Steady progress in Eskom’s turnaround strategy

Tuesday, 19 April 2016: After a two-day board breakaway session in which Eskom’s key performance targets were assessed, the company’s Board of Directors led by Chairperson Dr Baldwin Ngubane expressed its comfort on the strides made by management so far in turning around the company’s operational and financial performance.

Eskom has not implemented load shedding for the past nine months, and our plan is to continue implementing appropriate levels of planned maintenance to ensure long-term plant reliability. This has resulted in a drastic reduction in unplanned maintenance and the number of breakdowns over the past nine months, positively impacting plant availability.

The reduction in unplanned outages contributed to improvements of plant availability and the resultant sharp reduction in the usage of open cycle gas turbines (OCGTs). OCGT (diesel) usage declined by 53% between October 2015 and December 2015. Eskom has decreased the usage of diesel from R800m to R40m in five months due to improved performance of our base-load fleet. We shall continue with our rigorous programme of planned maintenance without implementing load shedding while also minimising usage of the OCGTs.

In terms of our existing Generation Sustainability Strategy, our aim is to achieve 80% plant availability, 10% planned maintenance and 10% unplanned maintenance over the medium term. The adherence to regular scheduled maintenance is managed through the Tetris planning tool which schedule outages based on forecasted demand and maintenance requirements. A key aspect of this includes having a strict winter and summer maintenance budget that comprises 8.5GW for winter and 11.5GW for summer.

The resilience of the power system was stress-tested last week following multiple trips of units at three power stations, a move that resulted in a loss of 3 535 MW. No load shedding was implemented due to the increased resilience that Eskom has built into the power system over the past few months.

Whilst improving the performance of the existing ageing fleet on one hand, Eskom has also managed to fast-track the building of new generating capacity on the other.

On 6 March this year, Unit 3 of the Ingula Pumped Storage Scheme was synchronised to the national power grid, marking a key milestone towards the full commercial operation of the unit ahead of the scheduled deadline of January 2017. Unit 3 is the first of the four units of the Ingula Pumped Storage Scheme to be connected to the national grid. Once completed, all four units of the Ingula Pumped Storage Scheme will produce a total of 1 332 MW.

The synchronisation Unit 3 of the Ingula Pumped Storage Scheme is a critical milestone in the company’s effort to build new generating capacity to meet South Africa’s rising electricity demand. Once completed in the next five years, our capacity expansion programme, which is the largest in the company’s history, will increase our generation capacity by 17 384MW, transmission lines by 9 756km and substation capacity by 42 470MVA.

This will enable us to provide security of electricity supply to South African homes and businesses, powering economic expansion and extending electricity to millions of households who currently rely on other fuel sources for domestic cooking and heating.

Since inception in 2005, the capacity expansion programme so far added 7 031MW of generation capacity, 6 048km of transmission lines and 31 590 MVA of substation capacity.

Meanwhile, the testing before synchronisation of Unit 4 of Ingula has already started. The major construction work on both Unit 2 and Unit 1 has also been completed, and work on the outstanding electrical cabling and pipework is being accelerated.

Eskom continues to execute its build programme that will bring much-needed power to support South Africa’s economic growth. In February this year Unit 1 of the Kusile power station successfully completed factory acceptance tests, an important milestone towards the synchronisation of the unit. This unit is expected to be commercially operational in July 2018.

Medupi’s Unit 5 completed its factory acceptance tests in December last year, and is expected to come into full commercial operation by March 2018.

The Majuba Rail Project is expected to be completed by December 2017. Once commissioned, the security of coal supply through logistics solutions at both the Majuba and Tutuka power stations will transport approximately 21-million tonnes of coal per year by rail. The Majuba Rail Project is a component of the Eskom Road to Rail Initiative with the construction of a railway line that links the Majuba Power Station to the main coal railway hub in the town of Ermelo in Mpumalanga. The 68km corridor is the first large greenfield freight-rail infrastructure project to be carried out in South Africa since 1986 and will be operated by Transnet Freight Rail.

Meanwhile, Eskom has successfully completed 5 620 self-funded electrification connections as well as 1 080 farm dweller connections during the course of the 2014/15 financial year. In addition, together with Department of Energy (DoE), Eskom has connected more than 4.6 million households to the national grid since 1991. According to Statistics South Africa’s census conducted in 2012, access to electricity has increased from 35% of households in 1990 to an estimated 90% in 2016. More households will be connected to the grid in an effort to achieve universal access by 2025.

As a result of a stable power system, Eskom has also managed to increase its electricity exports to neighbouring states whose hydroelectric dam has been adversely affected by the drought.

Other than electricity, Eskom is also playing a critical role in skills development and economic empowerment. Through the EskomDevelopment Foundation, which is responsible for the execution of Eskom’s corporate social investment (CSI) strategy, the company has established the Eskom Contractor Academy initiative as part of its enterprise development programme. The objectives are to support skills development, which enhances job creation and contributes to the alleviation of poverty.

The academy started off as a pilot programme in 2008 and has since grown significantly. To date, we have completed 73 academies and almost 1 000 contractors have been trained successfully. Over the last three years, 518 contractors were trained from all nine provinces, with the majority (322) being the youth. Edupark, a non-profit subsidiary of the University of Limpopo has been appointed as a service provider to manage the contract.

Despite all these good news stories, there have been some media reports that had suggested that Eskom and other state-owned companies have been ‘captured’ by politically connected families and individuals. In recent months the media and some industry analysts have sought to create a public perception that Eskom directors are being used as pawns to facilitate lucrative tenders to these politically connected families.

With the alleged state capture dominating the headlines, it looks like everyone who works for state-owned companies is presumed guilty until proven otherwise by the media. By its own admission, the Mail & Guardian recently wrote that the directors named in their article titled “The Gupta-owned state enterprises” might not have done anything wrong, but by virtue of them being appointed into such positions "adds significant weight to concerns about so-called state capture." This sounds like a desperate effort to vilify all the recently appointed board members and executives of the state-owned enterprises even though there is no evidence of wrongdoing on their part.

In an effort to justify and legitimise its allegations, the newspaper wrote that: "The links are indisputable in some cases, and circumstantial or minor in others, and there is no evidence of the named directors and advisers doing anything untoward. But the power this network could wield adds significant weight to concerns about so-called state capture. The network’s access to the state’s most important economic engines, though a raft of board positions, at the very least calls into question the integrity of the appointment process, for which Public Enterprises Minister Lynne Brown bears major responsibility.” The article and the intention behind it were incorrect, mischievous and misleading.

The effect has been that the professional integrity of board members has been adversely affected as well as their business dealings outside of Eskom. In the absence of concrete evidence of wrongdoing, this, surely, is unfair. They too, need to be protected by the constitution and be presumed innocent until proven guilty.

The negative publicity is affecting the morale of Eskom employees and its directors. In this month alone, Eskom has lost two Board members who had made valuable contribution to the Board and its activities. 

Eskom is confident that it has a robust system and processes in place to ensure that actual, potential and perceived conflicts of interest of all its directors and employees are managed effectively. The interests of all directors on the Eskom Board are managed in terms of the legal and governance requirements relating to disclosure of personal financial interests.

If the recent comments attributed to former Eskom Chairman Zola Tsotsi are correct that some of the senior managers within the company are corrupt, then we urge Mr Tsotsi to report the matter to the law enforcement agencies as required by section 34 of the Prevention and Combating of Corrupt Activities Act.

Dr Ngubane has thanked Mr Romeo Kumalo and Ms Mariam Cassim who resigned recently to give undivided attention to their other business commitments and projects. “Mr Kumalo and Ms Cassim have served diligently and honestly on the main board and as members of sub-committees. We wish them both all the best in their endeavours,” he said.

In conclusion, it is important to address the perennial issue of the Hendrina coal contract. Until recently, Glencore was the owner of the Optimum Coal Mine and had a long-term contract to supply coal to Hendrina until 2018. But late last year Glencore ran into financial difficulties and was placed under business rescue. Glencore then decided to sell the mine to Oakbay Resources.

During the business rescue process, Eskom emphasised that it didn’t matter who Glencore and/or the business rescuers would sell the mine to, all we were interested in was to ensure that:

- the contract remains valid until 2018;

- the price per tonne remains R150;

- the agreed volumes or quantity of coal per annum remain unchanged;

- the agreed quality of coal remains unchanged; and lastly,

- the R2bn penalty imposed on Optimum will remain in force and payable.

None of these conditions have changed. Of critical importance is to note that Eskom has issued summons against Optimum for failing to supply coal that meets the quality specifications of the Hendrina power station. Once the business rescue process has been finalised, the legal proceedings will continue to run their course.

As far as Arnot power station coal supply is concerned, Optimum and six other companies have been supplying coal to that station in the normal course of business since January 2016. This followed the expiry of Exxaro’s contract in December last year. A new long-term contract will be signed with the winning bidder or bidders in due course.

Statement issued by Eskom Media Desk, 19 April 2016