24 ƒ Economic growth engine ƒ Employer, job creator and skills developer ƒ Impact on local communities ƒ Environmental footprint ƒ Enabler of South African development through electricity provision ƒ Catalyst for change in South Africa Stakeholder Engagement 68 ƒ Introduction ƒ The stakeholder engagement process so far ƒ Stakeholder feedback Conclusion 74 ƒ Annexure 1: Using the four-step methodology to understand the impact of the Medupi power plant more fully 1. Setting the boundaries 2. Measuring the impact 3. Developing understanding 4. Planning for action ƒ Annexure 2: Online questionnaire analysis ƒ Glossary ƒ References ƒ Disclaimer ƒ Contact information 1 Chairman’s Reflection At Eskom, we are intensely aware of the challenges we face. Our challenges are often not unique to Eskom, they are national challenges facing all South Africans such as economic growth, job creation and transformation. Often, they are also international challenges such as climate change where collectively our individual actions impact on each other. Many of these issues are also not new to Eskom, its employees or stakeholders. Eskom has been an economic enabler in South Africa for many years, we’ve been reducing our emissions and driving efficiency and we’ve been at the forefront of transformation. I’m proud to say that at Eskom we know that this is not enough and that we need to fundamentally shift the way in which we manage our business and, in doing so, fundamentally change South Africa’s mindset regarding sustainability. This is no easy task, but we have already seen a glimpse of what South Africa is capable of during the 49 million campaign which saw truly astounding results thanks to the individual efforts of ordinary South Africans. The World Business Council for Sustainable Development has a vision for 2050, and we all need to get behind this vision and the action needs to start today. Eskom will play a leading role in designing, guiding, measuring and enabling the change. We understand our responsibility to the South African people. As chairman, my own set of responsibilities are aligned with the Department of Public Enterprises and the country as a whole. Eskom fulfils many functions, but ultimately by becoming more sustainable it will enhance its ability to deliver on major issues such as driving economic growth, creating an environment for job creation and employ its own people, uplift local and rural communities in which it operates, manage and minimise the impact on the environment, advance the electrification of South Africa and become a catalyst for change in the country. Measuring our impact and the findings and information in this report are a crucial component towards meeting these challenges. Sustainability is no longer something that will affect us one day, if we don’t act soon. That time has come and we’re the ones that need to make the change towards a better future and better quality of life for all. Zola Tsotsi Chairman 2 Eskom Holdings Limited The Eskom Factor 2011 Commitment from the Chief Executive To our stakeholders Eskom’s most important job is to provide an uninterrupted supply of electricity to support economic growth, and to improve the quality of life of the people of South Africa. To do this we have to ensure that we are a good investment and a trusted, ethical and well-governed company, highly rated by all its stakeholders. The past year has seen Eskom embark on a review of our entire strategy and we have begun to transform our performance using improved controls and greater organisational discipline. We have committed to being a high-performance organisation, we have returned the company to profitability and we have begun implementing our funding plan. At the same time we have avoided load shedding since April 2008 and keeping the lights on remains our core focus. Just as importantly, we have started to improve the transparency with which Eskom’s impact on society, the economy and the environment is reported and managed. The first Eskom Factor report achieves a number of important objectives by identifying the key impacts areas, creating understanding of these impacts, and accurately measuring them. In particular it provides us with critical direction for further improvement on our positive impacts and reduction of the negative ones. Given our size and the scale of our economic, social and environmental footprint, we are shaping the development of South Africa through six key impact areas. These are: ƒ Economic Growth Engine ƒ Employer, job creator and skills developer ƒ Impact on local communities ƒ Environmental footprint ƒ Enabler of South African development through electricity provision ƒ Catalyst for change in South Africa. Each of these areas are explored fully in the Eskom Factor and specific programmes have and will be put in place to maximise the positive impacts and manage or mitigate the negative impacts of each. In particular, we aim to focus on the availability and reliability of supply, our environmental footprint, accelerated electrification to reach 100% by 2020, and health and safety. As an active member of the World Business Council for Sustainable Development (a CEO-led organisation of over 200 global CEOs) Eskom is required to become a leader in sustainability to guide South Africa towards a future that promises a better quality of life for all. Our imperatives relating to economic growth, affordability and security of supply need to be balanced with the impact on the environment, society and the economy. The Eskom Factor is not a one-off publication, but the baseline from which to continue to build on our transparency and positive impact on South Africa society. My thanks go to all who made this publication possible, and who will continue to actively increase the transparency of Eskom’s footprint into the future. Sincerely Brian Dames Chief Executive 3 Eskom Holdings Limited The Eskom Factor 2011 Executive summary The Eskom factor is a collective term to explain Eskom’s footprint Eskom’s suppliers employ an even larger number of people whose in South Africa, which has been quantified through a comprehensive jobs are indirectly attributable to Eskom’s activities. The assessment assessment of the company’s economic, social and environmental found that Eskom provides direct and indirect employment to over impact on the country, both positive and negative, within the financial 129 000 people and, considering family members, sustains over year April 2010 to March 2011. The assessment is based on the 516 000 South Africans. Through its new-build programme, Eskom “Measuring Impact” methodology developed by the World Business contributes to job diversification, creating jobs in manufacturing, Council for Sustainable Development (WBCSD), which has been construction, business services and other industries, beyond the applied here within Eskom’s specific context as a vertically integrated traditional engineering and mining discipline. However, it is recognised state-owned utility operating in South Africa. Eskom has produced that the price increases approved by the National Energy Regulator of this report as a basis for stakeholder engagement and invites its South Africa’s (NERSA’s) decision in order to move towards a cost- stakeholders to participate further. reflective tariff, will have a negative impact on all users of electricity, but particularly industrial, commercial and residential customers. This The Eskom factor project is a culmination of a series of qualitative may result in an estimated loss of around 16 000 jobs, mainly in and quantitative data sets, totalling some 150 indicators, which have energy-intensive industries as they cut back on production. been analysed to form the backbone of the Eskom factor report. The results of these indicators have been interpreted as six key areas During the year, Eskom provided 298 000 training days, equivalent of influence where Eskom’s economic, social and environmental to seven days of training per employee. Furthermore, Eskom footprint helps to shape South Africa’s development, as follows: trains current and potential business partners and creates training opportunities at its major suppliers. 1. Economic growth engine: Eskom is a major driver of the South African economy. Through its sales of electricity, Eskom’s economic 3. Impact on local communities: It is Eskom’s objective to create as value added at group level reached R42.1bn in the financial year much local employment as possible in the construction of its new 2011. An independent study undertaken by Quantec Research (Pty) facilities and to provide local communities with the necessary training. Ltd found that Eskom’s direct impact on the South African GDP as 54% of the workers employed on site to build this new infrastructure a result of its operational and capital expenditure is in the amount are sourced from the same areas where construction is underway. of 3%, taking into account only initial impacts and first-round effects This has an immediate positive impact on the local community and in the economy. However, when considering economy-wide effects, even when the employment is temporary, it increases the future this impact is estimated to be more than 7%. Moreover, Eskom’s employment opportunities for people who have acquired additional current capital expansion programme is one of the largest stimuli of skills. In the process of construction, Eskom makes a significant the South African economy, with a total budget of R340bn between contribution to local infrastructure through the development of 2005 and 2018. Eskom is a key driver of the development of new road, rail, telecommunication, sewage and other infrastructure that is industries in South Africa, both through its localisation programme required to support a major project. and by providing electricity for the establishment of new businesses. In all its activities, Eskom emphasises the enabling of all South Africans At the same time, these activities also cause disruption, place to take part in the economic activity of the country and already pressure on existing facilities and produce dust and noise during the awards over 50% of its total expenditures to Broad-Based Black construction period, which can last several years. At times, there has Economic Empowerment (B-BBEE)-compliant suppliers. There is a been a need to relocate people in the immediate surroundings of negative impact on the economy in the absence of electricity supply, the construction sites to other areas. Eskom tries to minimise the as was experienced in 2008. This also provides a good indication of negative impact of these moves and works closely together with the the importance of the supply of electricity in maintaining economic affected families and local community leaders to find solutions that activity. However, financing the construction of new electricity supply will be acceptable to all involved. facilities also has a negative impact on the economy since requiring cost-reflective pricing will see large price increases scheduled for There are also health and safety issues associated with construction. the next few years. This will, in turn, increase production costs for Eskom aims to eliminate injuries and fatalities both in the public, energy-intensive industrial sector and could reduce competitiveness within Eskom, its suppliers and business partners through the in export markets. implementation of activities included in the Zero Harm Policy. 2. Employer, job creator and capabilities developer: Eskom is one 4. Environmental footprint: In the process of generating electricity, of the largest employers and buyers of goods and services in the Eskom is a significant user of South Africa’s natural resources, in country. In addition to the over 40 000 people Eskom employs directly, particular of fresh water and coal. Moreover, given its current power 4 Eskom Holdings Limited The Eskom Factor 2011 Executive summary continued generation mix, Eskom has a considerable CO2 footprint and is a 6. Catalyst for change in South Africa: Eskom leads by example large emitter of sulphur dioxide and nitrogen oxides (SO2 and NOX) and works as a catalyst for change in South Africa through carrying and particulates. During the 2011 financial year, the company used out its business in a responsible manner. Eskom’s commitment to 327bn litres of fresh water and emitted some 230 Mt of CO2. Eskom good corporate governance, evidenced by the most recent audit of is committed to improving the efficiency of its current and future Eskom’s integrated report, contributes to anti-corruption practices. power plants to reduce these negative impacts for each unit of Eskom supports the realisation of the development goals set out by electricity generated in line with the country’s Integrated Resource the government of South Africa, through effective participation in Plan. various national dialogues around national and international policy. 5. Enabler of South African economic and social development Eskom is fostering innovation through a number of external and through electricity provision: Eskom is supporting the government’s in-house initiatives, particularly Research and Development (R&D), objective of advancing electrification. Since the beginning of the with a significant investment in the development and demonstration electrification programme, Eskom has electrified over four million of new and better technologies. Eskom is a Level 2 B-BBEE contributor homes and plans to assist government to achieve universal access to and invested R62m in Corporate Social Investment (CSI) initiatives all South Africans, improving lifestyles and providing opportunity to during the 2011 financial year. enter the economy. Moreover, through the building of new electricity generation and transmission capacity, the company will contribute Looking forward . . . significantly to improving power availability and reliability. A demand- Ultimately, Eskom wants to change gear to achieve higher performance supply gap had been forecasted for South Africa in the order of to further increase its positive impact on South Africa while reducing 6 TWh for the 2011 financial year. Load shedding in 2011 was the negative environmental burden. Eskom will continue to focus on avoided through tight operational controls. Through a progressive the government’s five-year priorities and actively contribute to the tariff scheme, charging more per unit of electricity as consumption economic and social development of the country and its people. rises, and the continued promotion of free basic electricity, Eskom seeks to neutralise the negative impact of electricity price increases Eskom presents this study as a basis for discussion and would like for low-income/low-energy consumption customers. Finally, Eskom to delve further into its impact on the environment, society and is committed to promoting energy efficiency initiatives such as the economy. Your valuable contributions on this preliminary assessment 49-million campaign, which aims to increase awareness of wastage of Eskom’s footprint and any other potential areas of impact you feel and help customers reduce their electricity usage. are relevant, could be considered in future editions of the Eskom factor. 5 Eskom Holdings Limited The Eskom Factor 2011 Acknowledgements This report was commissioned by Eskom’s senior management, led by the Chief Executive. The execution of the project that led to the publication of this first Eskom factor report was conducted by a dedicated internal team of Eskom experts between February and June 2011, overseen by a steering committee including representatives from all relevant business units. An international team from The Boston Consulting Group (BCG), including global experts from the BCG Global Sustainability team, provided external expertise and supported the assessment of Eskom’s footprint and the publication of the Eskom factor report. BCG is a global management consulting firm and the world’s leading advisor on business strategy. The World Business Council for Sustainable Development (WBCSD), of which Eskom is an active member, sponsored the development of the Measuring Impact framework, which was applied in the assessments for the Eskom Factor report. The WBCSD is a CEO-led, global association of some 200 companies dealing exclusively with business and sustainable development. We want to thank all involved for their tremendous efforts and are committed to continuing the initiative to increase transparency and understanding of Eskom’s footprint in the future. 6 Eskom Holdings Limited The Eskom Factor 2011 Chapter 1: Board of directors continued “He who knows others is wise. Introduction He who knows himself is enlightened.” Lao Tzu, Chinese philosopher 8 Eskom Holdings Limited The Eskom Factor 2011 Introduction Reason for this report and key objectives Eskom’s overall impact on South Africa is significant. Electricity has been a driver of our country’s development over the past century and will continue to be a key enabler for economic growth and job creation. As a state-owned company that impacts the lives of South Africans on a daily basis, Eskom has a great responsibility towards our society, our economy and our environment. Believing that transparency is important and by removing the veil to reveal Eskom’s impacts and contributions, Eskom delivers on one important element of this responsibility. The Eskom factor is intended to be a thorough assessment of Eskom’s impact during the 2011 financial year on the economy, our society and the environment, not only in a direct sense but also through our immediate suppliers and business partners. By establishing a robust impact assessment framework, it is also Eskom’s first step in addressing the World Business Council for Sustainable Development’s (WBCSD’s) Vision 2050 of “nine-billion people living well and within the limits of the planet”. To build on the insights gained through the assessment and further improve the level of detail, Eskom seeks to engage actively with our many stakeholders. The objective of publishing this information on the web is to create an opportunity for open dialogue on Eskom’s footprint and to generate further insights on how to accelerate and further increase our positive impact on the country. Such a study could be revisited periodically in order to gain insight on how Eskom’s footprint has changed and where new actions should be targeted. In this way, the results from the Eskom factor report can be used as input to its internal strategy review process. Depending on the stakeholder feedback received, Eskom will review the benefits of a future Eskom factor report. The Eskom factor report does not replace regular compliance reporting such as the integrated annual report or any other form of regular Eskom publication. The integrated annual report details the company’s performance against strategy and objectives. This Eskom factor report aims to comment on both the direct and indirect, economic, social and environmental impacts of Eskom and provides some judgement as to whether the type of impact is generally negative, generally positive or has both positive and negative attributes. 9 Eskom Holdings Limited The Eskom Factor 2011 Introduction continued This Eskom factor initiative is Eskom’s first assessment of its In this first edition of the Eskom factor report, Eskom’s economic, economic, social and environmental impact on South Africa. By social and environmental footprint during the 2011 financial year developing this study through a robust methodology, it is believed (which ended 31 March 2011) was analysed. In doing so, not only was that the result will set a platform for measuring future changes in Eskom’s direct impact considered but, where possible, also included impact and allow a pathway to continual improvement. The project the effects of direct or first-tier supplier and business partner makes a highly relevant contribution for Eskom and all stakeholders, in activities. In essence, the intention of the analysis and assessment particular by: is to include the entire Eskom conglomeration of activities. This ƒ determining Eskom’s economic, social and environmental conglomeration of all activities within the Eskom group and the footprint and highlighting the most relevant impacts on South communities within which Eskom operates (including its employees, Africa; suppliers and customers) will henceforth be referred to as Eskom’s ƒ continuing open communication and engagement with Eskom’s “cloud” of activities. stakeholders and creating a better understanding of the future perspectives; Some types of information are only expected to be available from ƒ promoting a more informed decision-making process being Eskom’s stakeholders themselves and it is intended to engage mindful of Eskom’s impact and contributing to charting the further with key stakeholders, in particular with corporate and course for future strategy and initiatives; and residential customers, suppliers and business partners, employees ƒ promoting discussion around the standards for economic, social and the unions representing them, independent interest groups, and environmental footprint assessment not only in South Africa, non-governmental organisations (NGOs), governmental bodies and but globally. of course the communities in which Eskom operates. Moreover, the Eskom factor initiative is a step towards meeting the goals of WBCSD’s Vision 2050 – a vision that takes the world well on the way to sustainability by 2050. The rollout of a solid impact assessment framework allows Eskom to reflect where it stands with regard to sustainability and to align with the strategic process towards the WBCSD Vision 2050. 10 Eskom Holdings Limited The Eskom Factor 2011 Eskom Holdings Limited The Eskom Factor 2011 11 Chapter 1: Board of directors continued “Eskom has been providing Setting the scene South Africa with the lifeblood of electricity since 1923.” 12 Eskom Holdings Limited The Eskom Factor 2011 Setting The Scene About us Eskom Holding Ltd is a State-Owned Company (SOC) wholly owned by the South African Government. It is South Africa’s, and indeed Africa’s, largest electricity producer, generating approximately 95% of the electricity used in South Africa and approximately 45% of the electricity used in Africa. It is also one of the top 20 utilities in the world by generating capacity. Eskom is active in all elements of the electricity supply chain, generating, transmitting and distributing electricity to industrial, mining, commercial, agricultural, residential customers and redistributors. Eskom is regulated under licences granted by the National Energy Regulator of South Africa (NERSA) and receives revenue based on NERSA-approved set tariffs. Eskom has a diversified customer base, as depicted below: Figure 1: Eskom sales by customers 1.3% 6.2% 40.8% 14.5% Rail Commercial and agricultural 4.7% Mining Residential 5.9% Foreign Industry Municipalities 26.6% Role in South Africa According to the compact Eskom has with its shareholder (the Department of Public Enterprises), Eskom’s mandate is to provide electricity in an efficient and sustainable manner. Eskom is a critical and strategic contributor to the government’s performance in providing the country’s citizens with a secure supply of electricity. In pursuing its mandate, Eskom’s purpose is to provide sustainable electricity solutions to grow the economy and improve the quality of life of the people in South Africa and the region. Providing reliable and affordable electricity is not only a commercial undertaking – it underpins the livelihoods of South Africans. As a state-owned company and through the provision of electricity, Eskom plays a central role in the development of South Africa. Eskom’s values (listed below) indicate its commitment to providing reliable and affordable electricity to the country and conducting its operations in a sustainable and ethical manner: ƒ Zero harm ƒ Integrity ƒ Innovation ƒ Sinobuntu (caring) ƒ Customer satisfaction ƒ Excellence. Countries in which operations are located Eskom’s head office is located in Johannesburg, and operations are spread throughout the country. In December 2008, a small office was opened in London in the United Kingdom, primarily to exercise quality control on equipment being manufactured in Europe for the capacity expansion programme. While Eskom operates primarily in South Africa, there are two subsidiaries that operate electricity generation concessions in Mali, Senegal, Mauritania and Uganda. 13 Eskom Holdings Limited The Eskom Factor 2011 Setting The Scene continued While the majority of Eskom’s operations are focused in South We acknowledge that South Africa as well as Eskom faces additional Africa, it has active relationships with the other countries in the developmental issues such as reliable supply of electricity and SADC region through its participation in the Southern African Power environmental degradation. This study therefore aims to identify and Pool (SAPP). As of now, Eskom supplies eight countries in the SADC unpack these issues and provide an overview of how Eskom directly region with electricity either on a regular or on-demand basis. Eskom and indirectly impacts South Africa’s development. also imports electricity generated in Mozambique. Although some of our neighbouring countries may rely on Eskom for as much as 50% Eskom has a history of exceptional service to the development to 90% of their electricity needs, these are relatively small compared of South Africa. The establishment of The Electricity Supply with South African demand. Nevertheless, the impact in terms of a Commission (Escom) was made effective from 1 March 1923. The social, economic and environmental footprint in those countries is Commission was made responsible for establishing and maintaining expected to be significant and has been identified as an area to be electricity supply undertakings on a regional basis, and electricity was considered. In future, Eskom intends to deepen these relationships to be supplied efficiently, cheaply and abundantly to government for mutual benefit, aspects of which are outlined in the Government’s departments, railways and harbours, local authorities and industry. New Growth Path. As an SOC that has been operating for almost nine decades, Eskom South Africa’s developmental context plays a substantial role in national and regional development, which South Africa has experienced substantial growth in recent years goes beyond the basic supply of electricity. and has become one of Africa’s major economies. However, it is also facing a broad range of development issues. In October 2010, Through the daily activities of providing electricity, building power the government introduced its New Growth Path (NGP), outlining plants and transmission infrastructure, connecting households strategic and economic objectives for South Africa over the next without access to electricity or engaging in corporate social initiatives, decade. The government’s five-year priorities include: improving Eskom has a significant impact on the lives of most people in the education, promoting healthcare, creating decent work, fighting crime country, contributes to shaping the future of South Africa and the and corruption and fostering rural development and land reform. region and supports the government’s priorities. For more information on Eskom’s key areas of contribution, please refer to the “Supporting government’s five-year priorities” box. Supporting government’s five-year priorities Fostering rural Improving Promoting Creating Fighting crime development education healthcare decent work and corruption & land reform Provide training and Enhance employee Provide numerous jobs Adhering to standards Supporting the gov- skills development for health and wellness (employed >12 months) of accountability and ernment’s objective of Eskom employees, practices. both internally and at transparency. advancing electrifica- learner’s pipeline and Roll out key HIV/AIDS suppliers. Proactive involvement tion. with contractors. initiatives. Contribution to job di- by Eskom’s Assurance Electrify rural areas as versification through & Forensic Depart- par t of the govern- the new-build pro- ment in major projects. ment’s electrification gramme. programme. O O O O O More than 129 000 Contributing to More than 5 000 26 000 employees More than 800 people employed in SA leading position Eskom trainees / voluntarily tested for schools and clinics Eskom cloud within on anti-corruption bursars in 2011 HIV in 2011 electrified in 2011 South Africa in 2011 performance Note: Figures relate to financial years. Source: Eskom BCG analysis. 14 Eskom Holdings Limited The Eskom Factor 2011 Eskom Holdings Limited The Eskom Factor 2011 15 Chapter 1: Board of directors continued “The framework has been Methodology developed specifically to measure the corporation’s impact in developing economies.” 16 Eskom Holdings Limited The Eskom Factor 2011 Methodology Framework for determining the Eskom Factor The framework used to determine the Eskom factor is based on the “Measuring Impact” methodology developed by the World Business Council for Sustainable Development. This methodology is used by other major global companies. The framework was applied to define Eskom’s economic, social and environmental impact along the three key stages of our key activities: ƒ Build: The construction of new power plants ƒ Operate: The generation, transmission, distribution and retailing of electricity ƒ End Usage: The usage of electricity by our customers for lighting, heating, cooling, mechanical and chemical energy. Furthermore, the impact of supporting activities was also included. These cover, for example, governance, human resources, marketing and communications, research and development and procurement practices. The assessments were carried out through a structured four-step approach that includes: ƒ Setting the boundaries of the assessment ƒ Measuring the impact ƒ Developing understanding ƒ Planning for action. The Eskom factor was determined using an internationally developed methodology, the Measuring Impact Framework developed by the World Business Council for Sustainable Development (WBCSD), an organisation uniting 200 major global corporations around the topics of business and sustainability. The premise of the Measuring Impact Framework is to enable business to measure and assess their contribution to economic and broader development goals in the societies where they operate and use this understanding to inform their operational and long-term investment decisions and have better- informed conversations with stakeholders. The framework therefore takes into account all dimensions of a company’s footprint, from an economic, social and environmental perspective. This framework has been tried and tested by companies, including Vodafone, Nestlé and Unilever to measure their footprint or “factor” in developing economies. Eskom applied the WBCSD framework to determine our footprint in South Africa and to link our impact to the developmental context of this country to focus this report on key areas of interest. 17 Eskom Holdings Limited The Eskom Factor 2011 Methodology continued The Measuring Impact Framework consists of the four steps depicted in the following diagram: Figure 2: Overview of the Measuring Impact Framework 1 2 Set Measure boundaries impact Q Determine geographic Set Q Compile fact base for scope boundaries indicators Q Collect relevant Measure Q Assess each source of information on impact impact development context QSummarise impact in Heat QFilter business activities Map as starting point for and suppliers/customers storyline to be included Plan for action 4 3 Develop Develop Plan for action understanding understanding Q Identify priority areas for Q Distill relevant impacts action given development context Q Consider possible management responses Q Engage stakeholders and refine assessment QExecute QSummarise revised storyline Source: WBCSD, BCG analysis. 18 Eskom Holdings Limited The Eskom Factor 2011 Methodology continued 1. Setting the boundaries of the assessment Figure 3: Schematic representation of data coverage This step includes determining the geographical regions and activities of the business for inclusion in the assessment, as well as Level of breadth understanding the broader development goals and circumstances of the selected geographies. For this first assessment, Eskom set the boundary as its South African operations. In order to assess the full impact of Eskom’s activities, the sources of impacts have been extended to include the activities of Level of depth Eskom’s suppliers and, to some extent, those of the employees and key customers, insofar as they are attributable to Eskom’s business context, and the information is readily available. The Eskom factor therefore covers an extended impact area termed “the Eskom cloud” for purposes of this report. In order to set realistic goals for the initial factor report, a balance needed to be created between available time to complete the Eskom factor ambition Eskom factor coverage study and an ambition to be comprehensive and complete in the assessment. The scope of this study, as illustrated in the adjacent graphic therefore provides a broad overview of Eskom’s entire 2. Measuring the impact footprint in South Africa, identification and description of the Eskom This step consists of identifying and measuring, where possible, the key sources of impact and an in-depth review of the impacts of the direct and indirect impacts arising from the company’s activities and new-build projects. Eskom plans to expand the “T” in future iterations mapping out what impacts are within the control of the company of the report to include in-depth study of the impacts of other areas and what it can influence through its business. of operations. Direct impacts can combine to have a knock-on or indirect economic, environmental and/or societal effect. An Eskom factor impact tree, such as that shown in figure 4, has been created. 19 Eskom Holdings Limited The Eskom Factor 2011 Methodology continued Compilation of the fact base The Eskom Factor Impact Tree gives an overview of the of indirect impacts, i.e. water usage, use of land, etc. At the Eskom factor methodology. The map provides a snapshot to next level, the methodology includes concrete measurable explain the terminology. The complete tree is derived from an indicators for each impact. In this example, litres of water used extensive analysis and is based on internal and external data and square metres of the different types of land employed sources. would be quantified. Based on these numbers, it is possible to then judge whether the overall impact is positive or negative, as An activity gives rise to the first level of impact. These depicted in the Eskom Factor Impact Tree as shown below. The key sources or drivers of impact – for instance the use of same process is followed for each first-level impact. resources – further branch out into more specific areas Figure 4: Eskom Factor Impact Tree Activity Source of impact Impact Indicator Tons of CO2 emitted CO2 emissions Tons CO2 offset NOX emissions Tons emitted Ozone depleting substance emissions Tons emitted Particles and dust Tons emitted Emissions and waste generation SOX emissions Tons emitted Tons of waste generated Tons of waste incinerated Waste Tons of waste land filled Operate Tons of waste recycled Wastewater effluents Litres Use of coal Megatons Use of resources Use of liquid fuel Megalitres Use of nuclear fuel Number of elements Use of water Litres of water Source: WBCSD, BCG analysis. Eskom identified the sources of impact with respect to the three major activities of the company: building new facilities, operating these facilities and, ultimately, providing electricity to South Africans. Around each of the three core activities, the Eskom factor methodology details the main sources of economic, social and environmental impact. More than 150 indicators were identified, evaluated and consolidated to determine the Eskom factor. 20 Eskom Holdings Limited The Eskom Factor 2011 Methodology continued 3. Developing understanding Key activities to complete this step are to define the most relevant impacts for the given development context, engaging with stakeholders to refine the assessment and to use this input to revise understanding in order to provide a balanced result. To determine the relevance and significance of areas of impact, key questions are posed: “Would it have happened without Eskom?” and “Does Eskom have influence over it?” The resultant major impacts were grouped with respect to South Africa’s developmental goals and portrayed in a single image, referred to as the Eskom Factor Heat Map. This Heat Map was the basis of engagement with stakeholders, as detailed on page 69. Figure 5: Eskom Factor Heat Map Framework Contribution to GDP Contribution to GDP Availability and reliability Creation of jobs & skills dev. Creation of jobs & skills dev. Price and competitiveness Intruding local communities Intruding local communities Electrification Core activities Use of resources Use of resources Waste and emissions Waste and emissions Energy efficiency “Build” “Operate” “Usage” Corruption Transparency Corporate governance and administration control and disclosure Equity Labour Human Resources Labour relations requirements standards Support activities Compliance and policy Legal Tax Policy Internal & Marketing and communications external comm. Pilots and Research and development demonstration Impact on public Econ. contr. through Investor relations, finance and taxation accounts financing act. B-BBEE B-BBEE Policy seven pillars Source: Eskom, WBCSD, BCG analysis. 4. Planning for action Finally, Eskom is not only seeking insight into its impacts but is looking to convert this knowledge into actions that ensure continual improvement. By identifying key areas for action and evaluating different possible interventions, one can arrive at a feasible plan to continually improve Eskom’s impact. 21 Eskom Holdings Limited The Eskom Factor 2011 Methodology continued For a description of the application of the methodology, please refer to the Medupi case study detailed in Annexure 1. A word from the President of the WBCSD It is with great pleasure that I see the first Eskom Factor Report coming to life, an important contribution from one of the members of the WBCSD and our aspiration to achieving the 2050 vision. The world is facing challenges that require a major transformation in how we manage companies and govern the world, particularly in the next 10 years – the “Turbulent Teens”, as the WBCSD calls this period in its Vision 2050 report. Nevertheless, these times also present huge opportunities for those companies that understand society’s challenges and the need for innovative solutions. The Eskom factor initiative, whose report is based on the WBCSD Measuring Impact Framework, enables Eskom to have a fair assessment of its economic, social and environmental footprint. These insights also enable Eskom to be better informed about local, national and global sustainability issues, to factor these into decision making and to move towards the WBCSD 2050 vision. I stand ready to support Eskom and its leadership to contribute to a more sustainable world. Björn Stigson President of the World Business Council for Sustainable Development The following section discusses the results of the assessment and the extent of the Eskom factor. 22 Eskom Holdings Limited The Eskom Factor 2011 23 Eskom Holdings Limited The Eskom Factor 2011 Chapter 1: Board of directors continued The Eskom Factor “A tree is known by its fruit.” 24 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor Given Eskom’s size and the scale of its economic, social and environmental footprint, Eskom’s activities are pivotal in the development of South Africa, in particular through six areas of influence, both positive and negative: 1. Economic growth engine 2. Employer, job creator and skills developer 3. Impact on local communities 4. Environmental footprint 5. Enabler of South Africa’s development through electricity provision 6. Catalyst for change in South Africa The result of the Eskom factor indicated the nature of Eskom’s economic, social and environmental footprint for the 2011 financial year. The assessment delivers a clear message: Given the sheer size and the type of impacts, Eskom’s activities contribute to shaping the development of South Africa, in particular through the six areas of influence, depicted below. The nature of the impact of each of the six areas is depicted as largely positive, negative or both, using the following symbols. It is important to note that the positive and negative ratings do not refer to Eskom’s performance with respect to managing an impact – the rating is simply intended to indicate whether a type of impact is generally negative, generally positive or has both positive and negative attributes. O – A green dot indicates that the type of impact is largely positive. O – A yellow dot indicates that the impact has both positive and negative attributes. O – A red dot indicates that the type of impact is largely negative. 25 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Figure 6: Eskom Factor Heat Map and Eskom’s six key areas of influence Employer, job creator and Economic growth engine skills developer Impact on local communities Enabler of S.A. development through electricity provision Environmental footprint Catalyst for change in South Africa Source: BCG analysis. 1. Economic growth engine: Contribution to the economy through 4. Environmental footprint: Minimisation of impacts on the natural direct economic value-add and indirect impacts of provision of environment through improved efficiencies. primary energy, capital investments projects, wages and other operational expenditure. 5. Enabler of South African development through electricity provision: Support of government’s objective to advance 2. Employer, job creator and skills developer: Provision of direct electrification, investment to enhance availability and reliability and indirect jobs, new jobs through expansion of operations and of electricity supply. formal and on-the-job skills development. 6. Catalyst for change in South Africa: Working as a role model 3. Impact on local communities: Employment and education of local for responsible business in South Africa through adherence people, provision of infrastructure and low impact relocations. to standards, regulations and government policies; upholding accountability, transparency and responsibility in daily business operations. 26 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued 1. Economic growth engine On-going impact Economic Development on Gross Domestic stimulus through of new industries Promoting Product (GDP) new-build projects in South Africa shared growth Direct GDP impact through Capital expansion programme Money strategically spent Support for principles of the local portion of the to 2018 amounts to R340bn, to nurture sustainable New Growth Path. Sur- capital investments, primary is one of South Africa’s development of new in- passed B-BBEE target for energy, wages and other largest economic stimuli. dustries in South Africa. the first time in 2011. Active Opex as a % of South This includes two of the Eskom contracted, on role beyond South African Africa’s 2010 GDP. Eskom is world’s largest dry cooled, average, 60% local content borders in particular in the the largest coal and logistics coalfired power plants. for the mega new-build SADC region. buyer in South Africa. project spend during their construction. O Direct GDP impact O O 80% O 52% of expenditures R47bn capital of about 3% of contracted local on B-BBEE-compliant investment in 2011 South Africa’s GDP content in 2011 companies in 2011 O – A green dot indicates that the type of impact is largely positive. 27 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Ongoing GDP contribution R53.6bn on goods and services needed to produce electricity. Eskom’s impact on South Africa’s economy is extensive. Eskom’s According to estimates by an independent economic consultancy economic value added to the South African economy at group (Quantec Research (Pty) Ltd), approximately 3% of South Africa’s level reached R42.1bn in the 2011 financial year. This figure refers GDP in 2010/2011 could be traced back to the ripple effects of to the fraction of revenues that remains after deducting all the Eskom’s direct spend and impact on its suppliers. Further details on primary energy and other operating expenses and represents the this study, are available online1. value created exclusively by Eskom’s provision of electricity in the South African economy. Eskom’s suppliers, in turn, purchase goods and services from their suppliers who remunerate their employees and pay taxes. This In 2010, Eskom contributed approximately 1.3% of total South is referred to as Eskom’s indirect impact on the economy. Finally, African GDP through its core activities – the generation, transmission when the employees of Eskom and its suppliers re-spend their and distribution of electricity. However, Eskom (through the salaries and wages in the economy, further economic activity is provision of electricity) also supports a range of other industries generated, and this is known as the induced impact of Eskom. In that supply it with goods and services ranging from coal, metals, total, approximately 7.4% of South Africa’s GDP can be traced back engineering and construction services, petroleum and financial to the direct, indirect and induced impacts of Eskom – this can be and business services. During 2010/2011, Eskom spent more than thought of as the organisation’s total economic footprint. Figure 7: Eskom impact on output, 2010/11 (Rm) 400 000 370 189 110 960 350 000 300 000 250 000 259 229 235 696 72 661 200 000 159 593 29 677 163 035 150 000 133 643 129 916 37 449 100 000 92 058 92 058 75 416 96 194 67 535 42 297 29 677 50 000 + 37 858 = + 33 119 = + = 0 Initial First round Direct Indirect Direct and Induced Economy- indirect wide Operational Capital formation Source: Quantec Research (Pty) Ltd Economic stimulus through new-build projects returning three mothballed power stations to service, and Eskom is well positioned to support the continuing requirement investing in improvements to the transmission grid. All together, for new capacity in new power stations and power lines, which the total capital expansion programme until completion in 2018 will constitute further economic stimulus for many years to come. is estimated at R340bn, excluding capitalised interest as depicted Eskom is currently building two of the world’s largest dry- in the following graph. cooled, coal-fired power plants and a pumped storage scheme, 1 www.eskomfactor.co.za/GDPstudy. 28 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Figure 8: Eskom capital expansion programme main components R (bn) 350 Base load stations make up the major share 116 340 of new-build GDP impact 300 250 21 224 200 99 150 100 104 50 0 Kusile Medupi1 Ingula Baseload Other capital Total capital power plants expansion expansion projects programme Source: Eskom, IMF World Economic Outlook 2010, BCG analysis. In the form of the Integrated Resource Plan, government is One key lever to reach these objectives is to ensure the use planning further capacity required beyond the current Eskom of local South African content and foster the growth of new build programme. Through its experience with the current build industries in South Africa that will remain economically viable programme, Eskom is well positioned to support the expansion after the completion of Eskom’s investment programmes. plan, continuing to contribute to South Africa’s GDP. Through the three mega new-build projects (Medupi, Kusile and Development of new industries in South Africa Ingula), Eskom has already awarded a total contract value of over As a producer of many of the world’s minerals, South Africa is R65bn to local South African suppliers; and in the 2011 financial well positioned to encourage beneficiation and, with that, added year, Eskom achieved 80% of local content in new-build projects. value for the economy. By making additional electricity available These figures do not include the additional local spending beyond through the generation capacity expansion programme, Eskom is these contracts or Eskom’s internal costs. ensuring that new industries wanting to establish in South Africa are able to receive the necessary power. Perhaps more impor tant A relevant example of the impact of the localisation policies is than the size of the impact on the South African economy is the Hitachi Power South Africa, one of Eskom’s local suppliers. After way in which Eskom’s investments support social development in being awarded the contract for the manufacturing of boilers South Africa. Through its policies, Eskom wants to ensure that its for two of the new power stations, Hitachi Power Africa built investments create both sustainable jobs within South Africa and permanent boiler manufacturing facilities in South Africa, which lasting value for the country’s economy. 29 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued will continue to provide jobs far beyond the scope of the contract. Pfisterer is another case where localisation has been a demonstrated success. A more detailed description of these case studies is found below. Case study: The Hitachi contract sparked significant debate in recent years. In 2007, Eskom awarded the contracts for boiler works at the Medupi and Kusile power stations to Hitachi Power Africa. The overall contract volume amounts to R38.5bn. Hitachi Power Africa is jointly held by Hitachi Power Europe, Makotulo Investments & Services and Chancellor House Holdings. It is the latter shareholder, the investment arm of the ANC, which has given rise to speculation about whether Eskom is funnelling state money to the ANC. A report prepared by Deloitte & Touche (which is on public record) found the tender evaluation to have followed due In addition, Hitachi Power Africa has committed to investing process and the subsequent award of the contracts to be fair. more than R1bn in a localisation investment programme, as well As with all parts of Eskom’s investment programme, it has as to training 1 400 artisans and 60 engineers. Heating is a large also been the aim to use this large contract as a means to drive requirement for many South African industries and commercial sustainable and shared economic growth within South Africa. buildings. Boilers and the skills to build them will continue to Consequently, the contract includes the commitment over have a local market as the economy expands. the life of the contract to a 60% share of local content. Case study: Over the past few years, Eskom has awarded contracts worth more than R550m to Pfisterer, a company that specialises in the manufacturing of transmission and distribution equipment. As a result of being awarded these contracts, Pfisterer moved the global manufacturing of its 275 kV insulators and hardware from Germany and Switzerland to Pietermaritzburg in South Africa. Since the start of these contracts in 2008, the company’s operations have grown into a world-class export-oriented B-BBEE-compliant company named Speedcraft Manufacturing. business employing more than 500 people. This makes Pfisterer Later, Eskom assisted Pfisterer in establishing this as a black- the third-largest employer in Pietermaritzburg.The company has women-owned (BWO) entity. invested close to R40m in its development in South Africa. While the company’s presence in South Africa and the jobs that Pfisterer is not only a large employer but also one that shows it creates were sparked by Eskom’s contracts, its current export- a clear commitment to the shared growth ambitions of our focused strategy has created a sustainable company operating country. With the assistance of Eskom, Pfisterer established a independently of future Eskom contracts. 30 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Promoting shared growth with the new standard and to focus its sourcing activities on At the core of Eskom’s procurement practices is support of the B-BBEE-compliant suppliers. It is Eskom’s goal to allocate at least shared growth principles of the new National Growth Path (NGP) 50% of their expenditures to B-BBEE-compliant suppliers. During and the broad empowerment of South Africans. the 2011 financial year, Eskom surpassed this target for the first time, allocating 52.4% of its expenditures to B-BBEE-compliant Since the introduction of the B-BBEE Codes of Good Practice suppliers. on 9 February 2007, Eskom has been working to comply Localisation and Eskom’s purchasing policies As a company owned by the people of South Africa, Eskom feels Eskom has developed a localisation scorecard to rate potential a special responsibility to act in the interest of the people. This suppliers, which consists of the following elements: is why they are supporting the government’s New Growth Path ƒ Local content (value added in South Africa) (NGP). ƒ Large black supplier (LBS) Only tenders from suppliers who achieve a certain localisation ƒ Black women-owned (BWO) score on this scorecard are evaluated in the first place, and in ƒ Small black enterprise (SBE) their tender evaluation, localisation criteria account for 20% of ƒ Skills development the tender evaluation points, with the other 80% being given for ƒ Job creation. price and quality. 31 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued 2. Employer, job creator and skills developer Contribution South Africa’s Employer and to job Potential job largest training job creator diversification losses ground Providing numerous jobs New-build programme According to a recent Extensive training pro- both internally and at allows for the creation of macro-economic study an gramme for Eskom suppliers. By applying family jobs on manufacturing, estimated 16 000 jobs could employees. Eskom suppliers multiplier, more than construction, business potentially be lost due to required to train their 516 000 people sustained services, amongst other price increases. Inclined workers, leaving behind an by Eskom. industries. Block Tariff is designed to up-skilled workforce. protect low income/low energy users. O O O O Around 298 000 More than 129 000 16 000 potential job Over 60 000 jobs in employee training days people employed losses out of 18.5m non-mining, related achieved, equivalent to in Eskom cloud within employed due to industries’ suppliers seven days training South Africa forecast price increases per employee O – A green dot indicates that the type of impact is largely positive. O – A red dot indicates that the type of impact is largely negative. Employer and job creator Beyond primary energy, Eskom spends more than R25bn on With unemployment rates in South Africa reaching 24% of the other products and services used in daily operations, ranging from economically active population in December 2010, job creation power plant maintenance to business services. In particular, the and skills development are among our country’s most important construction industry, as well as manufacturers of machines and challenges. Within the Eskom Group, direct jobs are provided to other industrial equipment profit from Eskom’s orders. close to 41 800 people. This makes Eskom one of South Africa’s top 20 employers. Moreover, by investing in power generation facilities and infrastructure improvements, Eskom is helping to create jobs However, as the impact on the economy reaches far beyond with these contractors. These jobs are created mainly at the Eskom’s own premises, the same is true of Eskom’s impact on construction sites for Medupi, Kusile and Ingula power stations and employment. For its operations, Eskom purchases more than half of involve positions of various skill levels, from untrained labourers to South Africa’s annual coal production. As a labour-intensive industry, engineers and architects. thousands of jobs are sustained, attributable to Eskom activities. Eskom is indirectly responsible for an estimated 32 000 jobs at coal mining companies such as Anglo American, Exxaro and BHP Billiton. 32 Eskom Holdings Limited The Eskom Factor 2011 33 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued In total, more than 129 000 people in South Africa are employed South Africa’s eighth largest, somewhere between the sizes of (formally) within the Eskom cloud. Eskom’s suppliers will, in turn, Benoni and Tembisa. also demand goods and services from other suppliers, creating jobs in these entities and stimulating economic growth through A study conducted by Pan-African Investment & Research Services increased personal disposable income. However, this is not under points to a negative impact on the entire macro economy in terms of decreasing GDP, investment and overall job creation due to the Eskom’s control and is therefore not included in these estimates of price hikes which have been approved (25.5% on average over employment. three-year period followed by 6% over seven-year period). Under the dynamic TSME model (within the Pan-African investment study) If we assume on average that every person employed in the Eskom in particular, the 2010 – 2013 price increases are estimated to cloud supports three other family members, it is fair to say that result in 1.1 per cent negative impact on GDP and a reduction of approximately 16 000 jobs in the overall economy, based on 2009 Eskom supports the lives of over 516 000 people in South Africa. employment figures. If this extended “Eskom family” were a city, such a city would be Figure 9: Size of population sustained by Eskom compared to major South African cities Johannesburg and Soweto 3 722 Cape Town 3 433 Durban 3 120 Pretoria 1 619 Port Elizabeth 968 Pietermaritzburg 751 Benoni 605 Eskom 544 Tembisa 512 East London 479 Vereeniging 475 Bloemfontein 463 Boksburg 445 Welkom 432 Newcastle 405 Krugersdorp 379 Botshabelo 310 Brakpan 305 Witbank 262 Richards Bay 253 Vanderbijlpark 247 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 Population (k) 34 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Contribution to job diversification While the operations of these support industries have their own In addition to its spending on primary energy, Eskom sources more positive impact on development, they also have a character very than R25bn worth of goods and services from different industries different from mining. They are more regionally distributed and ranging from power plant maintenance to business services during require different skill sets. As a result, a broader set of South its normal operations, included in the light blue areas in the graph Africans from different educational backgrounds and regions can below. In particular the construction industry, cement and steel profit from Eskom’s activities. manufacturers, as well as manufacturers of machines and other industrial equipment, profit from Eskom’s orders. This contributes to a more balanced South African economy: As a result of the diversification in terms of distribution of jobs created, the economy is better protected against cyclical downturns and sudden changes in the prices of a few basic resources. Figure 10: Jobs in supplier base attributable to Eskom in 2011 FTEs (k) 100 2.2 1.1 0.1 92.2 3.6 1.8 0.5 32.6 17.4 10.3 Ongoing social impact 80 in supporting industries 7.1 35.4 21.8 60 59.6 13.6 40 32.3 20 Once in full operation, Kuslie and Medupi will yield approximately 8 000 additional jobs in mining 0 Mining Construction Manufacturing Transport, Business Electricity, Wholesale Total storage and services gas and and retail communication water supply Build Operate Source: Eskom, BCG research, BCG analysis. Note: Number of jobs created during Build phase in industries other than Manufacturers, Construction and Business services is negligible; a “job” is defined as permanent employment (12 months), contract directly to Eskom or one of its suppliers. Figures relate to financial year 2011. Vhathu ndi mbilu ya shango, ya imali a fa. (Tshivenda) People are the heart of a country. If it stops, the country dies. 35 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued South Africa’s largest training ground As part of our Human Resources planning, it is estimated that the Currently, more than 33 000 people are employed through current employment figures for each of our three mega new-build projects capacity expansion programmes. Of course, these employment (Medupi, Kusile and Ingula) will follow the patterns depicted in figures will change as the new power stations reach completion. figure II below. Figure 11: Projected lifetime job creation of new-build projects Note: 2011 FinancialYear data based on real data, rest are projections a “job” is defined as permanent employment (12 months), contract directly to Eskom or one of its suppliers. Source: Eskom. In the peak years of the projects, more than 3 000 people will be internal learners’ pipeline of close to 5 300 trainees and, together employed on-site at Ingula, more than 11 000 at Medupi and more with external training providers, Eskom provided approximately than 11 000 at Kusile. However, these high employment figures 298 000 learning days to their employees (equivalent to seven days during the construction stage are temporary. After the plants are per employee). In developing these training programmes, Eskom completed, only a few hundred people will be employed in plant has invested R998m in training and development throughout the operations and facility maintenance. 2011 financial year, corresponding to 5.7% of labour costs and positioning Eskom in the upper quartile compared to utilities in the Nevertheless, people keep the skills they acquire through formal US and Europe. and on-the-job training while working on Eskom projects. “Jobs go away, but skills stay.” Moreover, a large proportion of the jobs Training and development initiatives go beyond Eskom’s gates, created by Eskom’s new-build projects are for unskilled and semi- as more than 7 000 workers at Eskom’s contractors have been skilled labourers who will receive formal and informal training and trained since the inception of the projects and are thus contributing develop skills that will substantially improve their chances of finding to the productivity of our country. new jobs. This is why Eskom proposes calling the new-build projects South In addition to on-the-job training opportunities, Eskom has a clear Africa’s largest training ground. Eskom is confident that these skills commitment to the training and development of its employees can be brought to use in the near future, as there is a significant through the Eskom Academy of Learning (EAL). The EAL has been number of additional electricity and energy-related investment repositioned as a professional centre of excellence, tasked with projects in the pipeline beyond these current projects. delivering learning in Eskom. In the financial year 2011, there was an 36 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Figure 12: Cumulative number of people trained per project by 2011 Number of individuals trained 2 500 94% 84% 57% 76% 80.3% 2121 2 000 626 1 882 1 800 278 1 110 1 558 1 500 422 1 002 825 1 000 1 182 Case study: 500 670 0 556 665 Capacity development 104 5 18 81 25 Further education & training 0 Medupi Kubile Ingula PDP Plant and equipment (FET) programme One example of Eskom’s capacity development is the Further Cumulative graduates until 2010 Degree of achievement Education & Training college programme. The FET college Graduates 2011 of target programme is one of the flagship initiatives under the administration Currently in training of the Eskom Development Foundation. Through its foundation, Eskom has committed R5m and R4.7m, respectively, over the Note: Figures relate to financial years. Source: Eskom. past two years to equipping electrical and mechanical engineering workshops for selected FET colleges. Besides providing equipment to upgrade workshops, Eskom also engages in renovations necessary Finally, through Eskom’s new contractor academy programme, to create an environment in which successful learning can take place. potential new contractors are being trained in the regions around the new-build projects in technical and business skills. The objective As one of South Africa’s largest employers of people with a technical is to equip them with the necessary skills to successfully negotiate education background, Eskom benefits directly from the eventual contracts and perform the work within the required timeframes up-skilling of our young workforce. But more importantly, the and quality standards, enabling them to grow their businesses students at the supported FET colleges benefit from Eskom’s and to become financially sustainable. To date, 167 small business engagement with their schools. Ultimately, our economy and society owners and contractors have successfully completed the eight- as a whole will reap the benefits of an up-skilled workforce. month programme – and already some of them have developed into contractors to Eskom. 37 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued 3. Impact on local communities Significant Careful Creator of local infrastructure Health and management employment investments Safety of relocations New-build projects provide Negative impact on road Commitment towards “zero Negative impact on local employment opportunities infrastructure mitigated by harm” Eskom value through people due to a need to to locals; with further efforts significant investments in the pursuit of elimination relocate for infrastructure through contractor academy road improvements. of fatalities, peer reviews of development. Relocations programme. Eskom investing in sewage, risk control interventions are managed carefully to telecom and other infra- and sharing learnings. ensure that the standard of structure to the benefit of living of the relocated communities. families is maintained or improved. OAbout 54% of employees O O O40 families in total to be R110m invested in road at new-build sites 67 employee, contractor relocated to new homes repairs in 2011 of R950m originate from the and public fatalities specifically at Kusile and allocated to 2013 local districts Ingula O – A green dot indicates that the type of impact is largely positive. O – A yellow dot indicates that the impact has both positive and negative attributes. O – A red dot indicates that the type of impact is largely negative. 38 Eskom Holdings Limited The Eskom Factor 2011 39 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Creator of local employment In the 2011 financial year, more than 11 500 people employed by At each location where Eskom establishes operations, employment Eskom at the mega new-build projects Medupi, Kusile and Ingula is created. As most of Eskom’s facilities are outside the larger cities, came from the districts around the projects. This corresponds to in many regions Eskom is the largest employer in the district. approximately 54% of the total employment on those projects. As mentioned previously, Eskom is committed to providing As shown in the graph below, the bulk of the local jobs created employment opportunities to the members of local communities. pertain to unskilled and semi-skilled labour. Figure 13: Employment at new-build projects 11 281 6 938 3 258 % of people employed 54% overall local employment Medupi Kusile Ingula Non-total Total employment at site x xxx Skilled Semi-skilled Non-skilled Note: Local employment refers to the jobs in the specific region/district. Figures relate to financial year 2011. Source: Eskom. Significant infrastructure investments Eskom facilities require certain supporting infrastructure to allow for ongoing operation. Therefore, in many of the communities where Eskom maintains a presence, Eskom has invested significant amounts in road, rail, sewage, telecommunication and other infrastructure, contributing strongly to the development of the local infrastructure throughout South Africa, and benefitting the local communities. In fact, given the significant and multi-faceted investments made in local communities, there are examples where Eskom has played a major role in the economic development of whole towns. The cities of eMalahleni and Lephalale are just two examples of cities that have developed from coal mining towns into bustling regional hubs as a result of power stations being built nearby. eMalahleni, Mpumalanga At the same time, Eskom’s operations can result in a negative Population: 500 000 impact on the infrastructure in local communities. Currently 30.5Mt ƒ Huge industrial development followed the economic activity and of coal is transported by road each year, causing considerable infrastructure development caused by the coal mines. damage to the road surface on the transport routes, disruption ƒ Major industrials include Evraz Highveld Steel and Vanadium to local traffic, noise and dust. Limited, Columbus Stainless Steel and Vanadium and Ferro Metals (Pty) Ltd. 40 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Eskom is very aware of the negative impact on roads in local calculated on a conservative basis, is kept as low as possible. For the communities and is committed to addressing this. In the 2011 2011 financial year, the radiation dose to the public was at 0.0043 financial year alone, R110m was invested in road repairs and mSv, more than 50 times lower than the limit of 0.250 mSv set by improvements. Eskom has also committed to invest in road the National Nuclear Regulator and more than 200 times less than infrastructure over the next five years to continue these the international limit of 1.0 mSv. improvements. In the future, Eskom aims to increase the share of coal transported by rail, reducing the amount of coal transported All Eskom’s contractors are expected to follow the same zero- by truck each year from the current tonnage to 6Mt in 2017. tolerance approach to these rules, regardless of any safety protocols they have implemented for themselves. Furthermore, all Health and safety contractors are expected to comply with Eskom’s safety, health, Eskom employees have access to comprehensive occupational environment and quality (SHEQ) policy. health and wellness services. For example, Eskom offers an assistance programme, including consultation on work-life balance, Focusing specifically on the performance of our primary energy counselling on traumatic events and health evaluation. Regarding suppliers, figures released by the Department of Mineral Resources chronic diseases, Eskom has implemented initiatives to combat in January 2011 show that South Africa’s coal mines recorded tuberculosis and HIV/AIDS and has also run a large campaign on 13 fatalities. Historically, coal mining has been a dangerous awareness of HIV status among the staff. While benefiting from activity (not least because of the heavy machinery utilised in coal these services, Eskom employees are also proud to give back, and excavation); however, improvements in mining methods combined the blood donor programme is supported frequently by staff at with rigorous health and safety procedures, standards and worker various Eskom offices. education and training have resulted in significant improvements in this regard. In the area of safety, Eskom has over the past few years reduced the number of employee injuries and fatalities. However, the Most unfortunately, there are also public fatalities which are related dramatic increase in the number of contractors involved in the to Eskom’s products and services. Last year, 43 people lost their large construction programme has brought safety challenges. In lives, 22 of them through electrical contacts and the remainder the 2011 financial year, Eskom experienced six fatalities within the through road accidents, which include Eskom’s vehicles or coal company and 18 within its contractors. This performance remains trucks. severely negative, and Eskom continues its efforts to bring this number down to zero. Careful management of relocations Due to the large-scale nature of our power generation projects To achieve this goal, Eskom has implemented a safety programme and the need to operate a national power grid, it is sometimes covering its operations which is centred on the following initiatives: unavoidable for Eskom to purchase land and to ask local families to relocate from their original homes. Since the start of the new- ƒ Elimination of fatalities build programme, 220 people have been relocated at the Kusile ƒ Peer reviews of risk control interventions conducted at selected and Ingula sites. sites ƒ Sharing of best practices In these cases, Eskom does it’s best to improve the lives of the ƒ Work stoppages to discuss risks and share lessons learned people affected. Eskom offers them new housing above their ƒ Robust action management on repeat incidents. previous standard of living. Nonetheless, people have a strong sense of belonging to the place where they have lived and that it is not For Eskom’s nuclear facility, in the 2011 financial year, no workers always possible to re-create this. This process requires a careful exceeded the annual dose limit of 20mSv. All potential exposures management of relocations to which Eskom is strongly committed. to radiation are kept at minimal levels in line with the internationally For more information on how Eskom managed the relocation of accepted As Low As Reasonably Achievable (ALARA) principle. 22 families, please consult the “relocation management at Ingula” Similarly, the maximum effective radiation dose to the public, case study. 41 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Case study: Relocation management at Ingula The Ingula project is a pumped storage scheme which effectively “stores” excess electricity that is produced during periods of low electricity demand and then releases that electricity during periods of high demand or “peak load”. This balancing effect allows Eskom to store electricity produced by lower-cost power stations that are able to run more or less continuously and to avoid the additional cost of building even Relocating these families against their will was never an option more electricity generation capacity that will only run for a few considered by Eskom. Through consultation and agreement, hours a day. Eskom aimed to minimise the negative impact on their lives, taking the following steps: Simply put, a pumped storage scheme works by pumping water ƒ Additional land was acquired close to their original uphill, usually during the night and then letting the water run community. downhill through a turbine, usually during early morning and ƒ A new and better house was built for each family. late afternoon when electricity demand is the highest. ƒ Infrastructure, such as water and road access, was provided. The Ingula project includes the construction of two dams ƒ The new houses were electrified, including a small solar and two reservoirs which cover a portion of former wetland power station at the top site. with water. At the site of the top dam (in the Free State ƒ Agricultural training was provided to enable them to province), these reservoirs will affect the lives of 16 families transform their farming activities from subsistence farming. who previously used the area as grazing land for their cattle. ƒ It was ensured that all people remained within their original At the site of the bottom dam (in the KwaZulu-Natal province), communities. six families living on subsistence farming will no longer be able Through this inclusive approach, Eskom was able to reach to follow their traditional lifestyle, because grazing their cattle an agreement with all six families at the bottom dam site in near the construction site is too dangerous. KwaZulu-Natal. For the top dam site in the Free State province, Eskom is in the process of reaching final agreement with the 16 families affected and expect that they will start moving into their new homes in 2012. 42 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued 4. Environmental footprint Use of CO2 and climate SOX, NOX and Nuclear and resources change particulates domestic hydro Water and coal most Significant CO2 emissions Implementing filtering Low carbon nuclear pow- prevalent used resources. driven by high-reliance on technologies will bring down er generation second largest Roll out of dry cooling and coal. CO2 emissions per SOX and NOX emissions portion in our generation alternative technologies, kWh to be reduced through responsible for local air mix. expected to bring water more efficient and new pollution significantly. consumption down by technologies. 60bn litres until 2030. O O 230Mt of CO emitted O O 2 1 810kt of SO2 and Around 2.4GW of low 327bn litres of water in 2011 – future 977kt of NOX emitted CO2 emission nuclear consumed reduction of relative in 2011 capacity CO2 emissions O – A green dot indicates that the type of impact is largely positive. O – A red dot indicates that the type of impact is largely negative. Use of resources Our environmental footprint of using coal for electricity generation Eskom’s coal-focused generation mix also requires a significant is multi-faceted. use of water, a scarce and important resource in South Africa. In the 2011 financial year, Eskom used about 1.35 litres of water to By consuming coal for power generation, the resource is depleted. generate each kilowatt-hour of electricity, making Eskom presently Eskom’s coal consumption reached 124.7Mt in the financial year responsible for around 2% of the annual consumption of South 2011, more than half the estimated South African coal production. Africa’s fresh water supply. The most recent Statistical Review of World Energy by BP estimated South Africa’s coal resources and reserves at more than Over the coming years, Eskom will further increase its water usage 30bn tons. Taking into account South Africa’s estimated annual coal efficiency to reduce water consumption. Both coal-fired new-build production of 242Mt, it has been extrapolated that South Africa’s projects, Medupi and Kusile, will use dry-cooling technology, which coal will last for about 150 years. The South African Council for will reduce Eskom’s relative water consumption per unit of Geoscience is shortly due to release an update of South Africa’s electricity produced, by as much as 90% compared to a wet-cooled coal resources, which were last quantified in 1987. Eskom has station. In future years, Eskom also intends to apply a number of developed an optimal portfolio of long-term, medium-term and new innovative water-saving technologies, such as mine water short-term coal supply agreements in order to ensure a sustainable desalination (i.e. using wastewater from mines for cooling instead coal supply. of fresh water), cold lime softening (a filtering technology that uses less water than conventional methods) and other improved water management strategies. 43 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Through these measures, Eskom aims to bring down water The full details of Eskom’s future water plans are currently under consumption per unit of electricity produced from the current development and are in the process of consultation with the 1.35 litres per kWh to 0.99 litres per kWh in 2030, representing government, the regulator and other stakeholders. Eskom actively a reduction of approximately 26%. Should these measures prove seeks to involve the government and other stakeholders in laying effective, instead of requiring 530bn litres of water to generate out a comprehensive plan to minimise Eskom’s water usage, as electricity in 2030, it is projected that 270bn litres will be these activities have wide-ranging implications for other industries required. and agriculture. Figure14: Eskom annual water usage in coal power plants CO2 and climate change During the 2011 financial year, 93% of the electricity Eskom Litres of water per year (bn) produced was generated from coal-based power plants as the 600 1.351kWh 0.88kWh dominant electricity generation technology in the power station +205 -262 fleet. These stations were built to utilise a low-cost and plentiful local 450 resource and to be capable of burning lower-quality coal, leaving better coal for use by industry or as exports. However, using coal to generate electricity results in a significant environmental footprint. In 300 327 the 2011 financial year, Eskom emitted a total of 230Mt of carbon 270 dioxide into the atmosphere, at a rate of 0.96kg of CO2 per kWh of electricity produced. Greenhouse gas emissions from the electricity 150 sector are estimated to be around 45% of South Africa’s emissions as estimated in the national inventory for 2000. When benchmarking 0 Eskom’s carbon footprint against a set of seven leading developed 2011 Demand Improvements 2030 and developing economies, Eskom ranks as the second-highest growth through emitter of CO2. (business-as- efficiency usual scenario) Note: Figures relate to financial years. When looking at the power generation mix of these countries, it Source: Eskom. becomes clear that the level of emissions is driven primarily by the present generation mix and that, as countries come to rely less on coal-fired power generation, their CO2 footprint is reduced significantly. 44 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Figure 15: Generation mix and CO2 intensity of Eskom and peer countries Generation mix 0.97 0.96 0.80 0.88 0.55 0.44 0.41 0.09 kg CO2/kWh (% of generation) 100 2 15 17 15 10 10 17 84 5 1 0 92 19 24 2 2 16 10 28 80 1 79 4 21 69 48 26 60 24 1 49 40 13 3 27 23 20 2 19 3 6 4 3 0 India Eskom China Russia USA Japan EU Brazil Coal Nuclear Gas Fuel, oil and others Hydro and renewers Source: Eskom, IMF, 2010 World Energy Outlook, BCG analysis. Inkqayi ingena ngentlontlo. (Xhosa) All accomplishments have humble beginnings. 45 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Despite the high reliance on coal-fired power generation, Eskom is 1. Adaptation to climate change committed to operating its power stations as efficiently as possible 2. Energy efficiency measures throughout Eskom facilities in order to reduce CO2 intensity. Comparing the performance of 3. Power generation diversification Eskom’s coal fleet, to a peer such as the US, it becomes clear that 4. Innovation Eskom’s average coal power plant’s CO2 emissions per MWh are 5. Investment through carbon markets significantly lower, as shown in the graph below. Moreover, the new 6. Progress through advocacy, partnerships and collaboration. coal-fired power stations, Medupi and Kusile, will emit around 15% less CO2 per MWh than the average for the rest of the coal fleet. It is estimated that relative carbon emissions could be reduced to 0.68kg per kWh by 2030, in which case emissions of CO2 are at least Figure 16: CO2 intensity comparison of coal power plants: Eskom versus US plants 100Mt less than what it would have been, had Eskom continued with current electricity generation technology. This strategy and target requires the support of Eskom’s shareholder, the South African CO2 (kg/kWh) 1.5 government, through the necessary allocation of new capacity -14% -17% to Eskom, allowing it to add nuclear, gas and renewable power 1.13 1.19 generation plants to the Eskom fleet. 1.03 1.0 1.04 Figure 17: Change of annual Eskom CO2 footprint until 20301 1.03 0.90 0.87 Megatons of CO2 per year 400 0.5 0.96 kg CO2/ 0.68 kg CO2/ 1.11 kWh kWh +103 -98 300 0.0 Eskom Kusile Medupi US1 235 230 (without 200 new-builds) 3rd quartile 1 1st quartile Data covers 347 US coal power plants. 100 Source: Eskom, NETL coal plant database, BCG research, BCG analysis. 0 Despite the planned gains in CO2 efficiency within Eskom’s coal fleet, 2011 Demand Improvements 2030 its absolute CO2 footprint will continue to grow in the short term, growth through as new coal-fired power plants come online to meet South Africa’s (business-as- efficiency usual scenario) and low- rapidly increasing electricity demand. Only through the combination carbon growth of CO2 efficiency gains and the introduction of new technologies such 1 Subject to the support from the shareholder and the necessary allocation of as renewables, natural gas, clean coal, underground coal gasification nuclear and renewables to Eskom. (UCG), nuclear and imports, will Eskom be able to bring down total Note: Figures relate to financial years. Source: Eskom, BCG analysis. emissions of CO2. Eskom has an imperative to continue to ensure security of the It is therefore a strategic imperative for Eskom to reduce its carbon electricity supply as the economy grows, while also actively footprint and implement a proactive approach to identify and manage preparing for a carbon-constrained future. Eskom will continue the inevitable impacts of climate change. In the 2011 financial year, to develop and strengthen partnerships with the government, Eskom updated and reviewed its Climate Change Response Strategy business and civil society while ensuring the alignment of Eskom in light of the changing national and international circumstances and policy in terms of climate change and its implementation at all levels to meet its future emission targets. Eskom’s revised Climate Change of the company. Response Strategy includes the following six-point plan: 46 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Environmental management Eskom’s environmental footprint management goes beyond reducing example, ensuring that processes and technologies are in place carbon emissions and mitigating climate change. Eskom devotes to monitor emissions and provide environmental control, significant resources to mitigate its total impact on the environment. water management, waste management and eradication of alien In the 2011 financial year, this added up to R1.4bn spent on, for vegetation. Case study: Eskom-EWT partnership Eskom’s thousands of kilometres of power lines have an impact on the habitats which they pass through, particularly on birdlife. This has resulted in a long-standing partnership with the Endangered Wildlife Trust (EWT) with the objective of mitigating these environmental impacts. By bringing together ornithological, conservation and engineering expertise, the partnership aims to minimise the danger of power lines to We are proud to report that, on average, it takes Eskom’s birdlife and similarly the economic impact of bird interactions Distribution division only little more than a month to follow on Eskom’s infrastructure, in terms of security of supply. up on reported incidents and to put mitigation measures into EWT experts and Eskom employees jointly track bird effect. mortalities along the power lines. Together, they then look into ways to mitigate the negative effects. The most common solution to prevent the collision of birds with power lines is the installation of flight diverters. 47 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued SO2, NOX and particulates year, is stored at the Vaalputs waste disposal site in the Northern Sulphur dioxide and nitrogen oxides (SO2 and NOX) have negative Cape. Used fuel from Koeberg is stored at the power station impacts on human health and on the habitat of animals and plants. in specially designed fuel pools and used-fuel storage casks in They are also precursors to acid rain and atmospheric particulates accordance with the specified regulatory requirements. Provisions (also known as aerosols). Further, nitrogen oxides contribute to are made annually for decommissioning costs. For the 2011 depletion of the ozone layer. Where CO2 is projected to have a financial year, these provisions amounted to R2.2bn for nuclear and negative impact on climate at a global level, SO2 and NOX impair other generation plants and R2.2bn for the management of nuclear the environment at a more local level. fuel assemblies and radioactive waste. Through Eskom’s operations, the utility was responsible for the Supplier assessment emission of 1 810 kt of SO2 and 977 kt of NOX in the 2011 financial Eskom is aware that its suppliers, especially the primary energy year. providers, have significant impacts and we aspire to provide a quantitative assessment of these significant impacts to address Eskom strives to monitor and contain its impact on local air specific stakeholder feedback. The common key issues across all quality, understanding the potentially negative impacts on local supplier sectors include: water and air pollution, climate change communities. Eskom’s air quality strategy was revised in line with (carbon tax, rising greenhouse gas emissions, failure of climate government legislation, detailing how emissions from power change adaptation), waste management and recycling, volatility in stations will be further reduced to ensure compliance with the new energy and commodity prices, HIV/AIDS, health and safety, lack minimum emission standards, and planning has started for retrofits of training and education, skills retention, ethical behaviour and of emission abatement technology at some existing stations. The corporate governance, transformation and B-BBEE. Open Cycle Gas Turbine power plants built five years ago in Mossel Bay and Atlantis, Cape Town were already designed to include low Eskom’s supplier base includes some 16 000 suppliers. In order NOX burners within the power plant. The Kusile power station is to prioritise, we considered the top 60% suppliers (by spend). currently being constructed with flue gas desulphurisation (FGD) These were categorised into the following sectors: business advanced technology, which will reduce its SO2 emissions by services, construction, electricity, gas and water supply, coal supply, approximately 90%. transport, storage and communication, wholesale and retail, and an analysis of the publically available quantitative information on these Nuclear and domestic hydro suppliers was conducted. Data on the following areas was sought: Eskom has about 2.4GW (1 830MW nuclear and 600MW hydro) total CO2 emissions, total NOX emissions, total SOX emissions, total of installed low-carbon electricity generation capacity. In order to water used, and serious environmental incidents reported to the reduce carbon emissions, nuclear electricity generation is likely to regulators in 2010. play a significant role in Eskom’s future capacity expansion in line with the Integrated Resource Plan (IRP) for Electricity 2010. At the Limited information was readily available in the public domain to same time, it is of the utmost importance that all nuclear power quantify these impacts. This report has therefore focused attention plants are operated under world-class safety requirements. In line on providing a qualitative assessment of the environmental impacts with international expectations, Eskom continually improves the of Eskom’s coal mining suppliers as primary energy purchases safety levels at Koeberg by enhancing its processes and nuclear make up over 20% of total spend. The qualitative analysis revealed safety culture, as well as by making physical modifications to the that Eskom’s coal mining suppliers have the following material units. This is done by learning from both internal and international environmental impacts: water availability and quality and land use. operating experience and by following international guidelines from organisations such as the Institute of Nuclear Power Operations In addition to standard terms of contract, Eskom frequently (INPO), the World Association of Nuclear Operators (WANO) specifies additional terms, for example, to ensure a sufficiently and the International Atomic Energy Agency (IAEA). This process high standard of safety, health and environment practices. Eskom’s of continual improvement through modifications to the physical stakeholders have expressed an expectation that Eskom should plant, as well as operating processes and procedures, reduced the utilise its purchasing power to ensure environmental compliance as probability of an accident that results in damage to the nuclear fuel, well (refer to the section on Stakeholder Engagement on page 69). to levels better than that proposed by the IAEA for new nuclear It is pertinent to note that Eskom is committed to protect and power plants. promote a sustainable environment. As such, environmental requirements have been embedded in coal contracts with new Radioactive waste, of which Koeberg produces on average suppliers or when existing supplier contracts are modified. approximately 150 cubic metres of low and intermediate level a 48 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Environmental assessments Eskom has established gate-keepers and criteria to be used in Mine rehabilitation assessing new suppliers. These criteria are included in the contracts Eskom, in terms of managing direct environmental liability for with mining suppliers, and are monitored by Eskom to ensure all aspects associated with land rehabilitation, requires assurance conditions are adhered to. These conditions include all regulatory from the coal mines that rehabilitation plans are in place and that approvals as well as various risks (including environmental) that backlogs for rehabilitation are addressed. may pose an impact to the continuous supply of coal to the power stations. Supplier carbon footprint The majority of the emissions, publically reported by the mining Protection of water resources companies, would have resulted from electricity usage – on which South Africa is a water-stressed country with a legacy of mining and Eskom is already reporting. As such, in the interest of avoiding industry-driven pollution, combined with an aging water treatment double counting, Eskom has not included a figure for supplier and distribution infrastructure. Furthermore, climate change is likely carbon footprints. to add significantly to the stresses on South Africa’s water sources in the future. The majority of Eskom’s coal suppliers are based in water-stressed catchment areas such as the Olifants River Catchment and the Komati Water Catchment. Other catchment areas that may be impacted on by Eskom’s coal suppliers include the Mokolo Catchment and the Vaal Catchment areas. Measures aimed at the efficient and responsible use of potable water are being investigated by certain coal suppliers, and Eskom supports them in these endeavours. These include, amongst others, the reuse of water within the mine and coal beneficiation plants.1 In addition, certain mining houses together with Eskom are investigating increasing the use of treatment plants to supplement the water supply to power stations. In protecting water resources, suppliers are influenced through Eskom’s requirements and are required to have the requisite authorisations for their activities, amongst others, the Integrated Water Use Licence and must demonstrate adherence thereto. 1 Mechanical process to improve the quality of coal prior to use 49 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued 5. Enabler of South African development through electricity provision Advancing Closing the Price and Energy efficiency electrification supply gap competitiveness initiatives Suppor ting the govern- Current new-build pro- A 2011 NUS study of Major nationwide “49m” ment’s objective of gramme, along with invest- 16 countries found South campaign launched recently. advancing electrification – ments in transmission and African electricity price to Substantial efforts to raise could reach universal access distribution will significantly be competitive, ranked the awareness of efficient use of by 2020. Universal access enhance availability and second cheapest in the electricity both for house- could be achieved earlier reliability. world, with Canada first. holds and businesses. with targeted funding. O 4 million homes O6 TWh forecasted energy O Despite recent price O R45m invested on electrified since gap in 2011, managed increase, South Africa 49m energy efficiency beginning electrification through tight operational electricity prices remain campaign in 2011 programme in 1991 controls competitive O – A green dot indicates that the type of impact is largely positive. O – A yellow dot indicates that the impact has both positive and negative attributes. 50 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Advancing electrification South Africa’s GDP growth has been in line with growing electricity The provision of electricity is one of the foundations of modern consumption over the past 18 years, especially as the economy economies, as it empowers the people of South Africa and the relies heavily on energy-intensive industries for growth. Without a enterprises they own or work for to create economic value. This dramatic change in structure, growth in the economy will be driven strong relationship can be demonstrated by the historically close by higher electricity consumption in the years to come. correlation between electricity consumption and GDP. Figure 18: Correlation between South Africa GDP growth and power consumption Load shedding Source: Statistics South Africa; BCG analysis. Moreover, advancing electrification has strong social benefits above in some regions had the positive effect of discouraging crime. and beyond economic growth. As pointed out in the 2008 study In addition, electrification supports improved health outcomes by the World Bank, The Welfare Impact of Rural Electrification: A by enabling refrigeration (from medicines to food) and medical Reassessment of the Costs and Benefits, families in non-electrified technologies. Indoor pollution through displacement of domestic homes in South Africa spend more than one hour a day collecting wood and coal burning can also be avoided through electrification or firewood – with the majority of the burden falling on the women in the deployment of gas. these families. With these multiple effects on people’s living standards and quality Electrification not only allows this time to be put to more productive of life, it is not surprising that electrification is also tied to human use, for example, by using the additional hours of light for educational development. This relationship can also be demonstrated by plotting purposes, as well as supporting better teaching methods through the Human Development Index – a complex measure of a country’s electronic media. It also helps to reduce the domestic burden for development status, taking into account not only economic but also women and thus contributes to closing the gender gap. Furthermore, health and educational indicators – against the electrification rate for electric lighting enhances people’s perception of safety and has a set of developing economies and sub-Saharan countries. 51 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Figure 19: Correlation between electrification and Human Development Index Source: WHOXUNDP – BCG analysis. Given the significant impact that electrification has from both an 2.5 million households in areas served by Eskom with the required economic and a social perspective, Eskom has long been involved funding support from the government. with the programme, supporting the government’s objective of advancing electrification to achieve universal access in South Africa. In the figure below, past electrification undertaken by Eskom is plotted alongside the vision of how to achieve universal access by Eskom has helped to electrify four million homes since the start 2020 – an ambitious but important milestone for Eskom and for of the electrification programme in 1991. By the end of the 2011 South Africa, providing a clear understanding of the historical trend financial year, 83% of South African households already had access associated with the number (and associated cost) of connections to electricity. Eskom’s aim is to connect the remaining approximately from 1994 to 2009: 52 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Figure 20 (a): Number of annual grid connections (Thousand) 350 300 313 308 300 250 285 291 254 256 200 212 209 150 175 171 168 153 100 135 113 50 52 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Figure 20 (b): Cost per connection (R’000) (2010 Rand) 15 12 13.4 12.4 9 8.7 8.6 9.0 8.7 8.1 6 7.0 6.3 5.9 6.1 6.0 5.0 4.5 5.2 3 4.1 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Figure 21: Past and future electrification in South Africa 53 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Case study: Electrification of schools and clinics The improvement of local infrastructure through strong social impact projects such as schools and clinics is a key corporate social investment priority for Eskom. Together with the National Electrification Fund, Eskom finances the electrification of schools and clinics in South Africa. Since 1991, Eskom has brought electricity to more than 11 000 schools and more than 350 clinics throughout the country. Figure 22: More than 11 000 schools electrified since 1991 Close to 400 clinics electrified since 1991 Eastern Cape 2 820 Eastern Cape 132 KwaZulu-Natal 2 751 KwaZulu-Natal 63 Limpopo 2 320 Limpopo 57 North-West 1 197 North-West 43 Mpumalanga 953 Northern Cape 19 Free State 703 Free State 17 Western Cape 314 Western Cape 14 Gauteng 278 Mpumalanga 11 Northern Cape 256 Gauteng 3 Total 11 592 Total 359 0 5000 10000 0 100 200 300 400 Schools electrified 1991 – 2011 Clinics electrified 1991 – 2011 Note: Figures relate to financial years. Source: Eskom, BCG analysis. Eskom played a facilitating role in non-grid electrification whereby, Not only was this a major disruption for the wider public, it also as agreed with the DoE and NERSA, Eskom was to identify areas harmed South Africa’s competitiveness as an investment destination. that were prime for non-grid electrification (solar panels). The A reliable and sufficient supply of electricity is crucial to attract new intention was that this would be a stop gap while these areas awaited fixed investment and provide an environment in which the economic electrification for the area to be grid electrified. Eskom recognises growth of our country can be promoted. non-grid electrification as part of the solution in achieving universal access to electricity in South Africa. Since April 2008, Eskom has not initiated any load shedding in South Africa. This has been achieved through improved demand and supply Unfortunately, the programme collapsed in 2004, as it proved not management, through customers’ efforts to reduce their electricity to be viable. The DoE took over the management of non-grid intensity and contractual demand reductions for major industrial electrification from NERSA and appointed new service providers to customers during peak demand periods. continue with the programme. While Eskom is now able to reliably continue serving the wider Closing the supply gap public, the fact is that some key customers still cannot expand their Since 1994, our economy has grown stronger: GDP has risen by businesses due the limited supply. It is estimated that for the 2011 67% since then. However, over the same period, generation capacity financial year, there was a gap of up to 6 TWh between potential increased by only 14%. From 2005 onwards, this led to a mismatch demand and available supply. This comes at a significant cost for the between supply and demand and a shortfall of energy supply that South African economy as a whole. In the 2008 study “Estimating the eventually led to the load shedding that occurred in 2007 and 2008. 54 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued cost to the economy of electricity outages”, Eskom estimated the demand, combined with the long lead times required to implement average cost of electricity un-served (COEU) for the overall new electricity supply projects, the gap in supply is only projected to economy to be around R23 per kWh. Given the current estimated be closed by 2017. gap in supply as described above, the overall cost to South Africa of the electricity gap amounted to more than R100bn in the 2011 Eskom also bears in mind that its existing fleet is aging, and some financial year. existing stations will need to be de-commissioned in the 2020s, requiring new capacity to replace them. Servicing these needs, plus As a result, Eskom has embarked on building the two new coal-fired any growth in demand for electricity beyond 2017, places South stations, a pumped-storage station, bringing back stations that were Africa on a path of infrastructure expansion, for many years to come. mothballed and upgrading a number of key transmission lines. In all, Eskom acknowledges its obligation to support government in its Eskom will have spent more than R340bn on this additional endeavours to meet the economic development needs of the electricity generation capacity. Given the projected growth in country. Figure 23: Generation capacity additions and energy gap in South Africa Capacity added (MWh) Energy gap (TWh) 3 000 10 9 2 601 8 2 000 6 1 821 6 1 544 4 1 000 3 809 803 722 2 2 1 0 0 0 2011 2012 2013 2014 2015 2016 COEU1 (R bn) 138 207 69 46 23 0 Eskom capacity added Other capacity added 1. Cost of Electricity Unserved Energy gap Note: COEU is R23 / kWh. Figures relate to financial years Sources: Eskom, IRP Although the system as a whole has insufficient capacity, it is demonstrates the performance of Eskom’s coal-fired generating encouraging to note that the existing coal-fired power station units in comparison to other VGB member performance. Eskom’s units are very reliable. This is demonstrated in an international best quartile is generally above the other VGB member best quartile, benchmark study of Eskom’s energy availability against that of a and the Eskom worst quartile is consistently above the VGB member number of its major European counterparts. The study is conducted worst quartile. by VGB1, the Association of Large Boiler Operators. The graph below 1 VGB (Verband der Großkessel-Besitzer e. V) was founded in 1920 as the federation of the owners of large boilers. 55 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Figure 24: Benchmarking EAF all coal sizes 2001 – 2009 120 VGB units (excluding Eskom) (benchmark data available only until 2009) EAV (%) 100 90 80 70 60 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Eskom median Eskom worst quartile Eskom best quartile VGB median VGB worst quartile VGB best quartile Price and competitiveness For much of the past three decades, electricity prices in South Africa sound financial footing is a necessary pre-condition to raising the have been low and declining in real terms as can be seen in the investment required to fund the building of new electrical supply figure below, where electricity price increases have not kept up with capacity projects. Between 2008 and 2011 real electricity prices rose inflation. However, from 2008 the trend in prices took a dramatic by 78% however, despite the significant increases, electricity prices in turn. This increase in electricity prices is the outcome of a policy South Africa are still low by international standards and do not yet to charge cost-reflective tariffs. Demonstrating that Eskom is on a reflect the full economic cost of supplying power. (Deloitte, 2012). 56 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Figure 25: Comparison of increase in electricity prices and CPI inflation (1980 to 2011) Year-on-year change 35 30 25 20 15 10 5 0 -5 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Electricity price increase realised by Eskom (nominal) CPI increase (nominal) Source: Deloitte Analysis, Eskom and Statistics South Africa. In the past, the focus had been on ensuring that electricity prices The historically low electricity prices in South Africa have attracted were kept below the rate of inflation. During the 17 year decline in energy-intensive industries, such as mining and manufacturing. These real electricity prices, consumers came to benefit from some of the energy-intensive industries have become an important cornerstone most inexpensive electricity in the world. of the economy, directly and indirectly providing employment and contributing approximately 23% of South Africa’s GDP. Naturally, these industries will be affected most by rising energy prices. Figure 26: Comparison of South African industries in terms of energy intensity and growth 2006 – 2010 Dynamic Limited impact of industries hit by price hike price hike % GDP Growth per Sector 2006-2010 Slow- growth industries hit by price hike 2005 energy intensity (kWh/R Value added) Share of GDP represented by industry Note: 2006-2010 GDP data in constant 2005 prices: “General category subsumes electricity, gas and water, finance, real estate and business services, and personal services. Source: Eskom, Statistics South Africa, BCG analysis. 57 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued In fact, until 2008 the industrial price of electricity, excluding VAT, was fast-developing countries such as Russia or Indonesia as reported by R0.36 per kWh, significantly less than the equivalent prices in both the International Energy Agency. developed countries such as Japan, the Netherlands or Germany and Figure 27: International comparison of industrial electricity prices 2008 58 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued As depicted in the Integrated Resource Plan (IRP) report published new power plants. Over the longer term, the IRP shifts the South by NERSA, the 2015 cost-reflective average tariff for the current African investment focus towards reducing the environmental power fleet amounts to R0.78 per kWh, with an additional increase footprint through further efficiency increases and moving towards of R0.08 per kWh justified by the investments in and operation of environmentally friendlier technologies. Figure 28: International comparison of industrial electricity prices 2008 Price hike for existing fleet without any new- builds = 0.78 R/KWh 1. Does not include costs of non-Eskom distribution network. Note: Figures relate to financial years. Source: IRP. 59 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Although the cost-reflective tariffs and the resulting price increases Energy efficiency initiatives are necessary to ensure the sufficient funding of current and future Doing more with less, or implementing energy efficiency, is an generation and transmission infrastructure, Eskom acknowledges the important lever for Eskom to use to support two major objectives: negative impact that the price hikes will have on the overall economy. reducing the rate at which demand for electricity increases and reducing Eskom’s negative environmental footprint. Eskom is thus Increases in the electricity price also contribute to increases in working to increase awareness of what processes or appliances use consumer price inflation which is generally countered with higher the most electricity and to assist all customers in reducing wastage interest rates which would also negatively affect consumption, and using electricity more efficiently. To this end, Eskom established production, employment and economic growth. a division to focus specifically on integrated demand management. Leading by example, much emphasis is placed on improving Eskom’s However, several studies, including Deloitte (2008) found that own energy efficiency, in all its operations. Having a presence in most increasing electricity prices (which dampen demand and incentivise towns of the country, the potential cumulative savings are significant. energy-efficiency and demand side management) was a less costly solution to addressing power shortages than load-shedding. The As high users of electricity, industry has been a target for the study found that load-shedding had substantial economic impacts division’s communication activities. Eskom, in association with across most sectors of the economy and continued at 10% of total suppliers belonging to the Mining and Industrial Energy Optimisation power capacity over a year could shave as much as 0.7 percentage group, as well as energy services companies in the mining sector, points off GDP growth. has spent significant time and resources researching and developing technologies and processes that produce the same output but use Equally, in a report on the impact of price increases and rationing less electricity, making these available to enable customers to begin on the South African economy, the HSRC (2008) notes that a lack reducing demand. of electricity was constraining South Africa’s ability to benefit from the international commodity boom and could also exacerbate other Moreover, Eskom is committed to promoting energy efficiency negative influences such as increasing the country’s reliance on measures for residential and commercial customers and to raising substitute energy sources in a time of rising oil prices. awareness through energy efficiency campaigns that help customers to identify opportunities to conserve energy. Ultimately tariffs do need to cover the full cost of electricity supply. As long as electricity tariffs in South Africa remain below cost- reflective levels, consumers of electricity are effectively receiving a This is evidenced in the recently launched 49m media campaign that subsidy either from the taxpayer or from future consumers (if tariffs aims to make all South Africans aware of unnecessary electricity rise in future). The existence of this implicit subsidy not only distorts consumption in their households or places of work, thus helping the efficiency of the electricity market but promotes a transfer of them cut their consumption and their electricity bills. wealth from the taxpayer and future consumer to the current large consumers. The relatively low cost of electricity in the past has encouraged Mitigating the impact on residential customers is another area of usage and led to the assumption that supply is unlimited. The 49m concern for Eskom. Many of the residential customers live close to campaign’s main focus is to remind all South Africans of our power the poverty line and, as electricity costs represent a significant part to change our common attitude towards electricity usage. With of their total monthly expenditures, the price increases may severely a budget of approximately R45m (spent within 2011), the 49m impact their standard of living.Therefore, NERSA has directed Eskom campaign offers concrete tips that help South Africans save energy to introduce a new residential tariff structure, a progressive pricing and cut unnecessary power consumption in order to ensure that scheme which will help to make the price increases as socially there is enough energy for all. Importantly, it is about more than a acceptable as possible. finite number of energy conservation tips – it is about switching all South Africans to a more energy-conscious lifestyle. Knowing that The inclined block tariff (IBT) effective since April 2010 works similarly Eskom does not control consumer behaviour, the 49m campaign to a progressive income tax scheme. As with the income tax, the is also about partnership (doing this together), evidenced by the price of each additional unit of electricity bought increases in line with support given by the government, leading corporations, NGOs and overall consumption. The progressive pricing scheme will also work the media. to protect poorer customers, as they generally use less electricity than the wealthier customers. As depicted in the graph below, the low-consumption residential customers (up to 50 kWh per month) will see their overall monthly cost reduced by approximately 14% between 2010 and 2013, while the high-consumption residential customers (up to 1 200 kWh per month) will see electricity price increases of approximately 50% between 2010 and 2013. 60 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued 6. Catalyst for change in South Africa Innovation Regulation and Independent through Corporate government power Research & Seven pillars governance policies producers Development of B-BBEE Adhering to three Full support of regula- Committed to suppor- Significant R&D invest- Solid compliance with standards of account- tory bodies and active ting the government ment with focus on new B-BBEE policies. Lev- ability, transparency contribution to the re- and the regulator in technologies develop- el 2 contribution on and responsibility in alisation of national creating the required ment and demon- B-BBEE compliance. daily business. and inter-national de- environment for IPPs stration. Annual investment of velopment goals. to operate in. Projected 20.5% p.a. R62m in CSI, mainly growth of research related to education budget over next five and training. years. O O O O O R500m invested Contributing to 5 IPPs More than 300 000 in R&D in 2011 to South Africa’s Engagement in signed power beneficiaries (from improve current leading position IRP, COP, purchase 254 projects) operations and on anti-corruption NCCC etc. agreements supported by investigating future performance (totalling 373MW) Eskom Foundation energy options Note: Figures relate to financial years. Source: Eskom, BCG analysis. O – A green dot indicates that the type of impact is largely positive. O – A red dot indicates that the type of impact is largely negative. 61 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Corporate governance Framework Convention on Climate Change (UNFCCC), including By promoting strong business ethics within the company, these the most recent negotiations in Durban this December. The are transferred to suppliers, customers and employees. Eskom is conference play a major role in the international agreement on a confident that leading by example will set the pathway for others to successor to the Kyoto Protocol. Eskom’s role, along with multiple follow and build confidence in our country. other stakeholders, includes advising the South African government on electricity issues and contributing to official position papers. As a state-owned company, which is ultimately owned by the people The main focus of Eskom’s activities is to provide information that of South Africa, Eskom strives to conduct its affairs in an exemplary will inform a balance of measures whilst supporting the economic manner. In particular, Eskom’s ambition is to set and commit to best- interest of South Africa and to address the issue of adaptation to practice standards with regard to accountability, transparency and climate change impacts and the resultant costs. responsibility: Eskom is also a signatory to the UN Global Compact, an agreement ƒ Accountability: As a company whose sole shareholder is the with the United Nations to foster the strengthening of human rights, government of South Africa, Eskom is held accountable for labour rights and environmental and anti-corruption principles. achieving certain agreed goals. This is termed the shareholder Through this commitment, Eskom reports on its progress on these compact. Included in the compact are defined targets on financial areas on an annual basis. and operational performance, as well as on skills development. Each year, performance is measured against this compact, and Similarly, Eskom has adopted the principles of both the Montreal Eskom must answer for the results achieved. Protocol on Substances that Deplete the Ozone Layer and the Stockholm Convention on Persistent Organic Pollutants and followed up on these ƒ Transparency: Eskom was one of the first companies in South commitments to reduce or eliminate negative impacts. Africa to publish an integrated annual report. This means that, in addition to the financial performance of the company, the report Independent Power Producers (IPPs) includes extensive information on performance with regard to Today, about 95% of the electricity generated in South Africa is environmental issues, customer service and safety matters, for produced by Eskom, but it is the intention of the government and example. The Eskom factor report is another example of Eskom’s the electricity regulator to foster private initiative in the power efforts to increase transparency on its activities and related impacts. sector, in particular through the introduction of independent power producers (IPPs). The extent of the task of developing sufficient electricity supply capacity to meet the ever-increasing demand ƒ Responsibility: Understanding that the service that Eskom requires additional resources beyond that which Eskom can supply provides underpins the daily lives of South Africa’s citizens, Eskom and allows for a measure of competition to enter the historically feels a responsibility to the country beyond the provision of monopolistic industry. electricity. Eskom therefore actively engages at both a national and international level on a wide variety of topics such as social and Eskom is committed to supporting the government and the regulator environmental issues. in creating the required environment for IPPs to operate in. Eskom therefore provides advisory services to IPPs, consulting with them on Regulation and government policies how to establish their business and how to gain access to financing, Policy bodies for example. Eskom signed agreements with five independent power Through active participation in international bodies such as the producers in 2011 to purchase 373MW of additional supply. World Economic Forum (WEF) and the International Chamber of Commerce (ICC), Eskom is helping to shape the response of the Innovation through R&D international business community to address sustainability challenges Eskom continues to invest heavily in research and development such as development and climate change. Eskom is also an active (R&D). Investment in research enables the organisation to more fully participant in the focus areas of the WBCSD, Energy and Climate and understand emerging technologies and their applicability to support Development. The WBCSD Measuring Impact framework formed new investments. the basis for the Eskom factor methodology. By contributing to this and other WBCSD documents, Eskom influences the development The research budget of R500m for the 2011 financial year was spent of a more sustainable way of doing business across the globe. on R&D and demonstration projects to improve operations and secure future energy options. From this year on, Eskom will further In addition to engaging with international business organisations, increase its focus on R&D, with a planned investment of 0.2% of Eskom participates in international climate change negotiations. revenue in R&D. This implies an effective 18% year-on-year growth in Eskom is a contributing member of the South African delegation R&D investments over the next five years. to the Conference of the Parties (COP) of the United Nations 62 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued The breakdown of Eskom’s R&D investments shows that the largest Through these investments, Eskom is one of the major drivers of portion of funds is being invested in research on renewable energy, technological innovation in South Africa. About 20% of all patents improving efficiency of production and the reduction of Eskom’s granted in South Africa are directly or indirectly related to Eskom’s impact on the environment. activities, and there is a strong concentration in South African research on Eskom-related subjects. Over 30% of all South African Eskom is furthermore investing in research on power system research papers published are on topics that can be linked to Eskom. technologies and solutions to improve the availability and reliability of Eskom has produced over 120 patents, with at least 16 currently transmission, as well as distribution grids, and to implement intelligent active patents being utilised by other companies. networks. Figure 29: Composition of Eskom research budget 2011 (Rm) 50 48.3 40 37.0 30 22.0 20 17.1 14.9 13.5 13.9 12.9 10 10.8 9.2 0 Health, safety and human factors Energy policy, economics and statistics Primary energy Energy efficiency Innovation and future technologies Asset management Improving generation performance Research memberships Renewables and the environment Power system technologies Source: Eskom; BCG analysis. As research projects reach higher levels of maturity, it is often commercialisation. Eskom invested more than R306m in such a necessary to construct a demonstration or pilot plant to take demonstration programme in the 2011 financial year. the understanding of the technology to the next level towards Sefate se tsejwa ka ditholwana. (Sesotho) A tree is known by its fruit. 63 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Case study: Eskom’s current key R&D projects Plant monitor – an integrated system that allows for to the power reductions required to maintain the stability of comprehensive monitoring, storage and analysis of equipment the electricity network. (This load reduction option provides operational parameters and conditions for the improved ability residents with a choice (which appliances to use when) and to recognise, assess and counteract any incipient faults within encourages energy efficiency.) the monitored plant. (The focus on generators has resulted in Concentrating solar power – a 100MW central receiver the development of a unique monitoring system that includes demonstration plant with molten salt as the heat transfer and partial discharge, stray flux, electromagnetic interference, shaft energy storage medium. (The plant will be used to demonstrate monitoring and fault diagnostic modules combined into the a renewable technology with a capacity factor greater than 60%, host system.) effective integrated energy storage and network integration as UCG – a clean coal technology that permits coal to be gasified the first step in the development of a solar fleet.) directly within the coal seam to produce a synthetic gas (syngas) 765kV double circuit tower development – a new 765kV that can be used as a fuel for power generation. (Eskom will be double circuit transmission technology for high-power transfer demonstrating the co-firing of the UCG gas with coal in an applications in service-constrained areas. (This technology will existing power station and the use of UCG gas as a fuel for an allow for the transmission of electricity in large quantities along open-cycle gas turbine demonstration plant.) smaller servitudes compared to the technologies currently Utility load manager – a system that can limit the load applied.) available to a residential property on a real-time basis related Case study: R&D at Eskom – Dry cooling technology Dry cooling technology keeps the cooling water in a separate closed circuit which is cooled through heat transfer rather than evaporation. Thus, the amount of water needed to cool the plant is significantly reduced. As a result, the water usage for cooling of a dry-cooled plant is on average more than 90% lower than that of a wet-cooled plant. Given the water scarcity that many parts of our country face, Eskom is investing heavily in world-class dry cooling technology and actively driving research and development in this field. Currently, we are operating both the largest direct dry-cooled and the largest indirect dry-cooled power stations in the world, Matimba and Kendal respectively. Both stations consume about 0.1 litres of water per kWh of electricity produced. In comparison, a traditional wet-cooled plant needs close to 2 litres per kWh. 64 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Seven pillars of B-BBEE Preferential procurement: Through the B-BBEE sourcing initiative Eskom is currently a Level 2 B-BBEE contributor, scoring 93.56 out (see chapter 4.1), Eskom already distributes 52.4% of total of 100.00 points for the 2010 financial year. Eskom is continuously expenditures to B-BBEE-compliant suppliers. working to improve its score and thus lead by example. Eskom has a strong focus on racial classification of its employees and management Enterprise development: In the 2010 financial year, Eskom invested in order to ensure promotion of underrepresented groups. Here is 5.7% of net profit after taxes in enterprise development, exceeding how Eskom has performed: the targets set out in the B-BBEE scorecard. One of the initiatives created to support small black-owned businesses is the annual Ownership: As a state-owned company, Eskom belongs to the Business Opportunities and Franchise Expo. people of South Africa. Eskom is therefore not rated on this dimension of the B-BBEE scorecard. Socio-economic development: Eskom carries out CSI programmes through the Eskom Foundation, a Section 21 (not-for-profit) Management control: Eskom’s black representation at the top company, wholly funded by Eskom. The activities of the foundation management level has increased over the past few years. During the focus on three main areas, namely job creation, skills development 2010 financial year, close to 50% of the Board, executive directors and poverty alleviation. The Eskom Foundation supports social and and top management was black. At the senior management level, economic projects, and it gives grants and donations to community- Eskom had a representation of 25%. based organisations, development agencies and organisations involved in philanthropic work for the development and benefit of Employment equity: Being an equal-opportunity employer is very the disadvantaged. Grants and donations are also made to small and important to Eskom. Currently, over 75% of its employees are black, medium-sized black enterprises. In the 2011 financial year, donations and approximately 20% of the total workforce are black women. and grants made by the Eskom Foundation added up to R62.3m, Eskom aims to further increase the employment opportunities for which corresponds to 0.53% of pre-tax profit. people with disabilities, as they are still underrepresented in the diverse workforce. With an annual corporate social investment of R62.3m, Eskom ranks among the top seven corporate grant makers in South Africa. Some Skills development: As outlined throughout this report, Eskom 300 000 people benefit from Eskom’s CSI programmes, a figure that strongly emphasises the importance of employee development. includes people taking part in programmes that are co-sponsored Eskom is continuing training offers that address the development by Eskom, together with other investors or public institutions. While needs of all employees. a number of projects take place in regions in which Eskom is active with its business operations, others are geographically unrelated to Eskom’s core business. 65 Eskom Holdings Limited The Eskom Factor 2011 The Eskom Factor continued Case study: Health and HIV at Eskom Eskom’s initiatives to address HIV/AIDS date back to the late Furthermore, Eskom is part of various partnerships relating 1980s and have since then been continuously expanded and directly to HIV/AIDS prevention, education, care, research and refined. communication. Among these partnerships is the South African AIDS Vaccine Initiative (SAAVI), which is a presidential lead Eskom cares about their employees and their families. Within programme of the South African Medical Research Council Eskom, prevention and awareness campaigns are run constantly (MRC). and they are working hard to create a discrimination-free environment for HIV-positive colleagues. Eskom has a voluntary Other partners include the South African and the Global counselling and testing (VCT) programme in place. Last year, Business Coalition on HIV/AIDS, the Global Fund to Fight close to 26 000 employees voluntarily tested for HIV – that is AIDS, Tuberculosis and Malaria (an international, multi-donor, 62% of employees who know their status and can accordingly public-private partnership whose purpose is to dramatically act responsibly. Eskom contributes to the costs of VCT; increase available resources to fight three of the world’s most support includes psychological support, access to antiretroviral devastating diseases) and the World Economic Forum (WEF). therapy and access to approved clinicians. The WEF engages leaders in partnerships to shape global, regional and industry agendas. Eskom is one of the committed contributors to the task force of the Global Health Initiative. 66 Eskom Holdings Limited The Eskom Factor 2011 67 Eskom Holdings Limited The Eskom Factor 2011 Chapter V: Conclusion continued Stakeholder “Create a shared understanding of business impacts and societal Engagement needs.” 68 Eskom Holdings Limited The Eskom Factor 2011 Stakeholder Engagement Introduction The Eskom factor is intended to be a thorough assessment of Eskom’s impact during the 2011 financial year on the economy, our society and the environment, not only in a direct sense but also through Eskom’s immediate suppliers and business partners. Ultimately, Eskom wants to change gear to achieve higher performance to further increase its positive impact on South Africa while reducing the negative environmental burden. The WBCSD methodology used to develop this impact assessment encourages stakeholder engagement through open dialogue. This is to create a shared understanding of business impacts and societal needs and to explore what can and cannot be done by Eskom to address these needs. The stakeholder engagement process so far A number of different approaches have been taken to engaging stakeholders in a dialogue. Firstly, it was decided to initiate the conversation only when the draft assessment was made available. This allowed the internal project team to marshal their thinking, given that it was the first time that the WBCSD methodology was being applied by Eskom. It also provided a scope to guide the conversation. More open-ended approaches have also been suggested by several stakeholders and may be pursued more extensively in future. Once Eskom developed the initial impact assessment, a draft report was used as the basis of engagement with a selection of both internal and external stakeholders. Letters were sent directly to stakeholders who were anticipated to have an immediate interest in this report and, where possible, relevant forums were targeted for one-on-one engagements. These and other key stakeholders were also encouraged to comment on the online version of the report, including through answering a questionnaire. 69 Eskom Holdings Limited The Eskom Factor 2011 Stakeholder Engagement continued The one-on-one engagements involved delivering a presentation With respect to the online questionnaire, on the whole there was on the Eskom Factor Heat Map, summarising Eskom’s impacts as a lot of support for Eskom’s messages, especially in the areas of presented on page 87 of this report. An open discussion followed Eskom’s impact on GDP, direct and indirect job creation, the six to understand the stakeholders view on the impacts presented. key messages, electricity being an important driver of regional Eskom has addressed a range of stakeholders in this manner, cooperation and Eskom’s water efficiency programmes. Majority from financing institutions, major suppliers and customers to non- stakeholders also stated that they found the report useful. governmental organisations and employees. However, the questionnaire provided an indication that Eskom Unfortunately certain stakeholder groups could not be reached needs to bolster public awareness, particularly aspects around the despite continuous efforts. However, Eskom remains open to WBCSD Impact Measurement Framework and Eskom’s relocation, receiving constructive comments on this initiative. IPP and B-BBEE processes and achievements. Stakeholders on Eskom’s database were sent an email introducing Several respondents expressed disagreement that consumers were the report and heat map and to encourage participation in the aware of how to reduce their electricity consumption. A general online questionnaire (Annexure 2). Eskom also used the standing consensus is that Eskom, with the assistance of the government, forums, of which it is a member, to introduce the report and request should invest in educating South African communities on how they stakeholder inputs online. At the regional levels, the platform of can reduce the use of electricity. regional engagements with stakeholders was used to introduce the report and also encourage online participation. Furthermore, some disagreement was expressed with respect to the adequacy of Eskom’s carbon reduction aspirations and research Stakeholder feedback investment. Many respondents also stated that as a state-owned All relevant comments resulting from the above engagements, company, the government should bridge Eskom’s funding gap rather including the results of the questionnaire, were analysed and than approving tariff increases. grouped into common issues. These issues, as well as the feedback received from the one-on-one engagements, are summarised in the stakeholder feedback table below: Figure 30: Summary of stakeholder engagement comments and responses Stakeholder group Impact area Stakeholder feedback Eskom’s response Section reference Economic Financing Constraint on Eskom’s impact on Information on the impacts of undersupply Economic growth institutions and economy economic growth has been included in the final report. engine customers constraints resulting from current lack of electrical supply capacity Financing Exports Eskom’s supply to SADC The intention with this first assessment Economic growth institutions regions report was to include the impact in respect engine of South African activities, with a view to expand the scope of the assessment in future years. However, some further information has been included in the final report. 70 Eskom Holdings Limited The Eskom Factor 2011 Stakeholder Engagement continued Stakeholder group Impact area Stakeholder feedback Eskom’s response Section reference Environmental Financing Supplier impacts No analysis of the Eskom is aware that some suppliers Environmental institutions and negative environmental have significant (positive and negative) footprint NGOs and social impacts of environmental and social impacts. In an suppliers attempt to quantify those impacts, it has become evident that there is a lack of relevant publically available data; or the data is reported at a group level from which it is not possible to disaggregate those impacts attributable to operations undertaken to provide goods and services to Eskom. The report provides a qualitative assessment of these impacts. Improving the robustness of this aspect of the methodology in future will require in- depth engagements with suppliers. Financing Waste No mention of Eskom’s Eskom has provided additional information Environmental institutions waste measurement and on waste in the final report. footprint management programmes NGOs Climate change How the relative carbon As detailed in the final report, the potential Environmental reduction is to be reduction in relative CO2 has been derived footprint achieved on the basis of future scenarios including an increase in the share of nuclear and renewables in Eskom’s generating mix (subject to allocations under the IRP), as well as further investigating clean coal technologies and accelerating efforts in energy efficiency. Employees Energy efficiency Eskom’s internal energy Further information on Eskom’s internal Environmental efficiency programme energy efficiency programme is detailed footprint in the final report as well as Eskom’s 2011 annual integrated report. 71 Eskom Holdings Limited The Eskom Factor 2011 Stakeholder Engagement continued Stakeholder group Impact area Stakeholder feedback Eskom’s response Section reference Social Customers and Public safety Eskom’s role in Further information on Eskom’s awareness- Catalyst for change employees encouraging public safety raising programmes is detailed in the final and discouraging illegal report. connections Customers and Energy efficiency Eskom’s education Further information on Eskom’s awareness- Environmental NGOs and awareness-raising raising programmes is detailed in the final footprint programmes for energy report. efficient practices by consumers Employees Skills Eskom’s role in bridging Further information on Eskom’s skills Employer, development the skills gap in South programmes, including partnerships with job creator Africa universities and schools, is provided in the final report. This first version of the Eskom factor report is just the beginning of will be dependent on the feedback received from stakeholders. the journey. A process to review the benefits of the factor report Eskom therefore encourages and welcomes stakeholders’ views on to stakeholders and to Eskom is to be undertaken. Future iterations the current assessment of Eskom’s footprint and the areas of impact. 72 Eskom Holdings Limited The Eskom Factor 2011 73 Eskom Holdings Limited The Eskom Factor 2011 “Eskom is fully committed to Conclusion continuing its support for the government’s five-year priorities.” Conclusion Beyond increasing transparency on Eskom’s footprint, Eskom’s ultimate objective lies in further increasing its positive impacts while actively reducing the negative ones. Eskom is therefore defining initiatives to address these objectives as part of the company’s overall organisational strategy. Eskom recently defined eight strategic objectives, in coordination with the electricity regulator and shareholder, through which Eskom is addressing the findings of the Eskom factor project into our operational imperatives. These strategic objectives will allow Eskom to improve its footprint in several areas and to address the following five key areas in particular: ƒ Availability and reliability of supply ƒ Efficient use of electricity ƒ Environmental footprint ƒ Electrification ƒ Health and safety. Moreover, Eskom is fully committed to support the government’s five-year priorities of improving education, promoting healthcare, creating decent work, fighting crime and corruption and fostering rural development and land reform. To further delve into the detail of Eskom’s impact on South Africa and to enable a further improvement of its positive footprint in South Africa, Eskom seeks to actively engage with its stakeholders to capture their opinion on, and listen to their views about, Eskom’s future strategy. Since 2010, Eskom has embarked on a journey to review its strategic direction, achieve strategic shifts in performance and actively support the further growth of South Africa while mitigating any negative impacts on the environment. Based on Eskom’s mandate as defined in the shareholder compact, Eskom’s vision, values and strategic imperatives were thoroughly revised to reflect the current national and global realities. The review resulted in the following eight strategic objectives that outline Eskom’s strategic direction and will guide Eskom in terms of current and foreseeable challenges. 75 Eskom Holdings Limited The Eskom Factor 2011 Conclusion continued Eskom’s eight strategic objectives 1 Becoming a high performance 2 Leading and partnering to keep organisation the lights on Reducing our carbon footprint Securing our future resource 3 and pursuing low-carbon 4 requirements, mandate and the growth opportunities required enabling environment 5 Ensuring our financial 6 Setting ourselves up for success sustainability 7 Implementing coal haulage and 8 Pursuing private sector the road to rail migration plan participation While the stated objectives will allow Eskom to improve its ƒ Environmental footprint: Eskom acknowledges its current economic, social and environmental footprint in several areas, the impact on the environment and is committed to implementing following sources of impact are seen as the key areas of future programmes which will reduce its relative environmental improvement of Eskom’s footprint: footprint per kWh of electricity generated. ƒ Availability and reliability of supply: Eskom has been able to ƒ Electrification: Eskom is determined to further drive access eliminate load-shedding since 2008. However, this was only to electricity for all citizens by carrying out government policy possible through the contractual commitment of some of our on electrification and providing the necessary infrastructure. largest customers to limit their electricity consumption during It is Eskom’s aim to support the target to achieve universal peak times and through the operation of expensive peaking access. This will be achieved through the use of grid and off- power plants. Eskom is working hard to continue stable supply grid technologies, and Eskom will encourage the participation of while increasing the total available volume of electricity to close other service providers. the current supply gap of 6 TWh, through tight operational controls and support further economic growth in South Africa. ƒ Health and safety: With Eskom’s “zero harm” policy, the aim is to reduce the number of fatalities occurring as a result of either its ƒ Efficient use of electricity: While working towards increasing operations or its product to zero by continuing safety trainings total electricity supply capacity in the coming years, Eskom is and reducing the exposure of employees to potentially harmful in the interim also working with residential, commercial and situations. industrial customers to reduce the unnecessary use of electricity. This ultimately assists customers to address the effects of rising electricity prices. 76 Eskom Holdings Limited The Eskom Factor 2011 Conclusion continued 1 2 3 4 5 6 7 8 Furthermore, Eskom is fully committed to continuing its support for the government’s five-year priorities. 77 Eskom Holdings Limited The Eskom Factor 2011 Annexure 1 Using the four-step methodology to understand the impact of the Medupi power plant more fully Throughout the development of the Eskom factor methodology, it province assessed, but also the project’s footprint in South Africa has been tested against one of the new-build projects, the Medupi as a whole. power station. In assessing the impact of the Medupi project, four steps of the Eskom Factor methodology were followed, i.e. (1) Another aspect of the assessment is the development context setting the boundaries, (2) measuring the impact, (3) developing against which Medupi’s impact is measured. Lephalale faces two key understanding and (4) planning for action. issues, namely poverty and low levels of education. The assessment of the project’s impact focused on the direct development issues 1. Setting the boundaries of the region, taking into account not only the activities related The aim of the three new-build projects, of which Medupi is one, to the construction of the power plant but including building is to increase electricity generation capacities to guarantee a stable supporting infrastructure and operating the plant for its lifetime and sufficient electricity supply for South Africa in the future. Medupi after its construction. will be the world’s fourth-largest coal-fired power plant, with an installed maximum capacity of 4 764MW. Currently, the largest 2. Measuring the impact power station in South Africa is Kendal with a maximum capacity Following the procedure of filtering all relevant sources of impact of 4 116MW. into separate indicators, over 100 key performance indicators (KPIs) for the Medupi case were identified and measured, excluding Due to the size of this project, Medupi is having an enormous the indicators that are relevant for Eskom as a whole, but of less impact on South Africa. For this reason, not only was Medupi’s significance when looking only at the Medupi project.These KPIs form local impact on the Lephalale city and the surrounding Limpopo the basis of this assessment of the Medupi project and its impact. Figure 31: Eskom Factor Heat Map for Medupi Eskom Factor Heat Map Key points Source: Eskom, WBCSD, GCG anaylis. 78 Eskom Holdings Limited The Eskom Factor 2011 Annexure 1 continued The key findings of the assessment are summarised in a Heat Map establish in South Africa – businesses that will continue to structured similarly to that of Eskom but which is very specific to produce and employ long after completion of the construction the Medupi project in its underlying data. project as they service similar needs in the economy. Overall, the Medupi Heat Map results are very similar to those of 2. Medupi also has very noticeable local impacts, both positive Eskom as a whole: Medupi has a strong positive contribution to and negative. On the one hand, the project makes a positive GDP during the construction phase but will release environmentally contribution by allowing more than 5 000 people from Lephalale harmful emissions during operation. However, on balance Medupi and the surrounding area to secure employment and more than will address one of the major challenges that the country faces 2 000 of them to substantially expand their skills through training. by contributing to a stable and sufficient supply of electricity for On the other hand, the negative impacts on local communities decades to come. are the increased pressure on local facilities through the large influx of workers, the induced shortage of housing and the 3. Developing understanding resultant increase in prices of accommodation. To develop an understanding of the full Medupi impact, it is necessary to relate the project’s footprint to the actual issues to be 3. Once commissioned and online, Medupi will provide much- addressed. This entails identifying the most relevant impacts, given needed electricity supply capacity in South Africa to support the development context, as well as intensive engagement with the existing fleet of stations in meeting the growing demand stakeholders. for electricity. As a long lead project, taking many years to plan, design and construct, there is no viable alternative for supply, All of the project’s impacts are summarised and quantified through other than building Medupi. measurement of the most important indicators to combine them into the following key messages about what Medupi means to 4. Running Medupi will have a negative contribution to CO2 Lephalale, Limpopo and South Africa: emissions and therefore climate change, with around 32Mt of CO2 likely to be emitted per year. This means that Eskom will 1. As with Eskom’s other power stations, Medupi is an economic raise the country’s overall emissions by around 7%, a figure growth engine. Throughout the construction phase, the project that already includes the positive impact from using efficient will contribute almost half a per cent to the GDP of South Africa technologies in the plant design to reduce emissions. for each of the eight years of construction when considering direct, indirect and induced economic impacts. The marked While several of Medupi’s positive impacts arise during economic impact is made possible through focused localisation construction, some of these will not continue in the operational efforts, having realised a localisation rate of 64% through this phase. Construction workers in particular are at risk of being effort. Instead of importing the parts and equipment required, demobilised, or having to move away from the community in order Eskom assisted new businesses and even whole industries to to find further employment, unless further developments take place in the area. Akukho qili linokuzikhoth’ emhlana. (Xhosa) Nobody can do everything by themselves. 79 Eskom Holdings Limited The Eskom Factor 2011 Annexure 1 continued Figure 32: Summary of the Medupi “deep dive” 4. Planning for action Likewise, to counter the temporary nature of construction work, The ultimate objective of the Eskom factor footprint assessment Eskom is aiming to equip workers with skills they can leverage for is to contribute to decision-making. Although large CO2 emissions future employment. from Medupi cannot be avoided, given the nature of the power plant, Eskom has implemented a variety of other responsive To further improve Eskom’s footprint assessment of Medupi, its measures to reduce this impact. areas of impacts and the direction of impact, Eskom is progressing an extensive stakeholder engagement process to enable Eskom One of these measures, the introduction of Super Critical Steam to take decisions that prolong the positive impacts, mitigate the conditions, allows Eskom to use coal more efficiently than before. negative ones and identify further actions that can be taken to Another example is the commissioning of air-cooled condensers improve Eskom’s overall footprint. instead of traditional wet cooling, which will decrease the amount of water needed for cooling by 90%. 80 Eskom Holdings Limited The Eskom Factor 2011 Annexure 2 On-line Questionnaire Analysis It is disappointing that over the two month consultation period, only 33 responses were received. Respondents were asked 27 questions and given the option to agree, disagree, respond that they didn’t know or to skip the question.The questions highlighted a selection of key messages from the text including Eskom’s calculated impact on GDP; aspects around employment practices; safety and environmental impacts; tariffs and corporate governance. The below table provides an analysis of the feedback received. Don’t Don’t No Questions Agree agree know answer Eskom has estimated that its direct economic impact on the South African economy is about 3% of the total South African GDP. Do you believe that Eskom substantially contributes to South Africa’s GDP? 91% 0% 9% 0% Eskom provides direct and indirect employment to over 129 000 people, and, when considering family members, sustains over 516 000 South Africans. Do you agree with this statement? 85% 3% 12% 0% Eskom and the contracting companies on its new build sites employ most of their workers from the local communities. Do you agree that this is a fair recruitment practice? 67% 6% 18% 9% Eskom is transparent and accurate in its disclosure of its carbon footprint, and is committed to improving the efficiency of its current and future power plants. Do you agree with this statement? 73% 6% 18% 3% Energy-intensive industries are likely to cut back on production as a result of future price increases set by the National Energy Regulator of South Africa, and this could result in an estimated loss of around 16 000 jobs. Do you agree that electricity price increases should be countered with efficiency programmes to minimise these job losses? 85% 0% 12% 3% Eskom is committed to good corporate governance, anti-corruption practices, addressing health and safety issues, and the development of new and better technologies. It is also a committed corporate citizen. Do you agree with this description of Eskom? 67% 12% 12% 9% The findings of the Eskom Factor report is that Eskom plays six key influencing roles in South Africa: as an economic growth engine; as an employer, job creator, and skills developer; through its impact on local communities; through its environmental footprint; as an enabler of development through electricity provision; and as a catalyst for change in South Africa. Do you agree that these areas have been identified correctly? Please click disagree if there are other areas you feel should be included. 91% 3% 6% 0% We have identified four challenges in South Africa where Eskom can make a difference: electrification; provision of a reliable source of electricity; unemployment; and, climate change. Do you agree that these have been correctly identified? Please click disagree if there are other areas you feel should be included. 79% 15% 0% 6% Eskom adopted the WBCSD framework to give a precise account of Eskom’s footprint in South Africa. Do you agree that this framework is able to give the best account of Eskom’s footprint? 55% 9% 33% 3% Eskom’s full indirect and induced benefits by applying the South African GDP multiplier to Eskom’s direct impact is an influence of close to 8% of the GDP. Do you believe that Eskom has a substantial impact on South Africa’s GDP? 94% 0% 3% 3% Eskom has an important role to play in the provision of electricity to countries in the SADC region, as well as the importing of electricity generated outside of our borders. Do you agree that electricity is an important driver of regional co-operation? 85% 0% 6% 6% Eskom estimates that it is indirectly responsible for an estimated 32 000 jobs at coal mining companies. Do you agree that it is reasonable for Eskom to claim responsibility for this indirect job creation due to its procurement levels? 76% 12% 9% 3% In producing this draft Eskom Factor report the negative impacts of the industries that rely on Eskom for orders have not yet been included. Do you agree that this is an important gap that should be addressed in final or future reports? 76% 3% 18% 3% Formal and informal training have been provided to the unskilled and semi-skilled labourers at Eskom’s new-build projects. Do you agree that this will improve their chances of finding new jobs after the completion of the three new power plants? 76% 9% 12% 3% 81 Eskom Holdings Limited The Eskom Factor 2011 Annexure 2 continued Don’t Don’t No Questions Agree agree know answer Do you agree that Eskom does its best to mitigate the impact for people affected by relocation and that Eskom conducts the process in a sensitive manner? 61% 9% 27% 3% Eskom currently uses about 1.35 litres of water to generate each kilo-watt hour of electricity and is responsible for around 2% of the annual consumption of South African fresh water supply. The use of dry-cooling technology at Medupi and Kusile will reduce per kilo-watt hour consumption at these power stations by as much as 90%. Do you agree that Eskom is actively improving its water efficiency? 82% 3% 9% 6% Eskom has set the target of reducing its relative carbon emissions by about 30% (from 0.98 to 0.68kg per CO2kWh) by 2030. Do you agree that this is an sufficient target given that total emissions will still increase in the short to medium term? 52% 27% 15% 6% Do you agree that electricity underpins GDP growth, especially in the South African economy? 85% 0% 12% 3% Do you agree that electricity tariffs should be cost reflective and Eskom, not the South African government, should fund its current and future generation? 76% 15% 3% 6% Do you agree that South Africans are aware of their electricity consumption and how they can reduce their electricity bills? 48% 39% 6% 6% Eskom signed agreements with five independent power producers in 2011 to purchase 373MW of additional supply. Do you agree that this is a good indication that Eskom is supporting the introduction of Independent Power Producers? 52% 14% 21% 14% Eskom takes public safety seriously. It currently includes public fatalities and accidents related to its operations when calculating Eskom’s footprint. Do you agree that public incidents should be factored in the overall measurement of Eskom’s footprint? 79% 9% 3% 9% Eskom invested (R500 million) or 0.005% of its total revenue in research and development during the current year. It plans to increase this to reach an investment of 0.2% in the future. Do you agree that this is an adequate improvement in investment? 55% 18% 18% 9% Eskom is a level-2 B-BBEE contributor. Do you agree that Eskom has made great strides in transformation to support the principles of B-BBEE? 58% 15% 24% 3% A key objective of the Eskom Factor report is to determine Eskom’s economic, social and environmental footprint in a transparent manner. Do you agree that the Eskom Factor document is an accurate and transparent reflection of Eskom’s impact in South Africa? 67% 9% 18% 6% Did you find the information in the Eskom Factor useful? 82% 18% 0% 0% Thank you for participating. Your input is appreciated. Please indicate if we can follow-up with you to discuss your input and/or invite you to participate in further reviews of the Eskom Factor. 73% 24% 0% 3% While the majority of the feedback is in agreement with the content due to a lack of information or real disagreement. This has been in the Eskom factor, it is also important to understand those areas unpacked in the section on Stakeholder Engagement. where there were lower levels of agreement and whether this is 82 Eskom Holdings Limited The Eskom Factor 2011 Glossary B-BBEE: Broad-Based Black Economic Empowerment; an Energy Programmes to reduce energy used by specific empowerment initiative launched by the South efficiency: end-use devices and systems, typically without African government; successor of the narrower affecting the services provided Black Economic Empowerment initiative; EWT: The Endangered Wildlife Trust is a trust dedicated contains seven pillars which determine the level to conserving wildlife and endangered species in of contribution of a company towards B-BBEE southern Africa in order to preserve the fauna of standards Africa BWO: Black-women-owned enterprises; part of the Factor: The multiplier effect of an impact obtained B-BBEE initiative through business activities Cloud: This includes all activities within the Eskom group FET: Further Education & Training programme and the communities within which Eskom operates FTE: Full time equivalent employment (including its suppliers and customers) FGD: Flue-gas desulphurisation is a process to remove CO2 intensity: Refers to the amount of carbon dioxide per unit sulphur dioxide from flue gases resulting from produced; this indicator can vary depending on burning coal by using a chemical process to wash the electricity generation mix out the molecules CO2: Carbon dioxide, a greenhouse gas produced GDP: Gross domestic product; this indicator is a through the burning of coal and other fossil fuels measure of the value of all goods and services COP 17: The 17th Conference of the Parties of the United produced within a country during a year. It serves Nations Framework Convention on Climate as an indicator for the wellbeing of a nation, Change. The Conference of Parties is held on an whereby it is usually used in GDP per capita in annual basis and at which current problems and order to express the value per person, making it a solutions for climate change are discussed by all comparable measure participating members Generation An expression of the technology and primary CSI: Corporate social investment; these investments mix: fuel used to produce electricity of a country or focus on establishing and developing the social electricity provider infrastructure of South Africa and thus on Generation: The generating unit of Eskom, responsible for contributing to the wellbeing and advancement of electricity production in power stations communities throughout South Africa Heat Map: A two-dimensional, graphical representation of Distribution: The Distribution unit covers the final part in data where two indicators are plotted against Eskom’s energy supply chain; the local transmission each other in order to assess their joint impact, of electricity from the smaller sub-stations to the visibility and comprehension end customer IAEA: International Atomic Energy Agency; an Dry cooling: Dry cooling technology keeps the cooling water in international agency dedicated to monitoring a separate closed circuit which is cooled through and recording peaceful nuclear activities of heat transfer rather than evaporation. Thus, the participating members amount of water needed to cool the plant is significantly reduced. As a result, the water usage IBT: Inclining block tariffs; a pricing structure recently for cooling of a dry-cooled plant is approximately introduced into Eskom’s electricity pricing scheme, 90% lower than that of a wet-cooled plant whereby the level of the tariff depends on the amount of electricity consumed Economic Economic value directly created by a company value added: in an economy, corresponding to the portion of revenues that remain after deducting all operating expenses 83 Eskom Holdings Limited The Eskom Factor 2011 Glossary continued IPP: Any entity not owned by the government that Pumped- A pumped-storage scheme consists of a lower owns or operates, in whole or in part, one or storage: and an upper reservoir with a power station/ more independent power production facilities pumping plant between the two. During off-peak IRP: Integrated Resource Plan for Electricity, is the periods, the pump use electricity to pump water long-term electricity capacity plan which defines from the lower to the upper reservoir. During the need for new generation and transmission peak demand, water is allowed to run back into capacity for South Africa the lower reservoir through the turbines thereby generating electricity KPI: Key performance indicator; evaluates success of a company regarding a specific key figure and SADC: Southern African Development Community; indicator SADC countries include Angola, Botswana, the Republic of the Congo, Lesotho, Malawi, Mauritius, kWh/MWh/ Kilowatt, megawatt, and terawatt hours are Mozambique, Namibia, Zambia, Zimbabwe, South TWh: measures for quantifying units of electricity Africa, the Seychelles and Swaziland production or consumption; the measure of electricity, watt, is multiplied with time in order to SO2: Sulphur dioxide, an air pollutant produced as a get a quantifiable measure for the use of electricity by-product of the burning of coal and other fossil over time; usually used to calculate the cost of fuels electricity since the measure of time is necessary Stakeholder: Person, group, party and/or organisation who has to get the amount of total electricity used an effect on, or is affected by, an organisation Load shedding: To avoid total blackouts in the supply area, a Super Steam obtained from steam generators that scheduled and controlled set of power cuts, Critical operate above the critical point of water, having rotating available electricity supply capacity Steam: no distinct separation between gas and liquid between all customers when demand is greater Transmission: Eskom’s Transmission unit is responsible for the than supply high-voltage power grid, which sources electricity Mt: Mega tons; one million tons directly from the generating power plants to the MW: Megawatt; one million watts larger sub-stations New-build Medupi, Kusile and Ingula, commonly referred UNFCCC: United Nations Framework Convention on programmes: to as the “new-builds” since these power plants Climate Change; the international climate change are the newest of their kind and are still under treaty created at the climate change summit in Rio construction de Janeiro 1992 NERSA: National Energy Regulator of South Africa WBCSD: World Business Council for Sustainable Development; an organisation created by NGO: Non-governmental organisation corporations that focuses primarily on the issue NGP: New Growth Path; a government programme of sustainability and sustainable development to support the development and growth of the of corporations and tries to bring sustainability South African economy, whereby R464.8m will closer to corporations by emphasising not only be spent to create new jobs; the main goal is to environmental and social sustainability but also the reduce unemployment from 25% to 10% economic sustainability of measures NOX: Nitrogen oxide, an air pollutant produced as a WEF: World Economic Forum; a forum that is held by-product of the burning of coal and other fossil on an annual basis in Davos, Switzerland, and is fuels a meeting place for policy makers and business Primary Energy embodied in natural resources (e.g. coal, leaders to discuss a range of emerging topics energy: crude oil, sunlight, wind and uranium) 84 Eskom Holdings Limited The Eskom Factor 2011 References Disclaimer Overview of external studies used for the analyses in the Eskom This report is based on the Measuring Impact Framework Factor report: developed by the WBCSD which has been applied to Eskom’s 1. BP, BP Statistical Review of World Energy, 2010 specific context. 2. Deloitte, 2012. The Economic Impact of Electricity Price Increases The analyses and statements of fact published in this report are on Various Sectors of the South African Economy – A consolidated based on Eskom’s external and internal data sources. The public view based on the findings of existing research. Johannesburg sources used are believed to be reliable, but no guarantee is made 3. Department of Mineral Resources, Minerals Statistical Tables, that such information is accurate or complete. A significant share of 2008 internal data used for this report is also reflected in Eskom’s annual 4. Deutsche Securities, 2010. Eskom – The “shocking” truth. report for the 2011 financial year. In this case, the data has been 5. Frost & Sullivan, 2011. IRP 2010: A Frost and Sullivan Impact officially audited and approved by an external, certified auditor. All Analysis other Eskom-internal information has been validated by its Internal Assurance and Forensic department but has not been audited by 6. HSRC, 2008. The Impact of Electricity Price Increases and an independent source. Rationing on the South African Economy 7. IEA, Energy Prices and Taxes – Quarterly Statistics Q4, 2010 All estimates and opinions included in this report constitute our 8. IEA, World Energy Outlook, 2010 judgements as of the date of this report. However, no guarantees for correctness and/or completeness can be given, and Eskom does 9. National Energy Technology Laboratory, Coal Power Plant not accept any liability for possible damages resulting from usage of Database, 2007 the data in this report. 10. OECD, Promoting SMEs for Development, 2004 11. Pan-African Investment and Research Services, The Impact of All information in this report is intellectual property of Eskom and/ Electricity Price Increases and Eskom’s Six-Year Capital Investment or third parties and may only be re-published after express written Programme on the South African Economy, 2011 permission. 12. PB Power, Estimates the cost to the economy of electricity outages, September 2008 13. Quantec (Pty) Ltd, 2011. Eskom economic footprint 2010/11 14. Statistics South Africa, Communities Survey, 2007 15. Statistics South Africa, Labour Force Survey, 2010 16. Transparency International, Corruption Perceptions Index, 2010 17. Vedavalli, R, 1989. Domestic Energy Pricing Policies. World Bank 18. World Bank, The Welfare Impact of Rural Electrification, 2008 19. World Business Council for Sustainable Development, Measuring Impact Framework, 2008 20. World Business Council for Sustainable Development, Vision 2050, 2010 21. World Health Organisation, The Energy Access Situation in Developing Countries, 2009 85 Eskom Holdings Limited The Eskom Factor 2011 Contact information Telephone Eskom head office: +27 11 800 8111 Eskom Group Communications: +27 11 800 2323 Websites and email addresses Eskom Factor email: factor@eskom.co.za Eskom website: www.eskom.co.za Company registration number: 2002/015527/06 Confidential fax line: +27 11 507 6358 Physical address: Eskom Megawatt Park 2 Maxwell Drive Sunninghill Sandton 2157 Postal address: Eskom Eskom Holdings Secretariat PO Box 1091 Bongiwe Mbomvu (Company secretary) Johannesburg PO Box 1091 2000 Johannesburg 2000 86 Eskom Holdings Limited The Eskom Factor 2011 Figure 33: Overview of key indicator values included in the Eskom Factor i Deloitte calculations based on Statistics South Africa estimates for GDP generated by the electricity and gas industry. ii Quantec publishes a South African Social Accounting Matrix (SAM) on an annual basis. The 2010 SAM was published during November 2011. This SAM was used to explain the footprint of Eskom’s economic activity in South Africa after modification with Eskom specific financial and employment data. 87 Eskom Holdings Limited The Eskom Factor 2011