Shift performance, Interim Integrated Report grow ...integratedreport.eskom.co.za/Eskom_interim... · 30 20 10 0 25 20 15 10 5 0 Particulate emissions, kg/MWhSO Mar 12 Mar 13 Sep

Shift performance, grow sustainably

20

Interim Integrated Report30 September 2014

1Interim Integrated Report 30 September 2014

Contents

01

02

03

08

04

05

06

07

Performance at a glance 2

About this report 5

About Eskom 7Nature of business and customer base 7Eskom’s mandate, purpose and values 7Interaction between strategic objectives and sustainability dimensions 8Legal and operating structure 10Business model 12Corporate governance 15

Performance against shareholder compact 17

Business overview 21Changes in Eskom’s risk profile 21Safety 22Sustainable asset creation 22Financial sustainability 23Operational sustainability 25Other sustainability dimensions 27Outlook 27

Performance against strategic priorities 29Safety 29Sustainable asset creation 31Financial sustainability 36Operational sustainability 46Environmental sustainability 57Building a sustainable skills base 60Transformation and social sustainability 61Building a solid reputation 65

Group interim financial results 67

Appendices IBCContact details IBCAbbreviations, acronyms and glossary IBC

Navigation icons

Top: Employees who do live-line maintenance need to wear personal protective equipmentBottom: The wall of the Braamhoek Dam at the Ingula Pumped-storage Scheme near Ladysmith, KwaZulu-Natal

Becoming a high-performance organisation

Leading and partnering to keep the lights on

Reducing Eskom’s environmental footprint and pursuing low-carbon growth

Securing future resource requirements

Implementing coal haulage and the road-to-rail migration plan

Pursuing private-sector participation

Transformation

Ensuring Eskom’s financial sustainability

Eskom Holdings SOC Ltd

The navigation icons above are used throughout the report to link performance and key performance indicators to strategic objectives

Throughout this report, unless otherwise indicated, performance against target is indicated as follows: Actual performance met or better than the half-year target Actual performance almost achieved the half-year target Actual performance did not meet the half-year target

Eskom Holdings SOC Ltd2 3Interim Integrated Report 30 September 2014

Reducing environmental footprintSafety remains the foundation of Eskom’s operations

Performance at a glance01

More than 1 000MW of renewable IPP generation capacity connected and providing power to the grid

Projected year end sales volumes

1.1% YoY

Government support package announced, with equity cash injection

of at least R20bn

No operating condition or urgency of service can justify endangering the life of a person, including the public, or causing injury or harm to the environment

Eskom remains committed to reducing emissions to minimise the effect of its operations on the environment, and to comply with regulated emission standards

NERSA approved additional revenue of

R7.8bn for 2015/16 financial year

Six month YoY profit down to

R9.3bn

Projected year end profit of

R0.5bn

Use of OCGTs and IPPs to ensure security of supply

Arrear municipal debt deteriorated

to R4bn

Medupi Unit 6 on track for first synchronisation

All 46 wind turbines installed at

Sere Wind Farm

Power system will remain constrained until more units from the capacity expansion programme come online

Debt profile

Mar 12

R b

illio

n

Mar 13 Sep 13 Mar 14 Sep 14

Debt securities and borrowings

300

250

200

150

100

50

0

40

30

20

10

0

Financial sustainability and liquidity under severe pressure

Load shedding over three evening peak events during winter

Majuba coal silo collapse resulted in supply disruptions; load shedding implemented on Sunday 2 November

Safety overview

Mar 12 Mar 13 Sep 13 Mar 14 Sep 14

Contractors Public LTIR Employees

60

50

40

30

20

10

0

Fata

litie

s, n

umbe

r

0.4

0.3

0.2

0.1

0

0.32

Energy availability


PCLF (%) Energy availability (%) UCLF (%)

100

80

60

40

20

0

15

12

9

6

3

0

SAIDI (hours) SAIFI (events)

System average interruption indices


50

40

30

20

10

0

25

20

15

10

5

0

Particulate emissions, kg/MWhSO


0.4

0.3

0.2

0.1

0

Actual Target

Load shedding only implemented as a last resort to prevent a longer, more damaging shut down of the entire system

Free funds from operations

0.35

13.3020.5

8.96

No major system incidents

Eskom Holdings SOC Limited4 5Interim Integrated Report 30 September 2014

This interim integrated report provides an overview of Eskom’s overall performance for the period from 1 April to 30 September 2014. This report should be read in conjunction with the integrated report for the year ended 31 March 2014, as not all the issues raised in that report have necessarily been addressed in this report

About this report

Structure of this reportWhereas the integrated report for the year ended 31 March 2014 addressed performance in terms of Eskom’s eight strategic objectives (shown on the inside front cover) as set out in its Corporate Plan, this report is structured around seven sustainability dimensions, with safety forming the foundation of Eskom's operations. More information on the seven sustainability dimensions is provided on page 9 to 10.

The report is structured as follows:About Eskom offers an overview of Eskom’s primary business and customer base, its business model, as well as its legal and operating structure. The section outlines Eskom’s purpose, values, strategic objectives and sustainability dimensions. It also covers changes to the composition of the Board of Directors and the Executive Management Committee (Exco).

The shareholder compact sets out Eskom’s performance against key performance areas and indicators as agreed with the shareholder, represented by the Minister of Public Enterprises.

The business overview serves as an executive summary, setting out changes to Eskom’s risk profile, performance during the reporting period, as well as the future outlook.

Performance against strategic priorities covers Eskom’s performance in terms of safety and the seven sustainability dimensions. To maintain continuity with the integrated report for the year ended 31 March 2014, performance is linked to the eight strategic objectives through the use of icons (refer to the inside front cover).

Group interim financial results contain an extract from the condensed group interim financial statements for the six months ended 30 September 2014. The condensed group interim financial statements, with the independent auditor’s review opinion, are available at www.eskom.co.za/IR2014/interim.

Appendices include Eskom’s contact details as well as links to a list of abbreviations, acronyms and a glossary of terms.

Although references to supplemental information are provided throughout this report, the following reports for the year ended 31 March 2014 (unless otherwise stated) can be found at www.eskom.co.za/IR2014/• Eskom’s integrated report• Eskom’s annual financial statements• Eskom’s supplementary and divisional report, which supplies detailed performance information

from a divisional perspective• The Eskom Development Foundation report, detailing Eskom’s corporate social investment

activities for the previous financial year• The Eskom Factor report, produced in 2011, which presents Eskom’s broader impact on, and

contribution to, society. The report is in the process of being reviewed and updated

02

Each of Sere’s wind turbines stands 115m tall, and is capable of producing 2.3MW of power


Eskom is South Africa’s primary electricity supplier and is wholly owned by the South African Government, through its shareholder representative, the Department of Public Enterprises (DPE). Eskom generates about 95% of the electricity used in South Africa, and about 40% of the electricity used on the African continent

About Eskom

Nature of business and customer baseEskom generates, transmits and distributes electricity to industrial, mining, commercial, agricultural and residential customers in South Africa and to redistributors (metro and municipalities), who in turn distribute electricity to businesses and households within their areas. Eskom supplies 40% of its electricity to redistributors, 40% to key customers (covering the mining and industrial sectors) and the balance to other customers – agricultural, commercial and residential. Eskom also purchases electricity from independent power producers (IPPs) in terms of various schemes, as well as from electricity generating facilities beyond the country’s borders.

Eskom is building new power stations and high-voltage power lines to meet South Africa’s energy demand. This capacity expansion programme is expected to be completed by 2020/21. To ensure that Eskom is able to meet demand and create the space for crucial infrastructure maintenance while new generating capacity is being built, it operates a range of demand side management and energy efficiency programmes.

Eskom’s mandate, purpose and valuesEskom’s annual Corporate Plan outlines the company's strategic and operational direction and captures the necessary financial, operational and resource plans to support this direction. The Corporate Plan, therefore, becomes an engagement document for discussions with Eskom’s stakeholders. The latest approved plan spans the four years from 1 April 2014 to 31 March 2018; the focus thereof is Eskom’s planned response to its rapidly changing environment.

MandateEskom’s mandate, as outlined by the Government, is to provide sustainable electricity to grow the economy and improve the quality of life of people in South Africa and the region. In practice, this requires balancing supply and demand under tight system constraints, which calls for a concerted effort to manage competing priorities in an appropriate manner, such as the need to do maintenance, managing financial constraints and ensuring sustainability of the business in the longer term. Eskom cannot achieve this on its own and relies on partnerships with all stakeholders and various demand side management interventions.

Eskom is also tasked with supporting the Government’s developmental objectives, as outlined in the New Growth Path, the National Development Plan and other developmental policy documents.

As a first step towards compliance with the Use of Official Languages Act (which is not yet in effect), Eskom will make available a short synopsis of its results in two additional languages – isiZulu and Sesotho – on its website, www.eskom.co.za/IR2014/interim.

PurposeEskom’s purpose is to provide sustainable electricity solutions to support economic growth and to improve the quality of life of people in South Africa and in the region.

03

Eskom has a transformation programme in place, with skills development programmes to train engineers, technicians and artisans


ValuesEskom works within a culture that strives to embody the following values:• Zero Harm: Eskom strives to ensure that zero harm befalls its employees, contractors, the

public and the natural environment• Integrity: Eskom pursues honesty of purpose, conduct and actions, as well as respect for

people• Innovation: Eskom encourages value-adding creativity and being results oriented. It aims to

lead through excellence in innovation• Sinobuntu: Eskom is caring• Customer Satisfaction: Eskom is committed to meeting or even exceeding the needs of its

customers• Excellence: Eskom aims to be recognised for its exceptional standards, performance and

professionalism

Interaction between strategic objectives and sustainability dimensionsStrategic objectivesEskom aligned itself around eight strategic objectives, which provided direction to deliver on Eskom’s purpose, vision and values. The strategic objectives were confirmed annually as part of the process of developing the Corporate Plan.

Our purpose To provide sustainable electricity solutions to grow the economy and improve the

quality of life of people in South Africa and the region

Transformation

ZIISCE: Zero Harm, Integrity, Innovation, Sinobuntu, Customer Satisfaction, Excellence

Foundation: Long-term nation-building – Electricity for all – Triple bottom line

Ensuring Eskom’s financial sustainability

Becoming a high-performance organisation

Pursuing private-sector participation

Implementing coal haulage and the road- to-rail migration plan

Securing future resource requirements

Reducing Eskom’s environmental footprint and pursuing low-carbon growth

Leading and partnering to keep the lights on

Accomplish Eskom’s purpose

Execute strategic

pillars

Get the foundation right, build capacity

Sustainability dimensionsBased on the challenges Eskom faces, it has developed a response plan to ensure that it remains sustainable along seven distinct dimensions, namely:

Eskom mandate

Building a solid reputation

Transformation and social sustainability

Building a sust

aina

ble

skill

s ba

se

Financial sustainability

Operational sustainability

Su

stai

nabl

e as

set creation

• Sustainable asset creation prioritises the capacity expansion programme and generation sustainability, environmental compliance, transmission strengthening, customer connections, as well as asset maintenance and replacement projects

• Financial sustainability includes the need to sustain Eskom’s investment grade credit rating (with Sovereign uplift), exploration of different funding alternatives, the implementation of the Business Productivity Programme (BPP), striving for a tariff that is reflective of the cost of supplying electricity through the regulatory mechanisms, liquidity management and revenue and debtor management

• Operational sustainability is concerned with security of supply as well as balancing supply and demand of electricity. It is enabled by the Generation sustainability strategy, as well as environmental and regulatory compliance in the regulated business to maintain the licence to operate, together with a focus on improving the customer experience while reducing costs

• Environmental sustainability, which is oriented towards environmental compliance, in terms of air quality, land, water, waste and ash management, is critical to Eskom maintaining its licence to operate. It incorporates the activities necessary to ensure that Eskom’s generation fleet meets new environmental requirements

About Eskom continued

Environmental sustainability

Safety Safety

Safety Safety


• Building a sustainable skills base focuses on creating a productive workforce and driving a culture of performance, and includes building a strong learner pipeline

• Transformation and social sustainability supports economic development and supplier transformation. This dimension also covers people transformation and managing Eskom’s corporate social investment initiatives

• Building a solid reputation aims to safeguard and improve Eskom’s reputation

Safety continues to be the foundation of all Eskom’s operations.

The areas of sustainable asset creation, financial sustainability and operational sustainability are considered to be of strategic importance in the short to medium term, while the remaining four dimensions are important in the medium to long term. This report will, therefore, focus on safety, sustainable asset creation, financial sustainability and operational sustainability.

The seven sustainability dimensions, and safety, are linked to the eight strategic objectives as follows:

Sustainability dimensions

Strategic objectives

Safety

Sustainable asset creation

Financial sustainability

Operational sustainability

Environmental sustainability

Building a sustainable skills base

Transformation and social sustainability

Building a solid reputation

Legal and operating structureLegal structureEskom’s head office is based in Johannesburg, although it has operations across South Africa. It also maintains a small office in London, primarily for quality control of equipment being manufactured for the capacity expansion programme.

The Eskom group consists of the Eskom business and a number of subsidiaries, including the following:

Eskom Enterprises SOC Ltd groupThrough the Rotek and Roshcon entities, Eskom Enterprises provides lifecycle support, plant maintenance, network protection and support for the capacity expansion programme for Eskom’s line divisions. It has a subsidiary which operates an electricity operating and maintenance concession in Uganda. Another subsidiary of Eskom Enterprises, Eskom Energie Manantali s.a

(EEM), operated an operating and maintenance concession with Société de Gestion de l’Energie de Manantali (SOGEM) in Mali, Mauritania and Senegal. As reported at 31 March 2014, exit options were being pursued and as a result, EEM was classified as a discontinued operation in Eskom’s March 2014 financial statements.

Subsequent to year end, agreement was reached between EEM and SOGEM for the sale of assets and mutual discharge from the operating and maintenance concession. The documents pertaining to the exit have been signed and EEM has received the net proceeds on the sale. All formalities required by law for the winding up of EEM have been initiated and the winding up is continuing normally, with minimal issues to address.

With effect from 1 July 2014, Eskom Enterprises has sold and transferred its operating assets to Eskom, with a small balance remaining to be transfered during the 2014/15 financial year. As a result, it will become an investment holding company.

Eskom Finance Company SOC Ltd (EFC)EFC was established in 1990, primarily to enable Eskom’s employees to have access to home loan finance, while optimising home ownership costs for both Eskom and its employees. Eskom is in the process of finding an appropriate disposal solution for this subsidiary at the request of the shareholder. As the requirements of International Financial Reporting Standards (IFRS) have not been met, EFC has not been classified as a discontinued operation in Eskom’s financial statements.

Escap SOC LtdEskom’s wholly-owned insurance captive company manages and insures the business risk of Eskom and its subsidiaries, excluding nuclear and aviation liabilities.

Eskom Development Foundation NPCThe Foundation is a wholly-owned non-profit company that manages Eskom’s corporate social investment in support of Eskom’s “Transformation” objective.


The Sere Wind Farm covers an area of 16km2 and will contribute 100MW to the grid, once in full commercial operation

Eskom Holdings SOC Ltd12 13 14Interim Integrated Report 30 September 2014

Interim Integrated Report 30 September 2014

Inte

grat

ed R

esou

rce

Pla

n 20

10

ZIIS

CE

: Zer

o H

arm

, Int

egrit

y, In

nova

tion,

Sin

obun

tu, C

usto

mer

Sat

isfa

ctio

n, E

xcel

lenc

eRevenue of R81.9 billionPrimary energy cost of R38.1 billionOpex of R28.5 billionLiquid assets of R22.6 billionFree funds from operationsR16.9 billionCredit rating of BBB– (Standard & Poor’s)

OCGT costR3.6 billion

46 370 group employeesTraining spend as % of gross employee benefits: 6.31%Disability equity in total work force 2.75%Racial equity in senior management 60.98%Racial equity in middle management 71.47%Gender equity in senior management 30.16%Gender equity in middle management 35.11%

R178 million spent onResearch and developmentIntegrated demand managementPower station technologyClean coal technology

6.57Mt coal transported by rail

Imports 4 903GWh

IDM49M campaign

Energy efficiency

Coal burnt61.4Mt

Gross maintenance costs ofR14.1 billion across

Eskom company year-to-date

Internal

External

LearnersEngineers 1 817 learnersTechnicians 808 learnersArtisans 2 000 learnersLearner throughput 175 learners

Generated 116 275GWh

IPP purchases 2 665GWh

Local sales 103 494GWh

Demand savings 32MW

International sales 5 626GWh

Transmission energy losses 2.3%

Distribution energy losses 6.7%

Policies, procedures and system

s

Leadership and governance

Technology

Shareholder mandate

Economic and social climateLaw

s, regulations and policies

Relative particulate emissions 0.33kg/MWh

sent out

Approaching 5.4 million customers

Lines 161.8kmSubstations 90MVA

Installed year-to-date:

R199.5 billion funding plan: 33% secured for the capacityexpansion programme

Specific water consumption 1.40ℓ/KWh

sent out

Local sourcing in procurement(new build) 56.88%B-BBEE spend 90.50%Black women-owned (BWO) spend 6.72%Black youth-owned (BYO) spend 0.75%Electrification 57 534 houses year-to-dateCSI committed R84.6 million

Operating structureEskom’s operating structure, depicted below, comprises line functions that operate the business, service functions that service the operations and strategic functions that develop the enterprise.

Chief ExecutiveTshediso Matona

Group CapitalDan Marokane

Group Technology and CommercialMatshela Koko (Acting)

DistributionAyanda Noah

FinanceTsholofelo Molefe

GenerationMongezi Ntsokolo

Human ResourcesElsie Pule (Acting)

SustainabilityDr Steve Lennon

Transmission and Group Customer ServicesThava Govender

Business modelThe International Integrated Reporting Council’s Framework, issued in December 2013, describes a company’s business model as its “system of transforming inputs, through its business activities, into outputs and outcomes that aims to fulfil the organisation’s strategic purposes and create value over the short, medium and long term”. This system is affected by internal and external factors, which together make up the company’s operating environment. Refer to the fold-out page alongside for Eskom’s business model, indicating the key performance indicators for the period under review.

The electricity supply industry (ESI) in South Africa consists of generation, transmission and distribution, as well as the importing and exporting of electricity. Eskom is a key player in the industry, as it operates most of South Africa's base-load and peaking capacity. Eskom sells electricity to a variety of customers, including to redistributors (metro and municipalities), who distribute power to end-users directly, under licence.

Independent power producers (IPPs) were invited to participate in a renewable energy programme run by the Department of Energy (DoE). Successful bidders have been contracted to supply energy into the national grid owned by Eskom. All grid planning is done by Eskom, and lines are constructed under specific licensing criteria and conform to a national grid code which is overseen and regulated by NERSA, South Africa’s energy regulator.


Eskom Holdings SOC Ltd16 17 18Interim Integrated Report 30 September 2014

Interim Integrated Report 30 September 2014

Each year, in accordance with the Public Finance Management Act, 1 of 1999, Eskom agrees on its performance objectives, measures and indicators, as well as its annual targets, in a shareholder compact with its shareholder representative. The shareholder compact supports Eskom’s mandate and strategic objectives

Performance against shareholder compact04

Work being done on one of the Kusile Power Station chimney’s. The project is closely managing the schedule to achieve first synchronisation of Unit 1 in December 2015

The table below sets out Eskom’s performance for the six months ended 30 September 2014 in terms of the shareholder compact. All key performance indicators (KPIs) in the compact refer to the Eskom company only.

Commentary on performance is set out in the “Performance against strategic priorities” section of this report, where SC indicates that a key performance indicator is included in the shareholder compact.

Contrary to the rest of the report, performance against shareholder compact targets is indicated as follows:

Performance for the year ending 31 March 2015 is projected to meet target

Performance for the year ending 31 March 2015 is projected not to meet target

Performance for the year ending 31 March 2015 is projected not to meet target, by a small margin

Performance against the shareholder compact for the six months ended 30 September 2014

Key performance indicator and unit

Target year to

Mar 2015

Actual six months to Sep 2014

Actual year to

Mar 2014


Actual year to

Mar 2013Focus on safetyEmployee lost-time incidence rate (LTIR), index 0.35 0.32 0.31 0.35 0.40

Sustainable asset base whilst ensuring security of supply

Maintenance backlog, number1 1 3 5 – –

Demand savings, MW 246.0 32.0 409.6 117.0 595.0

Internal energy efficiency, GWh 10.0 0 19.4 0 28.9

Put customer at the centre

Eskom KeyCare, index 102.0 109.6 108.7 107.3 105.8

Enhanced MaxiCare, index 96.0 97.2 92.7 92.3 93.2

Improve operationsNormal unplanned capability loss factor (UCLF), %2 13.00 13.30 12.61 11.53 12.12

Less: Constrained unplanned capability loss factor, %2 3.00 1.04 1.63 3.45 3.41

Underlying unplanned capability loss factor, %2, 3 10.00 12.26 10.98 8.08 8.71

Corporate governanceEskom’s Board of Directors is responsible for governing the company, while the Executive Management Committee (Exco) implements the decisions made at Board level on a day-to-day basis.

For details of the structure of the Board and Exco, and an overview of the various Board committees and their activities, refer to www.eskom.co.za/IR2014/08.html.

Mr Malesela Phukubje was appointed as Company Secretary as of 1 July 2014, and therefore, Ms Annamarie van der Merwe vacated her position as Interim Company Secretary, effective 30 June 2014.

Changes in composition of the Board of DirectorsAt the annual general meeting held in July 2014, the Minister of Public Enterprises reappointed all the directors who were due to retire at the expiration of their three-year term of office, subject to a review within five months.

On 20 August 2014, the Minister announced the appointment of Mr Tshediso Matona as the Chief Executive of Eskom, with effect from 1 October 2014. From that date, Mr Collin Matjila, who had acted as Interim Chief Executive since 1 April 2014, resumed his position as a member of the Board.

Changes in composition of ExcoMr Kannan Lakmeeharan resigned as Acting Group Executive: Group Technology and Commercial, effective 30 April 2014. Mr Matshela Koko was subsequently appointed as Acting Group Executive: Group Technology and Commercial, with effect from 1 May 2014.

Ms Erica Johnson, the Group Executive: Enterprise Development and Acting Group Executive: Group Customer Services has resigned, effective 31 October 2014. Dr Steve Lennon, the Group Executive: Sustainability, has resigned, effective 31 March 2015, although he will retain his portfolio until that time.

The following changes in the composition of Exco have been announced, with effect from 1 November 2014:• Mr Mongezi Ntsokolo was appointed as Group Executive: Generation• Mr Thava Govender will take over as Group Executive: Transmission and Group Customer Services• Mr Dan Marokane was appointed as Group Executive: Group Capital• Mr Matshela Koko and Ms Elsie Pule will act as Group Executive: Group Technology and Commercial

and Group Executive: Human Resources respectively, until permanent appointments are made



Performance against shareholder compact continued


Target year to

Mar 2015


Actual year to

Mar 2014


Actual year to

Mar 2013

Energy availability factor (EAF), % 80.00 76.77 75.13 78.42 77.65

System average interruption frequency index (SAIFI), events 22.0 20.5 20.2 20.1 22.2

System average interruption duration index (SAIDI), hours 43.0 37.7 37.0 37.3 41.9

Total system minutes lost for events <1 minute, minutes 3.80 0.62 3.05 1.57 3.52

Deliver capital expansionGeneration capacity installed: first synchronisation, units4 1 0 ─ ─ ─

Generation capacity installed and commissioned, MW 5 433 0 120 120 261

Transmission lines installed, km6 315.1 161.8 810.9 511.1 787.1

Transmission capacity installed and commissioned, MVA 2 090 90 3 790 290 3 580

Reduce environmental footprint in existing fleetRelative particulate emissions, kg/MWh sent out 0.35 0.33 0.35 0.31 0.35

Specific water consumption, ℓ/kWh sent out 1.39 1.40 1.35 1.33 1.42

Implementing coal haulage and the road-to-rail migration planMigration of coal delivery from road to rail (additional tonnage transported by rail), Mt

11.50 6.57 11.60 5.40 10.10

Ensure financial sustainability7

Cost of electricity (excluding depreciation), R/MWh 532.63 560.79 541.92 500.27 496.24

Interest cover, ratio 0.69 1.29 0.65 2.27 0.27

Debt/equity (including long-term provisions), ratio 2.48 2.25 2.21 1.84 1.96

FFO as % of total debt 7.63 5.43 9.21 8.68 8.55

Maximise socio-economic contribution: Procurement equityLocal content contracted (Eskom-wide), %8 65.00 23.21 40.82 52.72 ─

Local content contracted (new build), % 65.00 56.88 54.60 62.40 80.20

Percentage of broad-based black economic empowerment spend, % of TMPS

75.00 89.47 93.90 87.60 86.30

Procurement spend with black-owned suppliers, % of TMPS8

12.50 29.77 32.70 25.50 22.10


Target year to

Mar 2015


Actual year to

Mar 2014


Actual year to

Mar 2013Procurement spend with black women-owned suppliers, % of TMPS8

6.00 6.90 7.20 6.20 4.70

Procurement spend with black youth-owned suppliers, % of TMPS

2.00 0.78 1.00 1.00 1.00

Procurement spend with suppliers owned by black people living with disabilities, % of TMPS8

1.00 0 ─ ─ ─

Procurement spend with qualifying small enterprises and exempted micro enterprises, % of TMPS8

12.50 12.57 11.90 10.41 ─

Maximise socio-economic contribution: Employment equity

Disability equity in total workforce, % 2.50 3.06 2.99 2.55 2.59

Racial equity in senior management, % black employees 60.00 61.06 59.50 59.50 58.30

Racial equity in professionals and middle management, % black employees

70.00 72.04 71.20 70.50 69.60

Gender equity in senior management, % female employees

31.00 30.18 28.90 28.60 28.20

Gender equity in professionals and middle management, % female employees

37.00 35.89 35.80 35.50 34.60

Build strong skills Training spend as % of gross employee benefit costs 5.00 6.31 7.87 7.48 ─

Learner throughput or qualifying, number9 1 200 175 ─ ─ ─

Notes to the shareholder compact1. The maintenance backlog in the shareholder compact is based on the 36 outages that informed the 2011 PFMA application. Of the 36 outages,

five remained at 31 March 2014, two of which were planned for execution in the 2014/15 financial year. As the KPI definition has changed in the current year, the comparative as at 31 March 2014 has been restated. The KPI reported in 2013/14 was tracking the nine outages that had been approved by the Technical Governance Committee, all nine of which were completed.

2. The shareholder compact UCLF KPI refers to underlying UCLF, which is the difference between normal and constrained UCLF, and represents the UCLF that is still within Generation’s control. Constrained UCLF results from emissions and short-term related UCLF due to system constraints to meet customer demand.

3. The shareholder compact target for underlying UCLF has been approved at 10%, which incorporates UCLF of 9% and OCLF of 1%.4. Only Medupi Unit 6 is contracted for first synchronisation in the 2014/15 financial year. Eskom and the DPE will, in subsequent years, contract

on first synchronisation for Unit 5 of Medupi and Units 1 and 2 of Kusile. The subsequent units of Medupi and Kusile can then be contracted on capacity installed and commissioned.

5. Comprised of the commissioning of the Sere wind farm (100MW) in December 2014 and one unit of Ingula (333MW).6. During the 2013/14 financial year, Eskom exceeded the year end target of 770km, by achieving 810.9km. Due to the finite length of transmission

lines, the additional kilometres (40.9km) were deducted from the 2014/15 target of 356km, to determine the revised target of 315.1km.7. The financial ratios have been recalculated based on the OCGT costs allowed by NERSA. The revised targets have been approved as an

addendum to the approved 2014/15 shareholder compact.8. The addendum also included additional Competitive Supplier Development Programme (CSDP) KPIs, added to the shareholder compact at

the shareholder’s request. 9. The learner throughput or qualifying target includes only engineer (298), technician (282) and artisan (529) learners. The other learners are not

included in the target. The target is based on learners in their final year of study, less those who fail and those who leave the pipeline.


4 3 1

5 6 9

4 14 3

3

2

1

A B C D E

Likelihood

Business overview

During the 2014/15 financial year, Eskom’s focus is on three core sustainability dimensions in support of its strategic objectives:• Sustainable asset creation through the capacity expansion programme, with particular focus

on the first synchronisation of Medupi Unit 6• Financial sustainability, inter alia by implementing the Business Productivity Programme

(BPP) and submitting a Regulatory Clearing Account (RCA) application to NERSA for a revenue review relating to the first year of the MYPD 3 period

• Operational sustainability by continuing the Generation sustainability strategy and enhancing performance levels in the Transmission, Distribution and Group Customer Services divisions

Safety remains the foundation of all Eskom’s operations.

Changes in Eskom’s risk profileThe Eskom Risk Matrix maps identified risks based on likelihood and consequence to Eskom and its stakeholders. Priority 1 risks are identified by the divisions based on these criteria, and plotted in the red zone of the heat map (see figure below). The total number of Priority 1 risks increased from 38 at 31 March 2014 to 40 at 30 September 2014. A total of seven new Priority 1 risks were identified, while five former Priority 1 risks were revised downwards or closed out.

Priority 1 risks at 31 March 2014 Priority 1 risks at 30 September 2014

6 4 2 1

5 7 8

4 12 3

3 1

2

1

A B C D E

Likelihood

For further information on Eskom’s key risks and responses thereto, refer to “Risks relating to material items” in the 2014 integrated report.

05Eskom’s focus is on three core sustainability dimensions in support of its strategic objectives, namely sustainable asset creation, financial sustainability and operational sustainability. Safety remains the foundation of all Eskom’s operations. Eskom kept the lights on over the challenging winter months, except for three short load shedding events over three evening peaks, although it was only by utilising the expensive open-cycle gas turbine stations that it was able to do so

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Live-line maintenance on the high-voltage transmission lines reduces the need to shut lines down for maintenance


SafetySadly, Eskom experienced one employee and six contractor fatalities for the period ended 30 September 2014. The employee fatality resulted from an electrical contact incident, while the six contractor fatalities were due to two motor vehicle accidents, two assault cases, one person being struck by an object and one falling from a height. The cases of assault related to contractors who were shot while in transit between sites.

Five public fatalities were caused by contact with electricity and six by motor vehicle accidents involving Eskom vehicles. Electrical contact due to criminal activities (illegal connections) and motor vehicle accidents remain the major causes of public fatalities.

The lost-time incidence rate (LTIR) has remained stable at 0.32 at 30 September 2014 (31 March 2014: 0.31).

Sustainable asset creationMedupi Power StationConstruction progress was hindered due to the industrial action of July 2014. The workforce has since returned to site and, through risk mitigation and reassignment of available resources, the first synchronisation of Unit 6 remains scheduled for 24 December 2014. However, some risks remain, which may delay synchronisation to early January 2015, but the risks are receiving management’s full attention. Additional resources were mobilised by the contractors to mitigate resource-driven delays and additional shifts were introduced to accelerate progress.

The first coal has been delivered to the stockyard. Running of coal conveyors, delivering of coal and optimising of the complete coal-in and ash-out systems continue. Coal stacker 1 was safety cleared and commissioning is progressing well. The coal mills are also being commissioned.

Site integration tests for Unit 6 and the balance of plant were successfully completed. This means that the distributed control system is now ready to support first fires and synchronisation. The legal registration of the boiler was received on 16 October 2014 and the first oil fire of Unit 6 was successfully achieved the day after.

The remaining milestones leading up to first synchronisation include first coal fire, boiler blow-through and steam to set.

Kusile Power StationThe project is making good progress after resolving the boiler quality issues, the business rescue of a major subcontractor working on the flue gas desulphurisation plant, as well as obtaining permits for the coal stockyard and ash dam through a protracted process. During September 2014, the project moved closer to first synchronisation of Unit 1 by successfully completing the steam turbine lube oil system flush and setting the generator step-up transformer into place, and most recently, Unit 1 was put on electrical barring. The project is closely managing the schedule to achieve first synchronisation in December 2015.

As the coal supply contract has not yet been finalised, Kusile has developed a mitigation solution to deliver coal for synchronisation to site.

Ingula Pumped-storage Power StationFor the past 12 months, limited progress was made due to the work stoppage following the tragic accident on 31 October 2013. The work stoppage was completely lifted in September 2014, to allow the main underground works to resume. As a result of the delay, the first synchronisation of Unit 3 has been revised to the first half of 2016.

RenewablesSignificant progress has been made on the construction of the Sere Wind Farm, with all 46 wind turbines having been installed. During October 2014, the transformers of seven wind turbine generators were energised and these wind turbines were synchronised to the national grid, adding 4.4MW, as part of the final testing and commissioning, ahead of the target date of December 2014. Subsequently, a further 13 wind turbines were energised. The project remains on track to be in full commercial operation by March 2015.

The photovoltaic rollout, Project Ilanga, continues at existing administration buildings, power stations and transmission substations. The project includes solar augmentation, where existing power stations are hybridised with solar thermal energy. The project is expected to add 150MW by 2017/18. Currently, 2MW has been installed.

Financial sustainabilityOverview of financial positionEskom is facing significant challenges that threaten its financial sustainability. Eskom’s financial health has deteriorated in recent years, mainly due to an inappropriate return on assets as a result of substantial cost increases, lower sales volumes and the lack of cost-reflective tariffs over a sustained period. As a result, it is struggling to support its current operations and the growth in the business. The problem was exacerbated by the requirement to fund the construction of Medupi, Kusile and Ingula and the expansion of the Transmission network, all simultaneously. In addition, compliance with the new atmospheric emission legislation will result in significantly increased financial obligations.

Eskom is facing liquidity constraints, with only enough liquid funds available to fund its activities for approximately 90 days (31 March 2014: 120 days). There is a risk that Eskom’s going concern status could be negatively impacted.

Following the downgrade of the Sovereign, Moody’s also announced the downgrade of Eskom to Ba1 with a Stable Outlook on 7 November 2014. Standard & Poor’s removed the Negative CreditWatch placed on Eskom, while affirming with a Negative Outlook the BBB- rating on 11 November 2014, and Fitch affirmed Eskom’s credit rating of BBB+ on 28 October 2014. Both Fitch and Standard & Poor’s have indicated that the Government support package has had a stabilising impact and will support Eskom’s liquidity and credit metrics.

However, unless its financial position improves, Eskom faces a further downgrade, which would seriously impede Eskom’s ability to raise external funding, or significantly increase the cost at which Eskom is able to borrow.

For the financial results for the six months ended 30 September 2014, refer page 68 to 71.

Moving towards financial sustainabilityThe following are considered to be important steps towards financial sustainability:• Eskom’s rate of return on assets should, at a minimum, be equal to its cost of capital; therefore,

the migration to cost-reflective tariffs, to enable the recovery of efficient operating costs, remains of paramount importance

• Maintaining an investment grade credit rating with Government support• The Regulatory Clearing Account (RCA) application for a revenue review relating to the first

year of the MYPD 3 period, in order to increase revenues to a more sustainable level• A reduction in costs, in terms of savings to be realised under the Business Productivity

Programme (BPP)

Business overview continued


• Although it is becoming increasingly difficult to disconnect supply to Soweto and defaulting municipalities, the recovery of debt remains a focus

An Inter-Ministerial Committee (IMC), led by the Finance, Public Enterprises and Energy Ministries, was established to work with Eskom to find long-term solutions to Eskom’s financial challenges.

On 13 September 2014, Cabinet approved a financial package, recommended by the IMC, in a bid to support Eskom in ensuring its financial sustainability and resolving short- to medium-term liquidity constraints. The support package, which includes actions to be taken by both Government and Eskom in the near future, covers the following:• Government will support Eskom’s tariff application to NERSA. The tariff adjustment remains the

key mechanism to provide the electricity supply industry with a sustainable solution, and will provide Eskom with the revenue and cash flows it needs to complete the current programme of building power stations, and to repay debt and the interest thereon

• Equity of at least R20 billion will be provided to Eskom, but only once the funds have been realised through the sale of non-strategic Government assets. Government will also consider converting part of the existing R60 billion shareholder loan to equity

• Eskom will be raising additional funding of R50 billion, over and above its original plan of R200 billion during the MYPD 3 period, supported by existing Government guarantees

• Demand management measures that do not undermine economic growth will be accelerated• The energy policy and regulatory governance mechanisms will be refined, to ensure security of

supply and provide certainty regarding the energy industry going forward• Interventions are needed to cushion poor households from the impact of higher tariffs, therefore

Government will assist municipalities to address the current weaknesses in the use of free basic electricity, and will implement a programme to improve the efficiency of municipal electricity operations

• The expansion of the independent power producer (IPP) programme to complement Eskom’s build programme will be supported

• Significant savings identified and agreed with Eskom will form part of the financial package that will be implemented over the MYPD 3 period to improve the efficiency of Eskom’s operations

Eskom submitted an RCA application to NERSA for a revenue review in respect of underrecoveries during the MYPD 2 period. NERSA allowed Eskom to recoup R7.8 billion through the electricity tariff during the 2015/16 financial year. This will result in an average increase of approximately 13% on standard tariffs, instead of the 8% previously approved.

At 30 September 2014 a total of R65.5 billion, or 32.8% of the revised funding requirement of R199.5 billion for the remainder of the MYPD 3 period (1 April 2014 to 31 March 2018) had been secured. During the six months to 30 September 2014, R15.3 billion had been drawn down.

The Business Productivity Programme (BPP) target for 2014/15 is R9.8 billion, which includes reductions in capital expenditure, operating expenditure and working capital. Currently, savings of R1.9 billion have been banked, although a potential loss of R5.6 billion of the initially identified value packages was reported due to projected overspending on diesel for the OCGTs and fuel oil for the coal-fired plant, as well as slow progress in recovering outstanding debt from municipalities. The teams are continuously investigating further savings opportunities, including specific initiatives to unlock cash in the business. However, meeting the R9.8 billion target for 2014/15 will be a challenge.

Although the support package recently announced by Government will ease liquidity pressures in the short term, the issue of long-term financial sustainability must still be adequately addressed. Key to ensuring financial sustainability is to achieve an appropriate return on assets in the long term, and therefore, cost-reflective tariffs that allow for the recovery of efficient costs still need to be pursued. In the short term, Eskom has to obtain adequate funding to ensure liquidity, thereby supporting its going concern status, and to avoid a further ratings downgrade.

The directors are satisfied that Eskom and the group have access to adequate resources and facilities to be able to continue its operations for the foreseeable future, and accordingly, the Board has adopted the going concern basis in preparing the interim financial statements. For further information, refer to note 2 in the interim financial statements, available at www.eskom.co.za/IR2014/interim.

Operational sustainabilityApart from three short load shedding events over three evening peaks in June 2014, electricity demand was met during the six months to 30 September 2014. Demand was adequately met during the day and, although evening peaks were tight, sufficient generation capacity and emergency reserves were available to meet the demand. However, to achieve this, extensive use was made of the very costly OCGT stations. The nature of this challenge changes from the evening peak in winter to a constraint throughout the day during summer. Eskom embarks on load shedding as a last resort, to prevent a longer, more damaging shutdown of the entire system, which would negatively impact the economy.

Generation technical performanceAlthough generation plant availability improved slightly to 76.77% (31 March 2014: 75.13%), the normal unplanned capability loss factor (UCLF) deteriorated to 13.30% for the six months to 30 September 2014. Despite commitment to the maintenance outage plan, the unpredictable performance of plant and tight reserve margins still require some outages to be deferred, further delaying the turnaround of plant performance.

The over-pressurisation incident at Unit 3 of Duvha Power Station in March 2014 took the 575MW unit out of service for repair. The incident investigation has been completed and a common-cause report issued. A process is under way to address all the recommendations from the report, and key learnings have been shared with other power stations. The project team is finalising the way forward for the recovery process.

At approximately 12:30 on Saturday 1 November 2014, operating staff at Majuba Power Station noticed a crack in the main coal silo. The area was evacuated and at 13:12, the silo collapsed. No injuries were reported. As a result of the collapse, the supply of coal to the boilers of a number of units was interrupted, and output at the station was reduced to just over 600MW. Load shedding was implemented on Sunday 2 November 2014 to preserve coal at Majuba Power Station and water at the pumped-storage plant, in order to meet demand during the following week and to prevent the power system suffering a total blackout. An investigation into the incident is underway, and is expected to take around three to six months to finalise.

Particulate emissions performance for the six months to 30 September 2014 was 0.33kg/MWhSO, slightly better than the target of 0.35kg/MWhSO, while the water performance was 1.40ℓ/kWhSO, slightly worse than target. All power stations have now received their new atmospheric emission licences (AELs). Some stations may have to curtail production in order to comply with the licences, thereby putting further pressure on the already constrained power system. A process is under way to appeal or review or amend some of the newly issued AELs, although it could take up to a year to



obtain a final response. In addition, several power stations are reaching the capacity limits of their current ashing storage facilities. Delays in obtaining funding for the expansion of ashing facilities may result in power stations having to significantly reduce production or even shut down.

Securing Eskom’s resource requirementsThe overall coal stock holding amounted to 46 days as at 30 September 2014 (target: 42 days). The draft Mineral and Petroleum Resources Development Amendment Bill covering coal security and declaring coal as a strategic resource was approved by Parliament on 27 December 2012. The Minister of Mineral Resources has delayed signing the bill into law until certain concerns raised by stakeholders have been addressed.

Eskom has entered into cost-plus coal contracts, whereby Eskom bears the cost of the mines and has to fund any capital investment required. Some mines are at a stage where substantial investment is required, which will put further strain on Eskom’s financial resources.

Although rail deliveries for the six months to 30 September 2014 were on track, major tippler breakdowns were experienced at Majuba Power Station. Eskom and the supplier are consulting with the Richards Bay technical team to resolve the tippler issues.

Eskom has regular engagements with the Department of Water and Sanitation to address the outstanding water use licences for coal mines supplying Eskom. A total of 34 mines had valid licences at 30 September 2014, while ten had submitted applications which are awaiting approval.

Discussions continue between Eskom and Electricidade de Moçambique regarding the construction of a 600MW combined-cycle gas turbine plant, subject to confirmation of gas reserves in the Buzi gas field. Drilling for gas is expected to commence in March 2015.

Transmission and Distribution performanceExcellent transmission network performance during the six months to 30 September 2014 was recorded with system minutes lost (events less than one minute) at 0.62, against a half-year target of less than 1.9, while no major incidents occurred. The investments made in the distribution network continue to yield good technical performance, with the system average interruption duration and frequency indices both exceeding target for the six months to 30 September 2014.

There was a significant improvement in energy losses, with both Transmission and Distribution performing better than target.

Customer service performanceAverage demand from key industrial customers is starting to recover to pre-winter levels, having increased from 8 950MW in July to 9 300MW in September 2014. The customer satisfaction score for the Eskom KeyCare index was sustained above 109%, reflecting continuous interaction and interventions held with key industrial customers.

Integrated Demand Management and IPP programmesA total of 760 projects were installed during the six months to 30 September 2014, with potential demand savings of 81MW and potential energy savings of 258GWh. The compact fluorescent lamp (CFL) rollout phase 3 was completed in Gauteng, with 179 447 bulbs being installed in the six months to 30 September 2014. A total of 123 new projects, with potential demand savings of 358MW, were registered during the period under review.

The demand response programme has added 56MW of certified dispatchable load during the six months to 30 September 2014. Dispatchable load of 1 417MW, which can be reduced or completely switched off on a scheduled day, is available to the System Operator.

A total capacity of 4 280MW had been contracted with IPPs as at 30 September 2014.

Other sustainability dimensionsThe 2014 Central Bargaining Forum negotiations with organised labour were completed without the parties reaching agreement. A dispute was declared and referred to the CCMA. A two-year salary and conditions of service settlement agreement for bargaining unit employees was reached at the CCMA and has since been implemented. The parties agreed to establish separate workgroups to consider other benefits.

The Eskom group had 46 370 employees (permanent staff and fixed-term contractors) at 30 September 2014, while the Eskom company had 42 372 employees.

Total measurable procurement spend amounted to R66.9 billion, of which 75% was spent on B-BBEE compliant suppliers. From the total B-BBEE attributable spend, R57.8 billion (or 97%) was spent on vendors with B-BBEE levels 1 to 4, and only 3% on vendors with levels 5 to 8 B-BBEE status. Performance on attributable spend on black youth-owned suppliers, suppliers owned by black people living with disabilities, qualifying small enterprises and exempted micro enterprises was below target. Increased procurement from these suppliers will be pursued in order to meet the year end targets for these measures.

OutlookEskom is preparing for the first synchronisation of Medupi Unit 6, as well as the commissioning of the 100MW Sere Wind Farm.

However, the power system will remain constrained until more units from the capacity expansion programme come online, especially during the summer months, where the demand profile changes from a short sharp evening peak to being constrained all day. During this time, all South Africans have a role to play in using energy efficiently and reducing demand on the system, particularly during peak hours. The “Live Lightly” and “Know Your Number” campaigns are expected to assist in this regard.

Eskom’s financial position is expected to worsen further by year end, due to an increase in borrowings coupled with a flat revenue outlook, together with the increased cost of ensuring security of supply. Therefore, it remains critical for Eskom to balance the short-term priority of meeting customer demand with long-term financial and operational sustainability. This entails difficult trade-offs to be made, amongst others the following:• Given the tight reserve margin, Eskom has operated the more expensive OCGT stations to

ensure a continuous supply of electricity. In light of the liquidity position, this situation is not sustainable

• Eskom’s Generation sustainability strategy will improve plant health and reliability in the long term, but the need for maintenance should be balanced with the current constrained power system and financial and liquidity constraints

• All power stations will comply with their new atmospheric emission licences, although some stations may have to curtail production in order to comply, which could compromise security of supply

Eskom can no longer afford to keep the lights on at the cost of financial sustainability. Eskom needs to operate within its financial means and in a way that does not compromise the sustainability of the national electricity grid, the natural environment, the safety of its people and surrounding communities. The Board has resolved that Eskom’s financial sustainability and status as a going concern cannot be compromised in support of operational sustainability or balancing supply and demand.



Performance against strategic priorities

SafetySafety continues to be the foundation of all Eskom’s operations and remains key to its performance. Eskom is committed to providing and maintaining a safe, healthy working environment for all employees and contractors and has made safety a key focus area within the company.

Operating highlights• The Kusile project continues to lead with best-in-class safety performance, maintaining a lost-

time incidence rate of 0.10 against a target of 0.35• Eskom Telecommunications and Eskom Uganda were awarded Blue Flag status. The Blue

Flag programme recognises groups and individuals for outstanding occupational hygiene, safety and environmental performance

• Eskom successfully hosted National Electricity Safety Week, which is aimed at educating communities about the basics of safe electricity usage and the safety risks linked to electricity theft

Operating challenges• Although safety performance has shown gradual improvement, attributable to the safety

improvement initiatives implemented, it is not yet at the desired level• Promulgation of the 2014 Construction Regulations poses a huge challenge to Eskom’s

operations due to the additional responsibilities imposed on both Eskom and its contractors. Consequently, strategies are being developed in order to comply with these new requirements

Focus on safetyEskom’s safety principle is that no operating condition or urgency of service can justify endangering the life of a person, including the public, or causing injury or harm to the environment. Safety performance is assessed in terms of the number of fatalities among employees and contractors, as well as the lost-time incidence rate (LTIR), which is a proportional representation of the occurrence of lost-time injuries per 200 000 working hours over a period of 12 months.

06This section describes Eskom’s performance for the six months ended 30 September 2014, in the context of the sustainability dimensions set out on page 9 to 10 in “About Eskom”. It includes relevant key performance indicators for each dimension, indicating actuals for the current period and historical data to enable comparison, operating highlights and challenges faced, as well as performance commentary. Future focus areas have remained unchanged since 31 March 2014, unless otherwise stated. As noted in the “Business overview”, the focus is on safety, sustainable asset creation, and financial and operational sustainability, while the other dimensions will be dealt with briefly

Theft of steel tower members is an ongoing occurrence, even though this is being mitigated by security and line inspection patrols


Safety performance for the period to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013

Half year target met?

Fatalities (employees and contractors), number ─ 7 10 23 19

Fatalities (public), number1 ─ 11 23 33 29

Employee lost-time incidence rate, including occupational diseases, indexSC

0.35 0.32 0.35 0.31 0.40

1. The number of public fatalities at 30 September 2013 was revised from 26 to 23 due to a change in the definition of a Public Sustainability Index fatality.

Eskom suffered one employee fatality (September 2013: two) and six contractor fatalities (September 2013: eight), while 11 members of the public lost their lives (September 2013: 23). The lost-time incidence rate has remained stable and within target.

The employee fatality resulted from an electrical contact incident, while the six contractor fatalities were due to two motor vehicle accidents, two assault cases, one person being struck by an object and one falling from a height. The cases of assault relate to contractors who were shot while in transit between sites. The increase in crime-related cases affecting security personnel is a concern; the issue is currently under investigation.

Five public fatalities were caused by contact with electricity, and six through motor vehicle accidents. Electrical contact due to criminal activities (illegal connections) and motor vehicle accidents remain the major causes of public fatalities.

Update on the Ingula incidentAs previously reported, the investigation in terms of Section 60 of the Mine Health and Safety Act (MHSA) was converted into a formal inquiry in terms of Section 66(1) of the MHSA. The evidence-gathering inquiry was conducted at Ingula from 21 July to 2 September 2014. The Presiding Officer requested written closing submissions to be made relative to the evidence collected. The process was completed on 15 October 2014, and the Presiding Officer is preparing a report in terms of Section 72 of the MHSA.

The statutory processes are designed to determine the cause of the accident and to make recommendations to prevent similar occurrences. These processes, which fall under the jurisdiction of external regulatory authorities, are lengthy and should be allowed to run their course.

Sustainable asset creationThe capital expansion strategy prioritises new build, generation sustainability, environmental compliance, transmission strengthening, customer connections, as well as asset maintenance and replacement projects. Eskom will ensure renewed focus on delivering on capital expansion projects – on time, within budget, and to the right quality.

Operating highlights• Medupi management team’s processes aimed at schedule recovery, to achieve alignment

of the integrated schedule with preliminary milestones needed to achieve the planned first synchronisation date of Unit 6, are showing results

• Both the Medupi and Kusile projects have achieved a number of significant milestones during the period under review

• The Kusile project is making good progress after resolving significant quality issues with the boiler, the business rescue of a major subcontractor working on the flue gas desulphurisation (FGD) plant, and obtaining permits for the coal stockyard and ash dam through a protracted process as a result of revised legislation

• The work stoppage in terms of Section 54 of the Mine Health and Safety Act issued by the Department of Mineral Resources (DMR) at Ingula was lifted completely in September 2014, permitting work in the inclined high-pressure shafts to resume

Operating challenges• Construction progress in critical areas of Medupi and Kusile was hindered by both protected

and unprotected industrial action during July 2014, with labour attendance of 40% to 70% during the period. The workforce has since returned to site, and action has been taken against civil contractors whose workers caused disruptions

• Due to project delays, a liability of R2.5 billion was raised for the coal obligation during the ramp-up period of Medupi

• The Kusile air-cooled condenser work experienced significant delays as a result of structural bolt failures and overstressed connections due to design failures; testing was due to take place in September 2014 and has now been delayed to February 2015

• The Kusile Execution Team recently uncovered three serious spiral wall non-conformances in Unit 1, which are impacting construction progress of the unit. The contractor has initiated spiral wall repairs to resolve one of the issues

Delivering capacity expansionEskom is building additional power stations and major power lines to meet South Africa’s rising demand for electricity and also to diversify its energy mix. Ultimately, the capacity expansion programme, which commenced in 2005 and is expected to be completed by 2020/21, will increase generation capacity by 17 384MW, transmission lines by 9 756km and substation capacity by 42 470MVA.

From inception to date, the capacity expansion programme has resulted in 6 137MW of additional generation capacity, 5 659km of transmission lines and 27 655MVA of substation capacity. The programme has cost R251 billion to date (excluding capitalised borrowing costs), and the total cost of the programme is currently estimated at R348 billion (excluding capitalised borrowing costs).

Performance against strategic priorities continued


Technical performance for the period to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Generation capacity installed: first synchronisation, unitsSC

1 0 ─ ─ ─

Generation capacity installed and commissioned, MWSC 433 0 120 120 261

Transmission lines installed, kmSC 315.1 161.8 511.1 810.9 787.1

Transmission capacity installed and commissioned, MVASC

2 090 90 290 3 790 3 580

Generation capacity milestones (Medupi, Kusile and Ingula), days delay

30.00 21.21 5.75 48.90 43.48

The target for generation capacity installed and commissioned will not be met, as Ingula Unit 3 is now forecast to be commissioned during the first half of 2016, as a result of the work stoppage following the tragic accident on 31 October 2013. During the six months to 30 September 2014, 161.8km of transmission lines were strung. Installation of all primary equipment for the 765kV and 400kV yards at Sterrekus substation is complete and commissioning is in progress. The year end targets for power lines and substation capacity are expected to be met.

Medupi Power Station

Medupi Power Station is a greenfields coal-fired base-load power station being constructed in Lephalale in the Limpopo province. It will have six boilers, each powering a 794MW turbine, producing a total of 4 764MW and making it one of the largest dry-cooled coal-fired power stations in the world once completed. Super-critical boilers will be used to improve the efficiency of the plant. Medupi will be supplied with coal from Exxaro’s Grootegeluk coal mine, located to the north of the site.

The first synchronisation of Medupi Unit 6 is planned for 24 December 2014, with full commercial operation of the unit being expected approximately six months later. However, some risks remain, which may delay synchronisation to early January 2015, but the risks are receiving management’s full attention. Additional resources were mobilised to Unit 6 by both the boiler and C&I (control and instrumentation) contractors to mitigate any resource-driven delays. Additional shifts were introduced 24 hours a day, seven days a week, in order to accelerate progress on site. Eskom continues to work with contractors to resolve any issues that could affect the schedule.

The critical path to first synchronisation of Unit 6 remains through the delivery, installation, testing and integration of the boiler protection system, together with the distributed control system. The recovery strategies that were put in place to implement solutions to the post-weld heat treatment were successful and the technical issues surrounding welding on the Unit 6 boiler at Medupi have been resolved. The weld procedure requalification exercise is also now complete, with all weld procedures verified and accepted by both Eskom and the authorised inspection authority.

Since year end, the following milestones have been achieved: • Successful completion of the boiler chemical clean, the draught group test run and the site

integration tests for Unit 6 and the balance of plant. The distributed control system is now ready to support first coal fire and synchronisation

• First oil fire of Unit 6 was successfully achieved on 17 October 2014• The water treatment plant ran continuously for 24 hours on 15 July 2014, producing demineralised

water for steam production. Although problems have since been experienced, mitigation plans have been put in place to ensure that adequate demineralised water is available

• First coal was delivered to the coal stockyard, coal stacker 1 was safety cleared, and commissioning of the coal stacker and coal mills is progressing well

The remaining milestones leading up to first synchronisation include first coal fire, boiler blow-through and steam to set. The transmission network integration is also on track and ready for the synchronisation of Units 6 to 1 to the Eskom grid.

The commissioning of the next unit, Unit 5, was initially forecast to occur within six months of bringing Unit 6 online. This is no longer possible due to the challenges experienced at Unit 5, as resources were redeployed from Unit 5 to Unit 6 in an attempt to recover the schedule at Unit 6. The schedule is being reviewed, with the intention of mitigating delays, and the expected completion date of Unit 5 and the rest of the units will be communicated in the March 2015 integrated report.

Kusile Power Station

Kusile is a coal-fired base-load power station close to the existing Kendal Power Station near eMalahleni in Mpumalanga. It will consist of six units of approximately 800MW installed capacity each, giving a total of 4 800MW, which will make it one of the largest dry-cooled coal-fired power stations in the world once completed. It will be the first South African power station to have flue gas desulphurisation (FGD) installed. FGD is a state-of-the-art technology used to remove oxides of sulphur (SOx) such as sulphur dioxide (SO2) from the exhaust flue gases in power plants that burn coal or oil. Eskom is fitting FGD to the Kusile plant as an atmospheric emission abatement technology, in line with current international best practice, to ensure compliance with air quality standards. The FGD plant will use limestone as feedstock and produce gypsum, used in the manufacture of dry walls and ceilings, as a by-product.

Kusile Unit 1 is on track for first synchronisation in December 2015. Eskom and the contractors have established a stringent tracking process and recovery plans in order to recover the schedule and achieve the target date of December 2015. Furthermore, a commercial strategy has been defined to increase contractors’ resources and improve their performance.

With effect from 1 September 2014, the Kusile Execution Team and the contractors began implementing productivity improvement plans that include working additional shifts and more weekends, as well as selected crews and contractors working critical areas during the traditional builders’ break in December.

The C&I contractor’s latest factory acceptance test (FAT) schedule indicates an integrated Power Island 1 FAT completion date of April 2015, which is four months after the date of December 2014 requested by Eskom. Eskom continues to work with three alternate C&I vendors through early works orders to mitigate the risk of the contractor failing its FAT.



The project has achieved a number of significant milestones since year end, including the completion of the steam turbine lube oil system flush, and Unit 1 being put on electrical barring.

Ingula Pumped-storage Power Station

The Ingula Pumped-storage Scheme is located 23km north east of Van Reenen within the Drakensberg mountain range and straddles the Free State and KwaZulu-Natal provinces. The scheme comprises a lower reservoir formed by the Braamhoek Dam (situated on the Braamhoek River) and an upper reservoir formed by the Bedford Dam (situated on the Bedford Stream), each with a water capacity of about 22 million cubic metres. The dams, situated 46km apart, are connected by underground waterways, through an underground powerhouse, which houses four 333MW pump turbines. During times of peak energy consumption, water will be released from the upper dam through the pump turbines to the lower dam to generate electricity, while the pump turbines will be used to pump the water from the lower dam back to the upper dam during periods of low energy demand.

Since the tragic accident on 31 October 2013, progress has been significantly impacted resulting in limited progress for a period of almost 12 months. The Section 54 work stoppage was lifted completely in September 2014, allowing underground works to resume.

Most recently, Ingula’s two emergency diesel generators were hot commissioned and synchronised to the 22kV distribution network to perform load testing. The diesel generators will be required to perform a black start in the event of loss of primary power supply to the station, when no offsite power is available during a wide-area outage. The diesel generators can also be used in the event of fire, flooding of the powerhouse or when the tailrace tunnel is dewatered.

The projected forecast date for first synchronisation of Unit 3 is the first half of 2016, with the remaining three units following at approximately two-monthly intervals thereafter.

Renewables

The Sere Wind Farm facility is located close to the town of Koekenaap in the Vredendal area of the Western Cape. It begins to address the need to diversify Eskom’s energy mix and implement technologies that will support sustainable and clean electricity generation. The total generating capacity of the wind farm will be approximately 100MW.

Significant progress has been made on the construction of the Sere Wind Farm, with all 46 wind turbines having been installed. The 132kV line, as well as the new Skaapvlei substation, have been energised. The construction achieved a milestone in October with the energising of the transformers of the first string of seven wind turbine generators, a move that paved the way for Eskom to proceed with the final commissioning of these turbines. On 10 October 2014, as part of the final testing and commissioning, the first string of seven wind turbines were synchronised, adding 4.4MW to the national grid, with a further three strings of 13 wind turbines being synchronised since then. The achievement of this milestone is ahead of the initial target date of December 2014, and the project remains on track to be in full commercial operation by the end of March 2015.

Development work continues on the photovoltaic rollout, Project Ilanga, at existing administration buildings, power stations and transmission substations. The project includes solar augmentation, where existing power stations are hybridised with solar thermal energy. The project is expected to add 150MW by 2017/18. Currently, 2MW has been installed.

Capital expenditureCapital expenditure (excluding capitalised borrowing costs) per division for the period ended 30 September 2014

Division (R million)



Actual year to

Mar 2014

Actual year to

Mar 2013

Group Capital 18 293 14 971 33 475 37 690

Generation 4 025 3 613 10 326 8 512

Transmission 448 719 1 516 893

Distribution 3 041 3 517 10 265 8 317

Subtotal 25 807 22 820 55 582 55 412

Future fuel 1 016 1 153 2 675 2 634

Eskom Enterprises 200 163 453 376

Other areas including intergroup eliminations 429 (696) 1 093 1 711

Total Eskom group funded capital expenditure 27 452 23 440 59 803 60 133

Investing in appropriate technologiesResearch expenditure for the period to 30 September 2014 amounted to R178 million (September 2013: R217 million).

Eskom has continued the drive to invest in innovative projects in an effort to become a high performance organisation along with the best utilities in the world. High priority projects include the following:

High frequency electrostatic precipitator pilot at Lethabo Power StationThe purpose of the project is to improve the particulate capture efficiency of the existing infrastructure at Lethabo Power Station, in order to improve particulate emissions performance. The unit has now been installed and is being monitored. Initial results show significant performance improvements.

Waterberg coal suitability analysisWaterberg coal samples are being analysed to determine the suitability for use in the Mpumalanga power stations. The outcome will affect procurement and transport strategies when sourcing coal for these power stations. Successful testing and characterisation of the samples have been completed. A strategy for the use of Waterberg coal in Mpumalanga power stations is being determined.

Underground coal gasification (UCG)Eskom, in partnership with Sasol, is exploring synergies regarding strategic opportunities for UCG gas, aimed at leveraging Sasol’s gas handling and clean-up expertise. Improved particulate removal technologies have been commissioned and there are continued indications of improved performance in particulate removal at the test site. The Department of Water Affairs has approved the water use licences for the project. Full legal compliance has also been achieved.



Low-loss distribution transformersA total of 1 000 transformers with a lower internal impedance will be installed (with 140 already installed), with the potential to improve efficiencies on the distribution network by reducing network losses, thereby reducing the constraints on the power system. Provisional reduction in network losses of up to 83% was recorded during initial tests. If the technology is implemented throughout Eskom, the energy savings would exceed R500 million per annum.

Large-scale energy storageA facility for the testing and evaluation of different technology batteries for use in Eskom applications and for integration of renewables to the grid is under construction in Rosherville. Installation and commissioning are expected to occur in the first half of the next financial year.

Financial sustainabilityEskom faces numerous challenges directly impacting its financial sustainability. Obtaining parity between the price of electricity and the associated costs will form a fundamental part of the shift to sustainable growth. Mainly due to the lack of cost-reflective tariffs over a sustained period, Eskom’s financial health has deteriorated to such an extent that its balance sheet will soon be unable to support current operations and the growth in the business. The continued deterioration of Eskom’s financial health has resulted in Eskom experiencing a liquidity constraint.

Although the support recently announced by Government will ease liquidity pressures in the short term, the issue of financial sustainability must still be adequately addressed and further interventions are required to improve Eskom’s sustainability.

Although Eskom is committed to meeting customer demands, it cannot afford to do so at the cost of financial sustainability. Eskom needs to operate within its financial means and in a way that does not compromise the sustainability of the power system, the natural environment, the safety of its people and surrounding communities.

Group interim financial results, which have been extracted from the condensed interim financial statements for the six months ended 30 September 2014, are provided in this report starting on page 68. Eskom’s statutory annual financial statements for the year ended 31 March 2014 are available at www.eskom.co.za/IR2014/01.html.

Operating highlights• On 30 July 2014, NERSA announced its decision to allow Eskom to recoup R7.8 billion in respect

of the underrecoveries for the MYPD 2 (Multi-year Price Determination) period, liquidated through an average tariff increase of approximately 13%, as opposed to the 8% increase previously awarded, commencing in the 2015/16 financial year

• On 13 September 2014, Cabinet approved a financial package in a bid to support Eskom’s liquidity and its financial sustainability, and to ensure that the energy security of the country is maintained in an effort to aid GDP growth. On 22 October 2014, the Minister of Finance announced that equity funding of at least R20 billion will be provided to Eskom. The package is seen as a first, yet robust, step on the road to ultimate financial sustainability

Operating challenges• Realisation of savings on the Business Productivity Programme in light of the growing municipal

debt and excessive usage of OCGTs to meet customer demand• Increased use of OCGTs in order to meet customer demand• Total municipal arrear debt increased to R4 billion (March 2014: R2.6 billion). The continuing

increase in arrear debt poses significant cash flow concerns• A further downgrade by ratings agencies given the current financial situation, and the resulting

effect on the cost and availability of funding remains a risk• The average time taken to process and pay invoices was 54 days (target: 30 days) during the

period under review. An investigation has been undertaken across the value chain, with specific focus on the procure-to-pay process, to identify and address the challenges

Financial results for the six months ended 30 September 2014Key financial performance indicators for the six months ended 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Company

Cost of electricity (excluding depreciation), R/MWhSC 532.63 560.79 500.27 541.92 496.24

Interest cover, ratioSC 0.69 1.29 2.27 0.65 0.27

Debt/equity (including long-term provisions), ratioSC

2.48 2.25 1.84 2.21 1.96

FFO as % of total debt, %SC 7.63 5.43 8.68 9.21 8.55

Electricity revenue per kWh (including environmental levy), c/kWh

67.48 74.00 68.97 62.82 58.49

Electricity operating cost per kWh (including depreciation and amortisation), c/kWh

63.71 62.14 55.29 59.67 54.15

Group

Free funds from operations (FFO), R million 17 893 16 899 23 312 27 542 18 108

Working capital, ratio 0.83 0.82 0.89 0.71 0.68

Gross debt/EBITDA, ratio 15.64 12.86 10.62 10.96 16.20

Debt service cover, ratio 2.16 1.38 1.51 1.21 2.01

Debt/equity (including long-term provisions), ratio 2.53 2.08 1.72 2.06 1.84



The group achieved a net profit after tax of R9.3 billion for the six months to 30 September 2014 (September 2013: R12.2 billion). Current forecasts indicate a profit of only R0.5 billion for the group by the end of the financial year. The seasonality of Eskom’s business should be considered when reviewing the half-year results, as the expected decrease in net profit over the remainder of the year is a normal trend due to the lower summer tariffs coupled with a contraction in sales volumes, as well as the related maintenance strategy, whereby maintenance is maximised during summer.

Sales and revenueRevenue for the group for the six months to 30 September 2014 was R81.9 billion (September 2013: R77.7 billion). Electricity revenue increased by R4.5 billion year-on-year, which equates to an overall increase of 5.9% against the comparative period, which is lower than the 8% increase granted due to a contraction in sales volumes.

Total electricity sales of 109 168GWh (September 2013: 110 659GWh) year-to-date is 1.35% lower than the same period last year. Industrial action in the platinum sector over the period has forced the downscale of operations of some mines and industries, having a visible impact on sales numbers. Year end sales forecasts show a contraction of 1.09% in full year sales volumes for the current financial year.

Primary energy costA reduction in the primary energy input cost was not seen – primary energy (including coal, water and liquid fuels) increased by R6.8 billion against the comparative period amount of R31.3 billion. Although R2.5 billion relates to the obligation raised on the Medupi coal obligation, the R3.6 billion (September 2013: R1.6 billion) cost of running the OCGTs remains a significant contributor to primary energy cost, powering the generation of 1 164GWh over the period (September 2013: 1 206GWh). Purchases from IPPs amounted to R3.5 billion for the period (September 2013: R1.6 billion), adding an additional 2 665GWh to the energy mix (September 2013: 1 866GWh). In an effort to reduce the load factor of the OCGTs, existing power purchase agreements have been extended to March 2015. This strategy is expected to result in IPP spend of R9.7 billion by the end of the year (March 2014: R3.3 billion).

Operating costsThe number of employees in the group (inclusive of fixed-term contractors) decreased from 46 919 in March 2014 to 46 370. Net employee benefit costs for the six months to 30 September 2014 amounted to R13.2 billion (September 2013: R13 billion).

The company’s net repairs and maintenance for the six months to 30 September 2014 (after capitalisation) amounted to R6.3 billion (September 2013: R6.5 billion).

Net impairments recognised amounted to R0.9 billion (September 2013: R0.7 billion). Of this, R0.7 billion relates to outstanding trade debtors.

Fair value gains and lossesThe net fair value loss for the group on financial instruments, excluding embedded derivatives, was R0.9 billion for the six months to 30 September 2014 (September 2013: R1 billion).

Changes in the fair value of embedded derivatives continued to significantly impact the group income statement. The net impact for the six months to 30 September 2014 was a fair value gain of R1.6 billion (September 2013: R1.9 billion). The remeasurement of the embedded derivative linked to the Bayside aluminium smelter – which was decommissioned at the end of July 2014 – was the largest contributor to this gain.

Net finance costGross finance income for the six months to 30 September 2014 was R1.2 billion for the group (September 2013: R1.1 billion).Gross finance cost for the group for the six months to 30 September 2014 was R11.2 billion (September 2013: R7.6 billion). Borrowing costs capitalised amounted to R8.3 billion (September 2013: R6.1 billion), and the unwinding of interest for the group amounted to R1.7 billion (September 2013: R1.4 billion).

Revenue and debtor managementArrear debt as at 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Arrear debt as % of revenue 0.75 0.91 0.90 1.10 0.82

Debtors days – municipalities, average debtors days

25.0 33.0 26.4 32.7 22.4

Debtors days – large power top customers excluding disputes, average debtors days

14.5 15.2 15.2 14.5 12.3

Debtors days – other large power users (<100GWh p.a.), average debtors days

16.0 17.0 16.5 16.9 18.3

Debtors days – small power users (excluding Soweto), average debtors days

46.0 46.1 44.3 50.2 48.2


Medupi Power Station, being constructed in Lephalale in the Limpopo province, will be one of the largest dry-cooled coal-fired power stations in the world once completed


Municipal and Soweto arrear debtTotal municipal arrear debt continues to rise, increasing from R2.6 billion at 31 March 2014 to R4 billion at 30 September 2014.

Eskom’s customers have a predetermined number of days in terms of their contracts in which to pay the amount due to Eskom. If payment is not made within the required number of days, the amount payable is then referred to as arrear debt. In other words, arrear debt refers only to overdue amounts from municipalities, and not the total amount due.

Arrear municipal debt

Mar 2013 Sep 2013 Mar 2014 Sep 2014

R b

illio

n

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0

Total overdue debt Outstanding >90 days Cumulative impairment provision

The projected municipal debtors’ days for March 2015 are 42 days against a target of 25 days, while the actual at 30 September 2014 was 33 days.

The Promotion of Administrative Justice Act process to disconnect the bulk supply to Maluti-a-Phofung, Ngwathe and Dihlabeng Municipalities in the Free State was suspended following interventions by the Minister of Public Enterprises and the Minister of Cooperative Governance and Traditional Affairs. Together these three municipalities owed Eskom R0.7 billion as at 30 September 2014. Eskom obtained a court order on 18 September 2014 against the Matjhabeng Municipality in the Free State, requiring the municipal manager to report to court on 6 November 2014 to explain the non-payment of current accounts. On 30 October 2014, a memorandum of understanding was signed with the South African Local Government Association, aimed at fostering an active partnership to ensure a cooperative and collaborative working relationship.

The disconnection of electricity supply is a measure of last resort. Eskom makes every effort to ensure that customers pay their accounts. It constantly monitors payments and is willing to enter into reasonable payment agreements that take into account the defaulting customers’ circumstances. Eskom is making every effort, including consulting with National and Provincial Treasury as well as Cooperative Governance and Traditional Affairs, to ensure that municipalities pay their current accounts and obtain commitment by the defaulting municipalities to compile realistic payment plans.

The arrear debt balance related to Soweto amounted to R4 billion as at 30 September 2014 (excluding interest on overdue amounts), and remains a major concern. Payment levels were at 15% for the six months to September 2014 (September 2013: 18%).

The residential revenue management strategy, which includes Soweto, is critical to enhance energy protection and energy loss programmes, and to improve debt collection among small power users. The residential strategy entails:• The installation of split metering with protective enclosures to prevent tampering, which is

key to the success of the strategy• A focused credit management process which, together with disconnections, should assist

in recovering outstanding debt• Driving all other debt recovery initiatives in a structured approach through the Business

Productivity Programme

The conversion to split metering commenced in Dobsonville in July 2014, with the aim of expanding the programme from 1 November 2014, with a total of 18 000 households targeted for conversion by 31 March 2015. This includes intensive engagements to educate customers on energy efficiency, safety, free basic electricity (FBE), inclining block tariffs (IBT), buying of prepaid power through legal vendors, as well as the need for household budgeting to provide for electricity purchases. High levels of protest action are impeding these activities in the field.

LiquidityThe group liquid assets balance at 30 September 2014 totalled R22.6 billion (March 2014: R30.6 billion). In terms of the latest projections, assuming no further drawdowns, Eskom’s liquidity reserves cover its requirements for approximately 90 days (31 March 2014: 120 days). For more information on the borrowing programme, refer to page 43.

Cash flows from operating activitiesThe group’s net cash inflow from operating activities for the six months to 30 September 2014 was R18.1 billion (September 2013: R19.6 billion). The group’s working capital ratio was 0.82 as at 30 September 2014 compared to 0.71 as at 31 March 2014.

Cash flows used in investing activitiesCash flows used in investing activities for the six months to 30 September 2014 were R25.3 billion (September 2013: R24.5 billion) for the group. The capital expenditure cash flows on property, plant and equipment and intangible assets included in this line item, exclusive of capitalised borrowing costs, amounted to R24.2 billion (September 2013: R21.6 billion), and stemmed from progress on the capital expansion programme. For detail on the capital expenditure incurred for the six months to 30 September 2014 refer to the table on page 35.

Cash flows from financing activitiesThe net cash inflows from financing activities for the six months to 30 September 2014 were R0.4 billion (September 2013: R24.5 billion) for the group. The group debt/equity ratio (including long-term provisions) was 2.08 as at 30 September 2014 (September 2013: 1.72).

Free funds from operations as a percentage of gross debt was 5.67% for the group (September 2013: 8.85%). The gross debt/EBITDA ratio for the group was 12.86% (September 2013: 10.62%).



Credit ratingsSummary of Sovereign and Eskom credit ratings as at 30 September 2014

Rating

Sovereign Eskom

Standard & Poor’s Moody’s Fitch

Standard & Poor’s Moody’s

Fitch (Local

currency)

Foreign currency BBB- Baa1 BBB BBB- Baa3 –

Local currency BBB+ Baa1 BBB+ BBB- Baa3 BBB+

Standalone ─ ─ ─ b- b1 B

Outlook Stable Negative Negative Watch Negative Negative Negative

Action date 13 Jun 2014 27 Sep 2012 13 Jun 2014 20 Jun 2014 19 Jul 2013 18 Jun 2014

Affirmation date 13 Jun 2014 17 Jul 2013 13 Jun 2014 20 Jun 2014 19 Jul 2013 18 Jun 2014

On 28 October 2014, Fitch affirmed Eskom’s long-term local currency Issuer Default Rating at BBB+ with a Negative Outlook. In its affirmation statement, Fitch acknowledged that the recently announced Government support package has had a stabilising impact.

On 6 November 2014, Moody’s downgraded the Sovereign from Baa1 with Negative Outlook to Baa2 with Stable Outlook. Mechanistically, that implies that all state-owned companies and South African banks would also be downgraded, unless there are specific reasons not to downgrade a particular entity. On 7 November 2014, as anticipated, Moody’s announced that they will downgrade Eskom to Ba1 but with Stable Outlook, resulting in a sub-investment grade rating.

On 11 November 2014, Standard & Poor’s announced that they will remove the Negative CreditWatch placed on Eskom on 20 June 2014, and retain Eskom’s credit rating at BBB- but with Negative Outlook. The rating therefore remains investment grade. Standard & Poor’s further indicated that they believe that the Government support package will support the liquidity and credit metrics of Eskom in the near term, and demonstrates the extremely high likelihood of Government support.

Risks affecting Eskom’s credit ratingEskom is evaluating all potential funding alternatives to close the funding gap resulting from the MYPD 3 tariff determination and to meet the substantial capital requirements of the capacity expansion programme. Due to increased operating and capital costs together with inadequate tariff increases, Eskom is now in a similar position to 2010 when it underwent a similar exercise. Eskom commissioned a detailed independent study of its current credit rating and future rating outcome scenarios, as well as the available equity and debt funding options available to assist Eskom in the way forward.

Impact of a ratings downgrade The negative impact on Eskom of a ratings downgrade to sub-investment grade status will be an increase in the cost of funding and reduced availability of funding. The lowest credit ratings category that some of Eskom’s loans can tolerate is Baa3 (Moody’s) and BBB- (Standard & Poor’s). Therefore, credit rating downgrades to below investment grade will trigger certain loan covenants, although mitigating measures are in place.

Borrowing programmeThe focus of the borrowing programme remains the funding of the balance of the requirement to the end of the committed capacity expansion programme as per the approved Corporate Plan, as well as the maintenance of a liquidity buffer of R20 billion.

At 30 September 2014 a total of R65.5 billion, or 32.8% of the revised funding requirement of R199.5 billion for the remainder of the MYPD 3 period (1 April 2014 to 31 March 2018), had been secured. Eskom is likely to have to borrow a further R50 billion over the MYPD 3 period, and this has been included in the revised funding requirement. The current borrowing programme does not incorporate any allocations of capital projects from the IRP 2010.

To complement current funding sources, new opportunities from alternative funding sources and products, such as Islamic (Sukuk) funding, preference shares, syndicated loans and project-based funding are being explored and considered. In addition, preference shares, equity and hybrid-equity solutions will also be considered as replacement alternatives for the existing debt in the borrowing programme, to assist in improving financial ratios and credit ratings assessments.

Progress on the approved borrowing programme for 2014 to 2018 as at 30 September 2014

Potential sources (R billion)

Identified funding sources

Committed to date1

Drawdowns to date2

Domestic bonds 41.0 5.0 5.0

International bonds 42.0 3.3 3.3

Commercial paper3 60.0 2.4 2.4

Existing domestic DFIs 6.0 6.0 1.5

Existing international DFIs 32.3 32.3 2.2

Existing ECAs 15.4 15.4 0.9

Other and new sources 2.8 1.1 0.0

Total 199.5 65.5 15.3Percentages 32.8%4 23.4%5

1. Funding raised or signed facilities with milestone drawdowns.2. Secured during the period 1 April 2014 to date.3. Commercial paper is issued for up to one year and then redeemed and reissued for the same net amount. It is thus by definition not fully

secured for the full period, however, Eskom’s long-term observations and past trends support a high level of confidence that Eskom will be able to roll over the redemptions each year. For this reason, the gross value of the commercial paper issued is shown as “secured”.

4. As a percentage of the R199.5 billion funding being sourced.5. As a percentage of the currently secured total.



Update on Regulatory Clearing Account (RCA) application for revenue review for MYPD 2

Background to the RCA application for revenue review

NERSA’s Multi-year Price Determination (MYPD) methodology allows Eskom to submit its Regulatory Clearing Account (RCA) application for revenue review annually based on the regulatory rules. The RCA regulatory mechanism reconciles the variance between the MYPD decision (which is based on projections and assumptions) and actual revenue and certain costs. Eskom submitted an application to NERSA during September 2013 for the evaluation and approval of the RCA balance for the MYPD 2 period, covering the period from 1 April 2010 to 31 March 2013.

The RCA mechanism allows Eskom to adjust for the over- or underrecovery of preceding years’ regulated costs and revenues through the electricity tariffs in subsequent years. The RCA rules applicable to the MYPD decision are informed by the approved regulatory framework during the MYPD period. NERSA, upon application by Eskom, has to assess certain qualifying allowed revenue and expenditure against actual revenue and expenditure.

The RCA includes five broad categories of qualifying revenue and expenditure, namely, revenue variance, pass-through adjustments, correction-factor adjustments for primary energy cost and operating expenditure due to changes in inflation and sales volumes, adjustments for qualifying ring-fenced expenditure and incentive-based adjustments.

The pass-through adjustments consist of coal price and volume adjustments, revenue variances, open-cycle gas turbine (OCGT) primary energy fuel price and volume variances, as well as the capital expenditure clearing account. The OCGT fuel price variances are allowed as an automatic pass-through, limited to the volumes allowed by NERSA, while volume variances are subject to a prudency review. The correction-factor adjustments relate to changes in inflation rates and production levels.

NERSA RCA decisionOn 30 July 2014 NERSA announced its decision to allow Eskom to recoup R7.8 billion in respect of the underrecoveries for the MYPD 2 period. In certain instances adjustments were made for the benefit of the consumer and certain adjustments were made for the benefit of Eskom. NERSA further announced on 3 October 2014 that the RCA balance would be liquidated through the tariff recovered from standard tariff customers as well as some other Eskom customer categories, but would only be implemented in the 2015/16 financial year. This will result in an average tariff increase of approximately 13% for standard customers, instead of the 8% previously approved.

The RCA determination indicated that there were many areas of complete alignment between Eskom and NERSA. These include the revenue volume variance, coal burn variance, independent power producer (IPP) pass-through and returns on the capital expenditure variance. However, the decision to disallow costs associated with the extent of utilisation of the OCGT stations and the disregarding of costs associated with the power buyback programme are of concern to Eskom, as these highlight a difference in interpretation of the MYPD methodology and what expenditure could reasonably be deemed to have been prudently incurred.

It is expected that ratings agencies will see the finalisation of the first RCA determination as a step in the right direction.

Business Productivity Programme (BPP)The Business Productivity Programme (BPP) aims to deliver cost saving opportunities in order to close the revenue shortfall that resulted mainly from NERSA’s MYPD 3 tariff determination granting an average increase of 8% per annum. The programme focuses on the reduction of the cost base, increased productivity and enhanced efficiencies, and revisions of the Eskom business model and strategy, while the balance relates to cost avoidance.

The initial phase of BPP that was completed on 31 March 2014 focused on the development of savings opportunities or “value packages”. Savings opportunities of R73 billion were approved, R13 billion more than the R60 billion target. Of the R73 billion, R62 billion comprised cash savings in relation to the February 2014 Business Plan.

Total cash savings of R9.8 billion are targeted for the 2014/15 financial year. Savings are targeted under operating expenditure and other income (R5.1 billion), working capital (R2.4 billion) and capital expenditure (R2.3 billion).

Operating expenses (opex) savings identified within the BPP design phase have been allocated to divisions and the associated budgets reduced. Capital expenditure (capex) budgets have also been allocated to divisions and assigned to projects. Divisions have been tasked to operate their business within the reduced budget to realise the BPP savings target of R9.8 billion for the 2014/15 financial year. Exco has approved achieving the 2014/15 BPP bottom-line target as an incentive scheme qualifier for all staff.

With respect to the delivery of 2014/15 targeted savings, divisional BPP teams report R1.9 billion savings banked, with a potential loss of R5.6 billion of the initially identified value packages. Primary drivers of savings loss or deferral (or leakages) are projected overspend on diesel for OCGTs and fuel oil for coal-fired plant, as well as slow progress on recovering outstanding debt from municipalities. In an effort to close the projected savings leakages, divisions have identified potential stretch of savings in the existing value packages, as well as additional savings initiatives. Cash unlocking initiatives are being implemented to provide additional liquidity solutions. Measures to close the projected savings gap account for R4.2 billion, resulting in a net projected savings gap of R1.3 billion. The BPP team is looking to further address the gap through additional focus on other operating expenses and general expenses, as meeting the R9.8 billion target for 2014/15 will be a challenge. Key support will be required to manage the growing arrear municipal debt as well as the consequences of reduced diesel usage on security of supply.

In addition to the proposed business efficiency measures addressed through BPP, measures to specifically address the short-term liquidity constraints are being investigated. A study was conducted on potential opportunities and nine “cash unlocking” opportunities are currently being investigated and implemented, once approved. While the initiatives will assist in alleviating liquidity constraints, they will not lead to financial sustainability on their own.



Operational sustainabilitySecurity of supply remains a key concern which calls for an integrated perspective on energy conservation, demand management and the use of open-cycle gas turbines (OCGTs) and other supply options. Operational sustainability is concerned with security of supply as well as balancing the supply and demand of electricity. It is enabled by the Generation sustainability strategy, as well as environmental and regulatory compliance in the regulated business to maintain the licence to operate, together with a focus on improving the customer experience while reducing costs.

Operating highlights• A reduction in partial load losses was achieved during the challenging winter months, thereby

reducing the pressure on the constrained power system• Maintenance of generation plant undertaken during the past winter was in line with the strategy

towards achieving a sustainable generation fleet• Koeberg Unit 1 has remained on full load since 2 January 2014• Excellent transmission network performance was achieved with system minutes lost for events

<1 minute at 0.62, against the half-year target of less than 1.9, while no major incidents occurred• Investments made in the distribution network continue to yield good network performance with

the SAIDI and SAIFI technical measures exceeding target for the year to date• Energy losses were significantly better than target, resulting in more energy being available to

the network, thereby slightly easing the pressure on the constrained power system• Distribution made progress on planned maintenance performance measures, improving the

reliability of the network and security of supply• Integrated demand management (IDM) initiatives, mainly through demand response

programmes, provided the System Operator with 1 417MW of dispatchable load for its control and peak demand reduction requirements

• A total of 760 IDM projects were installed during the six months to 30 September 2014, with potential demand savings of 81MW and potential energy savings of 258GWh

• More than 1 000MW of renewable IPP (RE-IPP) generation capacity has been connected and is providing power to the grid, supplementing Eskom’s generation capability

• The overall coal stock holding amounted to 46 days as at 30 September 2014 (target: 42 days), aiding in maintaining security of supply

• The Mokolo and Crocodile Water Augmentation Project Phase 1 is delivering water to Medupi Power Station and will be fully operational by the end of February 2015

• Engagements with Mozambican stakeholders to advance the gas strategy have intensified• The customer satisfaction score for the KeyCare index was sustained above 109%, reflecting

continual interaction and interventions held with key industrial customers

Operating challenges• Constraints in balancing supply and demand resulted in three incidents of load shedding, albeit

of relatively short duration, during June 2014, with further load shedding implemented during November 2014 as a result of the collapse of the main coal silo at Majuba Power Station

• Tight operational reserves resulted in a significantly higher than budgeted usage of the costly open-cycle gas turbine (OCGT) fleet

• There is an increasing trend on outage slips and high post-outage UCLF, which significantly impacts the already severely constrained power system

• Coal-related energy losses were experienced, mainly at Arnot, Tutuka and Matla Power Stations, mostly due to poor coal quality

• The unpredictable performance of plant and tight reserve margins still require that some outages be deferred, despite significant commitment to adhere to the maintenance outage plan. The result is a further delay in the turnaround of plant performance. In addition, significant capital and operating budget reductions are hampering sustaining the transmission and distribution network performance

• Energy imports from Cahora Bassa remained constrained due to challenges with the overall availability of the high-voltage direct current (HVDC) transmission lines

• While the average demand from key industrial customers is starting to recover to pre-winter levels, having increased from 8 950MW in July to 9 300MW in September 2014, the lag in recovery of demand by key industrial customers after the winter high tariff season will have an impact on revenue going forward

• Due to prevailing funding constraints in Eskom, funding for the IDM programme decreased significantly, which could eventually put the security of supply at risk

• Eskom is experiencing challenges in connecting IPP capacity to the grid, as this is dependent on grid strengthening and refurbishment projects, which have been negatively affected by the current financial constraints

• Deferment of N–1 compliance, from 2016 to 2022, was supported by the Grid Code Advisory Committee and is now pending approval from NERSA. The result is a delay in the implementation of redundancy measures that aim to reduce the number of grid interruptions

• Production performance at the Arnot and New Denmark cost-plus mines continued to be below target, leading to the under-supply being augmented by more expensive short- to medium-term coal supply agreements, although the operating costs of those cost-plus mines were still borne by Eskom

• Limitations in capital allocations for cost-plus mines are presenting a challenge in maintaining a consistent and sustainable future supply of coal

• There was an increase in the number of sporadic community unrests, which present a challenge to the safe delivery of coal volumes to power stations

• The Majuba rail operation was severely impacted by numerous breakdowns of the tippler off-loading system, a mechanism used to off-load coal delivered by rail

Power system emergency declarations and load sheddingThe country experienced a cold front during the first few weeks in June 2014, thereby causing increased demand, which resulted in power system emergencies being declared and rotational load shedding being implemented over three evening peaks, namely 11 June 2014 from 18:00 to 19:57, 12 June 2014 from 17:24 to 19:21 and 17 June 2014 from 17:05 to 18:30. Despite these three short load shedding events, electricity demand was met for the remainder of winter up to the end of September 2014, without the need for further load shedding. Demand was adequately met during the day and, although evening peaks were tight, sufficient generation capacity and emergency reserves were available to manage the demand, although extensive use was made of the costly OCGT stations in order to meet demand. With the move into summer, the nature of this challenge changes from the evening peak to a constraint throughout the day.



Technical performance for the six months to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


EAF, %SC, 1 80.00 76.77 78.42 75.13 77.65

Normal UCLF, %SC, 2 13.00 13.30 11.53 12.61 12.12

Less: Constrained UCLF, %SC, 3 3.00 1.04 3.45 1.63 3.41

Underlying UCLF, %SC, 4 10.00 12.26 8.08 10.98 8.71

Normal PCLF, %5 10.00 8.96 8.73 10.50 9.10

Underlying PCLF, %6 ─ 9.22 9.36 10.77 ─

Maintenance backlog reduction based on the Eskom Technical Governance Committee approval, numberSC

1 3 – 5 ─

Number of system minutes lost <1 minute, minutesSC, 7 3.80 0.62 1.57 3.05 3.52

Number of major incidents >1 minute, number8 2 0 0 0 3

System average interruption frequency index (SAIFI), eventsSC, 9

22.0 20.5 20.1 20.2 22.2

System average interruption duration index (SAIDI), hoursSC, 10

43.0 37.7 37.3 37.0 41.9

1. EAF measures plant availability, including planned and unplanned unavailability and energy losses not under the control of plant management.2. Normal UCLF measures the lost energy due to unplanned energy losses resulting from equipment failures and other plant conditions.3. Constrained UCLF is a result of emissions and short-term related UCLF due to system constraints to meet customer demand. This is

apportioned between PCLF and OCLF.4. Underlying UCLF is the difference between normal and constrained UCLF and represents the UCLF that is still within Generation’s control. The

shareholder compact target for underlying UCLF has been approved at 10%, which incorporates the normal OCLF of 1%. The targets have been split in the table above.

5. Normal PCLF is energy lost during the period because of planned shutdowns.6. Underlying PCLF is the sum of the normal PCLF and the constrained PCLF (the apportionment of the constrained UCLF that is assigned

to PCLF).7. Total number of system minutes lost for incidents of less than one system minute.8. Records the number of incidents with a severity greater than one system minute.9. SAIFI is a reliability of supply index – how often on average (frequency) the customer connected would experience a sustained interruption per

annum (number of times per annum).10. SAIDI is an availability of supply index – the average duration (hours) of a sustained interruption the customer would experience per annum

(number of hours per annum).

Generation performanceEskom aims to optimally operate and maintain its electricity generating assets for the duration of their economic life. Eskom operates 27 power stations with a total nominal capacity of 41 995MW.

Generation sustainability strategyThere has been a change in focus regarding the Generation sustainability strategy. The primary focus is no longer on keeping the lights on, but rather on making every effort to ensure adequate supply, but not at the cost of plant sustainability – by deferring required maintenance – or financial sustainability.

In line with the Generation sustainability strategy, planned maintenance, as measured by planned capability loss factor (PCLF), was increased over the winter months, where traditionally minimal planned maintenance was undertaken, to ensure that a PCLF of 10% was achieved. The second area of focus was to stabilise the unplanned maintenance, as measured by unplanned capability loss factor (UCLF), with a particular focus on partial load losses. This assisted in maintaining unplanned load losses at a level below 4 500MW for extended periods during winter. However, historical underexpenditure on maintenance, as well as the operation of plant at excessive load factors, result in unplanned load losses remaining high.

In addition, the financial constraint on capital expenditure will negatively affect the execution of technical plan projects, which will in turn compromise the execution of the Generation sustainability strategy for the following three financial years, ending in 2017/18.

Plant performanceThe availability of generating plant, as measured by energy availability factor (EAF), has deteriorated in the six months to 30 September 2014 compared to the same period last year, due to more maintenance being performed than during the previous winter, but has improved compared to March 2014. The improvement since year end is as a result of a reduction in planned maintenance, as less maintenance was undertaken in the winter months to meet increased demand, as well as a reduction in unplanned shutdowns beyond the control of Eskom, measured by other capability loss factor (OCLF).

The underlying UCLF percentage (that is still within Generation’s control) for the six months to 30 September 2014 was higher than the March 2014 and September 2013 figures. This had a negative impact on plant availability (measured by EAF).

The higher UCLF percentage is an indication of the deteriorating plant health of the ageing power station fleet. The following factors contributed to the high UCLF percentage recorded in the six months to 30 September 2014:• Partial load losses contributed 4.99% (March 2014: 5.24% and September 2013: 4.47%). As

a result of the focus on reducing these losses, the extent of partial load losses has decreased since March 2014. However, the system continues to experience intermittent partial load losses. Some interventions only provide temporary gains, as longer term benefits require that the units be taken out of service for maintenance

• A total of 108 boiler tube failures (September 2013: 97) contributed 2.14% (September 2013: 2.03%)

• Major or significant load losses contributed 2.14% (September 2013: 1.76%)

Maintenance backlog and post-outage UCLFAlthough there is significant commitment to adhering to the maintenance outage plan, the unpredictable performance of plant and tight reserve margins still requires that some outages be deferred. The result is a further delay in the turnaround of plant performance.

The focus is now on the post-outage UCLF, which is measured for a period of 60 days after a unit is synchronised to the grid after an outage. The year-to-date post-outage UCLF – for units that implemented philosophy-based outages greater than 21 days – averaged 13.50%, which was worse than the UCLF target of 10%. Of the 16 units that had been operating for a minimum of 60 days after unit synchronisation as at the end of September, nine units achieved the target of 10%.

A number of initiatives are being implemented to bring post-outage UCLF measures within the target range.



Update on the Duvha Unit 3 over-pressurisation incident As previously reported, Eskom experienced an over-pressurisation incident in the boiler of Unit 3 at Duvha Power Station on 30 March 2014, taking the 575MW unit out of service for repair. Having Unit 3 out of service has a material impact on UCLF, contributing 1.37% to the system UCLF for the period to 30 September 2014. The incident investigation has been completed and the project team, together with Escap, Eskom’s in-house insurer, is finalising the way forward for the recovery process.

Collapse of Majuba coal siloAt approximately 12:30 on Saturday 1 November 2014, operating staff at Majuba Power Station noticed a crack in the main coal silo. The area was evacuated and at 13:12, the silo collapsed. No injuries were reported. As a result of the collapse, the supply of coal to the boilers of a number of units was interrupted, and output at the station was reduced to just over 600MW. Load shedding was implemented on Sunday 2 November 2014 to preserve coal at Majuba Power Station and water at the pumped-storage plant, in order to meet demand during the following week and to prevent the power system suffering a total blackout.

The collapsed silo is the focal point where the primary coal conveyor belt feeds coal into the power station. The collapsed silo fed coal into Units 3 and 4, as well as to two other silos, which in turn supply Units 1, 2, 5 and 6.

Arrangements were made to transport mobile coal feeders to site to manually feed coal to five of the six units – one unit being offline for planned maintenance – to ensure that the power station was able to operate at a minimum of half-load. Supply to Units 3 and 4 remains problematic, as the silo collapsed onto the area where a mobile feeder could have been placed.

An investigation into the incident is under way, and is expected to take around three to six months to finalise.

Koeberg performanceKoeberg Unit 1 has remained on full load since being returned to service after a refuelling outage on 2 January 2014. Koeberg Unit 2 has remained on full load after returning to service from a refuelling outage on 17 May 2014, although it was offline for 11 days longer than planned, due to an outage slip.

Steam Generator Replacement ProjectEskom has signed a contract with Areva for the replacement of Koeberg’s steam generators, targeted for 2018. A legal challenge has been initiated by the unsuccessful bidder.

Managing supply-and-demand constraintsOpen-cycle gas turbines (OCGTs) continued to be used extensively over the past six months, mainly as a result of tight operational reserves and higher planned maintenance during the winter months. The expectation is that the OCGT fleet will continue to be used extensively throughout the upcoming summer months, although this is subject to the availability of funding.

The strategic intent was to cut back on the very costly OCGT production due to budget constraints. The initial 2014/15 OCGT budget of R10.4 billion was reduced to R6.4 billion, as the intention was to purchase cheaper IPP supply options under the Short-Term Power Purchase Programme (STPPP). However, projections now indicate that the OCGT utilisation will be significantly higher than originally budgeted. As a result, additional funding of R4.3 billion was granted as a contingency, subject to obtaining specific approval to utilise these funds. As at 30 September 2014, additional spend of R1 billion had been approved.

OCGT production and costs for the six months to September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


OCGT production, GWh 2 092 1 164 1 206 3 621 1 905

OCGT diesel usage, R million 6 396 3 623 3 333 10 561 4 993

The OCGT average load factor for the six months to 30 September 2014 was 11.02% (September 2013: 11.4%).

Cross-border sales and purchases of electricity for the six months to September 2014

GWh

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


International sales 11 262 5 626 6 232 12 378 13 791

International purchases 11 266 4 903 4 424 9 425 7 698

Net (purchases)/sales (4) 723 1 808 2 953 6 093

International sales (exports from Eskom) for the six months ended 30 September 2014 were marginally higher than target, due to generation constraints at Morupule B Power Station in Botswana and higher sales to Swaziland. However, it is projected that international sales for the full year will be 13.3% lower than the previous year and 4.7% lower than the target.

International purchases (imports by Eskom) were below target for the six months ended 30 September 2014, and this trend is expected to continue through to year end. Year end purchases are expected to be 23% lower than budgeted as a result of line and equipment faults on the high-voltage direct current (HVDC) transmission lines from Cahora Bassa. As a result, Eskom has had to

Transmission lines spanning 115.3km have been strung and energised as part of the Ingula Pumped-storage project



either postpone necessary plant outages or make use of its own generation capacity (often through the use of OCGTs) in order to meet demand in the absence of supply from Cahora Bassa.

A power purchase agreement entered into with Aggreko in Mozambique for the purchase of 148MW of mid-merit supply was extended from July 2014 to August 2015, with the option to further extend the agreement by two months. Aggreko, however, has only been able to deliver 108MW due to constraints in the Mozambican transmission network.

Securing Eskom’s resource requirementsSecuring Eskom’s coal requirementsCoal stocks remain at fairly healthy levels across the system. Total Eskom coal stock days were at 46 days at 30 September 2014, higher than the target of 42 days, largely due to extra stock at the Lethabo and Kendal Power Stations. Mines servicing these stations are cost-plus mines; thus, Eskom receives no financial benefit from reducing coal production.

Technical performance for the six months to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Coal burnt, Mt 121.28 61.40 62.39 122.42 122.95

Coal purchased, Mt 128.85 61.78 65.62 121.98 126.44

Coal stock days 42 46 53 44 46

Road-to-rail migration (additional tonnage transported by rail), MtSC

11.50 6.57 5.40 11.60 10.10

Coal supply strategy implementation planEskom continues to give effect to the coal supply strategy implemented in January 2013.

Coal contracting status for KusileAs the coal supply contract between Eskom and Anglo has not yet been finalised, Kusile developed a mitigation solution to deliver coal to site for Unit 1 synchronisation, through the construction of a temporary coal trans-loading facility and conveyor, presently in progress. This solution will use alternate coal supply agreements. Finalisation of negotiations and contracting for the limestone supply to Kusile Power Station will be achieved within the current financial year.

Coal securityThe draft Mineral and Petroleum Resources Development Amendment Bill, which takes cognisance of the discussions on coal security and declaring coal as a strategic resource, was approved by Parliament. The Minister of Mineral Resources has delayed the signing the bill into law in its current form, until certain concerns raised through stakeholder engagements have been addressed. Feedback on this matter is awaited from the Minister of Mineral Resources.

Implementing coal haulage and the road-to-rail migration planAlthough year-to-date rail deliveries were on track, some challenges were nonetheless experienced, due to major tippler breakdowns at Majuba Power Station and Transnet Freight Rail (TFR) operational inefficiencies at the Tutuka rail service. The matter is receiving TFR’s attention.

Securing Eskom’s water requirementsThe Kriel-Matla mine water project is in the final feasibility stage of development and includes a review of possible institutional and funding models for project development and implementation, due to capital constraints.

The decision on the Mokolo and Crocodile Water Augmentation Project (MCWAP) Phase 2, regarding the size of the pipeline to be constructed, was discussed and supported in principle by National Treasury’s Fiscal Liability Committee, pending guarantees to the Department of Water and Sanitation for water capacity for the coal mines required to support Eskom’s Waterberg coal supply strategy.

The deterioration of the quality of water requires collective action by the Department of Water and Sanitation and water users, to protect water resources and deal with polluters. The risk has been identified as part of the Eskom water strategy review process and requires specific interventions by all stakeholders.

Gas strategyEskom is currently pursuing the option of gas as a fuel source, to be facilitated through the following projects in Mozambique:• Buzi gas project: Discussions continue between Eskom and Electricidade de Moçambique

(EDM) regarding the construction of a 600MW combined-cycle gas turbine (CCGT) plant, subject to confirmation of gas reserves in the Buzi gas field. Drilling for gas, originally planned for November 2014, is expected to commence in March 2015

• Gasnosu pipeline project: A joint development agreement is being negotiated between Eskom and Gasnosu to undertake a feasibility study for the pipeline project

• Temane CCGT project: Eskom has held discussions with EDM and Sasol, the current developers of the power plant, to explore the possibility of Eskom’s participation

In addition to the abovementioned gas projects, Eskom is considering a number of other energy projects outside of South Africa, including the Grand Inga project on the Congo River in the Democratic Republic of the Congo.

Transmission and distribution performanceThe excellent transmission network performance of system minutes lost for events <1 minute and major incidents >1 minute was supported by good plant and human capital performance. However, performance risks still remain, with ageing assets and vulnerabilities due to network unfirmness.

Previous investments in the distribution network and the continued managerial focus on network performance continue to yield good results with the technical measures (SAIDI and SAIFI) performing better than target. Furthermore, strict management of planned outage work, improvement in fault management (or unplanned work), detailed root cause analysis, disciplined execution and interdepartmental collaboration all contributed to the improvement.

In the face of a growing customer base and an ageing and constrained network, and given the current financial constraints, the inability to sustain network performance within regulatory norms remains a risk.



Energy losses and theftIn the six months to 30 September 2014, Eskom’s total energy losses were 8.48% (September 2013: 9.22%), of which non-technical losses were estimated at between 1.63% and 2.61%. This is a significant improvement in performance across both Transmission and Distribution.

Specific interventions aimed at reducing energy and revenue losses are being pursued with the support of the social marketing campaign, Operation Khanyisa, aimed at promoting the legal use of electricity by customers.

Non-technical losses, particularly theft, have been growing across all sectors in Eskom’s customer base, resulting in increases in the volume of energy losses. Eskom loses over R2 billion per annum due to electricity theft. The losses suffered by the country as a whole, including municipalities, is estimated to be at least double that figure. Theft of steel members from transmission towers is an ongoing occurrence, even though this is being mitigated by security and line inspection patrols.

Impact of Operation Khanyisa on electricity losses and electricity theft

Through Operation Khanyisa, Eskom has had a number of recent successes in the fight against electricity theft, obtaining convictions for electricity theft, meter tampering and the illegal sale of prepaid electricity vouchers. Notwithstanding that, it will continue to focus on curbing electricity theft, while ensuring that technical losses are also contained.

Eskom carries out revenue protection audits where customer metering installations are inspected to detect theft or faults. Where faults are found, the meter is replaced and where tampering or illegal connection is detected, the customer is disconnected and will only be reconnected after a tamper fee and reconnection fee have been paid. The tamper fee is increased for customers who are found to have tampered with their meter more than once.

Notable successes of the Operation Khanyisa campaign include physical audits of 2.35 million meters and electrical supply points, 76 931 disconnections, 112 arrests and 60 court cases and convictions. These convictions include the first successful prosecution of two electricity theft suspects on racketeering charges, who received a combined sentence of 111 years.

Eskom, together with the South African Police Service, have also removed illegally connected cables in many areas around the country, but in some cases residents illegally reconnect electricity as soon as Eskom and the Police leave the area. Eskom therefore urges members of the community to report illegal activities to the Police, or by calling the anonymous Eskom Crime Line on 0800 11 27 22 or using the SMS Crime Line on 32211.

Demand side management, energy efficiency and independent power producers (IPPs)Integrated Demand ManagementIntegrated Demand Management (IDM) plays a key role in assisting Eskom to balance power supply and demand during periods of generation constraints. Demand side management interventions encourage customers to use electricity more efficiently, so reducing the gap between supply and demand in the short to medium term.

Verified demand side management and internal energy efficiency savings

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Demand savings (evening peak), MW 246.0 32.0 117.0 409.6 595.0

Energy savings, GWh 592.0 310.0 305.7 1 363.0 2 242.0

Internal energy efficiency, GWh 10.0 0 0 19.4 28.9

Demand management costs for the six months ended 30 September 2014

R million

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Total energy efficiency demand side management 950 420 576 1 357 2 851

Power buybacks – – – 87 2 808

Demand response programmes 688 178 95 262 283

Total (excluding transfer pricing) 1 638 598 671 1 706 5 942

The Ingula Unit 4 main inlet valve is delivered to site



Due to Eskom’s financial constraints, IDM programmes have effectively been put on hold. As a result, the performance of verified demand savings and internal energy efficiency are significantly below target. During the six months to 30 September 2014, Eskom achieved total evening peak demand savings of 32MW (September 2013: 117MW) and annualised energy savings of 310GWh (September 2013: 306GWh). During the same period, Eskom spent R0.4 billion on IDM initiatives (September 2013: R0.6 billion).

Eskom continued the rollout of the demand response rewards programme to sign up customers to reduce demand for compensation, should the electricity system require it. Currently, 614MW of supplemental, 791MW of instantaneous and 12MW of standby generation, for a total of 1 417MW of dispatchable load, is available to the System Operator for its control and evening peak reduction requirements.

A total of 760 projects were installed during the period to 30 September 2014, with potential demand savings of 81MW and potential energy savings of 258GWh. The residential mass rollout programme of compact fluorescent lamps (CFLs) continues to be the key residential initiative contributor. The CFL rollout phase 3 was completed in Gauteng in July 2014, with 179 447 bulbs being installed during the six months to 30 September 2014, and a total of 372 964 bulbs (against a target of 500 000) installed since inception.

Eskom contributes to Government’s solar water heating initiative and 12 478 solar water heaters have been installed in the six months to 30 September 2014, bringing the total for the rebate programme and residential contracts to 394 993 since inception in 2009.

Eskom’s Power Alert and “5pm to 9pm” campaigns continued to reduce power demand during the evening peak. The average impact for the red flightings in the evening peak on the worst-constrained day in July 2014 was 306MW.

Purchasing and installing IPP capacityEskom acknowledges the role that independent power producers (IPPs) will play in the South African electricity market and remains committed to facilitating their entry into the market. Total capacity of 4 280MW has been contracted with IPPs as at 30 September 2014.

Energy purchases for the period to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Total energy purchased, GWh 5 106 2 665 1 866 3 671 3 516

Total spent, R million 7 473 3 534 1 607 3 266 2 941

Weighted average cost, c/kWh 146 133 84 88 83

Eskom has signed contracts for 2 467MW under the renewable IPP (RE-IPP) procurement programme. Renewable projects with signed power purchase agreements are at various stages in the construction phase. As at 30 September 2014, 1 175MW was operational and had been made available to the grid.

Eskom achieved 11 grid connections of 577MW in total in the six months to 30 September 2014. In 2013/14, there were 22 grid connections of 688MW in total. These connections relate to the DoE bid rounds 1 and 2.

The 21 projects in the DoE bid round 3 window, totalling 1 456MW, are currently in the quotation phase, with the financial close targeted for November 2014. Some issues arose due to the inability of some of the IPPs to timeously pay full commitment fees for quotations. However, all issues from bid round 3 have been resolved.

Customer service performanceCustomer service performance for the six months to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Enhanced MaxiCare, %SC 96.0 97.2 92.3 92.7 93.2

Eskom KeyCare, %SC 102.0 109.6 107.3 108.7 105.8

Eskom’s customer satisfaction levels are assessed in terms of the Enhanced MaxiCare composite index, which measures Eskom’s service to residential, small and medium customers, and the Eskom KeyCare index, which measures the satisfaction of Eskom’s large industrial customers. These are perception surveys conducted by an external company.

The Enhanced MaxiCare score was 97.2% for the six months to September 2014, above the target of 96.0%. There was an improvement due to the customer service improvement plan initiated by Eskom. The Eskom KeyCare measure was sustained above 109% during the six months to 30 September 2014, indicative of the regular interactions with top customers to share critical information on the power system status and progress on the capital expansion programme.

Environmental sustainabilityEnvironmental compliance, in terms of air quality, land, water, waste and ash management, is critical to Eskom maintaining its licence to operate, thereby ensuring security of supply, as well as meeting the principle of zero harm to the environment, while operating under complex and evolving environmental requirements.

Operating highlights• Eskom was awarded the “Green” Grand Prix Award in the 2014 Sunday Times Top Brands

survey for “its efforts to preserve the environment and harness the country’s natural resources”• The air quality offset project being carried out in KwaZamokuhle, a small township close to

Hendrina Power Station in Mpumalanga, is progressing well. Baseline monitoring has started and several positive engagements with the community have taken place

• There has been a decrease in the number of environmental contraventions, which resulted from an increased effort to ensure compliance, as well as changes in legislation with regards to atmospheric emission contraventions

• Several water use licences that had been delayed (particularly in the Distribution division) were issued in September, with indications that at least six other critical licences would be issued in the near future

• Government and business were engaged on the development of carbon budgets or desired emission reduction outcomes for the country. Extensive comments were submitted to Government and shared with business, represented by BUSA (Business Unity South Africa) and the Industry Task Team on Climate Change



Operating challenges• Financial and system constraints are leading to asset maintenance being prioritised over

the implementation of initiatives aimed at environmental compliance and reducing Eskom’s environmental footprint, such as water projects aimed at reducing water impacts, emission-related projects and the implementation of bird mitigation structures on lines to reduce red-data bird mortalities

• Notwithstanding the system constraints reducing the ability to obtain outages to perform maintenance, there are insufficient funds for the retrofitting of fabric filter plants, extension of ash dams and water management projects which are necessary to ensure that Generation retains its licence to operate in the medium term

• Several power stations are reaching the capacity limits of their current ashing storage facilities. Delays in funding for the expansion of ashing facilities could result in power stations having to significantly reduce production or even shut down

• The lack of integration between Government policies and regulations which intend to manage greenhouse gas emissions, as well as policies and regulations in the energy sector, will impact Eskom’s ability to meet its sustainability aspirations, and have macroeconomic implications

• Eskom is engaging the Department of Mineral Resources to find an alternative method of financial provisioning for environmental rehabilitation and closure activities for the cost-plus coal mines

Reducing Eskom’s environmental footprintIn keeping with the principle of zero harm to the environment, Eskom continues to pursue a range of actions to limit the environmental footprint of its existing fleet, although a significant reduction in carbon dioxide emissions will only be feasible with a diversification of the energy mix, or into a new-generation fleet.

Environmental performance for the six months to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Relative particulate emissions, kg/MWh sent outSC 0.35 0.33 0.31 0.35 0.35

Specific water consumption, ℓ/kWh sent outSC 1.39 1.40 1.33 1.35 1.42

Environmental legal contraventions in terms of the Operational Health Dashboard, number1

0 0 1 2 2

1. In defined circumstances where the management of a legal contravention indicates specific management issues or failings, it is recorded on the Eskom Operational Health Dashboard.

Reducing particulate and gaseous emissionsThe Generation sustainability strategy and the associated increased opportunity for maintenance resulted in an emissions performance that was slightly better than target and prior year performance. All power stations have now received their new atmospheric emission licences (AELs). However, a process is under way to appeal or review or amend the newly issued AELs which were issued to eight power stations, although it could take up to a year to obtain a final

response on some of these matters. In the meantime, the stations will comply with their new licences, although some stations may have to curtail production in order to comply, putting further pressure on the already constrained power system.

Delays in securing funding for the fabric filter plant retrofits at Tutuka and Kriel Power Stations put Eskom at risk of reneging on commitments made to the authorities and the public in the postponement application submitted in February 2014. These delays also add a significant risk to Generation retaining its licence to operate.

NEMA Section 30 performanceGiven that all coal-fired power stations have been issued new AELs, no power station may request an exemption from emission limits when it is likely that emission limits will have to be exceeded in order to meet customer demands. Instead, high emission incidents are to be handled through the Section 30 incident process of the National Environmental Management Act (NEMA).

A total of 17 incidents in terms of Section 30 of NEMA were reported for the period to 30 September 2014 – seven each at Kendal and Duvha, two at Grootvlei and one at Komati Power Stations.

Ashing facilitiesSeveral power stations are reaching the capacity limits of their current ashing storage facilities. Engagement with mining companies and the Department of Mineral Resources is ongoing to address risks relating to the availability of land for the extension of ashing facilities at Kendal and other stations. There are new legislative requirements for the construction and operation of ash dams and dumps, which include the requirement for lining.

The planning processes for several of these are advanced, but have been delayed due to a lack of funds for these projects. This, together with other delays, could result in Camden Power Station, and possibly Kriel, running out of ashing capacity as early as 2016, which may necessitate these power stations reducing their production significantly or even shutting down. Kendal and Majuba Power Stations are also at risk if transitional arrangements are not agreed to by the Department of Environmental Affairs and the Department of Water and Sanitation.

Initiatives to reduce particulate and gaseous emissionsFlue gas desulphurisation (FGD), which reduces SO2 emissions by more than 90%, will be installed at Kusile Power Station prior to commissioning, and at Medupi Power Station between 2021 and 2024, according to the current schedule. In addition, Kusile and Medupi will be fitted with fabric filter plants, which reduce particulate emissions by more than 99.9%, as well as low-NOx burners, which lower NOx emissions. As a result, the commissioning of the new power stations will not result in a significant deterioration in ambient air quality nor a significant increase in health risks.

In addition, preparation for an extensive emission reduction programme is under way, to reduce emissions through actions that include the installation of filters at existing power stations. This programme is a continuation of Eskom’s emission reduction activities, which have already reduced relative particulate emissions from the coal-fired fleet more than tenfold in the last 30 years, through the installation of more efficient electrostatic precipitators and retrofitting flue gas conditioning and fabric filter plants at certain power stations.



Reducing water consumptionAlthough water performance of 1.40ℓ/kWhSO for the six months to 30 September 2014 was only slightly worse than the target, it has worsened significantly over the past year (September 2013: 1.33ℓ/kWhSO; March 2014: 1.35ℓ/kWhSO). This can be attributed to water leaks in the system, water wastage due to overflowing tanks, unit trips and boiler filling. Projections indicate that the year end target will not be met, albeit by a small margin.

The Kilbarchan Colliery is currently decanting mine-affected water. To address this, an interim water treatment project has been developed, and immediate interventions are in the process of being authorised. The requisite legal appointments in terms of the Mine Health and Safety Act have been made.

Eskom has regular engagements with the Department of Water and Sanitation (DWS), to address the backlog in outstanding water use licences for coal mines supplying Eskom (the number of which fluctuates each month). As at the end of September 2014, there were 44 coal sources supplying Eskom, 34 of which had valid integrated water use licences, while ten have submitted applications and are awaiting approval by DWS. A recently developed joint action plan between Eskom and DWS will ensure compliance with the National Water Act by all Eskom’s coal suppliers.

Building a sustainable skills baseThe strategy focuses on creating a productive workforce and driving a culture of performance, and includes building a strong learner pipeline.

Operating highlights• Eskom submitted an application for external funding of learners to the National Skills Fund

(NSF) and expects to shortly receive funding of R150 million (out of R197 million applied for), given that the NSF has successfully completed its due diligence review of Eskom

Operating challenges• Learner numbers have been reduced under the BPP programme, and alternative funding

mechanisms need to be sought for the existing learner pipeline

Building strong skillsEskom has to attract, develop and retain technically skilled workers at all levels to ensure the sustainability of the business.

Learner pipeline as at 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Engineering learners 652 1 817 2 269 1 962 2 144

Technician learners 1 086 808 822 815 835

Artisan learners 2 390 2 000 2 518 2 383 2 847

Learner throughput or qualifyingSC,1 1 200 175 ─ ─ ─

1. This is new measure effective from 1 April 2014, therefore comparative information is not presented.

Eskom is on track with the overall learner pipeline, although additional recruitment is needed to meet the technician and artisan targets.

In response to the impact of the NERSA determination, Eskom realigned the learner pipeline to a more sustainable level of 6% of staff complement, to be phased in over the next five years, down from 14.5% proposed by the Corporate Plan. Current funding proposals have been approved under the relevant BPP HR stream value packages.

Learner throughput measures the cumulative year-to-date number of learners completing their studies and is a new shareholder compact measure for the 2014/15 financial year. Currently only 175 learners have completed their studies, but with the current learners in the pipeline expected to complete their studies at the end of the calendar year, the target is expected to be met by year end.

Investment in internal skills

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Training spend as % of gross employee benefit costsSC 5.00 6.31 7.48 7.87 ─

Transformation and social sustainabilityThe dimension supports economic development and supplier transformation. It also covers people transformation and managing Eskom’s corporate social investment initiatives.

Operating highlights• Eskom placed second in the Sunday Times Top Brands survey in the community upliftment category• Funded by the Eskom Development Foundation, Ambadzifhele Primary School in Dzingahe,

Sibasa and Rekhutjitje Secondary School in Marulaneng, Ga-Mphahlele, both in Limpopo province, have been successfully completed. Work performed includes the construction of an administration block, ablution facilities for boys and girls, and external works at Ambadzifhele Primary School, and the construction of an administration block, walkways, the supply of a water pump and Jojo tanks, as well as wiring and electricity connection of 12 classrooms at Rekhutjitje Secondary School

• A two-year wage agreement for bargaining unit employees was concluded at 8.5% per annum, after the matter had been referred to the CCMA. The multi-year agreement provides an opportunity for Eskom and organised labour to focus on building relationships

Operating challenges• Delivering electrification connections at the Department of Energy-funded budgeted cost per

connection • Connecting new customers to an already constrained network, along with a significantly

reduced capital budget for direct customer connections• Performance on attributable spend on black youth-owned suppliers, suppliers owned by black

people living with disabilities, qualifying small enterprises and exempted micro enterprises was below target. Increased procurement from these suppliers will be pursued in order to meet the year end targets

• The capping of the employee numbers under the BPP programme resulted in reduced opportunities to improve on the current employment equity transformational performance



Maximising Eskom’s socio-economic contributionEskom aims to transform society through its supplier localisation drive, as well as corporate social investment in community education, health and developmental projects. The most direct contribution to transformation is through the rollout of the Government’s electrification programme.

Socio-economic performance for the group for the six months to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Maximise socio-economic cotribution

Corporate social investment committed, R million 112.0 84.6 81.6 132.9 194.3

Total electrification connections, number1 193 151 57 534 53 135 201 788 139 881

Procurement equity

Local content contracted (Eskom-wide), %SC 65.00 23.21 52.72 40.82 ─

Local content contracted (new build), %SC 65.00 56.88 62.40 54.60 80.20

Job creation, number 16 334 25 305 38 423 25 181 35 759

Procurement from B-BBEE compliant suppliers, % of TMPS

75.00 90.50 87.80 91.80 82.10

Procurement from black-owned suppliers, % of TMPS 12.50 29.71 25.30 35.30 ─

Procurement from black women-owned (BWO) suppliers, % of TMPS

6.00 6.72 6.00 7.50 5.10

Procurement from black youth-owned (BYO) suppliers, % of TMPS

2.00 0.75 1.00 1.00 ─

Procurement spend with suppliers owned by black people living with disabilities (BPLwD), % of TMPS

1.00 0 ─ ─ ─

Procurement spend with qualifying small enterprises (QSE) and exempted micro enterprises (EME), % of TMPS

12.50 14.72 10.82 15.09 ─

1. The reporting boundary for the number of connections was changed in March 2014, to exclude farm dweller connections. The comparative at 30 September 2013 has been revised from 53 600 to 53 135, to exclude 465 farm dweller connections.

Corporate social investmentEskom’s corporate social investment initiatives for the six months to 30 September 2014 have benefited 101 836 beneficiaries. Financial constrains resulted in a lower budget than in prior years, leading to the reprioritisation and deferring of pipelined initiatives, although committed spend for the six months to 30 September 2014 is in line with the same period last year.

Refer to www.eskom.co.za/csi for more information on Eskom’s corporate social investment initiatives.

ElectrificationEskom supports the Department of Energy’s target of universal access to electricity by connecting previously disadvantaged households. The majority of new connections are also funded by the Department of Energy, although Eskom carries the ongoing cost of operating these connections, while receiving the revenue for electricity sold. A total of 57 534 electrification connections were performed during the six months ended 30 September 2014 (September 2013: 53 135).

One of the outcomes of the capital budget reprioritisation exercise in terms of the BPP programme was a substantial reduction in the Eskom-funded electrifications for the 2014/15 financial year. Electrification performed on behalf of, and funded by municipalities, has been excluded from the numbers reported above. A total of 4 558 municipal-funded households were connected by Eskom during the six months to 30 September 2014.

Localisation, job creation and skills development through the capacity expansion programmeEskom-wide, a total of 1 242 contracts worth R31.6 billion were awarded for the six months to 30 September 2014. Approximately 23.21% of the contracted value was identified as committed to local content.

Suppliers were set a skills development target of 9 857 learners from the inception of the capacity expansion programme, aimed at people recruited for trade skills development, but excluding supplier employees. A total of 2 341 learners are currently being trained throughout the country through this initiative. To date, a total of 9 829 learners have completed their training at various training sites country-wide, which includes practical on-site training as well as formal training interventions.

As at 30 September 2014, and as a direct result of Eskom’s business through the capacity expansion programme, 25 305 jobs have been created at the Medupi, Kusile, Ingula and Power Delivery (transmission network) projects.

Eskom’s B-BBEE attributable expenditure performanceTotal measurable procurement spend (TMPS) amounted to R66.9 billion, of which 75% was spent on B-BBEE compliant suppliers. Of the total B-BBEE attributable spend, R57.8 billion (or 97%) was spent on vendors with B-BBEE levels 1 to 4, and only 3% on vendors with levels 5 to 8 B-BBEE status. Performance on attributable spend on black youth-owned suppliers, suppliers owned by black people living with disabilities, qualifying small enterprises and exempted micro enterprises was below target. Increased procurement from these suppliers will be pursued in order to meet the year end targets for these measures.

Improving internal transformationEskom is committed to developing a balanced workforce that utilises the knowledge and skills of all demographics of South Africa.

The number of employees for the Eskom group at 30 September 2014 was 46 370 (31 March 2014: 46 919), which includes both permanent staff and fixed-term contractors. In response to the NERSA MYPD 3 determination, Eskom has capped its employee numbers, which limits opportunities to improve on internal transformation.



Internal transformation performance for the group for the six months to 30 September 2014

Measure and unit

Target year to

Mar 2015



Actual year to

Mar 2014

Actual year to

Mar 2013


Employment equity – disability, % 2.50 2.75 2.43 2.80 2.43

Racial equity in senior management, % black employees

60.00 60.98 59.30 59.30 58.40

Racial equity in professionals and middle management, % black employees

70.00 71.47 67.10 70.60 69.00

Gender equity in senior management, % female employees

31.00 30.16 28.60 28.80 28.50

Gender equity in professionals and middle management, % female employees

37.00 35.11 34.70 34.90 34.00

Employment equity at senior management, middle management and professional levels have improved substantially since 31 March 2014, although women remain underrepresented at all levels. However, given the reality of limited opportunities to recruit, due to the capping of Eskom’s employee numbers, the targets for the 2014/15 financial year were adjusted following consultation with the shareholder. Divisions are encouraged to prioritise categories that are underrepresented when they recruit or promote, although the implementation of BPP HR stream value packages and capping of employee numbers are likely to negatively affect employment equity performance. Despite this, Eskom remains committed to achieving the shareholder’s employment equity expectations and is reviewing various options. The primary focus will be on those occupational levels that are underrepresented.

The 2014 Central Bargaining Forum negotiations were completed without the parties reaching an agreement. A dispute was declared and referred to the CCMA. A two-year salary and conditions of service settlement agreement for bargaining unit employees was reached at the CCMA and has been implemented. However, the agreement stipulated a wage increase of 8.5%, which is significantly higher than the budgeted increase of 5.6%, and will, therefore, negatively impact the implementation of the relevant BPP initiatives. The parties further agreed on the establishment of workgroups to consider pension fund, medical aid, housing and recognition agreements, as well as disciplinary and grievance procedures.

Building a solid reputationEskom aims to safeguard and improve its reputation, by proactively educating the public and stakeholders. Also included in this dimension is enhancing South Africa’s security of supply, by acting as a catalyst for independent power producers (IPPs) to participate in the electricity industry.

Operating highlights• The “My Eskom” mobile application was successfully launched and is available in leading

applications stores. It allows customers to view their account information, request updates to personal details and check load shedding and system status in real time. It also provides recommendations on how to reduce consumption, especially when the power system is constrained

• The 49M campaign, in partnership with Pick n Pay, produced an energy efficiency recipe book that provides energy saving cooking hints and tips and promotes the use of energy efficient cooking methodologies and appliances

Operating challenges• The incidents of load shedding during June and November 2014, albeit limited to four days,

had a negative impact on Eskom’s reputation• Eskom has to continue increasing awareness on energy efficiency and the legal and safe use

of electricity in an environment of budgetary constraints under the BPP programme

Purchasing and installing IPP capacityRefer “Operational sustainability” on page 56 to 57.


The Foundation team at the Business Opportunities and Franchise Expo, which provides small and medium enterprises with a platform to showcase their business, network and improve their manufacturing, agricultural and trade and services skills


The group interim financial results have been extracted from the condensed group interim financial statements for the six months ended 30 September 2014, which have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS), the presentation and disclosure requirements of IAS 34 Interim Financial Reporting, and in the manner required by the Companies Act of South Africa, 71 of 2008

Group interim financial results07

Two of the units at the Ankerlig open-cycle gas turbine station in Atlantis near Cape Town. OCGTs produced a total of 1 184GWh during the period

The condensed group interim financial statements have been prepared under the supervision of the Finance Director, Ms Tsholofelo Molefe CA(SA) and were duly approved by the Board of Directors on 24 November 2014.

The condensed group interim financial statements have been reviewed by the group’s independent auditors, SizweNtsalubaGobodo Inc. in accordance with International Standards on Review Engagements (ISRE 2410) Review of Interim Financial Information Performed by the Independent Auditor of the Entity, who issued an unmodified review conclusion. The review conclusion includes an other matter paragraph relating to a reportable irregularity in terms of Section 45(1) of the Auditing Profession Act, 26 of 2005. Details of the alleged irregularity are included in the condensed group interim financial statements, under the Board’s approval statement.

The reviewed condensed group interim financial statements, together with the review conclusion issued by the group’s independent auditors, are available for inspection at Eskom’s registered office and on Eskom’s website, www.eskom.co.za/IR2014/interim. Any reference to future financial performance included in the interim integrated report has not been reviewed or reported on by the group’s independent auditors.


Group interim financial results continued

Condensed group statement of financial positionat 30 September 2014

Reviewed30 September

2014Rm

Audited31 March

2014Rm

Reviewed30 September

2013Rm

AssetsNon-current assets 469 172 439 869 402 416

Property, plant and equipment and intangible assets 432 375 404 389 366 366 Investment in equity-accounted investees 351 318 322 Future fuel supplies 9 459 8 744 7 741 Investment in securities 2 499 4 841 8 339 Loans receivable 8 628 8 654 8 716 Derivatives held for risk management 12 753 9 361 7 672 Other assets 3 107 3 562 3 260

Current assets 65 150 64 977 79 241

Inventories 15 252 12 422 14 584 Investment in securities 7 157 6 066 4 659 Loans receivable 301 329 75 Derivatives held for risk management 910 2 812 3 709 Trade and other receivables 18 388 16 578 17 477 Financial trading assets 6 824 4 265 5 703 Other assets 3 365 2 829 2 841 Cash and cash equivalents 12 953 19 676 30 193

Non-current assets held-for-sale 12 147 8

Total assets 534 334 504 993 481 665

EquityCapital and reserves attributable to owner of the company 128 412 119 784 123 446

LiabilitiesNon-current liabilities 322 235 310 915 294 950

Debt securities and borrowings 236 973 234 562 220 461 Embedded derivatives 6 508 7 871 8 211 Derivatives held for risk management 277 310 13 Deferred tax 22 529 19 461 21 354 Deferred income 13 277 12 518 11 989 Employee benefit obligations 11 765 9 922 11 099 Provisions 25 617 21 157 17 334 Other liabilities 5 289 5 114 4 489

Current liabilities 83 687 74 181 63 269

Debt securities and borrowings 27 942 20 258 16 319 Embedded derivatives 1 203 1 461 1 402 Derivatives held for risk management 1 730 1 197 621 Employee benefit obligations 3 918 4 561 3 169 Provisions 12 000 9 601 6 779 Trade and other payables 25 757 28 531 26 354 Financial trading liabilities 7 463 5 658 5 839 Other liabilities 3 674 2 914 2 786

Non-current liabilities held-for-sale – 113 –

Total liabilities 405 922 385 209 358 219

Total equity and liabilities 534 334 504 993 481 665

Condensed group income statementfor the six months ended 30 September 2014

Reviewedsix months

ended30 September

2014Rm

Reviewed1

six months ended

30 September2013

Rm

Auditedyear

ended31 March

2014Rm

Continuing operationsRevenue 81 898 77 722 139 506 Primary energy (38 065) (31 266) (69 812)Net employee benefit expense (13 176) (12 951) (25 622)Depreciation and amortisation expense (6 672) (5 912) (11 937)Net impairment loss (855) (682) (1 557)Other operating expenses (7 841) (9 077) (19 177)

Operating profit before net fair value gain and net finance cost 15 289 17 834 11 401

Other income 452 183 962 Net fair value loss on financial instruments, excluding embedded derivatives (860) (998) (620)

Net fair value gain on embedded derivatives 1 621 1 868 2 149

Operating profit before net finance cost 16 502 18 887 13 892 Net finance cost (3 539) (1 853) (4 772)

Finance income 1 157 1 124 2 475 Finance cost (4 696) (2 977) (7 247)

Share of profit of equity-accounted investees, net of tax 33 26 43

Profit before tax 12 996 17 060 9 163 Income tax (3 675) (4 846) (2 137)

Profit for the period from continuing operations 9 321 12 214 7 026 Discontinued operations(Loss)/profit for the period from discontinued operations (34) 27 63

Profit for the period 9 287 12 241 7 089

Attributable to:Owner of the company 9 287 12 241 7 089

1. Restated. Refer to note 21 of the reviewed condensed group interim financial statements available at www.eskom.co.za/IR2014/interim.


Group interim financial results continued

Condensed group statement of comprehensive incomefor the six months ended 30 September 2014

Reviewed six months

ended 30 September

Reviewedsix months

ended30 September

Auditedyear

ended31 March

2014 2013 2014Rm Rm Rm

Profit for the period 9 287 12 241 7 089

Other comprehensive (loss)/income (659) 2 066 3 556

Items that may be reclassified subsequently to profit or loss (195) 1 795 2 925

Available-for-sale financial assets – net change in fair value (92) (154) (377)

Cash flow hedges (202) 2 669 4 471 Foreign currency translation differences on foreign operations 17 (15) (23)

Income tax thereon 82 (705) (1 146)

Items that may not be reclassified subsequently to profit or loss (464) 271 631

Remeasurement of post-employment medical benefits (645) 376 882 Income tax thereon 181 (105) (251)

Total comprehensive income for the period 8 628 14 307 10 645

Attributable to:Owner of the company 8 628 14 307 10 645

Condensed group statement of changes in equityfor the six months ended 30 September 2014

Balance at the beginning of the period 119 784 109 139 109 139

Total comprehensive income for the period 8 628 14 307 10 645

Balance at the end of the period 128 412 123 446 119 784

ComprisingEquity reserve 30 520 30 520 30 520

Share capital – – –

Cash flow hedge reserve 6 033 5 922 6 178

Available-for-sale reserve (17) 210 50

Unrealised fair value reserve (7 659) (7 369) (7 744)

Foreign currency translation reserve 11 2 (6)

Accumulated profit 99 524 94 161 90 786

Total equity 128 412 123 446 119 784

Condensed group statement of cash flowsfor the six months ended 30 September 2014

Reviewedsix months

ended30 September

2014Rm

Reviewed1

six months ended

30 September2013

Rm

Auditedyear

ended31 March

2014Rm

Cash flows from operating activitiesProfit before tax 12 996 17 060 9 163 Adjustment for non-cash items 14 081 8 876 21 925 Changes in working capital (7 729) (12 256) (10 455)

Cash generated from operations 19 348 13 680 20 633 Net cash flows from/(used in) financial trading assets 2 273 (3 317) (1 471)Net cash flows (used in)/from financial trading liabilities (3 005) 4 853 4 383 Net cash flows (used in)/from current derivatives held for risk management (345) 4 469 10 278

Net cash flows (used in)/from non-current assets held-for-sale (64) 27 (23)

Income taxes paid (101) (87) (184)

Net cash from operating activities 18 106 19 625 33 616

Cash flows used in investing activitiesProceeds from disposal of property, plant and equipment and intangibles 50 51 28

Acquisitions of property, plant and equipment and intangible assets (24 193) (21 624) (53 160)

Expenditure on future fuel supplies (1 256) (1 444) (2 675)Decrease/(increase) in non-current loans receivable 26 (291) (229)Other cash flows from/(used in) investing activities 89 (1 197) (1 171)

Net cash used in investing activities (25 284) (24 505) (57 207)

Cash flows from financing activitiesDebt securities and borrowings raised 13 369 29 475 44 142 Debt securities and borrowings repaid (8 445) (4 819) (8 014)Decrease in investment in securities 1 111 4 050 5 748 Decrease in finance lease liabilities (6) (14) (11)Interest received 1 204 1 257 2 768 Interest paid (6 795) (5 481) (11 838)

Net cash from financing activities 438 24 468 32 795

Net (decrease)/increase in cash and cash equivalents (6 740) 19 588 9 204 Cash and cash equivalents at the beginning of the period 19 676 10 620 10 620 Foreign currency translation 17 (15) (23)Cash and cash equivalents at the beginning of the period attributable to non-current assets held-for-sale – – (125)

Cash and cash equivalents at the end of the period 12 953 30 193 19 676

1. Restated. Refer to note 21 of the reviewed condensed group interim financial statements available at www.eskom.co.za/IR2014/interim.

Eskom Holdings SOC Ltd72

Appendices08Contact detailsTelephone numbers Websites and email addresses

Eskom head office +27 11 800 8111 Eskom website www.eskom.co.za [email protected]

Eskom Corporate Affairs +27 11 800 2323 Eskom integrated report www.eskom.co.za/IR2014/

Eskom Media Desk +27 11 800 3304+27 11 800 3309+27 11 800 3343+27 11 800 3378+27 82 805 7278

Eskom Media Desk [email protected]

Eskom Development Foundation

+27 11 800 6128 Eskom Development Foundation

www.eskom.co.za/[email protected]

Investor Relations +27 11 800 2775 Investor Relations [email protected]

Ethics Office advisory service

+27 11 800 2791 +27 11 800 3178 +27 11 800 3189

Ethics Office advisory service

[email protected]

Toll-free Crime Line 0800 11 27 22 Eskom environmental [email protected]

National Sharecall number 08600 ESKOM08600 37566

Promotion of Access to Information Act

[email protected]

Customer SMS line Vodacom+27 82 941 3707

MTN+27 83 647 1951

Cell C +27 84 655 5778

Integrated Demand Management (IDM)

[email protected]

CS (customer service) mobile

Dial *120*6937566# or *120*myeskom#

Customer service [email protected]

My Eskom mobi-site www.myeskom.co.za My Eskom app

Facebook EskomSouthAfrica Twitter Eskom_SA Eskom_MediaDesk

Physical address Postal address

Eskom Megawatt Park 2 Maxwell Drive Sunninghill Sandton 2157

PO Box 1091 Johannesburg 2000

Company Secretary Company registration details

Mr Malesela PhukubjeEskom Holdings SecretariatPO Box 1091Johannesburg2000

Eskom Holdings SOC Ltd Reg No 2002/015527/30

Abbreviations, acronyms and glossaryFor a list of abbreviations, acronyms and a glossary of terms used in this report, refer to Appendix E in the March 2014 integrated report, available at www.eskom.co.za/IR2014/.

9 9 9

The Edible Plant Networks initiative, as part of the Eskom Energy and Sustainability Programme, assists with the establishment of large-scale school and community food gardens

Documents

Shift performance, Interim Integrated Report grow ...integratedreport.eskom.co.za/Eskom_interim... · 30 20 10 0 25 20 15 10 5 0 Particulate emissions, kg/MWhSO Mar 12 Mar 13 Sep