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INTEGRATED RESULTS PRESENTATION
KING III APPLICATION
 
   



Directors' report

The directors are pleased to present their report for the year ended 31 March 2014.

Principal activities, state of affairs and business review

Eskom Holdings SOC Limited (Eskom) is South Africa’s primary electricity supplier. The company, which is wholly owned by the South African government, generates, transmits and distributes electricity to industrial, mining, commercial, agricultural and residential customers. It also sells electricity to municipalities, which in turn redistribute it to businesses and households within their areas.

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

Eskom has several subsidiaries:

Eskom Enterprises SOC Limited (Eskom Enterprises) group. Through Rotek Industries SOC Limited and Roshcon SOC Limited, the Eskom Enterprises group provides life-cycle support and plant maintenance, network protection and support for Eskom’s expansion programme in South Africa. It has two subsidiaries with an interest in electricity operations and maintenance concessions in Africa: one covers Mali, Senegal and Mauritania, while the other operates in Uganda. Eskom Energie Manantali s.a (concession in Mali) has been classified as a discontinued operation at 31 March 2014
Eskom Finance Company SOC Limited (EFC) grants home loans to Eskom employees
Escap SOC Limited, Eskom’s wholly owned captive insurance company, manages and insures Eskom’s business risk
Eskom Development Foundation NPC is a wholly owned non-profit company that manages Eskom’s corporate social investment

While most of Eskom’s business is within South Africa, the company also buys and sells electricity in the Southern African Development Community region.

Performance in terms of the shareholder compact

The South African government, represented by the Minister of Public Enterprises, is Eskom’s sole shareholder.

Each year, in consultation with the shareholder, Eskom agrees on its performance objectives, measures and indicators, as well as its annual targets, in line with the Public Finance Management Act of South Africa (PFMA). Annual targets are annexed to a list of principles agreed to by Eskom and its shareholder (the shareholder compact) and quarterly reports are provided. Eskom annually prepares a corporate plan to comply with the requirements of section 52 of the PFMA as well as section 29 of National Treasury regulations, and to support internal Eskom policies. The consolidated corporate plan with all its annexures is submitted to the Department of Public Enterprises and National Treasury annually in February. The latest plan covers the four year period from 1 April 2014 to 31 March 2018 and the focus is on Eskom’s response plan to its changing environment.

The table below sets out Eskom’s performance in terms of the key performance indicators (KPIs) in the shareholder compact.

Shareholder compact performance 2013/14

Key performance areas
Key performance indicator
Unit Target
2013/14
Target
achieved
Actual
2013/14
Actual
2012/13
Actual
2011/12
Focus on safety Employee lost-time incidence rate (LTIR) Index 0.36 0.31 0.401 0.41
Keep the lights on Maintenance backlog reduction based on the Eskom technical governance committee approval Number n/a
Integrated demand management (IDM) demand savings MW 379.0 409.6 595.0 365.0
Internal energy efficiency GWh 15.0 19.4 28.9 45.0
Put customer at the centre Customer service index Index 88.7 86.6 86.8 85.6
Improve operations Normal unplanned capability loss factor (UCLF)2 % ≤10.00 12.61 12.12 7.97
Less: Constrained UCLF3 % 1.63 3.41
Underlying UCLF4 % 10.98 8.71
Energy availability factor (EAF) % 80.00 75.13 77.65 81.99
Total system minutes lost for events <1 minute Minutes 3.40 3.05 3.52 4.73
System average interruption duration index (SAIDI)5 Hours 45.0 37.0 41.9 45.8
Deliver capacity expansion Generation capacity installed and commissioned MW 100 120 261 535
Transmission lines installed km 770.0 810.9 787.1 631.0
Transmission capacity installed and commissioned MVA 3 790 3 790 3 580 2 525
Generation new build capacity milestones (Medupi, Kusile and Ingula) Days
deviation
30.00 48.90 43.48 n/a
Reduce environmental footprint in existing fleet Relative particulate emissions kg/MWh 0.36 0.35 0.35 0.31
Water usage per kWh sent out6 L/kWh 1.39 1.35 1.42 1.34
Implement coal haulage and the road-to-rail migration plan Coal road-to-rail migration Mt 11.48 11.58 10.12 8.50

  Key:

– Actual performance met or better than target.
– Actual performance did not achieve the target.
– Actual performance almost met the target.

1. One noise-induced hearing loss late report by Generation and one lost-time injury incident for Distribution resulted in the signed off LTIR of 2012/13 changing from 0.39 to 0.40.
2. Normal UCLF – measures the lost energy due to unplanned energy losses resulting from equipment failures and other plant conditions.
3. Constrained UCLF – UCLF as a result of emissions and short-term related UCLF due to system constraints to meet the “Keep the lights on” objective. This is apportioned between planned capability loss factor and other capability loss factor (unplanned losses not under management control).
4. Underlying UCLF – UCLF that is the difference between normal and constrained UCLF and that is still within Generation’s control.
5. 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).
6. The volume of water consumed per unit of generated power from commissioned power stations.

Shareholder compact performance 2013/14 (continued)

Key performance areas
Key performance indicator
Unit Target
2013/14
Target
achieved
Actual
2013/14
Actual
2012/13
Actual
2011/12
Ensure financial sustainability1 Cost of electricity (excluding depreciation) R/MWh 453.40 541.92 496.24 374.19
Interest cover Ratio 1.18 0.65 0.27 3.27
Debt/equity (including long-term provisions) Ratio 2.17 2.21 1.96 1.69
Free funds from operations (FFO) as a % of total debt % 9.11 9.21 8.55 15.06
Build strong skills (total pipeline or new enrolments) Training spend as a % of gross employee benefit costs2 % 5.00 7.87
Engineers Number 2 007 1 962 2 144 2 273
Technicians Number 780 815 835 844
Artisans Number 2 619 2 383 2 847 2 598
Youth programme3 Number 5 000 4 325 5 701 5 159
Maximise socio-economic contribution Local sourcing in procurement % 52.0 54.6 80.2 77.2
Procurement from Broad-Based Black Economic Empowerment (B-BBEE) compliant companies % 75.0 93.9 86.3 73.2
Procurement from black youth-owned companies % 1.0 1.0 1.0
Employment equity – disability % 3.00 2.99 2.59 2.49
Racial equity in senior management, % of black employees % 61.0 59.5 58.3 53.9
Gender equity in senior management, % of female employees % 30.0 28.9 28.2 24.3
Racial equity in professionals and middle management, % of black employees % 71.0 71.2 69.6 65.7
Gender equity in professionals and middle management, % of female employees % 36.0 35.8 34.6 32.4

Key:

– Actual performance met or better than target.
– Actual performance did not achieve the target.
– Actual performance almost met the target.

1. The original year to 31 March 2014 budget which was included in the shareholder compact was subsequently revised and the differences mainly result from additional operating expenditure allocated to Generation. The revised budget ratios are as follows:
Cost of electricity (excluding depreciation), R/MWh 463.25
Interest cover (excluding remeasurement of the subordinated loan from the shareholder) 0.98
Debt/equity (including long-term provisions) 2.19
FFO as a % of total debt 10.51
2. This is a new measure, effective from 1 April 2013.
3. Includes learners trained by Eskom, as well as learners trained by Eskom’s suppliers.

The reasons for the variances between the actual compared to the targeted KPI performance for the year are as follows:

Focus on safety
Employee lost-time incidence rate (actual exceeded target by 0.05):
- Eskom’s internal safety measures are having a positive effect, with internal lost-time incidence rate decreasing to 0.31 in 2014, from 0.40 in 2013
- The internal fatality count remains high at five fatalities
- There were 18 contractor fatalities in the year. Contractor management is one of Eskom’s occupational hygiene and safety strategic elements. Given the strategic importance of contractors across Eskom, substantial efforts are required to introduce safe systems of work across the entire organisation to ensure continued safety performance improvement in Eskom’s drive for zero harm
Keep the lights on
Maintenance backlog reduction based on the Eskom technical governance committee approval (actual equals target):
- Maintenance backlog reduction has been included in the shareholder compact based on revised definitions of maintenance backlog. This measure tracks the status of approved scheduled backlog maintenance
- The nine maintenance outages scheduled were completed during the year to March 2014. The backlog of scheduled technical governance related outages was therefore achieved during the year
Integrated demand management demand savings (actual exceeded target by 30.6MW):
- IDM is benefiting from the development of more flexible funding options introduced to the programme over the last two years. Deeper penetration into the commercial and industrial sectors has been realised through the standard offer and standard product programmes
- The residential mass roll-out programme has been a large contributor to the demand savings. Phase 2 of the compact fluorescent lamps programme has been completed and 87MW of these savings have been verified during the year. This includes the compact fluorescent lamps roll-out as well as Eskom’s contribution to the government’s solar water heating initiative
- Eskom’s Power Alert and 5pm to 9pm campaigns continued to reduce power demand during the evening peak. The average weekday evening peak impact for the period under review for all colours (green, orange and red) was 224MW
Internal energy efficiency (actual exceeded target by 4.4GWh):
- Eskom aimed to improve the internal energy efficiency of its facilities (power plant and buildings) by implementing efficiency programmes that focus on lighting, heating, ventilation and air‑conditioning. Annualised energy savings of 19.4GWh were achieved from new IDM projects for the year ended 31 March 2014
Put customer at the centre
Customer service index (actual worse than target by 2.1):
- Eskom narrowly missed reaching its customer service index target, reporting an overall rating of 86.6% against a target of 88.7%. The main reasons cited by customers for dissatisfaction were tariff increases, the threat of load shedding, metering accuracy, the speed of installing new connections, the quality of supply, outage management and slow response for quotations and connections on small projects
Improve operations
Normal unplanned capability loss factor (actual worse than target by 2.61%):
- Partial load losses continue to contribute significantly to the system’s total unplanned losses. The UCLF for these losses was 5.24%, contributing 42% to the system UCLF. The main reasons for the partial load losses were problems at the draught plant, coal mills, turbine, gas cleaning and feed-water systems
- During the year to March 2014, there were 210 UCLF boiler-tube failures recorded with a UCLF of 2.18%, contributing 17% to the system UCLF. This is higher in both number and UCLF contribution when compared to the previous year when a total number of 191 failures and UCLF contribution of 1.95% was recorded
Energy availability factor (actual worse than target by 4.87%):
- Eskom did not meet its EAF target, mostly due to an increase in unplanned plant unavailability and energy losses due to incorrect quality coal being delivered, mainly at Tutuka and Arnot power stations
Total system minutes lost for events <1 minute (actual exceeded target by 0.35 minutes):
- The good performance of the system minutes (<1) and major incidents has been underpinned by the sustained reduction of line faults and plant failures, as well as effective risk management
System average interruption duration index (actual exceeded target by 8 hours):
- The sustained improvement in SAIDI interruption performance during the year is attributed to the establishment of additional customer network centres to increase the operational footprint and enable a quicker response to network interruptions, reduced network downtime by maximising live-line work for planned maintenance, implementation of a revised network reliability planning standard to improve the reliability of the network, increased network visibility, improved reliability centred maintenance and focused management attention that ensures disciplined execution of all initiatives
Deliver capacity expansion
Generation capacity installed and commissioned (actual exceeded target by 20MW):
- The commissioning of the Komati unit 3 was successfully completed on 26 September 2013 at 90MW capacity
- The Grootvlei unit 5 additional 30MWs capacity was commissioned on 10 April 2013 after replacement of superheaters. The unit is now re-rated at a generated maximum continuous rate of 190MW
Transmission lines installed (actual exceeded target by 40.9km) and capacity installed and commissioned (actual equals target):
- The target for kilometres of power lines built was exceeded. The construction on the Eros Vuyani line was delayed due to access restrictions as a result of community issues and therefore construction on the Neptune Vuyani 400kV line had to be accelerated to enable feeding of the two 250MVA transformers at Vuyani from the Neptune side. Work on the Mercury Mookodi 400kV line had to be accelerated to energise the two 250MVA transformers at Mookodi due to national control not permitting energisation of the transformers from the Ferrum side
Generation new build capacity milestones (Medupi, Kusile and Ingula) (actual worse than target by 18.9 days):
- Eskom placed a contract with an alternative contractor for the engineering and manufacturing of the boiler protection systems as a result of the contractor’s performance regarding the continued failure of control and instrumentation factory acceptance tests at Medupi
- The Kusile power station project has also been impacted by overall poor contractor performance
- Regrettably, six contractors died in an accident at the Ingula pump storage scheme in October 2013. All work on the inclined high-pressure shaft has been stopped in terms of the Mine Health and Safety Act pending review by the mine health and safety inspectorate. The statutory processes and reviews regarding this accident are still in progress. This has caused a delay in the project
Reduce environmental footprint in existing fleet
Relative particulate emissions (actual exceeded target by 0.01kg/MWh):
- Particulate emission performance was marginally better than the target and remained consistent with the prior year performance, indicating that maintenance measures and technological advances are starting to yield environmental benefits
Water usage per kWh sent out (actual exceeded target by 0.04L/kWh):
- Eskom formed water-management task teams to reduce freshwater consumption and legal contraventions relating to water use
- Eskom met its target for specific water usage and the improvement on the prior year’s performance can be attributed to an increase in the proportion of energy generated by the dry-cooled stations during the year. Increased opportunities for maintenance, implementation of initiatives identified by the water-management task teams, good rains and the increased recovery of water compared to the previous year also contributed to the improvement
Implement coal haulage and the road-to-rail migration plan
Coal road-to-rail migration (actual exceeded target by 0.10Mt):
- Eskom transported 11.58Mt of coal by rail during 2014, exceeding the target of 11.48Mt and improving performance by 14% relative to the prior year
Ensure financial sustainability
Cost of electricity, excluding depreciation (actual worse than target by R88.52/MWh) and interest cover, excluding remeasurement of the subordinated loan from the shareholder (actual worse than target by 0.53):
- The cost of electricity is higher than target and the interest cover of 0.65 is worse than target due to overspent primary energy cost of R7.7 billion. This was mainly as a result of the increased use of liquid fuel by the open-cycle gas turbine fleet. The ratios are also impacted by the decline in sales volumes as a portion of Eskom’s costs are fixed
Debt/equity including long-term provisions (actual worse than target by 0.04) and FFO as a % of total debt (actual exceeded target by 0.1%):
- The actual ratio and percentage reported are both marginally different to the target
Build strong skills (total pipeline or new enrolments)
Training spend as a % of gross manpower costs (actual exceeded target by 2.87%):
- Eskom’s Academy of Learning mandate is to close Eskom’s competency gap by addressing, co-ordinating and integrating all learning needs of employees, as well as enhancing performance throughout Eskom, by focusing on business needs, and catering for all facets of the learning value chain and learning operations
- Eskom has also partnered with higher learning and basic education institutions to promote access to quality education, particularly in the fields of maths and science, as part of its external development programme
Engineers (actual below target by 45), technicians (actual exceeded target by 35), artisans (actual below target by 236) and youth programme (actual below target by 675):
- The composite target for the number of technicians was exceeded for the year ended 31 March 2014
- Eskom reviewed the learner numbers and decided to re-align the learner pipeline from 14.5% of staff complement to a more sustainable level of 6% phased in over the next five years. The engineering and artisans target was not achieved as a result of this decision
- The under-performance of the country’s youth programme (Strategic Youth Development Initiative) is due to lack of funding
Maximise socio-economic contribution
Local sourcing in procurement (actual exceeded target by 2.6%):
- Target performance was exceeded with a total of 547 contracts, worth R5.6 billion, which were awarded as part of the capacity expansion programme. The local content committed amounted to R3.1 billion or 54.6% of the total contract value
Procurement from B-BBEE compliant companies (actual exceeded target by 18.9%):
- Initiatives to ensure B-BBEE compliance have brought about improvements in Eskom’s transformation performance. Eskom’s total measured procurement spend (including primary energy) amounted to R133.5 billion for the year, of which R125.4 billion (93.9%) was attributable to B-BBEE compliant suppliers
Procurement from black youth-owned companies (actual equals target):
- Strategies are being developed to improve procurement from black-owned businesses, with a particular focus on black youth-owned and black women-owned businesses. Total measured procurement spend from black youth-owned businesses met the target for the year
Employment equity – disability (actual worse than target by 0.01%):
- The disability ratio has stabilised with the number of appointment of employees with disabilities matching the attrition of employees with disabilities. The current trends and reduced opportunities have resulted in the target not being reached for 2014
Racial (actual worse than target by 1.5%) and gender (actual worse than target by 1.1%) equity in senior management and racial (actual exceeded target by 0.2%) and gender (actual below target by 0.2%) equity in professionals and middle management:
- The marginal differences are due to the freeze on recruitment to limit employee numbers which reduced the opportunities to improve on the current targets

State of affairs and business overview

Results of operations

The net profit for the year for the Eskom group was R7.1 billion (2013: R5.2 billion). The 8% tariff increase resulted in a 7.4% average increase in electricity revenue per kWh. This increase was offset by a 10.2% increase in operating costs per kWh compared to the previous year.

Group revenue for the year to 31 March 2014 was R139.5 billion (2013: R128.8 billion). The electricity sales of 217 903 GWh for the year represents an increase of 0.6% compared to the previous year (2013: 216 561 GWh).

The primary energy costs for the year amounted to R69.8 billion (2013: R60.7 billion). This included R10.6 billion (2013: R5.0 billion) relating to the fuel for the open-cycle gas turbines in an effort to keep the lights on. The cost of primary energy as a percentage of electricity revenue was 51% (2013: 48%).

Group gross employee costs (before capitalisation) for the year to 31 March 2014 amounted to R31.3 billion (2013: R28.6 billion). Employee costs of R5.7 billion (2013: R5.1 billion) were capitalised to capital projects during the year.

Group annual impairment loss on trade and other receivables was 1.10% (2013: 0.82%) of the external electricity revenue for the year to 31 March 2014. Electricity receivables before allowance for impairment increased from R16.7 billion at 31 March 2013 to  R20.3 billion at 31 March 2014. The allowance for impairment for trade and other receivables increased from R4.3 billion to R5.7 billion over the same period due to an increase in municipality receivables.

Group other operating expenses for the year was R19.2 billion (2013: R23.0 billion), consisting primarily of IDM and repairs and maintenance costs. IDM costs amounted to R1.4 billion in 2014 (2013: R3.0 billion), while net repairs and maintenance costs were R8.2 billion (2013: R4.7 billion).

Negotiated pricing agreements (NPAs) that were linked to commodity prices, resulted in embedded derivatives in the financial statements. The forward electricity price curve used to value the embedded derivatives at 31 March 2014 was based on the current MYPD 3 approved tariff of 8%, whereafter a forecasted return on the regulatory assets base is used until maturity. A sensitivity analysis for the embedded derivatives appears in note 4.2 to the annual financial statements. The net impact on the income statement of changes in the fair value of the embedded derivatives was a fair value gain of R2.1 billion for the year (2013: R5.9 billion loss). The loss in 2013 was mainly due to the decision to account for the full term of the underlying negotiated pricing agreement contracts at 31 March 2013. The profit for the current year is mainly as a result of the changes in the United States dollar and rand exchange and interest rates. Embedded derivative liabilities amounted to R9.3 billion (2013: R11.5 billion).

Net finance cost for the group for the year after capitalising borrowing costs and including the unwinding of interest on provisions was R4.8 billion (2013: R3.0 billion income). Gross finance income was R2.5 billion (2013: R2.8 billion) while the gross finance cost excluding borrowing costs capitalised and the unwinding of interest on provisions was R17.6 billion (2013: R1.1 billion). The borrowing costs capitalised for the year was R13.3 billion (2013: R3.7 billion), while the unwinding of interest amounted to R2.9 billion (2013: R2.4 billion). The gross finance cost as well as borrowing costs capitalised for the prior year was impacted by the remeasuring of the subordinated loan from the shareholder which amounted to an income of R17.3 billion. The remeasurement of the loan is based on the MYPD 3 price path. No remeasurement was required in the current year.

Additions to property, plant and equipment and intangible assets excluding borrowing cost capitalised, amounted to R59.4 billion (2013: R57.4 billion) and is disclosed in notes 6 and 7 to the annual financial statements. Total capital expenditure will be funded from operating cash flows and debt financing (raised locally and internationally).

At 31 March 2014, R272 billion or 90.5% of the R300 billion borrowing programme had been secured. The R300 billion borrowing programme is based on the original funding requirements at April 2010 and covers the period 1 April 2010 to 31 March 2017. Further funding requirements, including those resulting from the lower than expected MYPD 3 tariff determination, are not included in this borrowing programme.

The MYPD 3 tariff award of an average of 8% a year from 2013 to 2018 is considerably lower than the 16% average per year that Eskom requested. Eskom implemented the Business Productivity Programme (BPP) which focuses on the reduction of the cost base, increased productivity and revisions of the Eskom business model and strategy in order to close the revenue shortfall. Cash savings of between R50 billion and R60 billion is targeted over the MYPD 3 period.

Events subsequent to reporting date

There were no significant events after the reporting date.

Subsidiaries, associates and joint venture companies

The investment of Eskom in subsidiaries, associate and joint venture companies is disclosed in notes 8 and 9 in the annual financial statements.

A task team has been set up to develop a project plan and strategy for the disposal of EFC in terms of a directive from the shareholder.

Performance management of Eskom subsidiaries

The performance of Eskom’s local wholly owned subsidiaries is managed and monitored regularly through shareholder compacts with Eskom and annual business plans and budgets that are approved by the respective boards of directors of the subsidiaries.

The performance results of all operating subsidiaries are reported monthly to, and reviewed by Eskom’s executive management committee (Exco). A centralised proactive and co-ordinated approach under the accountability of the group executive: Enterprise Development has been implemented which will facilitate timeous approval of shareholder compacts and ongoing monitoring thereof.

Research and development activities

The research and development department has made good progress on its portfolio for the year, especially on 18 high priority projects. Key amongst these is the online boiler monitor, Waterberg coal evaluation and high frequency electrostatic precipitator projects which are all on track. The focus on high impact, high value project identification and delivery will continue. This requires increased effort on project management systems and practices and alignment with the needs of the business.

The research expenditure for the year to 31 March 2014 was R156 million (2013: R195 million).

Employee information

The group had a staff complement of 46 919 (2013: 47 295), inclusive of fixed-term contractors. Training has always been a major focus area and this past year 7.87% of gross manpower costs was spent on training and developing staff.

Transformation

Transformation is both a business and social imperative. The group continues to contribute to South Africa’s economic transformation in line with available resources and all performance targets on B-BBEE attributable expenditure measures were exceeded for the year. In addition, the local sourcing in the capacity expansion programme for the year was 54.6%.

Eskom continues to strive for a fair representation of people with disabilities. The group currently has 2.77% (2013: 2.43%) employees with recognised disabilities, as per the Employment Equity Act of South Africa. Racial equity in senior management is 59.3% (2013: 58.4%) and 70.6% (2013: 69.0%) in professionals and middle management. Gender equity in senior management is 28.8% (2013: 28.5%) and 34.9% (2013: 34.0%) in professionals and middle management.

Supply development and localisation performance

Local supplier development aims to enhance efforts in local supplier development and localisation. During 2014, the group’s total procurement spend was R130 billion (2013: R117 billion).

Eskom’s capacity expansion programme continues to support affirmative procurement and industrialisation. Committed local content spend in capacity expansion projects for 2014 was R3.1 billion (2013: R3.4 billion), equivalent to 54.6% (2013: 80.2%) of total contracted value against a target of 52%.

The group’s B-BBEE attributable spend targets are in line with the Codes of Good Practice, which prescribe a minimum of 50% for the first five years that the codes are in effect. With 93.9% B-BBEE attributable spend, Eskom exceeded its B-BBEE target of 75% for the year.

Management of energy losses

Energy losses reflect the difference between the quantity of energy sent out from the power stations and the quantity sold to the various customers at the end of the value chain. Losses are categorised as technical or non-technical in nature. Technical energy losses are a natural result of electrical energy being transferred from one point to another with some of the energy being dissipated as heat. Non-technical energy losses are typically caused by theft (illegal connections, meter tampering and illegal vending of prepaid electricity) or errors in billing.

The technical losses were estimated for internal evaluation purposes as accounting for between 60% and 75% of the total energy losses in the distribution networks. The actual percentage in the Distribution division is influenced by factors such as network design, network topology, load distribution on the network and network operations. Technical losses account for all of the energy losses for the transmission networks.

Energy losses   Actual
2014
  Actual
2013
 
Distribution loss (%)   7.13   7.12  
Transmission loss (%)   2.34   2.80  
Eskom loss (%)   8.88   9.08  

Safety
Improving Eskom’s safety record is paramount. The following safety-improvement initiatives are being implemented to bring the number of fatalities and injuries down to zero:
A key performance indicator was introduced to monitor compliance with safety behaviours
A health and safety agreement between Eskom and its trade unions was concluded
The Eskom contractor safety management plan was approved. In terms of the plan, a safety, hygiene, environment and security inspectorate unit will be formed to ensure adherence to legislative requirements in these fields
Eskom’s zero harm dashboard monitors the progress of key strategic safety initiatives across the organisation

While the LTIR performance improved over the last three years, Eskom’s safety performance remains a challenge, with five (2013: three) Eskom employee fatalities and 18 (2013: 16) contractor employee fatalities being reported during 2014. The progressive LTIR is a proportional representation of the occurrence of lost-time incidences over 12 months per 200 000 working hours. The actual LTIR performance was 0.31 (2013: 0.40) against a target of 0.36 for 2014.

Environmental issues

Environmental controls and oversight mechanisms are in place through the environmental management systems to ensure controls over those activities that have the potential to impact the environment and ensure informed decision-making through obtaining of environmental approvals and permits for proposed projects.

Environmental legal contraventions have reduced from the prior year through focused attention on the Eskom drive to achieve zero environmental incidents. The majority of contraventions still relate to emissions and water-management challenges on site. There were 32 environmental legal violations during the current year, down from 47 in 2013. There were two project specific activities that resulted in environmental legal contraventions in terms of the operational health dashboard. Eskom received two environmentally related administrative fines with a value of R2.6 million for contraventions declared in previous financial years.

Corporate social investment

Eskom recognises the need to align its corporate social investment (CSI) activities to that of its business strategies and the communities in which Eskom operates. As a corporate citizen Eskom’s CSI initiatives are aimed to contribute to the wellbeing of communities; but also towards skills development, education and enterprise development and in turn promoting jobs, alleviating poverty and improving employability. An amount of R132.9 million (2013: R194.3 million) was committed to CSI initiatives during the year. Eskom’s policy is not to make donations to any political parties.

Share capital and shareholder

The Government of the Republic of South Africa is the sole shareholder of Eskom Holdings SOC Limited. The shareholder’s representative is the Minister of Public Enterprises. Eskom currently has 1 ordinary share of R1 issued.

Dividends

No dividend was declared during the current and prior year, and none is proposed after taking into account the resource impact of the capacity expansion programme and the current capital structure.

Going concern

The board has given particular attention to the assessment of the going concern of the group as discussed in the statement of directors’ responsibilities and approval and is of the view that the group has access to adequate resources to continue in operational existence for the foreseeable future and to complete its current committed capacity expansion programme.

Directors

The board currently consists of 12 non-executive directors and two executive directors (the chief executive and the finance director).

The current directors are:

Non-executive directors
Zola Tsotsi (67) (chairman)
Collin Matjila (52)2
Bernie Fanaroff (66)
Queendy Gungubele (55)
Neo Lesela (44)
Bajabulile Luthuli (41)
Chwayita Mabude (44)
Yasmin Masithela (40)
Boni Mehlomakulu (41)
Mafika Mkwanazi (60)
Phenyane Sedibe (44)
Lily Zondo (45)

Executive directors
Brian Dames (48)1,2 (chief executive)
Tsholofelo Molefe (45)3 (finance director)

1. Brian Dames resigned as chief executive with effect from 31 March 2014.
2. Independent non-executive director, Collin Matjila, was appointed interim chief executive effective 1 April 2014.
3. Paul O’Flaherty resigned as finance director with effect from 10 July 2013. Caroline Henry (senior general manager: Treasury) acted in the position of chief financial officer in the interim. Tsholofelo Molefe, previously group executive: Group Customer Services was appointed as finance director effective from  14 January 2014.

Remuneration

The remuneration of the directors and the executives, who were members of Exco during the financial year, is disclosed in note 49 to the annual financial statements. Eskom seeks to ensure that its directors and officers are appropriately qualified and trained for their role on the board and its committees. In terms of Eskom’s ethics policy, all interests in contracts have to be declared upfront.

The board of directors is accountable for the organisation’s ethics management programme. Eskom has a code of ethics, supplementary code procedure and conflict of interest policy in place which is revised regularly. Directors declare their interests in accordance with these annually.

Company secretary

The details of the company secretary and her declaration in terms of section 88(2)(e) of the Companies Act is disclosed in her Statement by company secretary.

Auditors

The statutory auditors for the forthcoming financial year will be appointed at the annual general meeting scheduled for 11 July 2014.

Eskom’s policy is to not use the external auditors for non-audit services. In exceptional cases where the external auditors are to be used for non-audit services, the prior approval of the audit and risk committee must be obtained.

Internal control

The board, through the audit and risk committee, is responsible for ensuring that internal controls are effective and adequately reported on for auditing and regulatory purposes. In line with King III, Eskom applies a combined assurance model to ensure coordinated assurance activities. The combined assurance model provides the audit and risk committee with an overview of significant risks, as well as the effectiveness of critical controls to mitigate these risks. The principles for the combined assurance model are embedded in the combined assurance framework. Eskom’s internal audit function is managed by the assurance and forensics department which reports directly to the audit and risk committee.

For more information refer to the report of the audit and risk committee.

Combined assurance

Combined assurance helps management identify duplication of assurance work, any potential assurance shortfalls, and improvement plans for the gaps identified. It also helps focus assurance providers, to better achieve consensus on the key risks the company faces and reduce the risk of failing to identify significant risks.

The combined assurance model provides three lines of defence against risk:
Line 1 – line management and managerial controls
  Line management is responsible for managing risk and performance
Line 2 – functional areas
  Supports management in executing its duties and provides a layer of control over risk management. It consists of risk management, compliance (including ISO 9001 and 14001), safety, health, environment, quality and the associated frameworks, policies, reporting and oversight
Line 3 – independent, objective internal and external assurance providers
  The third line of defence is independent of management and provides independent, objective assurance

A combined assurance forum has been established to implement and embed the combined assurance framework principles. The forum consists of the three lines of defence, with the objective of:

Ensuring co-ordinated and relevant assurance activities focusing on key risks
Improving collaboration between different assurance providers
Improving reporting to the board and committees, including minimising repetition of reports being reviewed by different committees
Reducing assurance fatigue and minimising disruptions to the business
Providing the audit and risk committee with a better basis for exercising its oversight function

The assurance and forensic department is responsible for driving combined assurance within Eskom. External auditors independently audit the financial statements and selected sustainability information.

Tabling of the Eskom Holdings SOC Limited annual financial statements in Parliament

The group annual financial statements of Eskom Holdings SOC Limited for the year ended 31 March 2013 were approved by the board of directors on 30 May 2013, and tabled in parliament on 5 August 2013.