People and transformation

The quality and commitment of Eskom’s staff is critical to becoming a high-performance organisation. As a state-owned enterprise, Eskom has an important role to play in developing the capacity needed to sustain our own operations over the long term, and to grow skills for the broader economy. We are investing heavily in our workforce, and at R998 million (2010: R758 million), Eskom’s investment in training and development is 5.7% of the wage bill, a level well above international norms.

 

We have repositioned the Eskom Academy of Learning as a professional centre of excellence. The Academy will focus on training engineers, technologists, technicians and artisans for the future. There are 5 283 (2010: 5 255) people in training, of whom 4 240 (2010: 3 780) are studying in the engineering and technical fields. Once they have completed their training, they will be absorbed into the business. In response to the request from our shareholder to contribute to the new growth path, we have also committed to partner with our suppliers to train an additional 5 000 learners, and set the target of creating 10 000 apprenticeships, and 100 000 direct and indirect jobs by 2015 through all of Eskom’s activities.

The Group has implemented a new and ambitious employment equity plan for the next three financial years to ensure that diversity becomes the “Eskom way” and we have met our targets for the year.

The code of practice for broad-based black economic empowerment sets a target of 50% for procurement spending from black-owned businesses. Eskom as a company is ahead of that target with an attributable black-economic empowerment spend of R41.9 billion, or 52.3% of the total. Work is still needed to raise the proportion of spending directed to businesses owned by black women, which now stands at just over 4% of attributable black economic empowerment spending.

We have revised our robust corporate social investment programme to focus on communities in areas where new power stations are under construction. The Eskom Foundation disbursed R62.3 million during the year on 254 projects, covering a range of economic and social development priorities, from early childhood education, to promoting small business, to rural development.

Financial health

In the 2009 financial year Eskom operated at a loss. In 2010 we returned the company to profitability and in the latest year profitability was strengthened. The surplus is being invested straight back into our capacity expansion programme. The return to profitability is also restoring a sense of confidence among our staff and stakeholders. Growing investor confidence underpins our efforts to raise funding on local and international markets to build new plant and bolster power-generating capacity.

The National Energy Regulator’s decision to grant tariff increases that move towards cost-reflective levels has contributed significantly to this financial improvement, as did the return to growth in the broader economy. The biggest contributor to the increase in profits was the 29.4% increase in revenues, supported by higher sales of electricity and the tariff (24.8% in April 2010). Cost savings and efficiencies also contributed to improved profitability.

Group net profit for the year to 31 March 2011 was R8.4 billion (March 2010: R3.6 billion). The operating profit for the year, before fair value gains and losses on embedded derivatives and net finance costs for the Eskom Group, was R15.8 billion (March 2010: R4.9 billion).

Operative revenues per unit of electricity were more than adequate to cover operating costs, with revenue per kilowatt hour increasing by 26.0% to 40.3c/kWh, while operating costs increased by 16.1% to 32.8c/kWh. The increase in operating costs was driven mainly by primary energy costs and by employee costs, which increased as staff numbers increased in response to growth in the business. Over the period ahead, we expect staff numbers to stabilise roughly at current levels.

Eskom enters 2011/12 with healthy cash reserves resulting in the partial pre-funding of capital spending.

Funding update

One of Eskom’s most significant achievements of 2010/11 has been to move from a funding “gap” to a funding plan, thanks to the invaluable commitment and support of the South African government.

We are implementing this R300 billion funding plan and are confident that the financial building blocks in place will enable the capacity expansion programme to be completed over the next six years. About 71% of the funding has already been secured. The funding will support the construction of three large new power stations – Medupi, Kusile and Ingula. Eskom is also upgrading its transmission grid, refurbishing some existing power stations and improving distribution infrastructure.

Maintaining supply

Eskom has avoided load shedding since April 2008. The executive team is determined to keep the lights on in the challenging period that lies ahead.

Demand has recovered to levels seen before the global financial crisis, with electricity sales growing by 2.7% (2010: 1.7%) to 224 446GWh in the last year. Until new power stations are brought on line between 2012 and 2018, the balance between supply and demand will be tight, particularly during 2011 and 2012. Eskom cannot address that challenge on its own – a national partnership is required.

On the supply side, Eskom is working hard to improve the performance of its power stations. We are also partnering with independent power producers and municipalities to ensure additional non-Eskom generation. We have signed power-purchase agreements for 373MW with independent power producers, including Sasol, Sappi, Ipsa and Tangent, and will continue to pursue further opportunities. Short-term agreements were also signed with municipal generators and the aim is to extend these agreements for three to five years.

On the demand side, Eskom is working with key customers to manage demand and invest in energy-efficient technologies and processes. Some of our largest mining and industrial customers have achieved significant savings, but more is needed from a wider range of large electricity users. We need to ask every electricity consumer to conserve power by switching off appliances when not in use. Without such concerted action, Eskom’s resolve to avoid load shedding will be severely tested.

A safety net must be put in place to avoid load shedding in the event that the partnerships outlined above prove insufficient to close the energy gap. That safety net should include a mandatory energy conservation scheme that would require large power users to reduce load, as well as greater usage of our open-cycle gas turbines. Proposals along these lines are being discussed with our stakeholders and with government.

Since the beginning of 2011, Eskom has undertaken to communicate with stakeholders on the state of the power system on a quarterly basis, particularly over 2011 and 2012, when the system will be under the greatest pressure.

The 49M campaign¹ launched in partnership with government in March 2011 aims to build a culture of energy-efficiency among South Africans. The country needs to conserve electricity and treat it as the scarce resource that it is. This is crucial, not only to maintain continuous supply in the short term, but also to move the country towards a lower-carbon future. Eskom will continue to work with individual consumers, with its largest commercial customers and with leading international technology providers to ensure efficiency gains and energy conservation. We value the support of our partners, the Department of Public Enterprises, the Department of Energy, NEDLAC, SACCI, the Endangered Wildlife Trust, Food and Trees for Africa, WESSA, Massmart and the SABC and we call on all South Africans to join us.

1.	There are 49 million people in South Africa

 

Managing demand

Integrated demand management is a critical component in ensuring the reliability of electricity supply. During the reporting period, Eskom took a wide range of efforts to achieve the projected demand savings target of 301MW, with equivalent annualised energy savings of 994GWh.

We exceeded our target. Total evening peak demand savings over the period amounted to 354.1MW, against the target of 301MW. Annualised energy savings for this financial year are 1 339GWh against the target of 994GWh.

 

Our solar water heating programme has gained momentum over the past year, with 60 183 claims received for the solar water heating rebate, of which 41 690 were paid by year-end. Steps to boost this programme also contributed to the energy and demand savings target. These mechanisms will continue into the next financial year to ensure timely delivery of energy and demand savings. Several new integrated demand management initiatives will be unveiled in the coming year.

Technical performance

Generation

While some power stations have achieved a high standard of technical performance, the older and “return-to-service” stations are not performing well. As a result, Eskom did not meet all of its year-end targets. The maximum demand, together with the greater need for maintenance, has put all available power stations under pressure.

Most of Eskom’s existing power stations are in the middle of their projected operating spans and require more maintenance to improve their performance and reliability. However, with demand growing faster than we can create new supply, the system has been too tight to allow the space we need to shut down units for adequate planned maintenance. Eskom targets a maintenance ratio of 10%, but the tightness of the system meant that we could achieve a ratio of only 7.98%. There is a growing maintenance backlog that will require plant shutdowns, and this must be addressed over the coming years. Energy savings by our customers would help to create the space needed to conduct this maintenance.

Coal quality and handling continued to negatively affect the performance of certain power stations, in particular Duvha and Matla. We have put measures in place to improve coal quality and coal handling at the affected stations.

In February 2011, Eskom experienced a serious incident at the Duvha power station that resulted in extensive damage to the 600MW unit 4 turbine and generator. The incident’s cause is being investigated and it is estimated that the repair process will take more than 12 months.

Transmission and Distribution technical performance

The trend for Transmission system minutes lost remained favourable, and there were no major incidents during the reporting period. This performance was achieved despite the risks on the network not being significantly reduced. The long-term strategy to improve system-minute performance on a sustainable basis is, however, dependent on the implementation of network strengthening projects as per Eskom’s Transmission development plan.

The SAIFI (system average interruption frequency index) performance has marginally deteriorated and SAIDI (system average interruption duration index) performance has marginally improved since the prior year. Initiatives to improve the performance of the network have not delivered the benefits that were anticipated, because of the impact of conductor and equipment theft and of adverse weather conditions on network performance. There has, however, been an increased focus on planned maintenance work and this should start to yield benefits.