Eskom group annual results & update on implementation of Committee recommendations; with Minister

Meeting report

The Chairperson welcomed everyone present and acknowledged the presence of the Minister of Public Enterprises, Mr Pravin Gordhan.

Minister’s remarks

Minister Gordhan noted that the executive management would present the results of the last financial year first and would also present any outstanding matters previously noted by SCOPA. He introduced the new Chairperson of the Eskom Board.

Eskom Board Chairperson’s remarks

Mr Mteto Nyati, Eskom board Chairperson, said he hoped that there would not be any more changes on the Eskom board. He reaffirmed the importance of Eskom’s operations to the economy of the country. Regarding appointing a chief executive officer (CEO, the board had submitted three names of appointable candidates to the Minister, and he was now seized with the process. The appointment was expected to be made before the end of the year.

Mr Nyati assured Members that there would be continuity. As a top priority, the board planned to change the speed of implementation of actions and programmes. Following engagements in June, Eskom’s operational performance improved notably. When the board met with SCOPA during its three-day visit to Eskom, there was a heightened risk of load shedding beyond stage six. However, under the leadership of Mr Bheki Nxumalo, Eskom did well to prevent the worst-case scenario. This was achieved through disciplined execution of the board and the Department’s approved generation recovery plan. The board was beginning to see some positive changes and there was a week without load shedding.

The board had taken its first steps and was beginning to walk with confidence. The improved generation performance had a positive impact on the employees. It was giving them reasons to ensure that today was better than yesterday, and tomorrow would be better than today. Continuous improvement was the new mantra. The board was optimistic about the recent improvement in plant performance. The measures taken to root out corruption would continue yielding results. The board’s priority was to stabilise the Eskom leadership while providing them with the necessary support to deal with all the challenges. Eskom continued to work with law enforcement agencies to root out corruption and malfeasance, recover ill-gotten money, and bring the accused to account.

A dedicated Eskom State Capture Task Team continued its work to address the findings of the Zondo Commission’s report. All criminal activities were closely monitored and they were working with law enforcement agencies to bring the perpetrators to book. The board was also strengthening whistle-blower support for the Eskom employees who continued to expose wrongdoing.

Mr Nyati said they were cognisant of their role in the economic growth and development of the country. When Eskom provided security of supply, businesses could run and people could be employed. He reiterated Eskom’s commitment to resolving the challenges that hampered the achievement of operational excellence and financial stability. Through the conscious efforts of the employees, Eskom would deliver on its mission to provide sustainable electricity solutions to grow the economy and improve the quality of life of South Africans and the region. The board was aware that failure was not an option.

Eskom annual results

Mr Calib Cassim, Acting Group CEO, Eskom, presented the 2022/23 annual results and commenced with a high-level overview of salient matters. The Energy Availability Factor (EAF) worsened from 62.02 percent in 2022 to 56.03 percent as reported by 31 March 2023. There were 208 days of load shedding compared to 65 days in 2022 despite open cycle gas turbine (OCGT) usage. There was a significant deterioration in emissions performance. Network reliability performance was poor. The headcount was reduced by 820 and 523 youth employment services learners were appointed.

The net loss after tax worsened to R23.9 billion from R11.9 billion in 2022. There was a tariff increase of 9.61 percent compared to 15.06 percent the previous year. Committed funding secured was R59.9 billion (2022: R35.8 billion). Arrear municipal debt escalated to R58.5 billion (2022: R44.8 billion). Government debt relief of R254 billion was announced. There were significant leadership changes, including a new Board. There were four employee and contractor fatalities.

Eskom received a qualified audit opinion, based on the completeness and accuracy of Public|Finance Management Act (PFMA) information disclosed. This was similar to the prior year's qualification, as issues were not adequately addressed.

Generation performance
• Generation performance continued to deteriorate, while networks and new build delivered variable performance
• Plant availability deteriorated to 56.03% (2022: 62.02%), with unplanned load losses rising to 31.92% (2022: 25.35%) and planned maintenance at 10.39% (2022: 10.23%)
• Load had to be curtailed by an estimated 13 476GWh (2022: 1 605GWh), with loadshedding on 280 days (2022: 65 days)
• Gas turbines produced 4 116GWh (2022: 2 725GWh) at a cost of R29.7 billion (2022: R14.7 billion) for Eskom and IPP OCGTs
• Generation recovery plan focusing on six priority stations to improve performance
• Flue stack collapse at Kusile took three units out of service for almost a year, making around 2 400MW unavailable; two units back in service by October 2023
• Koeberg Unit 1 long-term outage nearing completion, to be followed by Unit 2 outage

Network and new build
• Transmission system minutes performance deteriorated to 4.71 minutes (2022: 2.88 minutes), with one major incident (2022: two)
• Distribution network performance remained resilient, with frequency and duration of supply interruptions well within target, although energy losses remain too high
• Renewable IPPs produced 16 859GWh (2022: 15 073GWh). Overall, IPP programmes delivered about 5 100GWh less than target, contributing to the generation capacity shortfall
• Kusile Unit 4 achieved commercial operation on 31 May 2022
• Kusile Unit 5 progress delayed by a year due to a gas air heater fire in September 2022; synchronisation expected by November 2023
• Installation of 326.1km transmission lines to strengthen the grid far exceeded target (2022: 180.5km)

Loadshedding had to be implemented on 280 days during the past year due to generation supply constraints and shortfall from IPP programmes

Outlook
• Eskom focusing on a number of areas over the next 12 to 18 months to turn Eskom around for the benefit of the country
• Continue operational recovery through Generation recovery plan to focus on improving performance at six priority stations (Duvha, Kendal, Kusile, Majuba, Matla and Tutuka), and sustaining performance at well-performing stations (Medupi, Lethabo and Peaking) in pursuit of increasing EAF to 65% by March 2024 and reducing the frequency/severity of loadshedding
• Investment in networks to be prioritised to support capacity expansion
• Debt relief will go a long way towards improving financial sustainability and liquidity. Compliance with the debt relief conditions is critical to facilitate conversion to equity
• Inculcate high-performance ethical culture to ensure delivery on responsibilities, which is key to success. Guardians have shown what can be achieved if everyone works together, although we need support from government and private sector in some areas
• Leadership stability to be improved, through appointment of permanent GCE and filling other executive vacancies
• Control environment has to be strengthened, together with addressing crime, fraud and corruption, with support required from law enforcement
• Continue with legal separation process
• Ultimately, we need to stabilise Eskom and turn it around for the benefit of the country

(See attached presentation)

Update on SCOPA recommendations

Mr Cassim made a presentation on Eskom’s implementation of recommendations made by the Committee following three oversight visits to Eskom and its projects. During the 2019 oversight visit, 23 recommendations were made by the Committee and in 2022, eight recommendations were made. The presentation reflected the progress made in implementing all the recommendations.

(See attached presentation)

Discussion

Ms B Van Minnen (DA) said the Committee had met with Eskom many times and it was the single largest item the Committee had been seized with. She was not convinced that much had changed since the first engagements and was not convinced she was seeing anything new.

Municipal debt was a major issue that had significant consequences. Some members had met with several municipalities and gained an understanding of the severity of their problems. Were there any plans in place to address potential non-payment scenarios at municipalities?

Did Eskom have any idea of the number of people who were now off the grid? Eskom was in trouble, costs were up, energy production was down, coal plants broke due to lack of maintenance, there were issues at Koeberg with long-term outages, diesel prices kept going up, and the Rand was in decline. This left one to wonder where this was going, and she could not see any light at the end of the tunnel.

Regarding individual power stations, Tutuka was now apparently producing better with its three turbines, but what had happened about the allegations about security, theft and coal cartels? Regarding weighbridges and developments at Kusile, was there any genuine change there? What was happening with the coal deliveries, coal theft and substitutions? Was there any timeframe for the Medupi turbine?

Responses
Mr Monde Bala, Head of Distribution, Eskom, said that Eskom was working with National Treasury on a debt relief package for municipalities. The team was confident that, given the opportunity, it would work. Sixty-seven municipalities had applied for debt relief, of which 28 were approved, and 39 were still outstanding. These 67 municipalities constituted about 95 percent of the R60 billion total municipal debt. If the municipalities stuck to their commitments, inroads would be made. Over and above that, there was a need to ensure that there was a structural change in how municipalities ran their electricity businesses. Eskom was working on this through the National Energy Crisis Committee (NECOM) process to ensure they could service their debt. The optimism stemmed from working together with other organs of government like SALGA, municipalities, and the National Treasury. Eskom was aware of municipalities that were able to pay but were not paying their current accounts.

There was no accurate data on solar panels yet, except for media reports of about 4 000 megawatts of solar panels installed. Eskom was still reviewing this. It had seen reduced demand in its system during the day, but it shot up at night. Regarding inverters, there had been a shift in the peak hour. When load shedding started, people shifted to their inverters for power supply, but when it ended, they were switched back on to charge, which constituted a new peak. A communications team had been engaged to educate the public on how the impact on the grid could be lessened. When the sun was not shining, people would rely on the grid being available.

Mr Bheki Nxumalo, Group Executive: Energy Generation, said that a contract for a second-hand generator for Medupi had been placed with the original equipment manufacturer (OEM). A team was in the Netherlands in September; it was tested and would be shipped to South Africa in January or February next year. Plans are in place to get that unit back up and producing as soon as August that year.

Regarding coal theft at Tutuka, he thanked the SA Police Service (SAPS) and the SA National Defence Force (SANDF) for helping so that management could focus on running the operations. There were no copper theft issues. Security inside had been beefed up. Cameras had been rolled out across all the stations to create further deterrence.

As for Kusile, a contract had been signed with the mine. The conveyor belt from the mine was being built and should be completed by 2025. It would also assist with the congestion of the trucks delivering the coal. All weighbridges at Kusile were functional. A lot of work was done to ensure there were no bottlenecks in running the five units at Kusile.

Coal theft was an ongoing issue, but the responsibility for the security of the coal from the mines to Eskom gates had now been shifted to the mines. Eskom paid when the coal was delivered at the station gates. The SAPS had helped identify perpetrators.

Minister’s response

Minister Gordhan said a lot had changed. There was a new board and a fair amount of cleaning up following the findings of the Zondo Commission. Although there were some lapses in forensics, the board was beginning to attend to those. Rooting out the culture of corruption was still a challenge and there seemed to be no limit to the greed that permeated that ecosystem.

Regarding the President’s Energy Action Plan, the Crisis Committee had about nine committed workstreams. The bottom line was that Eskom required more megawatts. Some of this happened in the past year as a result of the ceiling for independent power producers (IPPs) being approved. Work on the transmission side needed to be done, but there was now a plan that would take off in the next couple of weeks. Work would be done to finance the new transmission lines that needed to be installed.

There was a new integrated resource and energy plan (IRRP) which would indicate the energy mix and what could be done to bring the new megawatts online.

The geopolitics and geo-economics that impacted developing countries were devastating. Interest rates had increased, bond prices and yields fluctuated strongly, and exchange rates depended on the dollar. These were serious factors that could not be controlled. Eskom had asked PetroSA not to take a margin on selling diesel to Eskom, but the margin was still there. This had to be rectified. In essence, Eskom was subsidising PetroSA’s operations. There were changes taking place at the Central Energy Fund (CEF).

It would be useful to invite the law enforcement arm of NECOM to explain its progress. The key issue was the culture of corruption in the ecosystem that must still be combated. Greed was a powerful motive force in terms of undermining institutions like Eskom.

Ultimately, the new megawatts coming into the system would make a difference.

The municipal debt formula was a breakthrough. It would make a difference and it would provide incentives. It was a creative formula to break some of the barriers experienced in past years as the debt accumulated. It had to be given time to prove itself.

Corruption was going to carry on unless law enforcement put the real ringleaders behind bars. There were not enough people in orange overalls. This culture of corruption continued because the risk was not as material as it should be.

Board Chairperson’s response

Mr Nyati said the board had a Business Operation Performance Committee consisting of engineers who sat on the board. The team had to first understand Eskom’s operational challenges with management and came up with a Generation Recovery Plan. This plan was presented to the board in March 2023 and approved. It was also presented to the Department of Public Enterprises (DPE) which it also approved. It was a 24-month plan and was currently making a difference. Eskom had limited resources and the board could not focus on everything. It was thus decided to protect the four power stations that were performing well and ensure they continued to do well. Six other power stations were contributing the most to the challenges at Eskom. The board decided to focus its efforts on these, which included Tutuka, Kusile and Matla. The overall performance was reflected by the EAF of 60 percent. The target was to reach 65 percent by the following year.

What helped to get to this point was ensuring appointments to critical positions. Mr Nxumalo moved swiftly to identify which power stations were led by the wrong people and made the necessary changes. The changes were evident at Tutuka. Management and the board were constantly seized with updates on the implementation of this Plan.

Further Discussion

Mr S Somyo (ANC) said he believed that SCOPA’s oversight over Eskom had yielded some positive results in areas that were referred to Eskom for attention. For example, when the Committee visited the Tutuka Power Station, Members discovered several operational challenges in energy generation and governance-related decisions. About five or six matters had to be reversed by the board.

After assessing the progress, Members observed a significant improvement in the morale of employees at Tutuka. The issue of tampering with the EAF has been resolved. The piecemeal approach used to address the challenges was appreciated. However, there was a concern as to why the board or management was not applying this approach to tackle the bigger challenges at Eskom.

He believed that the coal obtained by Eskom should exactly match the specifications mentioned on paper, and any deviation from that was not acceptable. In such cases, Eskom should return the coal to the suppliers as it did not meet the specifications. He appreciated the efforts taken to ensure that the coal was protected.

Eskom carried a debt of R424 billion which needed to be serviced, but it had only R266 billion in gross electricity revenue, indicating a significant problem. However, there was hope for Eskom if government's commitments through the fiscus were handled appropriately. This might also help in finding a long-term solution for the maintenance split. The Minister of Energy had stated that Eskom was the main concern, not energy, but it was their responsibility to ensure that the country had a steady supply of energy. Eskom was currently undergoing institutional unbundling. How would the Minister ensure that the message conveyed about the sustainability of the institution was trustworthy?

Regarding the municipal debt intervention, SCOPA was involved in this and convened various stakeholders to discuss it. It seemed that solutions were coming closer. However, the remaining challenges seem to be municipalities’ ability to carry sound balance sheets. The debt relief conditions should include assisting municipalities to maintain sound balances through some guaranteed support. Some municipalities were sinking with Eskom’s debt. Were there any gains realised through these efforts at some municipalities?

In terms of supply chain management, there would always be risks that needed to be addressed, especially given the unfortunate crises that had plagued Eskom. As more issues were identified and resolved, new operational challenges might arise. There were always concerns about the possibility of Eskom failing. It was therefore important to implement mitigation strategies to prevent Eskom's recovery efforts from being overwhelmed by the challenges. What measures were taken to ensure the recovery efforts were successful and sustainable?

The Minister of Electricity was touring power stations across the country, which reflected the energy directed towards turning things around at Eskom, and this needed to be appreciated.

Since the names of potential CEOs had been submitted, when would the Minister finalise the appointment of a new permanent CEO to ensure that Eskom was stable?

Mr Cassim replied that the financials reflected a light at the end of the tunnel. Behind the financial losses for the financial years 2023 and 2024 was the high expenditure on OCGTs of R30 billion. The aim should be to reduce diesel costs by half. Diesel was not the fix for electricity supply issues in the country; it lay in improving the EAF in terms of the Energy Action Plan and generation plans. There was also a need for more megawatts on the grid in terms of the different IPP procurement windows and bilateral agreements. The challenge for the 2025 financial year was reducing diesel spending to R15 billion. This could result in R15 billion in savings to offset the business loss. This was the first variable under consideration.

The other variable was the municipal debt. If 50 percent of that debt could be realised, it would give Eskom R4.5 billion. Better EAF performance could add another R5 billion to the income statement. These factors, together with other initiatives like better SCM control measures, could significantly reduce losses. Regarding the issue of morale, he visited Koeberg Power Station with Mr Nxumalo when the unplanned capability loss factor (UCLF) was over 18 000 with high stages of load shedding. They had a call with all the power station managers and explained how unhappy they were. They reprimanded them and stressed the importance of stepping up because the good performance at some power stations would not filter through the country if three or four stations dropped the ball. After that engagement, the UCLF dropped, and about 5000 megawatts were recovered and higher stages of load shedding dropped significantly. The leadership did not only intervene when there was low performance or challenges. Shortly after these improvements, the management had a call again to thank everyone for the work done. This style of leadership had a positive impact on morale. Mr Nxumalo did not address only staff concerned with generation. He also brought in other staff, and contractors so that when discussing the recovery of the Kusile power station, all the stakeholders were talking with one objective in mind.

Mr Nxumalo welcomed Mr Somyo’s comments on Tutuka. Members would recall that Tutuka was one of the stations that were earmarked to be shut down early, which harmed the morale of employees. Management instructed employees there to work as hard as possible to make it impossible for that station to be closed. Some things were done well. Tutuka was in contravention of environmental regulations every month. A board committee chaired by Mr Nyati reprimanded management. For the past three months, Tutuka has had clean environmental reports due to all the efforts of the team. At Kusile, management applied the same approach. The two units were now running at full capacity, with the placement of experienced personnel at the station.

Informal tendering - a three-quotation system - was one of the main sources of procurement issues that took up too much time. Commercially, Eskom continued to look at ways to make it easier to focus on operations at Eskom. He credited the rest of the exco team and the board for continued support.

Minister Gordhan said he did not think he had ever made a statement that there was a distinction between energy and Eskom. Eskom could supply over 90 percent of electricity or energy in the country.

The purchasing of diesel cost a lot of money. As seen on the charts, a R24 billion loss emanated from purchasing diesel and fluctuations in the exchange rate, oil prices and ongoing global instability.

The transformation of Eskom was to implement the Eskom roadmap. A Bill was currently being processed to come to Parliament. It would complete that roadmap process and provide a new design or framework for electricity institutions and systems in the country. This had taken quite some time to accomplish in other parts of the world. Ultimately, the goal was to ensure that load shedding was not an impediment to growth, businesses, and employment creation in the country, notwithstanding the geopolitics currently ongoing in the world.

Regarding the municipal debt, it was indeed true that some of the municipalities would comply and others would not, but if the focus was on most of the debt owed to Eskom, then the formula developed by the Treasury and Eskom should be given a chance to work.

The three names submitted for the appointment of a CEO had been received and the process would be expedited to ensure that a permanent CEO was appointed before the end of the year.

There needed to be value for the money spent and SCM still faced significant challenges. Some people wanted to feed off that process because the procurement bill within Eskom was substantial, especially on the generation side.

Previously, Eskom had to use its operational cash to fund its debt servicing costs, which consisted of two elements - the capital and interest portion. Unfortunately, the cash from operations was not sufficient to service the debt. This meant that Eskom had to borrow money to cover the balance of the debt that could not be serviced and money for the capital programme. The capital programme included finishing Kusile and managing outages and generation. Funds for outages could not be released in advance because it was uncertain whether there were sufficient funds. However, the National Treasury's debt relief programme would provide Eskom with the money it needed to service its debt. As a result, cash from operations would now be used for the capital programme and outages. In the current year, all the funding for the outages has been released, and Mr Nxumalo could now place long lead item orders for them. Eskom was not allowed to spend any capex on new greenfield generation projects, but it could spend money on existing plants. Moreover, Eskom was no longer allowed to borrow, except for a few development finance facilities already in place and from which Eskom could withdraw funds.

National Treasury would now give Eskom the money to service its debt. The expectation was that by 31 March 2026, the debt would be less than R300 billion on the balance sheet, which was manageable. The trick was to manage it at that level and not go higher.

Mr A Lees (DA) said it was universally recognised that the South African economy was in a dire state largely because of a constricted supply of electricity. Even if Eskom had full capacity, it would not be enough to achieve the five percent growth target in the National Development Plan. Thus, the discussion about the EAF increasing from 56 percent to 60 percent was concerning. Given that the EAF was 77 percent in 2018, surely the objective was to get to those levels, not 65 percent by March next year. One could argue that millions of South Africans were unemployed because of the lack of electricity.

He struggled to comprehend the R59.9 billion agreement between National Treasury and government. Although it was explained that it wasn't direct borrowing, but rather a combination of measures, he found it difficult to understand how it worked. He wondered how the moratorium on borrowing would affect the funding required for extending the transmission and distribution network. He also asked if the new company that would be established after the split would be able to borrow funds to expand the network. If not, where would the funding come from? He emphasised that a massive increase in the electricity supply was needed to achieve a five percent growth rate. Renewable energy sources could not provide enough baseload power. He questioned where the funding for the network expansion would come from.

The current municipal debt relief programme seemed to be an unfair incentive scheme. Municipalities that regularly paid their electricity bills were not given any incentives, whereas delinquent municipalities were offered incentives in the hope that they would pay their current accounts in the next three years. However, they often fell back into not paying even if they could afford it. This short-term strategy aimed only to improve the cash flow for three years, but it would not work in the long term. Many municipalities have been seen repeating this pattern with their outstanding rates accounts. It did not make sense that those who paid their bills on time were not rewarded or incentivised in any way.

He was intrigued by the Soweto write-off of R2.3 billion. It was indicated that it was prescribed and interest was in duplum. Why did this only apply to Eskom? Eskom supplied individual consumers. There must be direct Eskom consumers throughout the country whose debt had surely been prescribed. Why was the focus only on Soweto and how did Eskom, with its highly qualified people, get into an in duplum interest situation? Surely, they knew the law about the interest not being allowed to exceed the capital amount. How did this happen?

There were 388 completed disciplinary cases and 168 people had left. However, during his tenure in Parliament of 15 years, there were repeated complaints about people moving from one department to another despite their poor performance. So, of these 388, had their names been made public to avoid further employment in the public sector? He asked Eskom to provide a list of the names of these individuals with a summary of what they were found guilty of.

Regarding the Medupi coal heap, how many tons were sitting in that heap and how long would that last the power stations, assuming that unit four was operational? What was the monthly cost of maintaining that coal heap?

The Chairperson expressed concerns about the debt relief and incentivisation plan, stating that it would not be effective without proper consequence management for municipalities in terms of revenue collection. While municipalities might collect revenue, it did not address the core function for which it was collected. Instead, it ended up being a case of borrowing from one source to pay another, which was not sustainable. Although there was clarity on financial reforms, restructuring, and debt management in the municipal space, it could set a problematic precedent. The current status quo was that if you did not pay, you would receive relief later. While this might solve the immediate problem, it raised concerns about the long-term sustainability of the intervention and its impact on Eskom moving forward.

During a previous Committee meeting with the Minister of Public Works, there were disputes over the owed amounts, and an audit was supposed to be conducted. It was unclear if that audit was completed before the intervention. While the intervention might solve Eskom’s problems, it did not address the underlying challenges faced by municipalities. Discussing this modus operandi with the Department of Cooperative Governance and Traditional Affairs (COGTA) and National Treasury might be necessary to determine its viability.

The acting group CEO, Mr Cassim, confirmed that Eskom aimed to reach an EAF of 65 percent by March. It would subsequently improve by 5 percent, and rise to 75 percent by March 2026. As part of the energy action plan, it was not only up to Eskom to solve the country’s requirements. It was important to connect more megawatts to the grid via the IRP and unlock the transmission of electricity.

Mr Nxumalo reported that with the increased performance at Medupi, the excess coal heap had not been growing for the past two years. Medupi had been burning all the coal coming through from the mine. There were 17 million tons of coal in the stockyard; Medupi would burn this coal within a year because it burned up to 15 million tons per annum. With unit four coming back, it would start drawing from that coal, but it would take some time because the mine was contracted to deliver around 14 or 15 million tons per annum. Management was obtaining approval from the board to sell the excess coal. The coal was compacted and did get inspected.

An official from the transmission department said that plans were in place for unlocking the transmission grid, including a 10-year plan to develop new corridors. Work was being done to perform the necessary environmental impact studies (EIAs) and secure the routes, but this had a long lead time. In the short term, various nodes had been identified in the transmission grid where new transformers could be added at the existing substations, which avoided the need for EIAs and long transmission routes. There was a process to implement projects that would provide 13 gigawatts of new generation that could be connected to the additional transformers.

Secondly, an operational procedure termed “curtailment” was being finalised. It would allow more generation connections across the grid, but when there was excess energy, the facility would reduce the output from those generations. A team had done extensive research and consultations with transmission system operators where there was a high penetration of renewables. It was a known technique and would be employed once the consultations and processes were concluded.

For the next three years, the requisite capital investment had been secured and approved and the focus was now on implementing the necessary projects.

Mr Martin Buys, acting Chief Financial Officer (CFO), commented on the Transmission Development Plan (TDP). There was a slow build-up on the capital programme itself because of planning, EIAs and placing orders for the long lead items. Management was comfortable that during the debt relief period, it could be funded from the operational cash and after that, there would be a build-up. After the debt relief period, there would be various funding options, including private participation in the programme or direct lending from specific lenders prepared to invest in the transmission, not the coal part, of the business. There were a lot of options being considered to deal with the funding of the capital programme.

Regarding the interest in Soweto, it was never included for accounting purposes. This was a clean-up in the system after a thorough process of investigation. In the accounting records, in duplum interest was never accounted for.

Regarding the Medupi coal heap, it would be difficult to quantify the monetary aspect because the same equipment and people were used all over the plant. They were not specific to that one portion of the coal stockyard.

Mr Cassim said the names of the officials in the disciplinary cases would be submitted in writing.

Minister Gordhan said the executive would have to obtain legal advice on the cases that were not yet completed.

To reinforce the point about transmissions, once the board was in place, all sorts of options would be opened concerning funds available within the Eskom budget and other possibilities. It could not take 10 for the transmission lines to be developed. There had to be a faster approach, and the board would discuss this.

The Chairperson said when the Committee visited Medupi in 2022, there were about 12 million tons of stockpile, and the projection was that by year-end, it would be around 18 or 19 million tons. These figures came from Eskom. It seemed there was a movement with the numbers as it was now down to 17 million. He asked for a clarification of this to be provided in writing. Mr Nxumalo said that would be done.

Ms A Beukes (ANC) said there was consensus about how much still needed to be done. She wanted to know if SCOPA’s recommendations were feasible, and the process to deal with them that would be undertaken by Eskom until the next meeting. If the Committee decided to visit Eskom tomorrow, would Members be able to track the progress reported by Eskom?

In congratulating the new board chairperson, she wanted to know why he accepted the position and whether he could turn things around. She also wanted to know which function Mr Nxumalo came from and what had happened in his previous position.

In increasing the speed of implementation, what would be done differently? Why could improvements not have happened previously?

Apart from the municipal debt relief package, were there any planned programmes for Eskom officials to interact with municipalities on tariffs and load shedding so that they could communicate with the communities?

Regarding youth employment, 523 were employed but that was spread over the provinces. Ms Beukes asked for the demographics of the participants. Was there a future programme at Eskom for when the learnerships ended?

Mr Nyati said that having been on the Eskom board for a year and being part of the team working with management to put together the Generation Recovery Plan and restructuring of Eskom, he had seen the gains of the work and how change could be disruptive. Thus, it was important for him to maintain and protect the gains realised and continue with those improvements. The country could not afford to move backwards.

The teams working on turning around the entity must be supported, and he felt that he was fit to provide that support because he was deeply connected to the work on the ground. Secondly, his experience in the business sector revealed that most of the jobs that he occupied were not popular or were rather “turnaround jobs”. To fix Eskom, people who understood what was required were needed. Eskom Eskom could not afford to have people who were still learning.

Thirdly, he felt that the people working to turn things around were deeply committed. He hoped the board would receive the necessary support to do its work. He also appreciated the strong management with a demonstrated track record.

What would change was having a board that was engaged and would, if required, have tough conversations with management as well as with the shareholder. Management often looked to the governance structure to remove obstacles that impeded them from doing what was necessary. Where people were not delivering on commitments, the board engaged management to turn things around and where things were done well, they were also encouraged and supported.

Mr Cassim said they would consider their engagement with municipalities.

He said that Mr Nxumalo, an internal candidate, had demonstrated a deep understanding of the company's operations and power stations, which convinced management and the board that he was the best choice for the position. While external candidates were also considered, the board ultimately believed that Mr Nxumalo's experience and knowledge made him the ideal candidate for the job. He was in the generation division for many years.

Ms Elsie Pule, Group Executive: Human Resources, said Eskom’s Youth Employment Service (YES) programme was one of the small initiatives undertaken for skills development and building the pipeline of skills. There was an obligation to focus on those who did not have a post-matric qualification. They were brought in from the bottom of the organisation and a big chunk of them were absorbed as part of the job creation initiatives. Other pipeline initiatives also involved bursaries, artisans, technicians, and engineers. Not everyone was hired, but there were commitments to ensuring that they were qualified by the time they completed the programme.

Minister Gordhan noted that the management team had a good relationship with most municipalities. He also confirmed that Mr Nxumalo had been around the Eskom generation division for many years.

Ms V Mente (EFF) commented on the rising municipal debt and the relief package provided to municipalities. She had listened to the responses, but she was convinced there was no tangible plan to prevent citizens from accumulating more debt, which was going to be costly to Eskom. What systems were in place and what would be done differently to ensure that citizens did not accumulate debt? This concerned the indigent policy of Eskom, especially regarding people dependent on the grant system. You could not give them a grant and still expect them to pay for electricity. Members did not hear about this system working well.

Regarding Mr Nxumalo’s appointment, she welcomed him to the "hot seat". However, when it came to internal people being moved around, there was no compensation for the work that they had to do. Was he promoted to the position to answer for the mess of other people?

There were days when load shedding disappeared during certain activities like the Rugby World Cup. Yet, children writing exams were subjected to darkness and disruptions. The Department of Basic Education (DBE) had not provided an alternative energy supply for them to study and write their exams. Why had Eskom not considered providing schools with electricity during load shedding during exams? Most of these children came from families that could not afford effective lamps for study during load shedding. What was the plan for excluding schools, hospitals and other essential services? Eskom was directly disrupting the future of many people. Imagine if the lights went off while a woman was giving birth at a hospital. Eskom was beginning to see an increased number of lawsuits because of load shedding.

The debt relief programme and other savings in place at Eskom would amount to nothing if Eskom continued to spend carelessly on generation, particularly where IPPs were concerned. How was Eskom going to balance that?

Three units went out at Kusile Power Station in October 2022 and returned in October 2023. One unit was not accounted for. Why were those units out? It was clear that not much was being done at Kusile. It kept on tripping, and it did not seem that the problem could be resolved. Kusile seemed to be the main contributor to the energy crisis. The flue-gas desulphurisation (FGD) system was causing the units at Kusile to not return to the grid as soon as possible. Were there people who could attend to this ASAP, as this spoke about how OEMs were transferring skills? There was a time when the Minister of the Environment attempted to deal with that matter, but how far had that gone? There was also an exclusionary contract and terms where Medupi was concerned because it was also affected by the FGD issue.

Regarding Eskom contracts, why was ABB still doing business with Eskom? The response the previous year was that ABB was still finalising some business at Eskom. They continued to get money even though they confessed to corruption and entered corrupt deals with officials to do business with Eskom. When would they leave? These were not sincere business people but corrupt individuals and thugs. ABB even managed to buy its way out by paying a fine to the state through the National Prosecuting Authority (NPA) on some flimsy explanation.

Regarding the coal mine for Kusile, the explanation about the conveyor belt was not convincing because coal was coming from the stockpile to the power station, not the mine. The trucks were still delivering. When would there be a mine for Kusile? It was a power station and must have a mine to curb expenditure.

In 2021/22, Eskom planned 79 outages. In 2022/23, 54 were planned. It seemed that the same units dealt with in one financial year, were scheduled for outage again in the next financial year. How long did proper maintenance sustain each unit? It seemed there was no proper maintenance plan to sustain each unit for five years to avoid disruptions to the supply of energy.

The Chairperson added that SCOPA visited Kusile Power Station in August 2019; Members were told that everything would be signed off in January 2220. Four years later, it had not happened. Seven hundred or more trucks drove into Kusile every day delivering coal, yet Kusile was built where it was because there was a mine there. The Special Investigating Unit (SIU) told SCOPA that syndicates were operating in the coal and trucking industry. The delay in resolving this issue was problematic. This matter had been on SCOPA’s radar and should also be on the radar of the Eskom board and management.

Mr Bala said the municipal debt relief was not a silver bullet. It would provide short-term relief while the distribution industry restructuring was ongoing. This was a process undertaken through the NECOM structure. This process was underway, but dealing with the structural issues affecting municipal sustainability would take some time.

Eskom had a policy to provide households with about 50 free units. The challenge with applying this policy was that it was administered by the same municipalities experiencing challenges. Thus, the communities within those municipalities were not benefiting. Eskom has since submitted a proposal to increase this to 100 units. Engagements with the Treasury, Cogta and SALGA were ongoing.

Exemptions from load shedding were provided as and when required. Eskom provided alternatives where necessary but there was a process that must be complied with in terms of regulations. Load shedding was implemented by Eskom in Eskom-supplied areas. In the main, schools and hospitals were within municipal supply areas and they did the load shedding. Arrangements for exemptions could be made with local authorities. Load shedding was determined by supply versus demand – it was not driven by events such as the World Cup. At times, it did coincide with these events.

Mr Nxumalo said the team’s job was to ensure the current fleet was working correctly. The team had recently received the funding to implement some long-term plans and run the stations correctly. There were clean energy projects and the first battery storage facility would be opened shortly.

Regarding OEMs, lessons were learnt specifically at Kusile with FGD, but there were no problems with handovers at other fleets. A five-year contract had now been signed with the OEM, General Electric (GE). GE was on-site working with the teams and the station management was instructed to stop moving people around and ensure that expertise was created and kept. The same approach would be applied at Medupi. One of the lessons implemented at Medupi was that the OEM building a new plant would have to operate jointly with Eskom personnel for the first five years to ensure a smooth handover to the Eskom team.

Eskom had approval to run Kusile without FGd up to 2025, when the main stack would be finished.

Delays at the New Largo Mine were caused by a due diligence process conducted when Seriti took over the mine from Anglo American. There was also a need to deal with coal quality issues, which were raised during the SCOPA visit to Kusile. Eskom strictly specified the coal required for the boilers and could not compromise on the lower specs for it. Seriti then needed to ensure that the specs were not compromised, which was now done. Pits A, H and D of the mine had been opened and were still operating and supplying through the conveyor belt from the mine to the station. Based on the quality requirements of Kusile, the mine would only be able to supply about 70 percent of the Kusile requirements, because at full load, Kusile would need about 15 million tons per annum. Therefore, there would still be some level of trucking.

Regarding ABB, court papers had been submitted for the termination of the current contract. The other complication with ABB was that it had a vast installed capacity within Eskom. Eskom had agreed with the National Treasury to allow ABB to complete the project at Kusile at no profit, which it signed on. There was a Kusile Unit Six that had to be brought in. ABB needed to finish the project because starting a new contract would have caused further delays and lawsuits from other contractors.

Regarding IPPs, Mr Cassim said Eskom followed the outcomes of a Department of Mineral Resources and Energy procurement process on IPPs and what was allowed to be recovered through the multi-year pierce determination of the National Energy Regulator. It had been noted in the later bid windows that power purchase agreements (PPAs) for renewables had decreased. The overall weighting for the first and second bid windows’ prices was at a premium.

Mr Nyati said that Mr Nxumalo did not raise his hand for the position of group executive responsible for generation. He was approached when it became clear that the candidates considered would not do the required job. The board changed its approach and looked internally, and his name came through that process. He was clear about the things that needed to be addressed, the conditions and the support he would need to do the job. All that was asked was done, hence he now had the job.

Ms T Zibula (ANC) asked when vetting of officials would be completed and what actions were taken against those who refused to comply.

Mr Nyati said vetting was non-negotiable. The board should lead by example on this and board members were engaging with the process. There was no room for people who refused such vetting.

The Chairperson noted that a more comprehensive response would be required on the issue of vetting.

He inquired about the nature of the relationship between Eskom and the Minister of Electricity. It seemed that conflicting statements were being made, such as the possibility of bonuses for workers by Christmas if things went well. There were visits to power stations and weekly updates to the nation regarding electricity challenges. The question arose as to who held the authority on electricity matters and the functionality of Eskom.

Measuring progress and defining the roles of all parties involved was crucial. Three parties were at play here: Eskom, the shareholder (DPE), and the Minister of Electricity. It was essential to clarify their relationship and the accountability and operational procedures in place. This arrangement had caused some confusion in terms of oversight and accountability processes SCOPA was engaged in. It was necessary to understand this relationship.

The report talked about losses, technical challenges, and other issues, making it unclear whether bonuses could be paid. There was a need to interact with the Minister of Electricity to resolve these issues.

Minister Gordhan responded that the electricity ministry was a special measure introduced by the President in the context of South Africa's electricity crisis. Secondly, in the President’s pronouncement, various roles were assigned to the Energy Minister and the Public Enterprises Minister. The DPE remained the shareholder that had overall responsibility, but the Minister of Electricity had two key functions - to optimise the performance of the current plant and to play a role in the National Energy Crisis Committee, which had about nine workstreams and reported to the Presidency.

If any financial measures are taken, the Eskom board must ultimately be consulted on those measures.

Closing remarks

The Chairperson thanked the Minister, the Eskom board and management. He said the taste of the pudding was in the eating and SCOPA’s role was to hold the board accountable for its own commitments. Stability had to be at the leadership level because it provided certainty. It was a cause of scepticism
in SCOPA when there was a revolving door at the leadership level. Hopefully, the appointment of the CEO would move quickly and meet the end-of-year target.

Responses would be reviewed and a full hearing on Eskom’s audit outcomes would be held.

Mr Nyati said he appreciated the engagement and the criticism as it assisted the institution to improve. At the next engagements, Members would see improvements, as the team was focused on driving the actions to improve Eskom.

Minister Gordhan said progress was being made at Eskom and this would soon be evident. Notwithstanding the scepticism about the municipal debt relief programme, it should be allowed to unfold.

The Chairperson thanked the Members of SCOPA. He noted that they had traversed a long journey regarding Eskom and the work done by the Members was excellent.

The meeting was adjourned.