CHIEF EXECUTIVE STRATEGY DOCUMENT

Compiled by Jacob Maroga
22 October 2009
Draft 1

1. PURPOSE OF THIS DOCUMENT

The purpose of this strategic paper is to set the context for the new Vision of Eskom that will result in a fundamental transformation of our organization from one based on survival and Problem-solving to an Eskom that is setting the energy foundation for the next 25 years of the development of our country. This document will also serve as a reference point for all the strategic programs and actions.

This document is aimed at a wider audience in and outside of Eskom. This document is not confidential.

2. "A CRISIS IS A TERRIBLE THING TO WASTE"

My thoughts and views that inform this strategic document are based on my fourteen years as a senior manager in Eskom and two and half years as the Chief Executive during one of the most difficult times in the history of this company. More significantly, my views are shaped by my reflections from managing the power crisis since 2005 in the Western Cape to the national power disruptions since 2007. During my tenure as the Transmission Managing Director, I was assigned to lead the recovery programme for the Western Cape in 2006 as a result of the Koeberg "bolt" incident. In 2007, I was assigned to coordinate the programs and actions to manage the system within the constrained of a tight reserve margin. This was done within the auspices of Operation Thekgo.

My approach in defining the draft vision and strategies of Eskom is based on the desire to address the underlying root causes that led to were we are today. I take a view that the most effective way to solve today's problem must be based on deconstructing the root causes of the current crisis. This approach not only addresses the current problems, but sets the foundation of preventing similar challenges in the future.

To address the underlying root causes, I have therefore reviewed the policy evolution since the formation of Eskom, the company strategies of the past, the current leadership paradigm and the organisational culture.

3. SOLVING TODAY'S PROBLEMS WITH THE END IN MEND

• The business of Eskom is characterised by the following attributes
  It is of key national significance
• It is long term
• It touches virtually all aspect of the national economy and society
• It is significant to the development of the region and the continent

In light of the above, it is imperative that we solve today's problems with an integrated and long term perspective. We should ensure that when we solve Eskom's challenges we do not create problems in other parts of the economy and society. We should also ensure that what we do today does not create future unintended negative consequences.

We should transform the solutions of today's problems into opportunities that must yield positive spin-offs for the country and our society.

4. FOUR PILLARS OF STRATEGIC CONVERSATION

The following four areas form pillars of the ongoing strategic conversation that will determine the development of our Vision.

Shared Meaning around the Role of Eskom: I believe that spending time developing shared meaning around the role of Eskom is the single most strategic issue for us. We need an ongoing dialogue with our shareholder to fully internalize their expectations and ensure that our whole being is fully integrated into their aspirations.

Shared meaning of the role of Eskom should be followed by increased role clarity. For Eskom to operate effectively, role clarity across the total governance structure is critical.

We need to invest time in understanding more clearly the various roles, i.e., the role of the shareholder, the Board, the Chairman of the Board, the Chief Executive and the EXCO.

It is my belief that there is a major gap in shared meaning on this aspect and the reframing of the role of Eskom is a key pillar for creating the environment for increased role clarity.

From Recovery to Vision: Since 2005, our organization has been dominated by managing from crisis to crisis. Firstly it was the Western Cape power disruptions, then the national load shedding. Now, we are managing a very tight cash situation. If we continue to do the same things, it is extremely unreasonable to expect to achieve different outcomes.

Advancing the reframing work that we started in 2008 and setting the stage for the new vision of Eskom requires the total transformation of our organization from one based on survival and problem-solving to an Eskom that is setting the foundation for the next 25 years of the development of our country.

Deepening our shared understanding of the total value stream of Eskom: The value stream of Eskom is equivalent to "mini economy" in the country. From the coal mining, financial sector, equipment suppliers, human capital development, environmental stewardship and customers etc, Eskom has a major role in the economy.

It is my belief that, as an organization, we need to increase our full appreciation of how the total value stream works so that we can play our role more effectively.

Business Sustainablilty and the Funding Model: Since October 2008, we along with the country leadership have recognised that the current regulatory framework is not adequate for the size of capital expansion we are undertaking. Therefore, we have been part of a dialogue to examine the role of Eskom and ensure our business sustainability. A critical outcome of the dialogue is an appropriate funding model that will set the industry on a path of sustainability for the future.

5. THE POLICY EVOLUTION AND THE HISTORY OF ESKOM

Electricity Act No 42 of 1922: Eskom was established in 1 March 1923 in terms of the Electricity Act No. 42 of 1922. Although the act was superseded in 1958, the following principles remained intact until 2001:

• Eskom was governed by the Commission comprising of members appointed by the State President and entrusted with the task of ensuring that Eskom plays its part in the South African economy to provide cheap and abundant supply of electricity
• Eskom was expected to operate at neither a profit nor at a loss
• Eskom was self funding with no financial support from the state

The Capital Development Fund: In 1972 the Franzsen Commission recommended the creation of the Capital Development Fund. The purpose of the fund was to allow Eskom to build up reserves to finance the capital required to expand the power system for the country and at the same time to increase the proportion of equity in Eskom relative to its borrowings. The impact of the Capital Development Fund on the tariffs was significant. The Capital Development Fund reached a high of 32.5% of the tariffs in 1979.

The De Villiers Commission of Enquiry of 1983: Eskom went through a massive capital expansion program during the early 70's to the mid 80's. As a result of the capital requirements and to cater for the Capital Development Fund, massive tariff hikes where instituted between 1975 and 1982. The highest tariff increase recorded is 48.2% in 1977.

The massive tariff hikes prompted the Government to appoint a commission of inquiry chaired by Dr Willem Jobannes de Villiers. The enquiry was given a wide mandate to look at all aspects of the supply of electricity in the Republic of South Africa. Of particular relevance was the special reference to- "the impact of capital formation, price determination, methods of financing and existing tariff structure on financial policy of the country with special reference to inflation, economic growth, the creation of infrastructure and decentralisation"

The De Villiers Commission's recommendations led to the changes in the Electricity Act in 1987. The Capital Development Fund was abolished and the Eskom accounting practices were revised to reflect the standard business accounting norms.

The Energy White Paper of 1998: The White Paper's key focus was the introduction of competition and private sector participation in the power sector. The following are the objectives articulated in the White Paper:

• improved social equity by addressing the requirements of the low income Customers;
• enhanced efficiency and competitiveness to provide low-cost and high quality inputs to all Sectors;
• environmentally sustainable short and long-term usage of our natural resources;
• the right of choice of an electricity supplier;
• competition in especially the generation sector;
• open non-discriminatory access to the transmission system; and
• private sector participation in the industry

The Eskom Conversion Act No.13 of 2001: The Conversion Act provided for the conversion of Eskom into a public company incorporated in terms of the Companies Act. It brought to an end the era where Eskom was operating under special legislation outside the auspices of the Companies Act. The Conversion Act also made the government ownership of Eskom explicit.

The Electricity Pricing Policy (EPP) of 2008: The key aspects of the EPP are the following:

• A revenue based on full cost recovery that reflects the valuation of the electricity assets based on the replacement cost and a market related return on assets
• Cost reflectivity of the electricity tariffs
• Non-discriminatory and transparent pricing with minimal cross-subsidies
• Fair and non-discriminatory access to network to all interested industry participants
• The development and publishing of a multi-year pricing path

6. KEY THEMES EMERGING FROM THE POLICY EVOLUTION

A. THEME 1: PUBLIC BENEFIT PARADIGM

The Paradigm of the Electricity Act from 1922 to 1998: The central theme of the Electricity Act was that electricity is primarily for public benefit and an instrument of economic and industrial development and as such should not be used to make a profit but to be supplied at the lowest cost. This theme persisted until the Energy White Paper of 1998. Not withstanding the fact that electricity was used for economic development, the financial sustainability of Eskom and self- funding was hardwired in the pricing of electricity.

B: THEME 2: COMMERCIAL AND COMPETITION PARADIGM

The Energy White Paper of 1998 and Competition: The central theme of the Energy White Paper of 1998 was competition. The White Paper envisaged the restructuring of Eskom into separate generation, transmission and distribution entities. Eskom generation was to be split up into competing companies and Eskom distribution was to be absorbed into Regional Electricity Distributors (REDS) in line with the EDT Restructuring Blueprint.

This model of electricity reform expressed in the White Paper reflected the classical competitive and privatised model followed internationally. This implied the vertical unbundling in order to separate the potentially competitive components (generation and retail) from the natural monopolies (transmission and distribution wires).

The key assumption of the Energy White Paper was that the Independent Power Producers will be attracted and provide the security of supply to South Africa. Essentially this approach put the security of supply of the country at the mercy of the commercial motive of potential private investors.

Judged against its desired outcomes, the Energy White Paper 1998 has not delivered the desired results.

A Review of the initiatives emanating from the 1998 White Paper: As we set the base for the future a fundamental review is required of all the initiatives that flows from the White Paper of 1998. The program and scope of Electricity Distribution Industry (EDO restructuring showed be reviewed to reflect today's policy priorities and thinking.

7. THE BATTLE OF THE PARADIGMS: A REFLECTION OF OUR SOCIETY

There are three paradigms that shape the strategic responses of stakeholders to the issues and challenges of Eskom

Paradigm 1: "No one is Home Paradigm": Essentially, this paradigm is based on a belief that the challenges of Eskom stems from management incompetence due to affirmative action. The strategic response in this paradigm is to bring in more experienced, mostly white people at an executive and Board level to save the situation.

The "no one is home" paradigm has very deep racial undertones that are reflective of the history of this country.

In this paradigm there are Homers and No Homers.

If one holds this paradigm, the Eskom challenges stems from the fact that there are too many No Homers in the system hence the crisis that the organization has gone through. The strategic response based on this paradigm is to bring in more Homers. The only measure that will bring confidence is an increasing number of Homers participating in the leadership structures of Eskom and in the departments and institutions which are critical to the success of Eskom

Paradigm 2: Role clarity paradigm: This paradigm is based on the belief that policy choices by the government created role confusion for Eskom, particularly on accountability for security of supply. In this paradigm role clarity confusion led to load shedding and the financial challenges that Eskom finds itself in.

Paradigm 3: Identity Crisis paradigm: From 1923 -2001, Eskom operated on the basis of the Electricity Act. Its main objective was to provide power for public benefit and neither for profit nor loss. The Eskom Conversion Act of 2001 closed the chapter of this era.

In this paradigm Eskom's challenges stems from its schizophrenic identity of being a fully commercial enterprise whilst responding to a developmental mandate. The difference between the role clarity and identity crisis paradigms is that in the latter, it is about how Eskom perceive itself rather than what its shareholder expects it to do.

8. SOME OF TODAY'S PROBLEMS ARE ROOTED IN THE "EXCELLENT" STRATEGIES OF THE PAST

An analysis of some of today's problems reflects the fact that they originate from what seems to have been excellent strategies of the past. The following are the key examples:-

The scrapping of the Capital Development Fund: In 1972 the Capital Development Fund was established as part of the funding model for the build program of the 70's and 80's. The Capital Development Fund was blamed for the massive increases in tariffs in the late 70's.The De Villiers Commission scrapped the Capital Development Fund in 1984 as a result of the national outcry stemming from the tariff increases.

The Capital Development Fund was aimed at ensuring that Eskom builds up sufficient reserves to contribute to the funding of new capital expansion. In hindsight, scrapping the Capital Development Fund without articulating a convincing alternative funding model for future growth was major blow to the industry. A coherent and integrated funding model was never developed since the scraping of the Capital Development Fund.

The cheapest electricity in the world: The last build program undertaken in the 70's and 80's left Eskom with huge excess capacity. In the past twenty years the strategy for the cheapest electricity in the world was based on excess capacity rather than business efficiency and operational excellence. This strategy for the cheapest electricity in the world did not factor in the cost and the provision for building new capacity for the future of the country. This has contributed significantly to the current funding challenges of Eskom because the current electricity prices are not appropriate to fund new capacity.

Commodity linked aluminium contracts: To utilise excess capacity which resulted from the build programme of the 70's and 80's, Eskom embarked on a strategy to attract energy intensive customers to South Africa. Aluminium smelters were attracted to invest in South Africa as part of this initiative. As was normal practice at the time, the aluminium contracts where based on commodity linked pricing structure with long term agreements (20-30 years). These contracts did not seem to envisage the end of excess capacity nor the fact that with the end of excess capacity the cost of power will rise. While these contracts where seen as a stroke of brilliance at the time, they are now very painful to Eskom and the country.

The Energy White Paper of 1998, the introduction of IPP's and Competition: During the development of the White Paper, competition and private sector participation in the energy sector was seen as a panacea in some major economies of the world. This was based on the paradigm that the private sector can bring more efficiencies than state- owned vertically integrated utilities. However the complexities and risks associated with this policy were seriously underestimated. The Energy White Paper of 1998 has left the electricity security of supply of South Africa very vulnerable.

9. THE CASE FOR FUNDAMENTAL ORGANISATION TRANSFORMATION

Over twenty years of excess capacity: Eskom has lived with excess capacity since the mid 80's. Excess capacity mentality has impacted every facet of Eskom. The excess capacity era gave Eskom a false sense of excellence and invincibility. The leadership paradigms and the organisation culture formed in the era of excess capacity are no longer appropriate during a time of constrained power system and massive build program. The past three Chief Executive of Eskom all served during a period of excess capacity. Ian McRae- 1987- 1994, Allen Morgan -1994 -2000 and Thulani Gcabashe2000 - 2007.

Commencing with the build program without a clear funding model: In 2005, we committed the organisation to a massive investment program without the full appreciation of the funding sources for the capital. This is the best illustration of silo thinking. The part of the organisation where the build decision where motivated had no clue about the funding process for any of the capital requirements. The EXCO and the Board at the time did not fully appreciate the integrated impact of such a decision. Today we are solving the funding model retrospectively.

The past forward pricing curves were fundamentally flawed: In 2005, at the start of the MYPD process we put an application for CPI + 2%. This was based on our understanding at the time of the forward pricing curve which was required to fully cover the cash requirement (opex and capex) in the future. The current reality of cash flow clearly proves that our view of four year ago was grossly inaccurate. Without deconstructing the root causes of this flaw and effectively correcting it, we are bound to repeat it to the detriment of the country.

From technical problem solving to nation building: Eskom has built up a world renowned technical expertise in many fields. This phase of our democracy requires us to use our technical base to contribute profoundly to the aspiration of our nation.

The culture of "faceless" feedback: The current organisational culture does not promote openness, frankness and transparency. Face to face, honest and caring feedback is replaced by anonymous 360° feedback. This has encouraged the culture of anonymous letters, leaked documents and "fake" face-to-face politeness.

Over reliance on business consultants and outside "experts": For most of the key challenges in Eskom, we hire consultants to solve for us or to tell us what to do. Traditional consultants do the work for the company, as opposed to creating a lasting capability in the organisation. Given that most consultants work on billable hours, the more work they do the more they get paid. The more they can justify additional work, the more business for them. The over -reliance of traditional business consultants robs us of a deeper and more integrated understanding of our business.

In some cases the over reliance on consultants and outside experts is seen as a counter measure of affirmative action. The views of white outside experts have more weight in some quarters than the views of experienced black executives. The black executives are never experienced enough to have their views treated with credibility and respect.

Some of the experts are university professors who have written a lot, but have not managed any business of significance. However, these professors are often consulted to give expert views about things they have no direct experience on.

The culture of individual "stardom" versus team players: in most of the areas that we have had crisis's emerging we have had a perceived hero or superstar involved. These areas are managed as "black boxes" with very little transparency. in most of these areas there were superstars who paraded themselves as know-it all and accepted very little input from others. Whilst we are making progress in some of these areas, the following are good examples of this phenomenon: pricing and regulatory modelling, ISEP, primary energy the build programme, treasury and nuclear.

10. FROM RACIAL ACCOUNTING TO REAL ORGANISATIONAL TRANSFORMATION:

Whilst a lot has been achieved in increasing the number of black people in the supervisory and management levels in Eskom, much still need to be done on the cultural transformation front. By and large the current executive management has adopted the culture and leadership paradigm of the past. This leadership paradigm is characterised by technocratic arrogance, apartheid style supervisory mentality, lack of transparency and secrecy.

The initial phase of racial transformation in Eskom was based on promoting black executives, but also appointing white senior managers as second in charge. Some of the white executives where seen (and seeing themselves) as the ones really in charge with the black faces at the top. This approach has promoted tokenism rather than encourage real transformation.

The White Supervision Phenomenon: Issues that emanate from our past will not just fade away unless we confront them frankly and openly. This section is aimed at raising issues that will contribute to honest reflection so that we can transcend the entrenched paradigms that emanate from the history of our country. One of these issues is the phenomenon of white supervision.

White Supervision is a phenomenon that derives from our past of racial segregation and racial hierarchy. This phenomenon is based on the view that without white supervision, blacks by themselves are not able to lead and achieve anything of significance. This thinking was so entrenched that a few years ago some adverts for simple services, such as gardening and painting, the mention of "white supervision" in the adverts was felt necessary to attract business.

White Supervision and Corporate Leadership: There have been some key appointments of black executives in some large corporations in South Africa which has demonstrated the phenomenon of White Supervision. Some large corporation have appointed new black senior executive and proceeded immediately to restructure the reporting lines such that the major parts of the portfolio are under white supervision.

White Supervision and black people: White supervision mentality is not exclusive to white people. There are a significant number of black people who reflect this mentality. Some black people will attach more trust and confidence in organisations led by whites people than those dominated by blacks. There are also a number of black leaders who derive their confidence from the validation and endorsement by white consensus. All of us have been affected by this racial segregation history of our country.

White Supervision and endorsement of black leaders: White supervision also manifest itself in the practice where black leaders are assumed to be destined to failure until their competence has been endorsed by white consensus Those blacks whose competence has been endorsed by white consensus are then classified as the exception rather than a demonstration of inherent potential of all human beings.

White Supervision and Eskom: There are a number of examples that reflect the white supervision phenomenon in Eskom.

• White Supervision and the media: There are a number of people in the governance structures of Eskom who give more credibility to the reporting of the white dominated media than the internal management reporting processes. The internal management control processes, internal audit and independent external auditors are perceived to be less credible that the views of white journalists and the media.
• White Supervision and leaked document: The leaking of internal documents to the white dominated organisation also reflects the white supervision phenomenon. The underlying logic is that some white people in Eskom have more knowledge and competence than the largely black executives. By selectively leaking documents to like minded individuals and institutions, they can prove the need for more White Supervision and Scrutiny.
• White Supervision and the Olsen Report: Susan Olsen, a consultant and a coal procurement expert wrote a letter to me in July 2007. The letter triggered by my request of a meeting with Olsen, which was aimed at giving inputs to a process of restructuring the Primary Energy function. The Olsen letter was leaked to the media and a specific opposition political party. The manner in which the Olsen report was given status and attention is one example of white supervision mentality. The Olsen report was written by a white person and leaked by a white person to an political party and the media. It did not matter that this report was in response to already identified weaknesses that were already being addressed.
• White Supervision and the "Sherpas": A group of former white executive directors approached me last year expressing a desire to advice and support us during the difficult period that Eskom was going through. They decided to call themselves the "sherpas". Whilst I initially accepted this good gesture at face value, it became clear that their motivation was driven by the mentality of White Supervision rather than a genuine desire to support the leadership of Eskom. We have since parted ways and the "sherpas" have now launched a campaign of criticism on the leadership of Eskom and the government.

11. THE USE OF LEADERSHIP AND ORGANISATIOAL EFFECTIVENESS CONSULTANTS

Having recognised that the current challenges of Eskom are Symptoms of entrenched leadership paradigms and organisational culture, we cannot use traditional problem solving approaches that deal with the visible symptoms. I have chosen a path to solve today problems with a future in mind. This requires a new leadership paradigm and organisational transformation rather than superficial technical problem solving. Based on this, I have chosen to use the services of leadership and organisational effectiveness advisers rather than traditional business consultants The Telein Group Inc., of the United States, have been advising me on this work and have been extremely effective in assisting me in bringing this work this far. They will continue working with me in facilitating Eskom's overall cultural/organisational transformation

12. THE ROLE OF STATE OWNED ENTERPPJSES IN THIS PHASE OF THE DEMOCRACY

Giving meaning to the developmental state: The SOE's represent a very significant government portfolio which the country should use to give real meaning to the developmental state. This should include;

• Development of national infrastructure
• Stimulation of local manufacturing
• Poverty alleviation
• Job creation
• Service delivery
• Massive skills development
• Broad based integrat and systemic BEE
• Strengthening regional development and international relations in SADC and Africa
• Contributing to the industrial and trade strategy of South Africa

Setting the base for the next 25years: To ensure a better life for all requires a fundamental economic transformation in South Africa. This transformation requires long term strategic thinking. Whilst SOE's must address today's problems and challenges, their roles must be defined in the context of setting the base for the next 25 years. Our experience of the last 15 years of democracy provides valuable inputs to setting the base for next 25 years of national democratic development.

13. THE SPECIFIC ROLE OF ESKOM'S EN THIS PHASE OF THE NATIONAL DEVELOPMENT

Providing reliable and affordable power: Electricity is like oxygen to the economy. Reliable and affordable power is critical to the growth and economic development of the Country.

Supporting the development of other industries: Eskom's footprint in the economy is extensive. From the supply of coal, diesel, water, financing, spares, transport fleet, labour many others, Eskom is a significant anchor customer to many industries. This footprint of Eskom can be strategically leveraged to support the specific national objectives which are consistent with the overall developmental agenda

Providing an economic stimulus through the build programme: Eskom is embarking on the largest capital expansion program in the history of South Africa. This growing expansion program provides a very attractive Opportunity to stimulate the growth of the economy for the next few years.

Providing the power needs for the future: Confidence about the future provision of power is necessary for investment to happen in the country. By rolling out the power expansion program Eskom is laying a foundation for new investment to happen to grow the economy.

Creating more jobs: The ongoing operations of Eskom as well as the construction of new power infrastructure serves as key contributors to decent employment and sustainable livelihoods An integrated approach to maximise employment Opportunities by SOE's is crucial.

Developing a platform for massive skill training: Historically, SOE's like Eskom, Iscor and Sasol played a pivotal role in creating skills development opportl..initjes for white South Africans. An integrated and purposeful skill development plan by the SOB's can make a huge contribution to providing Opportunities to many young South Africans

Supporting the economic development of the region and the continent: The development of energy and in particular electricity is also critical to the economic development of SADC and the continent. South Africa, through Eskom is critical for the successful development of additional capacity in the region. Without the support of South Africa there are very few power projects that can be developed in the region.

Development of national infrastructure and social services: As Eskom expands its power system and build more power projects it requires infrastructure like roads, rail, water, housing, schools and other social services. Through a pro active and integrated approach, these can be leveraged to make an impact to service delivery beyond just providing power Broad Based Black Economic Empowerment (BBEE): SOE's should be at the forefront of BBBEE. The government has the best vehicle in SOE's to drive an integrated and impactful economic transformation programme.

Contributing to Industrial Strategy and Foreign Direct Investment: The provision of power is central to the industrial strategy of South Africa. The success of projects like Coega depends on the availability and the cost of power. The power sector can also be important in attracting new foreign direct investment into the country

14. DEVELOPING OUR VISION

The development of our vision derives from a deep desire to see the role of Eskom visibly and vividly embedded in the aspirations of the nation.
Eskom Vision Framework: Empowering the South African Dream

The six universal country principles that guides our thoughts and actions.

From the Preamble of the Constitution and other sources, we developed the following six universal principles which we believe represents the hopes and aspirations of the country and will guide all our thoughts and actions.

1. A united, democratic and prosperous South Africa

2. Eradication of poverty and unemployment

3. A thriving economy, connected to the world and integrated with the broader African continent

4. A sustainable economy, not harmful to the environment and committed to climate changes mitigation strategies.

S. Enhancing the potential of each citizen

6. Leveraging the role of SOE's for the economic development of the country

15. ESKOM 2015 OUTCOMES

The 2015 outcomes are set in two phases.
A: Solving today's problems with 2015 in mind
B: Setting the 2015 outcomes

A: Solving today's problems with 2015 in mind

1. Continuity of electricity supply: Whilst we fully appreciate the tightness of the power system, given the disruptive nature of load shedding, we resolve that, in collaboration with the country, we will ensure that there is no load shedding in South Africa. This resolve will be supported by a comprehensive and integrated plan that will mobilise all of society towards this goal.

2 Financial Stability: Whilst we fully appreciate the current precarious financial position of Eskom, we resolve that 2008/09 will be the last year to post operating income losses.

3 Embedded derivatives impacts eliminated by 1 April 2011: We aim that the 2011/2012 annual report will not report any embedded derivatives impacts from commodity linked contracts

4 Committed funding plan for all committed projects 1 April 2010: Based on the outcomes of the NERSA determination and the ongoing funding model discussions we resolve that a clear and committed funding plan for all current committed projects will be in place by 1 April 2010.

5 Stabilise the cost and logistics of primary energy by December 2010: The primary energy cost has been escalating significantly in the past 5 years due to reserve margin COnstrajn By December 2010 we will have stabilised the primary energy cost and the logistics for all our power stations.

6 Lock in the total cost and schedule of Medupi and Kusile by March 2010: The conclusion of the funding model and Nersa determination will allow us to place all contracts for Medupi and Kusile. This will allow us to lock-in the cost and give more certainty to the construction schedule of these power stations.

B: The 2015 outcomes

Specific targets for the following objectjve will still be developed:

1. Power adequacy outcomes
2. Financial position outcomes
3. Commitment on renewables
4. Emission target achieved
5. No of trainees achieved
6. Demand side management achieved
7. Value of industrialisation achieved based on Eskom activities
8. Cogen and IPP's achieved
9. Regional IPP projects supported
10. Employee dispensation framework outcomes
11. Jobs created
12. Percentage electrification achieved

16. CORE CAPABILITIES

In order to reach our vision of a reframed Eskom, and to contribute to the aspiration of this country, there are a set of core capabilities we will develop.

Superior Relationships: Our aspirations to embed the contribution of Eskom in the dreams of the nation, are so ambitious, to be attained through an organisation that has a fragmented and isolationist approach.

We cannot achieve the promise of our ideal future if we act as separate individuals with separate goals nor can we attain it as an organisation working in isolation. Superior relationships mean exemplary internal collaboration, close connection to key constituents and powerful stakeholder alliances.

Superior Stewardship: We are stewards of a vital national asset: Eskom. Also our operations has an extensive and broad impact on many areas and national aspects, such as the economy, the environment, investors Confidence, interaction relations, national resource, skills, etc.

Superior Stewardship means: We will in all times act in a maimer that serves the best interest of the Country and its resources. We will always put the interest of the country above our sectoral and narrow organisafi11 interests. This will be done in cognisance to all relevant corporate governance and statutory requirements

Superior Leadership: Superior leadership is the key ingredient that translates an ambitious vision to successful Outcomes. We believe that leadership is not a position. But leadership is an attitude.

Superior leadership takes three forms: As individuals, we take initiative within our circles of influence to educate and engage others in ways to increase our effectiveness for the organization.

Organisation-wide we maintain a pipeline that develops "leaders", as an organisation we lead coalitions and collaboration with stakeholders to achieve our vision, that advances the aspirations of our Country.

Superior Whole Systems Thinking: Our product has a Unique feature, that it is consumed immediately as it is produced.

Therefore our superior capability to think about the system as a whole is critical to our Success.

Superior whole system thinking, means wherever we are on the value stream of the organisation we fully understand how the whole system works and we are conscious of the impact our decisions to the total system. We take steps to ensure that our decisions and actions maximises the effectiveness of the whole system

Superior Knowledge Application: We take a view that, it is not what we know that matters, but how we use our knowledge to advance the broader interest of the organisation.

Superior knowledge application means we have superior capability to acquire new information, new insights, simply, educate and integrate and apply the insights to improve our effectiveness and improve our results.

17. CORE VALUES

In order to achieve our vision, we will embrace core values that will create a culture and behaviours that will reinforce our core capabilities. The following are the core values that should represent the organisajo11 that will ensure that we achieve our vision.

Service Excellence

Service Excellence is based on our responsiveness to those who depend on us. Our customers, key stakeholders and our colleagues.

Service excellence depends on four things:

• Intimate relationship with those we serve.
• Timely and high quality responses to their needs.
• Behaviours and processes that reinforce our relationship with them.
• And organisatjonal recognition and support of those whose performance excels in support of our Vision.

Accountability

Accountability is strongly associated with superior Custodianship and stewardship. Personal accountability is a measure of our commitment to the Vision.

The vastness of our organisation requires that everywhere and every time, each of us take responsibility for our actions and always act in a manner that promotes the interests of the organisation and the country.

Through accountability we can create an organisatjon driven by values rather than control.

To fulfil accountability, each employee must be given the authority, empowerment, resources, opportunities and capability to act with greater latitude and take action rapidly.

Accountability elevates our responsibility for the results of our decision and actions.

Teamwork

Teamwork takes the view that we are one company, with one vision. Teamwork transforms the energies of individuals into a unified force that propels the whole organisation towards its Vision.

Teamwork facilitates superior relationships across the organisation and all the stakeholders that we are interdependent with.

Effective teamwork thrives on an environment of trust and transparency, collaboration and dialogue, respect and understanding.

Integrity

As stewards of the critical national asset, as well as our critical impact of our actions to society, we have the responsibility to always act with absolute integrity.

Integrity means at all times we will be true to our values and principles at a personal level and at an organisational level.

Empowerment

Empowerment means all individuals are authorised, competent and motivated to act interdependently on behalf of the organisation.

Empowerment entails:

We understand not only the vision, but how the vision relates to our work.

We have the skills to act on our initiatives.

We have information as well as the power to act.

We know we are trusted and will not be punished when we take initiative that is within the scope of discretion or in pursuits of our vision.

Sustainability

The core value of sustainability will reinforce our core capability of stewardship Sustainability will permeate all aspect of our activities and decisions. It will start at a personal level, organisational level and national level. From personal safety, environmental, environmental, financial, business, community and all other aspects.

18 THE LEADERSHIP DIAMOND FRAMEWORK (LEADERSHIP QUOTIENT)

Superior leadership is a critical core capability for our Success at Eskom. It is superior leadership that will translate all our core capabilities into integrated and abundant decisions and outcomes that will take us closer to our Vision.

The Leadership Diamond Framework, brings together all the aspects of our core capabilities in the form of the four aspects of an integrated decision making process.

This leadership model, forces us to continuously integrate all the interest of all impacted parties in our decisions and actions.

A. Technical Quotient (TQ)

The Technical Quotient narrowly describes our ability to make decisions that only reflects our narrow technical and divisional interest. However, the TQ can be associated with our core capability of Superior Knowledge application.

Superior Knowledge Application reflects the transformation of our narrow technical knowledge into relevant simplified and accessible knowledge that empowers the rest of the organisation and our stakeholders to make integrated and abundant decisions.

Superior Knowledge application instils an attitude of sharing and teaching of our area of expertise.

B. Team Dynamics Quotient (TDQ)

Team Dynamics Quotient, is closely associated with our core value of teamwork. Our decisions and actions can be much more impactful if we build close working relationships and collaborate with our peers across the broader business and industry.

C. Stakeholder Quotient (SQ)

As an organisation product and services are critical to the success of the country, our ability to work with stakeholders, is critical.

SQ is strongly associated with the core value of service excellence.

Our SQ will be reflected by our intimate relationships and responsiveness to those who depend on our service.

U. Political Quotient (PQ)

PQ is understanding the value of "positive politics". Positive politics takes the form of creating alliances and broad coalitions with people whom we have common interests.

At a national level, our ability to continuously reflect our role in the context of the broad national aspirations, is "positive politics"

At an organisational level, maintaining superior relationships Within and outside the organisation in the interest of the broader Vision of the organisation is positive politics.

19. THE ROLE OF THE BOARD: THE NATION BUILDING CONTEXT

Fiduciary responsibility and corporate governance: The board of a SOE's is entrusted with the stewardship of a critical public asset and resource. Therefore, the level of corporate governance in an SOB's like Eskom must be of the highest standard and this is the fundamental role of the Board. Guidelines and principles of fiduciary responsibilities and corporate governance are fully articulated in various codes and statutes like the PFMA, the King Code of Governance as well as the Companies Act. This paper focuses on the broader role of the Board in responding to the demands for nation building in this phase of our democracy.

The role of the Board of Eskom in this phase of the democracy: The role of Eskom is central to the success of South Africa in this phase of the democracy. Electricity provision touches almost all facets of the economy and society. The Board of Eskom should be actively engaged in the national dialogue on the key national initiatives that impact on energy security in South Africa.

Redefine the Role of the Board to be more strategic with greater external collaborative leadership: As the dialogue on energy security, climate change, the role of SOE's, the role of Eskom, the funding model and various national strategic issues unfolds, there is an ever-increasing need to lead and collaborate with the external environment. There is an increasing opportunity and requirement to engage with parliamentary Committees, labour movements business associations, ministers, political parties and many other stakeholders. The Chairman and the Board members are appointed on the basis of their extensive networks in these environments and they should utilise them on behalf of Eskom. The EXCO structure will empower the non-executive directors to play an increased role in the external environment.

Participating in the national dialogue on key strategic matters: The Green Paper on the National Planning Commission has been issued recently. This Green Paper recognises energy security as one of the key focus areas for the National Planning Commission. The Board of Eskom must be ready and prepared to participate meaningfully in the national dialogue on such matters as the Green Paper of the National Planning Commission

Maximising the benefit of the profile of Board members: Each of the Board members of Eskom is appointed on the basis of a profile that has potential significant value to the organisation. Amongst the Board members reside wealth of experience, extensive networks and specialist knowledge that must be exploited to the maximum for the benefit of Eskom and the country. The breadth of the expertise in the Board ranges from senior organised labour leadership, business leadership at country and global level, financial and accounting management, global authority on climate change, local government expertise, organisation transformation and international power industry leadership. This expertise must be transformed through a concerted strategic discourse to a national resource that can contribute to broader country aspirations.

Thought Leadership: There are a number of topics that Eskom is grappling with which have national and global significance. Topics such as Climate Change, Renewable Energy, Funding, Nuclear power, Poverty Eradication, Employment Creation etc. There are members of the Board who are already thought leaders on these topics who must be given more platforms to contribute to the national and international discourse on the topics on to the benefit of Eskom and the country.

20.PRINCIPLES OF THE EXCO ROLE AND STRUCTURE:

In the context of the review and the discussions in this document, it is now appropriate to discuss an appropriate EXCO structure that will set the base for the future we desire. The current EXCO structure was developed based on the need to recover the system during the height of the energy crisis in February 2008. I have reviewed and developed a structure for the current situation which also sets a base for the future.

Our Vision, core capabilities, core values and leadership behaviours provides the framework for people selection at all organisational levels.

Solving today's problems with the future in mind: As we reframe the role of Eskom we need to solve today's challenges with the future in mind. The EXCO structure will integrate the capabilities to respond to the day to day challenges of the business whilst setting the base for the next 25years.

We need to solve the current challenges

• Keeping the lights on
• Cash management and funding
• Primary energy availability and cost
• Execution of the build program
• Whilst we set a base for the next 25 years
• Organisational Effectiveness and Reframing
• Future Security of supply
• Climate Change Strategy
• Financial sustainability
• Uplifting the poor
• Introduction of IPP's
• Regional IPP Projects
• Renewables
• DSM

Empower the Chief Executive and the EXCO team to be closer to the operations of the whole business: The EXCO structure will allow the CE and the team as a collective to get closer to the operations of the entire business. Solving today's problems and setting a base for the next 25 years requires that the EXCO team develop superior appreciation of the entire value stream of the business. This will require a much flatter structure than the current arrangements.

Allow the Chief Executive to get closer to the critical business units: The Chief Executive must get closer to the business units that require a step change to solve the current business challenges. This means that the CE will have to get closer to the all the operating division, System Operations and Planning, Cash Management and Funding, Primary Energy, the Build Program and Procurement.

Attract and retain effective country leaders: The EXCO portfolios should be constructed such that they are an attraction for talented and experienced senior executives in South Africa. Given the criticality of the role of Eskom, the scope and size of our operation, each portfolio should be attractive to senior executives with CEO potential in South Africa.

Facilitate integrated thinking: The previous policy intentions to break-up Eskom, have left scars of silo thinking in Eskom. The EXCO structure must break from this mode of operation and enhance integrated thinking in the organisation. The EXCO structure must build the "One Eskom" mind set.

A model of a racially transformed South Africa: As the largest SOE in South Africa, Eskom must lead the charge in demonstrating demographic representation at the highest leadership structures in the country. This must go beyond mere numbers, but begin to reflect new mindsets, leadership paradigms and attitudes of the nation we aspire to be.

21.CONCLUSIONS

Today is a reflection our history: The current realities of Eskom are the sum total of where we come from. Eskom is a long term business and as such today's challenges have been long in the making.

A fundamental break with the past: The solutions for today's problems and the setting of a base for the next 25 years require fundamental transformation that makes a clean break with the past.

Fundamental reconstruction of the cultural DNA: The country has adopted a new constitution to make a fundamental transition from apartheid to a full democracy. Eskom can not operate in the new democracy without a fundamentally reconstructed culture.

Today's problems are tomorrow's opportunities: The current challenges have forced us to reflect deeply about the criticality of the sector we are leading. This also present a golden opportunity to for us to create new opportunities for our country as we solve today's problems.

Source: http://www.mg.co.za/ (transcribed from PDF) 

Click here to sign up to receive our free daily headline email newsletter