NOTES TO THE FINANCIAL STATEMENTS - NOTE 4


 

4. Financial risk management
  The group has an integrated risk management framework. The group’s approach to risk management is based on risk governance structures, risk management policies, risk identification, measurement, reporting, monitoring and continuous assessment. Three types of risks are reported as part of the risk profile, namely operational, strategic and business continuity risks. Operational risks are events, hazards, variances or opportunities which could influence the achievement of Eskom’s compliance and operational objectives. For Eskom, a strategic risk is a significant unexpected or unpredictable change or outcome beyond what was factored into the organisation’s strategy and business model which could have an impact on the group’s performance. Business continuity risks are those events, hazards, variances and opportunities which could influence the continuity of Eskom. The financial risks, as defined by IFRS 7 Financial instruments: disclosures, and the management thereof, form part of this key risk area.

The board of directors (the board) has delegated the management of enterprise-wide risk to the audit and risk management committee. One of the committee’s objectives is to ensure that the group is not unduly exposed to financial risks. Most of the financial risks arising from financial instruments are managed in the centralised treasury function of the group, except for instruments such as trade and finance lease receivables and trade and finance lease payables which are managed by the other divisions and subsidiaries.

The group’s exposure to risk, its objectives, policies and processes for managing the risk and the methods used to measure it have been consistently applied in the years presented, unless otherwise stated.

The exposure of the centralised treasury function to the major financial risks is unique to its activities and therefore different to those of the divisions and subsidiaries within the Eskom group. A distinction is therefore made between the treasury division and other divisions and subsidiaries in the group in respect of financial risk management where relevant.

The group has exposure to the following risks as a result of its financial instruments:

• credit risk (refer to note 4.1)
• market risk (refer to note 4.2)
• liquidity risk (refer to note 4.3)
• capital management and going concern (refer to note 4.4)

4.1 Credit risk
  Credit risk is the risk of financial loss to the group if a customer or other counterparty (including government and financial institutions) to a financial instrument fails to meet its contractual obligations. Credit risk arises primarily from the sale of electricity and related services in the ordinary course of business and financial instruments managed in the centralised treasury activities. Credit risk includes counterparty risk and delivery or settlement risk.

Counterparty risk is the risk that a counterparty is unable to meet its financial and/or contractual obligations during the period of a transaction. Delivery or settlement risk is the risk that a counterparty does not deliver on its contractual commitment on maturity date (including the settlement of money and delivery of securities).

4.1.1 Management of credit risk
  Financial instruments managed by the treasury function

Credit risk arises from cash and cash equivalents, investment in securities, derivatives held for risk management, financial trading assets and deposits made with counterparties. Processes are in place to identify, measure, monitor, control and report credit risk. The objective of Eskom’s credit risk management framework is firstly to protect cash and investments and, secondly to project and maximise the rate of return of financial market investments.

Responsibility and governance

The treasury committee manages counterparty credit risk which arises from the treasury activities in the financial markets. This committee is chaired by the finance director and reports on a quarterly basis to Exco and the board investment and finance committee. The activities of the committee are guided by the terms of reference that are updated and approved by the finance director.

The terms of reference set out the minimum acceptable standards to be adhered to by those responsible for credit-related transactions within the treasury division. The terms of reference are aligned to the Exco credit risk governance standards and are supplemented by appropriate policies and procedures.

The treasury committee:

assesses the credit quality of counterparties and types of instruments used
approves credit limits with such counterparties
facilitates and manages the issuing of financial guarantees by the group
ensures that transactions with counterparties are supported by trading agreements, where applicable
approves methodologies used for the management of counterparty exposure

The portfolio assessment department of treasury provides feedback on all treasury credit risk-related matters to the treasury management, finance director, treasury committee and Exco.

The management of credit risk is governed by the following policies:

trading in financial instruments is conducted and entered into with selected counterparties after credit limits have been authorised. Individual risk limits are set based on internal and external ratings in line with limits set by the board. All credit limits are approved by the treasury committee. The use of credit limits is regularly monitored
only financial institutions and/or counterparties with an independent minimum rating of A1 are accepted. If there are no independent ratings, the credit quality of the counterparty is assessed, taking into account its financial position, past experience and other factors
all exposures are mark-to-market. Transaction or close-out netting takes place in accordance with the terms and conditions of the underlying trading agreements
minimum credit-rating requirements for financial institutions are maintained to assess the risk categories by rating class and to ascertain the probability of default inherent in each rating class
approved concentration risk parameters and collateral management procedures are in place

Concentration of credit risk is managed by setting credit risk limits at a counterparty-specific level. Concentration credit risk limits are used as second tier limits in relation to counterparty credit limits. Counterparty-specific exposure is monitored against a set concentration of credit risk limits in relation to the total credit risk exposure to all counterparties.

Credit risk measurement, monitoring and reporting

Risk is measured by determining a default probability per counterparty (using default probabilities assessed by rating agencies for various type of credit ratings) which is then applied to the market value of the investment placed to determine the capital at risk.

The treasury division’s policies and practices are designed to preserve the independence and integrity of decision-making and ensure credit risks are accurately assessed, properly approved, continually monitored and actively managed.

Aggregate credit risk exposure, hold-limit exceptions and risk profile changes are reported to Exco. There is regular detailed reporting of limits utilisation, limit breaches and customer concentrations to ensure these are appropriately managed and monitored.

Impairment assessments are performed to evaluate the credit risk exposure. The assessments focus on the following areas:

significant financial difficulty of the issuer or counterparty
high probability of bankruptcy
breach of contract

Financial instruments managed by other divisions and subsidiaries

(a) Trade receivables (electricity)
  Eskom supplies electricity to customers in its licensed areas of supply. A large number of the residential customers are on a prepaid basis.

Electricity supply agreements are entered into with key international customers who comprise utility companies and governments of neighbouring countries. These customers are not required to provide any security unless they default on their payment terms.

Eskom’s exposure to credit risk is influenced by the individual characteristics of each customer. In monitoring credit risk, customers are grouped according to their credit characteristics, including whether they are large or small power users, geographic location, ageing profile, security (deposits and guarantees) held and payment history.

The main classes of electricity receivables are international, local large and local small power users.

Key large power users comprise mainly South African commercial, industrial and mining customers and redistributors (municipalities). Some key large power users are not required to provide any security if they have an acceptable credit rating from an approved rating agency. New customers are required to provide security equivalent to the value of three months’ estimated consumption. Existing customers are required to provide security to the value of three months’ consumption as collateral against default on their payment terms.

Non-key customers (other than large power users and small power users) are required to provide security equivalent to between one to three months’ consumption at the commencement of the supply agreement. The level of security is reviewed when a customer defaults on their payment obligation or requires additional electricity supply capacity in which case they are required to either provide security or increase their existing security to an amount equivalent to between one to three months’ of recent consumption before supply will commence. Redistributors are not required to provide any security and are currently re-evaluated based on their payment history to determine if any security is necessary. Eskom continues to work closely with the Department of Cooperative Governance and Traditional Affairs and other government departments to resolve the systemic challenges which have given rise to municipalities’ arrear debt.

Payment terms vary between customer classes as follows:

Key international customers: 10 to 45 days
Key and other large power users: individually negotiated up to a maximum of 15 days
Small power users: 30 days

Interest is charged at market-related rates on balances in arrears.

The group has well-established credit control procedures that monitor activity on customer accounts and allow for remedial action should the customer not comply with payment terms. These procedures include an internal collection process, follow up with the customer either telephonically or in person, negotiations of mutually acceptable payment arrangements and the issue of a notice of disconnection of supply and letters of demand. Non-payment will result in disconnection of supply and the customer’s account being closed. The legal collection process is pursued thereafter.

The decision to impair overdue amounts is assessed on the probability of recovery based on the customer’s credit risk profile.

Progress on the collection process is reviewed on a regular basis and if it is evident that the amount will not be recovered, it is recommended for write-off in terms of the group policy and delegation of authority. The process of recovery continues unless it is confirmed that there is no prospect of recovery or the costs of such action will exceed the benefits to be derived. Amounts written off are determined after taking into account the value of the security held.

The total cumulative allowance for impairment for electricity receivables at 31 March 2014 was R5 667 million (2013: R4 204 million) (refer to note 4.1.2(g)). A substantial portion relates to outstanding debt in problematic areas. The collection of revenue from small power users in Soweto remains a challenge. The enhancement of credit control strategies and monitoring of payment levels in this area continue to receive management attention. The payment levels from these customers, expressed as a percentage of billed revenue for the year, was 16% (2013: 16%).

The residential revenue management strategy, which includes Soweto, has received PFMA approval and implementation thereof is planned for the 2015 financial year. The strategy entails implementation of split metering technology and conversion of customers to prepayment.

The following strategies are currently in operation in high risk areas of non-paying customers with varying levels of success. These include:

disconnections
increased internal debt management capacity
use of debt collectors
payment arrangements
focus on early identification and letters of demand
increased securities
efficient internal process, for example system automation of credit and collections such as automated notices and letters of demand

Certain redistributors have fallen into arrears during the course of the financial year. Some have subsequently either settled or made significant payments towards their arrear debt. Monitoring of these redistribution payment levels continue to receive ongoing management attention and remains a high priority focus area.

(b) Other trade receivables
  The group’s credit exposure in respect of other trade receivables is considered to be insignificant and originates predominantly from Eskom Enterprises SOC Limited (Eskom Enterprises).
(c) Other receivables
  Other receivables include recoverable work, employee debtors, inter-company balances (company only) and sundry receivables.

Recoverable work is mainly project work carried out by Eskom on behalf of external parties. The projects include repairing damaged power lines, moving of power lines or underground cables and engineering-related work.

(d) Finance lease receivables
  Finance lease receivables mainly comprise premium power supply equipment contracts. The supply of electricity to customers may be in the form of either standard or premium power supply.

A standard power supply is the least-cost technically acceptable solution as defined in the Distribution Network Code whereas the premium power supply is where the customer’s requirement exceeds the specifications of a standard supply. Premium supply customers may already have a standard supply from Eskom but wish to reserve dedicated additional equipment to provide a backup supply. This is achieved through the installation of dedicated premium supply equipment for which the customer is required to pay the full capital costs.

Connection charges for premium supply contracts can be repayable on a monthly basis over a maximum period of 25 years.

The credit risk exposure resulting from premium supply contracts is managed in a similar manner as for the standard supply contracts. Security is required from customers for premium supply assets which covers irrecoverable costs in the event of the early termination of the supply contract. Premium supply customers have maintained a good payment history with Eskom over the years. The standard payment terms are also applicable to the connection charge relating to the premium supply equipment which is billed monthly to the customer. Eskom is no longer providing financing for premium supply contracts.

(e) Loans receivable
  Home loans are made available to employees in the group via the Eskom Finance Company SOC Limited (EFC) group. Credit risk policies are in place which require various criteria to be met prior to the approval of a loan. These criteria include the valuation of property, affordability and credit history of the employee.

The amounts advanced are secured by first mortgages over the property purchased and are repayable over an average period of up to 27 years (2013: 27 years). The risk of default by the employee is reduced as the monthly instalments are deducted from the employee’s salary. Employees who are no longer in the employ of the group are required to settle their home loans with EFC within 90 days of leaving the group’s service. Loans are not extended where the purchase price of the property exceeds its open market value. The weighted average loan amount as a percentage of the total home loan book at 31 March 2014 was 0.01% (2013: 0.01%).

In the event of default, the debtor is notified verbally and in writing. If payment has not been received for a period exceeding three months, a process to foreclose on the loan is initiated and the property is sold by public auction or repossessed. Should the property be sold by public auction, a reserve value is set that takes into account the value of the property, arrear rates and taxes, legal costs and commissions payable. If the reserve value is not achieved, the property is repossessed and is held for resale.

EFC entered into a securitisation arrangement with Nqaba Finance 1 (RF) Limited (Nqaba), a structured entity. The securitising of the home loan book converted the loan assets into marketable securities traded on the Bond Exchange of South Africa. The structured entity is consolidated in the annual financial statements of the EFC group. EFC is the preferential shareholder of Nqaba which entitles it to all the residual profits (residual cash after provision for secured creditors and noteholders).

EFC provides a first-loss credit enhancement loan equal to 14.87% (2013: 14.87%) of the notes in issue. At 31 March 2014 the loan was R290 million (2013: R290 million). As servicer of Nqaba, EFC earns a servicing fee equal to 0.15% (2013: 0.15%) of the quarterly outstanding loan book balance. At the end of the financial year, the net asset value of Nqaba was R28 million (2013: R22 million).

4.1.2 Credit exposure
  The carrying amount of financial assets represents the maximum credit exposure at the reporting date. Refer to notes 12, 13, 14, 15, 17, 19 and 20. The following table represents an analysis per credit rating level (as determined by rating agencies) of the credit risk of financial assets, as indicated.

  Investment
in securities
Loans
receivable
Derivatives
held for risk
management
Finance lease
receivables
Trade
and other
receivables
Financial
trading
assets
Cash and cash
equivalents
 
  Rm Rm Rm Rm Rm Rm Rm  
2014                
Group                
AAA 8 160 465  
AA+ 3  
AA 2 747 7 110  
A1+ 2 170 2 503 1 937 11 433  
A+ 1 611  
A 298  
A1 519 1 170 1 550 8 174  
A- 3  
A2 164 163  
BBB- 6  
A3 91 34 67  
B 17  
Unrated 8 983 526 12 653 564 2  
  10 907 8 983 12 173 538 16 581 4 265 19 676  
Company                
AAA 8 160 465  
AA+ 3  
AA 7 110  
A1+ 2 170 2 482 1 798 10 917  
A+ 1 611  
A 298  
A1 519 1 170 1 255 8 125  
A- 3  
A2 219  
BBB- 6  
A3 156  
Unrated 526 12 871 173 2  
  8 160 12 173 538 16 898 3 226 19 044  
2013                
Group                
AAA 1 377  
AA+ 10 193  
AA 3 386 3  
AA- 3  
A1+ 5 304 1 507 2 666 1 845 8 389  
A+ 681  
A1 1 853 375 1 358 457 2 060  
A2 162 7  
A3 3 203 3  
B 16  
Unrated 8 539 546 10 551 423 171  
  17 350 8 539 7 326 555 14 956 2 735 10 620  
Company                
AAA 1 377  
AA+ 10 193  
AA 3 386 3  
AA- 3  
A1+ 2 864 1 507 2 591 1 660 7 916  
A+ 681  
A1 1 853 375 1 293 379 1 888  
A2 162  
A3 3 203  
B 16  
Unrated 546 10 467 3 26  
  14 910 7 326 555 14 732 2 042 9 830  

      Group     Company  
  Note   2014
Rm
    2013
Rm
    2014
Rm
    2013
Rm
 
The maximum exposure to credit risk for trade and other receivables per class was:                          
Electricity receivables 4.1.2(a)   14 602     12 488     14 602     12 488  
   International     1 044     511     1 044     511  
   Local large power users     11 489     9 957     11 489     9 957  
   Local small power users     2 028     1 986     2 028     1 986  
   Service delivery framework1     41     34     41     34  
Other trade receivables                          
   Local 4.1.2(b)   381     396          
Other receivables 4.1.2(c)   1 598     2 072     2 296     2 244  
   Recoverable work     193     120     124     91  
   Employee receivables     63     54     58     48  
   Inter-company receivables             1 040     934  
   Concession receivables     28     31          
   Sundry receivables     1 314     1 867     1 074     1 171  
 
  17   16 581     14 956     16 898     14 732  
The maximum exposure to credit risk for loans receivable was (refer to note 4.1.2(d)):                          
  13   8 983     8 539          
The maximum exposure to credit risk for non-current assets held-for-sale was (refer to note 4.1.2(e)):                          
Trade and other receivables 21   9                  

1. Negotiated agreement with stakeholders in residential areas which is a specific initiative aimed at resolving the non-payment of accounts.
(a) Electricity receivables
  Group and company

  Carrying
amount
   
Not past
due
  Not impaired1
Days past due
      Not past
due
  Impaired2
Days past due
     
 
Rm
   
Rm
0-15
Rm
16-45
Rm
46-75
Rm
>75
Rm
   
Rm
0-15
Rm
16-45
Rm
46-75
Rm
  >75
Rm
 
Individually assessed for impairment                                  
2014                                  
International 1 044     657 190 197        
   Gross 1 058     657 190 197       14  
   Impairment (14)           (14)  
Local large power users 11 489     9 033 255 101 8 34     363 246 254 303   892  
   Gross 13 527     9 033 255 101 8 34     371 252 265 310   2 898  
   Impairment (2 038)         (8) (6) (11) (7)   (2 006)  
                      Not
past
due
Days past due  
                      Rm 0-30
Rm
31-60
Rm
>60
Rm
     
Collectively assessed for impairment                                  
Local small power users 2 028                   1 275 291 290 172      
   Gross 5 498                   1 361 390 376 3 371      
   Impairment (3 470)                   (86) (99) (86) (3 199)      
Service delivery framework 41                   7 1 33      
   Gross 186                   8 1 177      
   Impairment (145)                   (1) (144)      
  14 602                                

  Carrying
amount
   
Not past
due
  Not impaired1
Days past due
      Not past
due
  Impaired2
Days past due
     
 
Rm
   
Rm
0-15
Rm
16-45
Rm
46-75
Rm
>75
Rm
   
Rm
0-15
Rm
16-45
Rm
46-75
Rm
  >75
Rm
 
Individually assessed for impairment                                  
2013                                  
International 511     490 12 9        
   Gross 511     490 12 9        
   Impairment            
Local large power users 9 957     8 664 102 105 28 51     193 103 187 200   324  
   Gross 11 082     8 664 102 105 28 51     200 106 193 203   1 430  
   Impairment (1 125)         (7) (3) (6) (3)   (1 106)  
                      Not
past
due
Days past due  
                      Rm 0-30
Rm
31-60
Rm
>60
Rm
     
Collectively assessed for impairment                                  
Local small power users 1 986                   1 302 194 95 395      
   Gross 4 902                   1 325 278 173 3 126      
   Impairment (2 916)                   (23) (84) (78) (2 731)      
Service delivery framework 34                   1 33      
   Gross 197                   1 1 195      
   Impairment (163)                   (1) (162)      
  12 488                                

1. Receivables past due but not impaired are receivables where contractual payment terms are past due but the group believes that impairment is not required on the basis of the level of security or collateral available and the stage of collection of amounts owed to the group.
2. Impaired receivables are receivables for which the group determines that it is probable that it will be unable to collect all amounts due in accordance with the contractual payment terms.

Electricity receivables include an amount of R169 million (2013: R157 million) relating to receivables that were renegotiated1. These electricity receivables would have been past due had their terms not been renegotiated.

Interest is accrued on all arrear debts and R468 million (2013: R420 million) was credited to profit or loss within finance income.

(b) Other trade receivables
  Group

  Carrying
amount
   
Not past
due
  Not impaired2
Days past due
      Not past
due
  Impaired3
Days past due
     
 
Rm
   
Rm
0-30
Rm
31-60
Rm
61-90
Rm
>90
Rm
   
Rm
0-30
Rm
31-60
Rm
61-90
Rm
  >90
Rm
 
Individually assessed for impairment                                  
2014                                  
Local 381     119 53 48 5 156        
   Gross 393     119 53 48 5 156       12  
   Impairment (12)           (12)  
  381                                
2. Receivables past due but not impaired are receivables where contractual payment terms are past due but the group believes that impairment is not required on the basis of the level of security or collateral available and the stage of collection of amounts owed to the group.
3. Impaired receivables are receivables for which the group determines that it is probable that it will be unable to collect all amounts due in accordance with the contractual payment terms.
  Carrying
amount
   
Not past
due
  Not impaired2
Days past due
      Not past
due
  Impaired3
Days past due
     
 
Rm
   
Rm
0-15
Rm
16-45
Rm
46-75
Rm
>75
Rm
   
Rm
0-15
Rm
16-45
Rm
46-75
Rm
  >75
Rm
 
Individually assessed for impairment                                  
2013                                  
Local 396     135 217 1 5 38        
   Gross 412     135 217 1 5 38     5 1   10  
   Impairment (16)         (5) (1)   (10)  
  396                                

2. Receivables past due but not impaired are receivables where contractual payment terms are past due but the group believes that impairment is not required on the basis of the level of security or collateral available and the stage of collection of amounts owed to the group.
3. Impaired receivables are receivables for which the group determines that it is probable that it will be unable to collect all amounts due in accordance with the contractual payment terms.
(c) Other receivables
  Other receivables comprise mainly of receivables for which there are no specific repayment terms.

  Group     Company  
  2014
Rm
    2013
Rm
    2014
Rm
    2013
Rm
 
Recoverable work 193     120     124     91  
   Gross 194     120     125     91  
   Impairment (1)         (1)      
Employee receivables 63     54     58     48  
   Gross 63     55     58     49  
   Impairment     (1)         (1)  
Inter-company receivables         1 040     934  
   Gross         1 040     934  
   Impairment              
Concession receivables 28     31          
   Gross 28     31          
   Impairment              
Sundry receivables 1 314     1 867     1 074     1 171  
   Gross 1 359     1 924     1 116     1 211  
   Impairment (45)     (57)     (42)     (40)  
  1 598     2 072     2 296     2 244  

Long outstanding debt or amounts handed over to debt collectors were considered for impairment per class of sundry and employee receivables.

(d) Loans receivable
  Group

  Carrying
amount
    Not past
due
    Days past due  
  Rm     Rm     0-30
Rm
    31-60
Rm
    >60
Rm
 
Collectively assessed for impairment                            
2014                            
Loans receivable 8 983     8 862     37     19     65  
   Home loans 8 565     8 440     37     18     70  
   Other 452     439     1     1     11  
   Impairment (34)     (17)     (1)         (16)  
2013                            
Loans receivable 8 539     8 392     44     20     83  
   Home loans 7 926     7 774     44     20     88  
   Other 641     629     1     1     10  
   Impairment (28)     (11)     (1)     (1)     (15)  

Loans receivable include an amount of R65 million (2013: R40 million) relating to receivables that were renegotiated. These loans receivable would have been past due had their terms not been renegotiated.

(e) Non-current assets held-for-sale
  Group

  Carrying
amount
    Not past
due
  Days past due  
2014 2014
Rm
    2013
Rm
  0-30
Rm
  31-60
Rm
  >60
Rm
 
Trade and other receivables 9     9        
   Gross 9     9        
   Impairment            
(f) Security relating to amounts receivable              
        Group     Company  
    Note   2014
Rm
    2013
Rm
    2014
Rm
    2013
Rm
 
  The security held against trade and other receivables for the group companies comprises guarantees and deposits. The estimate of the fair value of the security held is:                          
  Electricity receivables     5 472     4 757     5 472     4 757  
     Local large power users     4 028     3 482     4 028     3 482  
     Local small power users     1 442     1 273     1 442     1 273  
     Service delivery framework     2     2     2     2  
  The total amount of the security above includes R4 017 million (2013: R3 472 million) relating to electricity receivables (international and large power users) which were not impaired.                          
  Loans receivable (home loans) secured by mortgage bonds     8 546     7 911              
(g) Allowance for impairment                          
  The movement in the allowance for impairment in respect of trade and other receivables during the year was:                          
  Balance at beginning of the year     4 278     3 346     4 245     3 319  
  Impairment loss recognised (net of reversals) 36   1 502     1 038     1 515     1 032  
  Write-offs     (55)     (106)     (50)     (106)  
  Balance at end of the year     5 725     4 278     5 710     4 245  
  Comprising:                          
  Electricity receivables     5 667     4 204     5 667     4 204  
  Other trade receivables     12     16          
  Other receivables     46     58     43     41
    17   5 725     4 278     5 710     4 245  
  Eskom establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. This allowance consists of a specific loss component that relates to individual exposures, and a collective loss component established for groups of similar customers in respect of losses that have been incurred but not yet identified.
(h) Financial guarantees issued
  The group’s maximum exposure as a result of financial guarantees issued was R165 million (2013: R167 million) and R1 284 million (2013: R1 208 million) for the company. Refer note 44.1 for more information on financial guarantees issued.
4.2 Market risk
  Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates, commodity prices, interest rates and equity prices.

A significant part of the market risk encountered arises from financial instruments that are managed centrally within the treasury division of the group or from contracts containing embedded derivatives.

The objective of the group’s market risk management policy is to protect and enhance the statement of financial position and profit or loss by managing and controlling market risk exposures and to optimise the funding of business operations and facilitate capital expansion.

Financial instruments managed by the treasury division

The treasury division is responsible for managing market risk within the risk management framework approved by Exco and the board. The overall authority for the management of market risks within the treasury division is vested in the asset and liability committee (Alco) and the treasury committee. Measurement and reporting occurs on a daily and/or monthly basis and is performed by an independent section within the treasury division. Financial derivatives are used to manage market risk.

Financial instruments managed by other divisions and subsidiaries

Market risk arises mainly from changes in foreign exchange rates and to a limited extent from changes in commodity prices and equity prices. The divisions and subsidiaries are responsible for identifying the exposure arising from these risks. They liaise with the centralised treasury division to hedge (economic and cash flow hedges) these exposures appropriately on their behalf.

Embedded derivatives

Eskom entered into a number of agreements to supply electricity to electricity-intensive industries where the revenue from these contracts is based on commodity prices and foreign currency rates (USD) or foreign production price indices. This gives rise to embedded derivatives that require separation as a result of the different characteristics of the embedded derivative and the host contract. The remaining contractual periods are between 6 and 15 years.

The net impact on profit or loss because of changes in the fair value of the embedded derivatives for the group is a fair value gain of R2 149 million (2013: R5 942 million loss). At 31 March 2014, the embedded derivative liabilities were R9 332 million (2013: R11 481 million) for the group and R9 331 million (2013: R11 480 million) for the company.

The valuation methods and inputs are discussed in the accounting policies (refer to note 2.11.5) and the valuation assumptions are disclosed under critical accounting estimates and judgements (refer to note 3(a)). Risks arising from these contracts are discussed under the relevant risk areas as follows:

currency risk (refer to note 4.2.1)
commodity risk (refer to note 4.2.2)
interest rate risk (refer to note 4.2.3)
other price risk (refer to note 4.2.5)

Electricity contracts that contain embedded derivatives are considered for economic hedging. Hedging in respect of commodity risk and foreign currency exposure resulting from these embedded derivatives takes place on a short-term basis in terms of the South African Reserve Bank (SARB) regulations.

Loans receivable

Market risk arises in respect of loans receivable from changes in interest rates and market prices. Market risk is monitored and analysed through the treasury division and reported to the EFC finance committee. A strategy aimed at protecting the EFC group from changes in market risk that may have a negative impact on earnings has been implemented. Funds to finance operations are raised over the short term, usually for periods of three to six months, but not exceeding one year. This enables the pricing of assets to be matched with changes in the pricing of liabilities. The cost of funding is based on prevailing conditions in the South African money market. Rates charged on outstanding loan receivables are based on movements in the SARB repurchase rate.

4.2.1 Currency risk
  Currency risk arises primarily from purchasing imported goods and services directly from overseas or indirectly via local suppliers, foreign sales and foreign borrowings. The group is exposed to foreign exchange risk arising from future commercial transactions and recognised assets and liabilities that are denominated in a currency other than the functional currency of the group. All transactions in excess of R150 000 are hedged (ie economic or cash flow hedges). Currency exposure is identified by the business and hedged and managed by the central treasury division. Hedging instruments consist principally of forward exchange contracts, most of which have a maturity of less than one year from the reporting date, but which are rolled over at maturity when necessary. The group also uses cross-currency swaps. The hedging instrument is entered into once the exposure is firm and ascertainable.

The major exposure to foreign currency risk at 31 March, based on notional amounts, was (in million):

  EUR USD GBP JPY SEK AUD CHF CAD NOK  
2014                    
Group                    
Assets                    
Trade and other receivables 1 3  
Liabilities                    
Debt securities and borrowings (2 309) (4 226) (16 425)  
Trade and other payables (232) (382) (60) (92) (11) (1) (1)  
Gross statement of financial position exposure (2 540) (4 608) (60) (16 517) (8) (1) (1)  
Estimated forecast purchases1 (1 359) (194) (39) (998) (37) (2) (2) (2) (5)  
Gross exposure (3 899) (4 802) (99) (17 515) (45) (2) (2) (3) (6)  
Derivatives held for risk management 3 832 4 801 99 17 525 48 2 2 2 3  
Net exposure (67)2 (1) 10 3 (1) (3)  
Company                    
Assets                    
Trade and other receivables 1 3  
Liabilities                    
Debt securities and borrowings (2 309) (4 226) (16 425)  
Trade and other payables (230) (382) (60) (92) (11) (1) (1)  
Gross statement of financial position exposure (2 538) (4 608) (60) (16 517) (8) (1) (1)  
Estimated forecast purchases1 (1 360) (194) (39) (998) (37) (2) (2) (2) (5)  
Gross exposure (3 898) (4 802) (99) (17 515) (45) (2) (2) (3) (6)  
Derivatives held for risk management 3 830 4 801 99 17 525 48 2 2 2 3  
Group exposures covered by company (2) (1)  
Net exposure (70)2 (2) 10 3 (1) (3)  
Group and company                    
Derivatives held for risk management – rand equivalent 55 828 50 728 1 747 1 793 79 18 26 17 4  
2013                    
Group                    
Assets                    
Trade and other receivables  
Liabilities                    
Debt securities and borrowings (2 085) (3 193) (15 778)  
Trade and other payables (134) (15) (2) (3) (61) (1) (1) (6) (4)  
Gross statement of financial position exposure (2 219) (3 208) (2) (15 781) (61) (1) (1) (6) (4)  
Estimated forecast purchases1 (1 728) (258) (13) (3 834) (36) (2) (4) (3) (4)  
Gross exposure (3 947) (3 466) (15) (19 615) (97) (3) (5) (9) (8)  
Derivatives held for risk management 3 870 3 462 16 19 615 99 2 6 9 8  
Net exposure (77)2 (4) 1 2 (1) 1  
Company                    
Assets                    
Trade and other receivables  
Liabilities                    
Debt securities and borrowings (2 085) (3 193) (15 778)  
Trade and other payables (134) (11) (2) (3) (61) (1) (1) (6) (4)  
Gross statement of financial position exposure (2 219) (3 204) (2) (15 781) (61) (1) (1) (6) (4)  
Estimated forecast purchases1 (1 728) (258) (13) (3 834) (36) (2) (4) (3) (4)  
Gross exposure (3 947) (3 462) (15) (19 615) (97) (3) (5) (9) (8)  
Derivatives held for risk management 3 870 3 462 16 19 615 99 2 6 9 8  
Group exposures covered by company (1) (4) (1)  
Net exposure (78)2 (4) 1 2 (1)  
Group and company                    
Derivatives held for risk management – rand equivalent 45 747 31 890 219 1 962 139 21 56 83 12  

1. Represents future purchases contracted for.
2. Certain foreign loans are hedged applying a present value strategy. As these loans are recognised at amortised cost, an exact offset will not occur when compared to the hedging instrument.

The following significant exchange rates applied for the group and company during the year:

  One unit of the selected currency to the rand   R1.00 to the selected currency  
  Average   Reporting date
mid-spot rate
  Average   Reporting date
mid-spot rate
 
  2014   2013   2014   2013   2014   2013   2014   2013  
EUR 13.57   10.96   14.57   11.82   0.07   0.09   0.07   0.08  
USD 10.12   8.51   10.57   9.21   0.10   0.12   0.09   0.11  
GBP 16.10   13.45   17.58   13.96   0.06   0.07   0.06   0.07  
CHF 11.04   9.06   11.95   9.70   0.09   0.11   0.08   0.10  
JPY 0.10   0.10   0.10   0.10   10.00   10.00   10.00   10.00  
SEK 1.55   1.27   1.63   1.41   0.65   0.79   0.61   0.71  
CAD 9.60   8.50   9.58   9.06   0.10   0.12   0.10   0.11  
AUD 9.42   8.78   9.77   9.59   0.11   0.11   0.10   0.10  
NOK 1.69   1.47   1.76   1.57   0.59   0.68   0.57   0.64  

Sensitivity analysis

The group is mainly exposed to euros and United States dollars. The sensitivity analysis has been performed on the same basis as the prior year. The analysis assumes that all other variables, in particular interest rates, remain constant and are as follows:

  Group and company  
  2014   2013  
  1% increase
Rm
    1% decrease
Rm
    1% increase
Rm
    1% decrease
Rm
 
Profit/(loss), excluding embedded derivatives                      
Total exposure 369     (369)     377     (377)  
Rand/euro exposure 273     (273)     295     (295)  
Rand/USD exposure 86     (86)     78     (78)  
Rand/other currency 10     (10)     4     (4)  
Equity, excluding embedded derivatives                      
Total exposure 160     (160)     65     (65)  
Rand/euro exposure 142     (142)     60     (60)  
Rand/USD exposure 17     (17)     3     (3)  
Rand/other currency 1     (1)     2     (2)  
Profit/(loss) – embedded derivatives                      
Rand/USD exposure 152     (156)     177     (173)  
4.2.2 Commodity risk
  The group is exposed to commodity risk where commodities are either used directly (eg coal or liquid fuels) or indirectly as a component of plant, equipment or inventory (eg aluminium, copper or steel). The revenue from certain negotiated pricing arrangements is linked to commodity prices.

The exposures are hedged economically by means of futures and/or options. Economic hedging is applied where it is practical (a relevant hedging instrument exists) based on the most optimal economic solution and in compliance with the SARB requirements.

The underlying exposure to commodity price risk could result in embedded derivatives. Where the embedded derivatives are closely related to the host contracts, the embedded derivatives are not accounted for separately. Where the embedded derivatives are not closely related to the host contracts, the contracts have been valued and accounted for separately.

At year end only the negotiated pricing arrangements gave rise to commodity-linked (aluminium) embedded derivatives. Refer to note 3(a).

Commodities used directly

Eskom purchases coal that is used in the generation of electricity from mines and is exposed to price and supply risks. Eskom has entered into long-term supply agreements with mines to ensure continuous supply of coal. In the fixed price contracts the price escalation is linked to an index, whereas Eskom pays for all the operational and other related costs of the collieries where the contracts are on a cost-plus basis. These contracts are monitored closely and managed to ensure costs are maintained within acceptable levels. Coal requirements above those of the fixed price and cost-price long-term contracts are supplied via short-to medium-term contracts which could have a transport element included in the purchase price.

There is also price risk exposure in the long-term primary energy water supply agreements entered into with the Department of Water Affairs (DWA) where Eskom pays for a portion of the operational costs incurred by DWA on certain of the water schemes.

Eskom is exposed to price risk on the diesel that is used for the generation of electricity at its open-cycle gas turbine power stations. The price of diesel is a function of the crude oil and United States dollar exchange rates.

Commodities used indirectly

There was no exposure where commodities formed a part of plant, equipment or inventory at year end. Eskom currently does not hedge its exposure to steel as no economic viable hedging instruments exist.

The group’s quantitative exposure to commodity risk is as follows:

  2014   2013  
  Tons   Gross
exposure
Rm
  Hedged

Rm
  Net
exposure
Rm
  Tons   Gross
exposure
Rm
  Hedged

Rm
  Net
exposure
Rm
 
Copper         164   9   9    

Sensitivity analysis

From a commodity perspective the group is exposed mainly to changes in the aluminium price. The sensitivity analysis has been performed on the same basis as the prior year. The analysis assumes that all other variables remain constant and the possible impact on profit or loss is:

  Group and company  
  2014   2013  
  1% increase
Rm
    1% decrease
Rm
    1% increase
Rm
    1% decrease
Rm
 
Profit/(loss), including embedded derivatives1                      
Aluminium price 130     (130)     144     (144)  
1 Impact on profit or loss is before calibration adjustment.

The periods of the hedging instrument and that of the hedged item are not the same because of SARB regulations that limits the number of years which can be hedged.

4.2.3 Interest rate risk
 

Interest rate risk is the risk that the group’s financial position may be adversely affected as a result of changes in interest rate levels, yield curves and spreads.

The group’s interest rate risk arises mainly from debt securities, borrowings and forward exchange contracts. Borrowings and debt securities issued at variable rates expose the group to cash flow interest rate risk. Borrowings and debt securities issued at fixed rates expose the group to fair value interest rate risk. The group’s policy is to restrict the maximum effective portion of the external debt (excluding the trading portfolio which is managed within the constraints of the treasury policy and control manual) exposed to an interest rate reset within the next 12-month period to 40%.

Refer to note 24 for the group’s quantitative exposure to interest rate risk.

Sensitivity analysis

The group analyses its interest rate exposure on a dynamic basis by conducting a sensitivity analysis. This involves determining the impact on profit or loss of defined interest rate shifts. For each simulation, the same interest rate shift is used for all currencies.

The sensitivity analysis for interest rate risk assumes that all other variables, in particular spot foreign exchange rates, remain constant. The calculation excludes borrowing costs capitalised in terms of the group’s accounting policy. The analysis relates to variable-rate instruments and has been performed on the same basis as the prior year.

The simulation is performed on a monthly basis to verify that the maximum loss potential is within the limit set by management. The results of the simulation are included in the table below.

The South African rand and the United States dollar interest rates are used in determining the fair value of embedded derivatives. The sensitivity analysis below indicates the impact on profit or loss if these rates change. The sensitivity analysis assumes that all other variables remain constant and has been prepared on the same basis as for the prior year.

  Group     Company  
  2014   2013     2014   2013  
  +100 basis
points
Rm
    -100 basis
points
Rm
    +100 basis
points
Rm
    -100 basis
points
Rm
    +100 basis
points
Rm
    -100 basis
points
Rm
    +100 basis
points
Rm
    -100 basis
points
Rm
 
Profit/(loss), excluding embedded derivatives                                              
Total exposure (66)     78     (147)     142     (66)     78     (128)     125  
   Rand interest rates 215     (221)     228     (236)     215     (221)     247     (253)  
   EUR interest rates (86)     88     (133)     135     (86)     88     (133)     135  
   USD interest rates (185)     201     (239)     240     (185)     201     (239)     240  
   Other currency interest rates (10)     10     (3)     3     (10)     10     (3)     3  
Equity, excluding embedded derivatives                                              
Total exposure (1 176)     1 291     (212)     208     (1 168)     1 283     (212)     208  
   Rand interest rates 1 648     (1 768)     1 333     (1 464)     1 656     (1 776)     1 333     (1 464)  
   EUR interest rates (660)     717     (173)     185     (660)     717     (173)     185  
   USD interest rates (2 126)     2 302     (1 319)     1 431     (2 126)     2 302     (1 319)     1 431  
   Other currency interest rates (38)     40     (53)     56     (38)     40     (53)     56  
Profit/(loss) – embedded derivatives1                                              
Total exposure 300     (336)     442     (498)     300     (336)     442     (498)  
   Rand interest rates 886     (950)     1 212     (1 307)     886     (950)     1 212     (1 307)  
   USD interest rates (586)     614     (770)     809     (586)     614     (770)     809  
1 Impact on profit or loss is before calibration adjustment.

Fixed and floating rate debt
The fixed and floating rate debt at 31 March were:

  Group and company  
  2014   2013  
  fixed
%
  floating
%
  fixed
%
  floating
%
 
Continuing operations 78   22   86   14  
4.2.4 Equity price risk
  Equity price risk arises from listed shares invested in by Escap Limited. Changes in the fair value of equity securities held by the group will fluctuate because of changes in market prices, caused by factors specific to the individual equity issuer, or factors affecting all similar equity securities traded on the market.

All the equity investments are listed on the Johannesburg Stock Exchange (JSE). A 1% increase of the share price in the equity portfolio at the reporting date would have increased profit or loss by R10 million (2013: R5 million) after tax. An equal change in the opposite direction would have decreased profit or loss by R10 million (2013: R5 million). There will be no impact on equity. The analysis assumes that all other variables remain constant and is performed on the same basis as for the prior year.

Movements of financial assets and equity prices are monitored on a monthly basis and equity price changes assessed against the JSE Shareholder Weighted Index as a benchmark.

4.2.5 Other price risk
  Inflation price risk arises from embedded derivatives as discussed under note 3(a). The risk arises from movements in the electricity tariffs, the United States PPI.

Refer to note 25 for the group’s quantitative exposure to other price risk.

The following is the sensitivity analysis of the change in the value of the embedded derivatives (relating to customised pricing agreements) as a result of changes in electricity tariffs and the United States PPI. The analysis assumes that all other variables remain constant and the possible impact on profit or loss is:

  Group and company  
  2014   2013  
  1% decrease
Rm
    1% increase
Rm
    1% decrease
Rm
    1% increase
Rm
 
Profit/(loss), including embedded derivatives1                      
Total exposure (612)     590     (561)     542  
Electricity tariffs (790)     765     (791)     765  
United States PPI 178     (175)     230     (223)  
1 Impact on profit or loss is before calibration adjustment.
4.3

Liquidity risk

  Liquidity risk is the risk that the group will not have sufficient financial resources to meet its obligations when they fall due, or will have to do so at excessive cost. This risk can arise from mismatches in the timing of cash flows from revenue and capital and operational outflows. Funding risk arises when the necessary liquidity to fund illiquid asset positions, such as building new electricity capacity, cannot be obtained at the expected terms and when required.

The objective of the group’s liquidity and funding management is to ensure that all foreseeable operational, capital expansion and loan commitment expenditure can be met under both normal and stressed conditions. The group has adopted an overall statement of financial position approach, which consolidates all sources and uses of liquidity, while aiming to maintain a balance between liquidity, profitability and interest rate considerations.

The management of consolidated liquidity and funding risk is centralised in the treasury division in accordance with practices and limits set by the Exco and the board. The group’s liquidity and funding management process includes:

projecting cash flows and considering the cash required by the group and optimising the short-term liquidity as well as the long-term funding
monitoring financial position liquidity ratios
maintaining a diverse range of funding sources with adequate back-up facilities
managing the concentration and profile of debt maturities
actively managing the funding risk by evaluating optimal entry points into the various markets per the official borrowing programme
maintaining liquidity and funding contingency plans

Eskom has an established corporate governance structure and process for managing the risks regarding guarantees and contingent liabilities. All significant guarantees issued by Eskom are approved by the board, and are managed on an ongoing basis through the quarterly meetings of the treasury credit committee, and by the Exco and audit and risk committee of the board. Refer to note 44.

The guarantees are administratively managed by the treasury division. Updated guarantee schedules are compiled every month, taking cognisance of any changed risk factors, and are submitted to each of the committees for consideration and action, if necessary. Risk factors and assumptions affecting probability calculations are reassessed twice a year and presented to the above committees.

Eskom’s guarantees are diverse and unlinked, such that a trigger event for any one guarantee is unlikely to precipitate a trigger event in respect of other guarantees.

Given that there would be forewarning of payments required in terms of the other guarantees, and considering the amounts of the guarantees, it is expected that Eskom will be able to raise the required liquidity to effect any required payments.

Primary sources of funding and unused facilities

The primary sources to meet Eskom’s liquidity requirements are cash generated from operations, cash inflows from maturing financial assets purchased, funds committed by government, signed and committed export credit agencies and development funding institution facilities, as well as local and foreign debt issued in the market. To supplement these liquidity sources under stress conditions, overdraft facilities (for which there was no requirement to use), undrawn loans, commercial paper facilities and unutilised government guarantees are in place as indicated below.

      Group and company  
  Currency   2014
Rm
  2013
Rm
 
Facilities available            
Japan Bank for International Cooperation            
   Untied facility JPY   4 125   7 682  
   Tied facility JPY   8   27 929  
General banking facilities ZAR   250   1 000  
African Development Bank loan facility EUR   431   604  
African Development Bank loan facility USD   261   265  
African Development Bank loan facility ZAR   316   698  
Agence Française de Développement EUR   100    
Agence Française de Développement ZAR   733   951  
Clean technology fund – African Development Bank USD   95   100  
Clean technology fund – World Bank USD   249   250  
Export Credit Agency floating rate facility EUR   513   897  
Export Credit Agency fixed rate facility EUR   594   397  
World Bank USD   2 275   2 606  
Development Bank of South Africa ZAR   6 000   8 000  
Government guarantees (uncommitted) ZAR   196 389   196 389  
Government guarantees (remaining on domestic multi-term note programme)1 ZAR   9 950   20 769  
Ex-Im US USD   499   800  
Kreditanstalt für Wiederaufbau USD   100    
Funds received from development financing institutions            
World Bank2 USD   331   366  
African Development Bank3 EUR   173   269  
African Development Bank4 USD   4    
African Development Bank3 ZAR   382   4 617  
Development Bank of South Africa5 ZAR   2 000   4 000  
Clean technology fund – World Bank 6 USD   1    
Clean technology fund – African Development Bank5 USD   5    
Agence Française de Développement5 ZAR   218   30  
1 Amount included in the government guarantees – (uncommitted) of R196 389 million (2013: R196 389 million).
2 All funds received were reimbursements on payments made by Eskom to various suppliers for goods and services supplied for the construction of the Medupi power station, Sere wind farm and Majuba rail projects.
3 All funds received were reimbursements on payments made by Eskom to various suppliers for goods and services supplied for the Medupi boilers and turbines.
4 Funds received were used for the Sere wind farm project.
5 Funds received were used for bridging finance for the capacity expansion programme.
6 Funds received were used for concentrated solar power projects.

Key indicators used for liquidity management

Duration

Management has set minimum duration limits to help optimise returns for the group on its debt portfolio. Group policy is to ensure that the external debt portfolio (excluding the trade portfolio) has a minimum duration of five years, should it exceed R10 billion. The duration limits are independently monitored and reported to Alco on a monthly basis and to the Exco and the audit and risk committee on a quarterly basis.

The duration (a weighted average term to maturity measure based on future cash flows) of the debt (including the shareholder loan, cross-currency swaps and interest rate swaps) measured at fair value at 31 March was:

  Group and company  
  2014
years
  2013
years
 
Continuing operations 5.59   6.19  

Liquid assets

Liquid assets are investments identified as having the potential to be quickly converted into cash. These investments include the instruments as disclosed in investments in securities and cash and cash equivalents. Refer to note 12 and 20. The liquid assets were:

  Group   Company  
  2014
Rm
  2013
Rm
  2014
Rm
  2013
Rm
 
Continuing operations 30 583   27 970   27 204   24 740  

Capital expenditure ratio

The capital expenditure ratio1 measures whether there are liquid funds available to invest in capital expenditure. The capital expenditure ratio for the period was:

  Group   Company  
  2014
%
  2013
%
  2014
%
  2013
%
 
Continuing operations 35   50   32   50  
1. The ratio is calculated as cash generated from operations divided by capital expenditure (excluding borrowing costs capitalised) on property, plant and equipment and intangible assets.

Contractual cash flows

The table below indicates the contractual undiscounted cash flows of the group’s financial assets and liabilities on the basis of their earliest possible contractual maturity. The undiscounted cash flows in respect of the group’s financial assets are presented net of impairment losses and include estimates where there are no contractual repayment terms or the receivable is past due. The cash flows of the group’s financial liabilities are indicated on a gross undiscounted basis.

The cash flows for derivatives are presented as gross inflows and outflows even though physically they are settled simultaneously. Contractual cash flows are a function of forward exchange rates and forward interest rates and is a point in time calculation that is impacted by market conditions at that time.

The table contains only cash flows relating to financial instruments and financial guarantees. It does not include future cash flows expected from the normal course of business and related commodity-linked pricing agreements.


      Carrying amount Cash flows  
      Non-
current
Current Total Nominal
inflow or
outflow
0-3
months
4-12
months
1-5
years
More than
5 years
 
2014 Note   Rm Rm Rm Rm Rm Rm Rm Rm  
Group                      
Financial assets                      
Investment in securities 12   4 841 6 066 10 907 11 646 1 595 5 166 4 885  
Loans receivable 13   8 654 329 8 983 20 762 275 806 3 819 15 862  
Derivatives held for risk management 14   9 361 2 812 12 173 23 902 2 268 591 (1 687) 22 730  
Finance lease receivables 15   520 18 538 1 165 22 64 342 737  
Trade and other receivables 17   27 16 554 16 581 16 580 16 522 31 27  
Financial trading assets1 19   4 265 4 265 5 438 3 478 306 212 1 442  
Cash and cash equivalents 20   19 676 19 676 19 676 19 676  
      23 403 49 720 73 123 99 169 43 836 6 964 7 598 40 771  
Financial liabilities                      
Debt securities and borrowings 24   210 169 20 258 230 427 467 676 8 282 22 440 103 573 333 381  
Subordinated loan from shareholder 24   24 393 24 393 146 356 146 356  
Derivatives held for risk management 14   310 1 197 1 507 467 280 2 558 2 736 (5 107)  
Finance lease liabilities 29   488 12 500 1 367 25 73 396 873  
Trade and other payables 30   1 037 28 229 29 266 29 498 27 294 931 1 268 5  
Financial trading liabilities1 19   5 658 5 658 6 337 4 670 303 387 977  
Financial guarantees 44   165 165  
      236 397 55 354 291 751 651 866 40 716 26 305 108 360 476 485  
Company                      
Financial assets                      
Loans to subsidiaries     6 665 6 665 6 790 2 698 4 092  
Investment in securities 12   4 841 3 319 8 160 8 898 36 3 977 4 885  
Derivatives held for risk management 14   9 361 2 812 12 173 23 902 2 268 591 (1 687) 22 730  
Finance lease receivables 15   520 18 538 1 165 22 64 342 737  
Trade and other receivables 17   16 16 882 16 898 16 897 16 850 31 16  
Financial trading assets1 19   3 226 3 226 4 398 2 438 306 212 1 442  
Cash and cash equivalents 20   19 044 19 044 19 044 19 044  
      14 738 51 966 66 704 81 094 43 356 9 061 3 768 24 909  
Financial liabilities                      
Loans from subsidiaries     2 453 2 453 2 583 1 880 703  
Debt securities and borrowings 24   208 649 19 774 228 423 465 673 7 888 22 793 101 747 333 245  
Subordinated loan from shareholder 24   24 393 24 393 146 356 146 356  
Derivatives held for risk management 14   310 1 197 1 507 467 280 2 558 2 736 (5 107)  
Finance lease liabilities 29   705 64 769 1 698 43 130 642 883  
Trade and other payables 30   1 073 29 849 30 922 31 154 28 914 931 1 304 5  
Financial trading liabilities1 19   5 658 5 658 6 337 4 670 303 387 977  
Financial guarantees 44   1 1 1 284 1 284  
      235 130 58 996 294 126 655 552 44 959 27 418 106 816 476 359  
2013                      
Group                      
Financial assets                      
Investment in securities 12   8 574 8 776 17 350 18 542 5 135 4 630 8 777  
Loans receivable 13   8 425 114 8 539 18 895 215 636 2 897 15 147  
Derivatives held for risk management 14   5 420 1 906 7 326 13 344 1 024 272 (1 717) 13 765  
Finance lease receivables 15   538 17 555 1 252 22 65 342 823  
Trade and other receivables 17   459 14 497 14 956 14 865 13 466 942 456 1  
Financial trading assets1 19   2 735 2 735 2 439 708 260 162 1 309  
Cash and cash equivalents 20   10 620 10 620 10 620 10 620  
      23 416 38 665 62 081 79 957 31 190 6 805 10 917 31 045  
Financial liabilities                      
Debt securities and borrowings 24   168 427 12 180 180 607 366 004 4 127 15 943 71 088 274 846  
Subordinated loan from shareholder 24   22 349 22 349 146 356 146 356  
Derivatives held for risk management 14   840 572 1 412 2 582 317 359 1 212 694  
Finance lease liabilities 29   501 10 511 1 466 27 68 436 935  
Trade and other payables 30   2 598 28 999 31 597 31 922 27 847 1 151 2 922 2  
Financial trading liabilities1 19   1 355 1 355 670 356 47 56 211  
Financial guarantees 44   167 167  
      194 715 43 116 237 831 549 167 32 841 17 568 75 714 423 044  
Company                      
Financial assets                      
Loans to subsidiaries     6 223 6 223 6 318 2 691 3 627  
Investment in securities 12   8 574 6 336 14 910 16 103 5 074 2 252 8 777  
Derivatives held for risk management 14   5 420 1 906 7 326 13 344 1 024 272 (1 717) 13 765  
Finance lease receivables 15   538 17 555 1 252 22 65 342 823  
Trade and other receivables 17   8 14 724 14 732 14 643 13 937 699 6 1  
Financial trading assets1 19   2 042 2 042 1 746 15 260 162 1 309  
Cash and cash equivalents 20   9 830 9 830 9 830 9 830  
      14 540 41 078 55 618 63 236 32 593 7 175 7 570 15 898  
Financial liabilities                      
Loans from subsidiaries     2 003 2 003 2 019 1 389 630  
Debt securities and borrowings 24   167 057 11 482 178 539 363 938 3 496 15 877 70 043 274 522  
Subordinated loan from shareholder 24   22 349 22 349 146 356 146 356  
Derivatives held for risk management 14   840 572 1 412 2 582 317 359 1 212 694  
Finance lease liabilities 29   770 56 826 1 882 44 131 711 996  
Trade and other payables 30   1 326 29 898 31 224 31 554 29 499 402 1 651 2  
Financial trading liabilities1 19   1 355 1 355 670 356 47 56 211  
Financial guarantees 44   1 1 1 208 1 208  
      192 342 45 367 237 709 550 209 36 309 17 446 73 673 422 781  
1 The contractual cash flows for financial trading assets and liabilities have been disclosed based on the contractual maturity of the instrument. However, as these instruments are held-for-trading they may be sold or settled prior to contractual maturity.

4.4

Capital management and going concern

  Eskom manages accumulated profit and the hedging, fair value, equity and insurance reserves as capital. The equity reserve comprises the day-one gains that result from the initial recognition of the subordinated loan tranches received from the shareholder. The day-onegains are included in equity as it is considered to be a contribution from the shareholder. Eskom is obliged to pay interest on the loan when the solvency and debt leverage conditions per the agreement are satisfied. Future projections result in the day-one gains. Refer to note 24.

The table below shows the amounts of the reserves which Eskom manages as capital:

  Group   Company  
  2014
Rm
  2013
Rm
  2014
Rm
  2013
Rm
 
Accumulated profit 90 786   78 970   85 666   75 489  
Cash flow hedge reserve 6 178   2 959   6 178   2 959  
Unrealised fair value reserve (7 744)   (3 648)   (7 744)   (3 648)  
Equity reserve 30 520   30 520   30 520   30 520  
  119 740   108 801   114 620   105 320  

The objective of capital management is to ensure that Eskom is sustainable over the long term. There were no changes to Eskom’s approach to capital management during the financial year.

The major items that impact the equity of Eskom include:

the revenue received from electricity sales (which is a function of price and sales volumes)
the cost of funding the current business
the cost of operating the electricity business
the cost of expanding the business to ensure that capacity growth is in line with electricity sales demand (funding and additional depreciation)
taxation
dividends

Eskom uses the Integrated Strategic Electricity Planning process which forecasts the growth in electricity demand for the long term and evaluates the alternative means to meet and manage that demand. This information flows into the planning process. The planning process will determine a forward electricity price curve which will be an indication of the size of the price increases which Eskom requires to be sustainable over the long term.

The tariff increases for the electricity business are subject to the process laid down by the National Energy Regulator of South Africa (NERSA). The current regulatory framework applicable to Eskom is the multi-year five-year determination ending in 2018.

The electricity business is currently in a major expansion phase and the funding related to generating, transmitting and other capacity is envisaged to be obtained from cash generated by the business, shareholder support and funds borrowed on the local and foreign debt markets. The adequacy of price increases allowed by the regulator and the level and timing of shareholder support are key factors in the sustainability of Eskom. Eskom believes that a capacity expansion beyond the Kusile project would need to be carried out in a prefunded/ project finance type manner in order to ensure the stability of Eskom’s statement of financial position. The financial sustainability is dependent on reaching cost reflective prices sooner rather than later.

The government as the sole shareholder and the board have the responsibility to ensure that the group is adequately capitalised to ensure continuity of supply and that the business is attractive to investors to enable Eskom to fund the capacity expansion programme.

Eskom did not receive a cost reflective tariff in the NERSA Multi-Year Price Determination (MYPD) 3 decision which created a revenue shortfall of R225 billion over the MYPD 3 period which have placed tremendous strain on the financial and operating sustainability of the group. The board has critically examined its activities and costs in order to balance its cash flow requirements through the Business Productivity Programme to identify cost saving and efficiency opportunities to close the revenue shortfall.

Eskom submitted an application to NERSA for the MYPD 2 period during August 2013 regarding variances between costs and revenues assumed in MYPD 2 compared to the actual costs incurred and revenue received by Eskom. The NERSA electricity sub-committee has made a recommendation on the Regulatory Clearing Account (RCA) to the NERSA board and a decision is awaited during the first quarter of the new financial year. The recommendation includes an RCA balance in favour of Eskom for implementation in the next financial year.

The board is pursuing alternative funding options, including potential government support.

In response to the financial position resulting from the NERSA MYPD 3 determination, Eskom will trade-off its former objective of attaining astand-alone investment grade rating and will instead aim to sustain this rating with sovereign uplift and is monitoring the relevant performance ratio’s as part of its financial policy. The free funds from operations (FFO) to total debt and total debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratios play an important role in the credit ratings given to Eskom which in turn influences the cost of funding.

The board has given particular attention to the assessment of the going concern of the group 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.

The following ratios are closely managed:

      Unit   2014   2013  
Group                
EBITDA     Rm   25 829   13 914  
FFO     Rm   27 542   18 108  
Interest cover     ratio   0.77   0.22  
Electricity revenue per kWh     c/kWh   62.82   58.49  
Electricity operating costs per kWh (including depreciation and amortisation)     c/kWh   59.67   54.14  
FFO as percentage of gross debt     %   9.73   8.04  
Gross debt/ EBITDA     ratio   10.96   16.20  
Debt: equity (including long-term provisions)     ratio   2.06   1.84  
Working capital     ratio   0.71   0.68  

  2014   2013
  Rating   Outlook   Rating   Outlook  
Standard & Poor’s                
   Foreign currency BBB   Negative   BBB   Negative  
   Local currency BBB   Negative   BBB   Negative  
Moody’s                
   Foreign currency Baa3   Negative   Baa3   Negative  
   Local currency Baa3   Negative   Baa3   Negative  
Fitch Ratings                
   National Long-term (zaf) AAA   Stable   AA+   Stable  
   National Short-term (zaf) F1+   Stable   F1+   Stable  
4.5 Accounting classifications and fair values
  The group has applied IFRS 13 Fair value measurement in considering the measurement of fair value where applicable. A number of the group’s accounting policies and disclosures require the measurement of fair values for both financial and non-financial assets and liabilities.

Valuation processes

The group has established a controlled framework with respect to the measurement of fair values. It includes a valuation team that ultimately reports to the finance director and has overall responsibility for all significant fair value measurements.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third-party information, such as broker quotes or pricing services, is used to measure fair value, then the valuation team assesses and documents the evidence obtained from the third parties to support their conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy that the resulting fair value estimate should be classified to.

Principal markets

The group is involved in various principal markets because of the unique funding activities undertaken by the group. The fair value will be determined by each participant in the different principal markets. The principal markets are:

capital and money markets
development financing institutions
export credit agencies

      Held-for-
trading
Loans and
receivables
Available-
for-sale
Liabilities
at
amortised
cost
Other
assets and
liabilities
    Total
carrying
amount
    Total fair
value
 
2014 Note   Rm Rm Rm Rm Rm     Rm     Rm  
Group                            
Financial assets                            
Investment in securities 12   10 907     10 907     10 907  
Government bonds     8 160     8 160     8 160  
Negotiable certificates of deposit     2 747     2 747     2 747  
Loans receivable1,2 13   8 983     8 983     7 408  
Secured by mortgages     8 546     8 546     7 139  
Other     437     437     269  
Derivatives held for risk management 14   2 344 9 829     12 173     12 173  
Foreign exchange derivatives     2 289 9 829     12 118     12 118  
Commodity derivatives     51     51     51  
Credit default swap     4     4     4  
Finance lease receivables3 15   538     538     538  
Trade and other receivables3 17   16 581     16 581     16 581  
Financial trading assets 19   4 265     4 265     4 265  
Negotiable certificates of deposit     334     334     334  
Repurchase agreements     2 325     2 325     2 325  
Listed shares     1 039     1 039     1 039  
Government bonds     541     541     541  
Other money market securities     26     26     26  
Cash and cash equivalents 20   19 676     19 676     19 676  
Bank balances     10 757     10 757     10 757  
Unsettled deals     1 489     1 489     1 489  
Fixed deposits     7 361     7 361     7 361  
Other     69     69     69  
                             
      6 609 45 240 10 907 10 367     73 123     71 548  
Financial liabilities                            
Debt securities and borrowings2 24   254 820     254 820     240 646  
Eskom bonds     102 080     102 080     102 274  
Promissory notes     35     35     45  
Commercial paper     14 635     14 635     14 629  
Eurorand zero coupon bonds     3 484     3 484     3 711  
Foreign bonds     29 100     29 100     30 965  
Developing financing institutions     49 256     49 256     41 910  
Export credit facilities     31 506     31 506     32 751  
Subordinated loan from shareholders4     24 393     24 393     14 030  
Other loans     331     331     331  
Embedded derivatives 25   9 332     9 332     9 332  
Derivatives held for risk management 14   840 667     1 507     1 507  
Foreign exchange derivatives     837 667     1 504     1 504  
Credit default swap     3     3     3  
Finance lease liabilities3 29   500     500     500  
Trade and other payables3 30   29 266     29 266     29 266  
Financial trading liabilities 19   5 658     5 658     5 658  
Short-sold government bonds     752     752     752  
Commercial paper issued     762     762     762  
Repurchase agreements     4 144     4 144     4 144  
                             
      6 498 284 086 10 499     301 083     286 909  
1 The fair value of loans receivable is based on what a market participant would be willing to pay to acquire the loans. This participant would not have the ability to garnish salaries, thus increasing the probability of default resulting in a lower fair value than Eskom’s carrying value.
2 he prospective implementation of IFRS 13 Fair value measurement, requiring adjustment for DVA (Eskom’s own credit risk) and CVA (counterparty credit risk) impacted the fair value of these instruments.
3 The fair values of these financial instruments approximate their carrying amounts. The effect of discounting is not expected to be material.
4. For further information on the subordinated loan from shareholder. Refer to note 24.

      Held-for-
trading
Loans and
receivables
Available-
for-sale
Liabilities
at
amortised
cost
Other
assets and
liabilities
    Total
carrying
amount
    Total fair
value
 
2014 Note   Rm Rm Rm Rm Rm     Rm     Rm  
Company                            
Financial assets                            
Investment in securities 12   8 160     8 160     8 160  
Government bonds     8 160     8 160     8 160  
Derivatives held for risk management 14   2 344 9 829     12 173     12 173  
Foreign exchange derivatives     2 289 9 829     12 118     12 118  
Commodity derivatives     51     51     51  
Credit default swap     4     4     4  
Finance lease receivables1 15   538     538     538  
Trade and other receivables1 17   16 898     16 898     16 898  
Loans to subsidiaries1     6 665     6 665     6 665  
Financial trading assets 19   3 226     3 226     3 226  
Negotiable certificates of deposit     334     334     334  
Repurchase agreements     2 325     2 325     2 325  
Government bonds     541     541     541  
Other money market securities     26     26     26  
Cash and cash equivalents 20   19 044     19 044     19 044  
Bank balances     10 194     10 194     10 194  
Unsettled deals     1 489     1 489     1 489  
Fixed deposits     7 361     7 361     7 361  
                             
      5 570 42 607 8 160 10 367     66 704     66 704  
Financial liabilities                            
Debt securities and borrowings2 24   252 816     252 816     238 642  
Eskom bonds     102 080     102 080     102 274  
Promissory notes     35     35     45  
Commercial paper     12 962     12 962     12 956  
Eurorand zero coupon bonds     3 484     3 484     3 711  
Foreign bonds     29 100     29 100     30 965  
Developing financing institutions     49 256     49 256     41 910  
Export credit facilities     31 506     31 506     32 751  
Subordinated loan from shareholder3     24 393     24 393     14 030  
Embedded derivatives 25   9 331     9 331     9 331  
Derivatives held for risk management 14   840 667     1 507     1 507  
Foreign exchange derivatives     837 667     1 504     1 504  
Credit default swap     3     3     3  
Finance lease liabilities1 29   769     769     769  
Trade and other payables1 30   30 922     30 922     30 922  
Loans from subsidiaries1     2 453     2 453     2 453  
Financial trading liabilities 19   5 658     5 658     5 658  
Short-sold government bonds     752     752     752  
Commercial paper issued     762     762     762  
Repurchase agreements     4 144     4 144     4 144  
                             
      6 498 286 191 10 767     303 456     289 282  
1 The fair values of these financial instruments approximate their carrying amounts. The effect of discounting is not expected to be material.
2 The prospective implementation of IFRS 13 Fair value measurement, requiring adjustment for DVA (Eskom’s own credit risk) and CVA (counterparty credit risk) impacted the fair value of these instruments.
3 For further information on the subordinated loan from shareholder. Refer to note 24.

      Held-for-
trading
Loans and
receivables
Available-
for-sale
Liabilities
at
amortised
cost
Other
assets and
liabilities
    Total
carrying
amount
    Total fair
value
 
2013 Note   Rm Rm Rm Rm Rm     Rm     Rm  
Group                            
Financial assets                            
Investment in securities 12   17 350     17 350     17 350  
Government bonds     10 193     10 193     10 193  
Negotiable certificates of deposit     2 532     2 532     2 532  
Fixed deposits     4 625     4 625     4 625  
Loans receivable 13   8 539     8 539     8 539  
Secured by mortgages     7 911     7 911     7 911  
Other     628     628     628  
Derivatives held for risk management 14   1 020 6 306     7 326     7 326  
Foreign exchange derivatives     1 017 6 306     7 323     7 323  
Commodity derivatives     3     3     3  
Finance lease receivables1 15   555     555     555  
Trade and other receivables1 17   14 956     14 956     14 956  
Financial trading assets 19   2 735     2 735     2 735  
Negotiable certificates of deposit     193     193     193  
Repurchase agreements     778     778     778  
Listed shares     693     693     693  
Government bonds     921     921     921  
Fixed deposits     126     126     126  
Other money market securities     24     24     24  
Cash and cash equivalents 20   10 620     10 620     10 620  
Bank balances     10 457     10 457     10 457  
Fixed deposits     163     163     163  
                             
      3 755 34 115 17 350 6 861     62 081     62 081  
Financial liabilities                            
Debt securities and borrowings 24   202 956     202 956     221 935  
Eskom bonds     88 063     88 063     95 835  
Promissory notes     83     83     115  
Commercial paper     8 422     8 422     8 422  
Eurorand zero coupon bonds     3 080     3 080     4 906  
Foreign bonds     16 146     16 146     17 645  
Developing financing institutions     38 089     38 089     40 254  
Export credit facilities     22 501     22 501     27 900  
Floating rate notes     3 826     3 826     4 112  
Subordinated loan from shareholders2     22 349     22 349     22 349  
Other loans     397     397     397  
Embedded derivatives 25   11 481     11 481     11 481  
Derivatives held for risk management 14   485 927     1 412     1 412  
Foreign exchange derivatives     481 355     836     836  
Interest rate swap     572     572     572  
Commodity derivatives     4     4     4  
Finance lease liabilities1 29   511     511     511  
Trade and other payables1 30   31 597     31 597     31 597  
Financial trading liabilities 19   1 355     1 355     1 355  
Short-sold government bonds     204     204     204  
Commercial paper issued     388     388     388  
Repurchase agreements     763     763     763  
                             
      1 840 234 553 12 919     249 312     268 291  
Company                            
Financial assets                            
Investment in securities 12   14 910     14 910     14 910  
Government bonds     10 193     10 193     10 193  
Negotiable certificates of deposit     93     93     93  
Fixed deposits     4 624     4 624     4 624  
Derivatives held for risk management 14   1 020 6 306     7 326     7 326  
Foreign exchange derivatives     1 017 6 306     7 323     7 323  
Commodity derivatives     3     3     3  
Finance lease receivables1 15   555     555     555  
Trade and other receivables1 17   14 732     14 732     14 732  
Loans to subsidiaries1     6 223     6 223     6 223  
Financial trading assets 19   2 042     2 042     2 042  
Negotiable certificates of deposit     193     193     193  
Repurchase agreements     778     778     778  
Government bonds     921     921     921  
Fixed deposits     126     126     126  
Other money market securities     24     24     24  
Cash and cash equivalents 20   9 830     9 830     9 830  
Bank balances     9 667     9 667     9 667  
Fixed deposits     163     163     163  
                             
      3 062 30 785 14 910 6 861     55 618     55 618  
Financial liabilities                            
Debt securities and borrowings 24   200 888     200 888     219 867  
Eskom bonds     88 063     88 063     95 835  
Promissory notes     83     83     115  
Commercial paper     6 751     6 751     6 751  
Eurorand zero coupon bonds     3 080     3 080     4 906  
Foreign bonds     16 146     16 146     17 645  
Developing financing institutions     38 089     38 089     40 254  
Export credit facilities     22 501     22 501     27 900  
Floating rate notes     3 826     3 826     4 112  
Subordinated loan from shareholder2     22 349     22 349     22 349  
Embedded derivatives 25   11 480     11 480     11 480  
Derivatives held for risk management 14   485 927     1 412     1 412  
Foreign exchange derivatives     481 355     836     836  
Interest rate swap     572     572     572  
Commodity derivatives     4     4     4  
Finance lease liabilities1 29   826     826     826  
Trade and other payables1 30   31 224     31 224     31 224  
Loans from subsidiaries1     2 003     2 003     2 003  
Financial trading liabilities 19   1 355     1 355     1 355  
Short-sold government bonds     204     204     204  
Commercial paper issued     388     388     388  
Repurchase agreements     763     763     763  
                             
      1 840 234 115 13 233     249 188     268 167  
1 The fair values of these financial instruments approximate their carrying amounts. The effect of discounting is not expected to be material.
2 For further information on the subordinated loan from shareholder. Refer to note 24.

Fair value hierarchy

The table in note 4 analyses fair value measurements which are categorised into the different levels in the fair value hierarchy based on the inputs to the valuation techniques used. Other than the application of IFRS 13 I there has been no change in the valuation technique applied. The hierarchy levels are defined as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
Level 3: Inputs for the financial asset or financial liability that are not based on observable market data (unobservable inputs).

The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred.

Eskom’s policy for determining when transfers between levels in the hierarchy have occurred includes monitoring of the following factors:

Changes in market and trading activity (eg significant increases/decreases in activity)
Changes in inputs used in valuation techniques (eg inputs becoming/ceasing to be observable in the market)

There were no transfers between level 1, 2 or 3 of the fair value hierarchy during the year.

The valuation techniques used are as follows:

Level 1: Quoted prices (unadjusted) in active markets
The fair value of fiinancial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active when it is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The quoted market price used for fiinancial assets held by the group is the current bid price. For financial liabilities included in level 1 the current ask price is used. Instruments included in level 1 comprise primary listed investments classifiied as trading securities or available for sale.

Level 2: Inputs other than quoted prices included within level 1 that are observable
Level 2 fair values for debt securities are determined using a discounted cash flow technique, which uses expected cash flows and amarket-related discount rate. Level 2 fair values for simple over-the-counter derivative financial instruments are based on broker quotes. These quotes are tested for reasonableness by discounting expected future cash flows using a market interest rate for a similar instrument at the measurement date. Fair values reflect the credit risk of the instruments and include adjustments for the credit risk of the group entity and counterparty when appropriate. The fair values are obtained from listed bond yields or using a discounted cash flows model for unlisted instruments. The future cash flows are discounted using a zero curve, which is adjusted to reflect the credit value adjustment (CVA) and debit value adjustment (DVA) that are constructed from money market and swap rates.

Level 3: Inputs not based on observable market data (unobservable inputs)
Level 3 items are fair valued using unobservable inputs (embedded derivatives for measurement and disclosure and government loan for disclosure). For background information on the valuation techniques and assumptions refer to note 3(a) and 3(e).

      Group Company  
      Fair value  
2014 Note   Level 1
Rm
Level 2
Rm
Level 3
Rm
    Total
Rm
    Level 1
Rm
Level 2
Rm
Level 3
Rm
    Total
Rm
 
Assets measured at fair value                                  
Investment in securities 12   8 160 2 747     10 907     8 160     8 160  
Government bonds     8 160     8 160     8 160     8 160  
Negotiable certificates of deposit     2 747     2 747          
Derivatives held for risk management 14   12 173     12 173     12 173     12 173  
Foreign exchange derivatives     12 118     12 118     12 118     12 118  
Commodity derivatives     51     51     51     51  
Credit default swap     4     4     4     4  
Financial trading assets 19   1 580 2 685     4 265     541 2 685     3 226  
Negotiable certificates of deposit     334     334     334     334  
Repurchase agreements     2 325     2 325     2 325     2 325  
Listed shares     1 039     1 039          
Government bonds     541     541     541     541  
Other money market securities     26     26     26     26  
Assets not measured at fair value                                  
Loans receivable2     7 408     7 408          
Secured by mortgages     7 139     7 139          
Other     269     269          
Finance lease receivables 15   538     538     538     538  
Trade and other receivables 17   16 581     16 581     16 898     16 898  
Loans to subsidiaries             6 665     6 665  
Cash and cash equivalents 20   19 676     19 676     19 044     19 044  
Bank balances     10 757     10 757     10 194     10 194  
Unsettled deals     1 489     1 489     1 489     1 489  
Fixed deposits     7 361     7 361     7 361     7 361  
Other     69     69          
                                   
      9 740 61 808     71 548     8 701 58 003     66 704  
Liabilities measured at fair value                                  
Embedded derivatives 25   9 332     9 332     9 331     9 331  
Derivatives held for risk management 14   1 507     1 507     1 507     1 507  
Foreign exchange derivatives     1 504     1 504     1 504     1 504  
Credit default swap     3     3     3     3  
Financial trading liabilities 19   752 4 906     5 658     752 4 906     5 658  
Short-sold government bonds     752     752     752     752  
Commercial paper issued     762     762     762     762  
Repurchase agreements     4 144     4 144     4 144     4 144  
Liabilities not measured at fair value                                  
Debt securities and borrowings2 24   102 274 124 342 14 030     240 646     102 274 122 338 14 030     238 642  
Eskom bonds     102 274     102 274     102 274     102 274  
Promissory notes     45     45     45     45  
Commercial paper     14 629     14 629     12 956     12 956  
Eurorand zero coupon bonds     3 711     3 711     3 711     3 711  
Foreign bonds     30 965     30 965     30 965     30 965  
Developing financing institutions     41 910     41 910     41 910     41 910  
Export credit facilities     32 751     32 751     32 751     32 751  
Subordinated loan from shareholder     14 030     14 030     14 030     14 030  
Other loans     331     331          
Finance lease liabilities 29   500     500     769     769  
Trade and other payables 30   29 266     29 266     30 922     30 922  
Loans from subsidiaries             2 453     2 453  
2013     103 026 160 521 23 362     286 909     103 026 162 895 23 361     289 282  
Assets measured at fair value                                  
Investment in securities 12   10 193 7 157     17 350     10 193 4 717     14 910  
Government bonds     10 193     10 193     10 193     10 193  
Negotiable certificates of deposit     2 532     2 532     93     93  
Fixed deposits     4 625     4 625     4 624     4 624  
Derivatives held for risk management 14   7 326     7 326     7 326     7 326  
Foreign exchange derivatives     7 323     7 323     7 323     7 323  
Commodity derivatives     3     3     3     3  
Financial trading assets 19   1 614 1 121     2 735     921 1 121     2 042  
Negotiable certificates of deposit     193     193     193     193  
Repurchase agreements     778     778     778     778  
Listed shares     693     693          
Government bonds     921     921     921     921  
Fixed deposits     126     126     126     126  
Other money market securities     24     24     24     24  
Assets not measured at fair value                                  
Loans receivable     8 539     8 539          
Secured by mortgages     7 911     7 911          
Other     628     628          
Finance lease receivables 15   555     555     555     555  
Trade and other receivables 17   14 956     14 956     14 732     14 732  
Loans to subsidiaries             6 223     6 223  
Cash and cash equivalents 20   10 620     10 620     9 830     9 830  
Bank balances     10 457     10 457     9 667     9 667  
Fixed deposits     163     163     163     163  
                                   
      11 807 50 274     62 081     11 114 44 504     55 618  
Liabilities measured at fair value                                  
Embedded derivatives 25   11 481     11 481     11 480     11 480  
Derivatives held for risk management 14   1 412     1 412     1 412     1 412  
Foreign exchange derivatives     836     836     836     836  
Interest rate swap     572     572     572     572  
Commodity derivatives     4     4     4     4  
Financial trading liabilities 19   204 1 151     1 355     204 1 151     1 355  
Short-sold government bonds     204     204     204     204  
Commercial paper issued     388     388     388     388  
Repurchase agreements     763     763     763     763  
Liabilities not measured at fair value                                  
Debt securities and borrowings 24   95 835 103 751 22 349     221 935     95 835 101 683 22 349     219 867  
Eskom bonds     95 835     95 835     95 835     95 835  
Promissory notes     115     115     115     115  
Commercial paper     8 422     8 422     6 751     6 751  
Eurorand zero coupon bonds     4 906     4 906     4 906     4 906  
Foreign bonds     17 645     17 645     17 645     17 645  
Developing financing institutions     40 254     40 254     40 254     40 254  
Export credit facilities     27 900     27 900     27 900     27 900  
Floating rate notes     4 112     4 112     4 112     4 112  
Subordinated loan from shareholder     22 349     22 349     22 349     22 349  
Other loans     397     397          
Finance lease liabilities 29   511     511     826     826  
Trade and other payables 30   31 597     31 597     31 224     31 224  
Loans from subsidiaries             2 003     2 003  
                                   
      96 039 138 422 33 830     268 291     96 039 138 299 33 829     268 167  
1 The credit risk associated with these instruments are considered to be material. The requirements of IFRS 13 Fair value measurement have been prospectively applied.
2 The prospective implementation of IFRS 13 Fair value measurement, requiring adjustment for DVA (Eskom’s own credit risk) and CVA (counterparty credit risk), impacted the fair value of these instruments.

A reconciliation has been performed for fair value measurements in level 3 of the fair value hierarchy as follows:

  Group   Company  
  2014
Rm
  2013
Rm
  2014
Rm
  2013
Rm
 
Embedded derivatives                
Carrying value beginning of year 11 481   5 539   11 480   5 538  
Net fair value (gain)/loss on embedded derivatives (2 149)   5 942   (2 149)   5 942  
Carrying value at end of year 9 332   11 481   9 331   11 480  

Refer to note 3(a) and 4.2 for more information on sensitivities and assumptions.