It is a privilege for me to deliver this annual report, the last under my chairmanship, in the aftermath of one of the most challenging periods of Eskom’s history. Allow me to reflect on an exciting journey at the helm of our national electricity utility.

Overview of challenges

From the early days of my tenure, it was clear that Eskom was on an unsustainable path – both from a financial perspective as well as our ability to meet national power demand. This came to a head in the closing months of 2007 and the first quarter of 2008 when the national demand for electricity could not be met by the available generation capacity.

For many years Eskom had been the crown jewel of the South African state-owned enterprises. Several awards and honours were bestowed on the utility, which bears testimony to this fact. In 2001 Eskom won the Financial Times Global Energy Award for the Power Company of the Year. This was in recognition of the organisation’s success in “providing the world’s lowest-cost electricity while at the same time making superior technology innovations, increasing transmission system reliability and developing economical, efficient and safe methods for combustion of low grade coal”. This has been an exceptional achievement.

As a country, we promoted South Africa as an attractive destination for foreign direct investment on the back of low cost and reliable electricity supply. At the turn of the century, Eskom had high excess capacity with the reserve margin at an impressive 25% in 2002.

With all the accolades, it was exceedingly difficult for Eskom to convince anyone that the organisation was on an unsustainable path. The mindset of most South Africans did not reflect the fact that electricity was fast becoming a scarce resource. Within Eskom, however, the mood was completely different. There was a sense of urgency and anxiety to act – and act decisively. It was almost as if Eskom had a premonition that there was an electricity crisis looming which had to be averted.

It was this premonition that drove a lot of the decisions of the board in the first year of my tenure – how do we operate within the constraints of the current policy and regulatory environment whilst preparing for an uncertain future? In this regard we started preparing for that future, refocusing Eskom’s strategy away from an African-wide, diversified, unbundled business model to one which focused on the core business of power generation, transmission and distribution, with a focus on South Africa’s market. In parallel with this process we engaged vigorously with government to establish an enabling environment for the sustainability of the business.

The road to recovery

In October 2004, government took the first bold step and allowed Eskom to lead this current phase of building new electricity generation capacity. While there is consensus that we started late with the programme, this decision of Cabinet was to be welcomed as undoubtedly an important scene setter for the future of the electricity industry. The decision by Eskom to continue with planning while we were prohibited from building new capacity, placed South Africa in a much stronger position to respond.

My experience as the chairman of the Eskom board for the past three years has given me comfort that the utility is well on the road to recovery. Significant progress has been made to address all the key challenges identified. Jacob Maroga was appointed as the chief executive effective on 1 May 2007.

He brings with him vast technical and Eskom experience. During the reporting year, further changes were made to the executive committee and the overall organisational structure.

This is not an easy business environment for Eskom’s new management team. There are six key challenges that needed urgent attention – keeping the lights burning on the back of inadequate reserve margin; addressing artificially low tariffs; building new generation and transmission capacity to meet the rising demand for electricity; mobilising all South Africans to become more energy efficient; responding to climate change imperatives; and mobilising all three spheres of government.