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Corporate governance

The group’s drive to deliver new capacity and ensure that its build programme is on time will be founded on a sound corporate governance environment

Introduction

Eskom’s approach to corporate governance goes beyond complying with the letter and spirit of relevant governance codes because the group believes that good governance is an essential part of outstanding performance.

As Eskom’s operating environment becomes more challenging, the importance of superior governance practices is even more pronounced. The group’s drive to deliver new capacity and ensure that its build programme is on time will be founded on a sound corporate governance environment that ensures fundamental principles are not compromised in times of operational pressure. As such, management performance measures include achieving Eskom’s objectives efficiently and timeously without compromising its commitment to accountability, fairness, transparency and responsibility.

This approach ensures that Eskom regularly reviews its processes and practices for legal compliance, uses funds in an economic, efficient and effective manner and adheres to good corporate governance practices which are continually benchmarked against international standards, and appropriate to its circumstances.

The statutory duties, responsibilities and liabilities imposed on the directors of Eskom by the Companies Act, 61 of 1973 as amended, are augmented by those contained in the Public Finance Management Act, 1 of 1999 (PFMA), as amended. Eskom is also guided by the King Report on Corporate Governance for South Africa 2002 (King II Report), as well as the Protocol on Corporate Governance in the Public Sector 2002.

Key initiatives during the period to ensure continued compliance with good corporate governance included:

an evaluation of the performance of the Eskom board of directors
an annual review of the terms of reference of board committees
a review of board submission documents to enhance information going to the board
enhancing of the declaration of conflict of interest process
the development of corporate governance practice notes to assist the organisation with specific governance issues

The board acknowledges the importance of ongoing improvement in this critical area, such as initiatives to improve stakeholder participation and effective reporting and disclosure to stakeholders.

Rural electrification

Recommissioning in progress on the generation floor at Camden power station

Shareholding

The government of the Republic of South Africa is the sole shareholder of Eskom. The shareholder representative is the Minister of Public Enterprises.

Shareholder compact

In terms of the treasury regulations issued in accordance with the PFMA, Eskom must, in consultation with its executive authority (Minister of Public Enterprises), annually agree on its key performance objectives, measures and indicators. This is annexed to the agreed principles in the shareholder performance agreement (shareholder compact) concluded between Eskom and its shareholder.

The compact is not intended to interfere in any way with the normal principles of company law. The relationship between the shareholder and the board is preserved, as the board is responsible for ensuring that proper internal controls are in place and that Eskom is effectively managed. The compact promotes good governance practices in Eskom by helping to clarify the respective roles and responsibilities of the board and the shareholder and ensuring there is agreement on Eskom’s mandate and key objectives.

Governing bodies

Board of directors

Composition of the board

The details of directors appear earlier in the report.

Eskom has a unitary board structure comprising 13 non-executive directors and two executive directors. The majority of non-executive directors are independent.

Directors, appointed by the Minister of Public Enterprises, are drawn from diverse backgrounds (local and international) and represent the demographics of the Republic of South Africa. The directors bring a wide range of experience and professional skills to the board.

Eskom’s articles of association stipulate that the shareholder will, after consulting with the board, appoint the chairman, chief executive and non-executive directors of the company. The executive directors are appointed by the board, after obtaining approval from the shareholder.

The term of office of a non-executive director does not exceed a period of three years. Non-executive directors retire by rotation and are eligible for re-election.

TN Msomi, SV Zilwa and SE Funde retired by rotation in July 2005. LCZ Cele, U Nene and M Bello were appointed as independent, non-executive directors in August 2005.

R Khoza retired as the chairman of Eskom in July 2005 and MV Moosa was appointed in his stead as independent, non-executive chairman in August 2005.

The terms of office of the remaining non-executive directors expired at the annual general meeting in 2005. As they were eligible for re-election, they were re-appointed for a further three-year period.

Executive directors are permanent employees in terms of Eskom’s conditions of service. The chief executive’s term of office is three years.

Meetings of the board are scheduled annually in advance. Special meetings are convened when required to address specific material issues. Teleconferencing facilities are available to directors or members of committees unable to attend meetings. During the reporting period, eight board meetings were held. The attendance of members at board meetings is reflected below.

	Apr¹	Jun	Sep	Oct¹	Oct	Dec	Feb	Mar
Members	2005	2005	2005	2005	2005	2005	2006	2006
RJ Khoza^{2, 3} (chairman)			n/a	n/a	n/a	n/a	n/a	n/a
VM Moosa^{2, 4} (chairman)	n/a	n/a
MF Baleni²	A
M Bello^{2, 4}	n/a	n/a		A	A
LCZ Cele^{2, 4}	n/a	n/a
BM Count²	A
SE Funde^{2, 3}	A		n/a	n/a	n/a	n/a	n/a	n/a
TS Gcabashe⁵
LG Josefsson²				A	A			A
WE Lucas-Bull²	A	A	A	A			A
PM Makwana²	A	A		A	A	A
JRD Modise²
AJ Morgan²
SA Mpambani²
TN Msomi^{3, 6}	A	A	n/a	n/a	n/a	n/a	n/a	n/a
U Nene^{2, 4}	n/a	n/a						A
B Nqwababa⁵
VM Rowjee²
SV Zilwa^{2, 3}		A	n/a	n/a	n/a	n/a	n/a	n/a

^1.	Special meeting.
^2.	Independent non-executive director.
^3.	Retired July 2005.
^4.	Appointed August 2005.
^5.	Executive director.
^6.	Non-executive director.
	Present.
^A	Absent with apologies.

Role and function of the board

The board is the accounting authority of Eskom in terms of the PFMA.

In keeping with good corporate governance practices, the board has developed a board charter and identified its role.

The board’s role is as follows:

Providing strategic direction and leadership.
Determining the goals and objectives of the company.
Approving key policies, including investment and risk management.
Reviewing the company's goals and strategies for achieving the company's objectives.
Reviewing and approving the company's financial objectives, plans and expenditure.
Approving and monitoring compliance with corporate plans, financial plans and budgets.
Considering and approving the annual financial statements, interim statements and notices to the shareholder.
Ensuring good corporate governance and ethics.
Monitoring and reviewing performance and effectiveness of controls.
Monitoring and directing triple bottom-line performance.
Ensuring appropriate succession planning.
Guiding the restructuring and transformation process.
Ensuring effective communication with relevant stakeholders.
Liaising with and reporting to the shareholder.
Guiding key initiatives, for example, capacity expansion plan, new build programme, strategies on climate change and HIV/Aids.
Approving transactions above the authority level of management.

Delegation of authority

The power and authority to lead, control, manage and conduct the business of Eskom – including the power and authority to delegate – vests with the board to ensure Eskom remains a sustainable and viable business of global stature. It retains full and effective control over the operations of the organisation. This responsibility is facilitated by a well-developed governance structure comprising various board committees, subcommittees of the executive management committee (Exco) and a comprehensive delegation-of-authority framework. This framework assists in controlling the decision-making process and does not dilute the duties and accountabilities of directors. The framework is regularly reviewed and was last reviewed by the board in June 2005.

Liveline team hard at work

Pilot scale combustion test facility

Board evaluation and performance

An evaluation of the performance of the board and individual directors was conducted at the end of the financial year.

The performance of the board committees is evaluated against their respective terms of reference. The human resources, remuneration and ethics committee facilitates the evaluation of senior management.

Director induction and orientation

New directors are taken through an induction programme to enhance their understanding of Eskom’s legislative framework, governance processes and the nature and operations of the business.

Continuous training is provided, on request, to meet the needs of each director or group of directors. Directors are also continually updated on new laws and regulations.

Directors’ remuneration

Non-executive directors receive a honorarium and fee for their contributions to the board and committees on which they serve. Fees are determined by the shareholder, after consultation with the board. Non-executive directors are also reimbursed for out-of-pocket expenses incurred on behalf of the company. The rewards and remuneration of executive directors are determined by the human resources, remuneration and ethics committee.

Refer to the directors' report for further information on directors’ remuneration.

Company secretarial function

Directors have unrestricted access to the advice and services of the company secretary, and those of the secretariat department. Directors are entitled to obtain independent professional advice, at Eskom’s expense, should they deem this necessary.

The company secretary, together with the assurance functions in the corporate division, monitors Eskom’s compliance with the requirements of the PFMA, Companies Act and other relevant legislation; and reports to the board in this regard.

Board committees

Several board committees assist the board in discharging its responsibilities. This assistance is rendered in the form of recommendations and reports submitted to board meetings, ensuring transparency and full disclosure of committee activities. Each committee operates within the ambit of its defined terms of reference that sets out the composition, role, responsibilities, delegated authority and requirements for convening meetings. All committees, except Exco, comprise a majority of non-executive directors.

Audit committee

The committee comprises five non-executive directors, including an independent non-executive director (who is not the chairman of the board) as chairman.

The committee monitors compliance with relevant legislation and ensures an appropriate system of internal control is maintained to protect Eskom’s interests and assets. It reviews the activities and effectiveness of the corporate audit department (internal audit). It is also responsible for evaluating the independence, objectivity and effectiveness of the external auditors and for reviewing accounting and auditing concerns identified by internal and external audit. The head of the corporate audit department and the external auditors have unrestricted access to the chairman of the committee, and to the chairman of Eskom. The committee reviews the accuracy, reliability and credibility of statutory financial reporting and recommends the annual financial statements and the annual report of the Eskom group, as presented by management and reviewed by the external auditors, for approval by the board.

Audit committee
	Jun	Jun	Aug	Oct¹	Nov	Dec¹	Mar
Members	2005	2005	2005	2005	2005	2005	2006
JRD Modise (chairman)
LCZ Cele²	n/a	n/a	n/a
LG Josefsson				A	A	A
PM Makwana	A	A		A	A	A	A
SA Mpambani	A
TN Msomi³		A	n/a	n/a	n/a	n/a	n/a

Seven committee meetings were held during the review period. These were attended by the external auditors, the finance director, the head of the corporate audit department and relevant corporate officials. Attendance of members at committee meetings is reflected above.

Risk management committee

The risk management committee comprises three non-executive directors, the finance director and the managing director (Generation division). It is chaired by an independent non-executive director.

The committee ensures that the company’s risk management strategies and processes are aligned with best practices.

Three meetings were held during the year, dealing with the integrated risk management strategy and processes, risk tolerance and appetite, risk accountabilities, major risk exposures and emerging risk issues. Attendance of members at these meetings is reflected below.

	Jun	Nov	Mar
Members	2005	2005	2006
SE Funde (chairman)³		n/a	n/a
AJ Morgan (chairman)⁴
JRD Modise
M Bello²	n/a	A	A
B Nqwababa		A
EN Matya	A

^1.	Special meeting.
².	Appointed August 2005.
^3.	Retired July 2005.
⁴.	Appointed as chairman August 2005.
	Present.
A	Absent with apologies.

Investment and finance committee

The investment and finance committee comprises five non-executive directors, the chief executive and finance director and is chaired by an independent non-executive director.

The committee reviews Eskom’s investment strategy and makes recommendations to the board. It evaluates and approves business cases for new ventures or projects, approves criteria and guidelines for investments, and approves investments within its delegated authority.

The committee monitors and oversees the financial health of Eskom, including the review of budgets and financial and business plans. Eight committee meetings were held during the period. Attendance of members at these meetings is reflected below.

Investment and finance committee
	May	Jun	Aug	Sep1	Nov	Jan1	Mar	Mar1
Members	2005	2005	2005	2005	2005	2006	2006	2006
WE Lucas-Bull (chairman)				A
M Bello²	n/a	n/a	n/a	A	A	A	A	A
BM Count		A
SE Funde³		A	n/a	n/a	n/a	n/a	n/a	n/a
TS Gcabashe		A		A
LG Josefsson⁴				n/a	n/a	n/a	n/a	n/a
AJ Morgan
U Nene²	n/a	n/a	n/a		A		A	A
B Nqwababa					A		A

Tender committee

The tender committee comprises five non executive directors, including an independent non-executive chairman.

The committee assists the board in making procurement decisions, approves procurement policies, tenders and contracts within its delegated authority and ensures that Eskom’s procurement system and processes are fair, transparent, competitive and cost effective.

Seven committee meetings were held during the period. Attendance of members at committee meetings is reflected below.

Tender committee
	Apr¹	May	Aug	Nov	Dec1	Mar	Mar¹
Members	2005	2005	2005	2005	2005	2006	2006
MF Baleni (chairman)
LCZ Cele2	n/a	n/a	n/a		A
AJ Morgan
SE Mpambani
VM Rowjee

^1.	Special meeting.
^2.	Appointed August 2005.
^3.	Retired July 2005.
⁴.	Resigned September 2005.
	Present.
A	Absent with apologies.

Human resources, remuneration and ethics committee

This committee comprises three non-executive directors and the chief executive. It is chaired by an independent non-executive director. The chief executive recuses himself when his remuneration is considered.

The committee:

influences and approves human resources policies and strategies and monitors compliance with the Employment Equity Act, 55 of 1998
makes recommendations to the board, for approval by the shareholder, on the remuneration policy for executive and non-executive directors
makes recommendations to the board on the appointment and removal of executive and non-executive directors and senior management
ensures that Eskom appropriately demonstrates its commitment to organisational integrity
monitors the ethical conduct of the company, its management, employees and suppliers

The chairman ensures sufficient time is allocated to each of the areas within the terms of reference of the committee. In particular, there are dedicated slots for ethics, human resources policies, executive remuneration and succession planning.

Five meetings were held during the period. The attendance of members at these meetings is reflected below. The former chairman of the committee, Mr RJ Khoza, attended the August meeting to effect a seamless transfer of the chairmanship to Mr PM Makwana.

Human resources, remuneration and ethics committee
	May	Aug	Oct¹	Nov	Mar
Members	2005	2005	2005	2005	2006
RJ Khoza (chairman)²			n/a	n/a	n/a
PM Makwana (chairman)³
BM Count
TS Gcabashe
VM Rowjee

Sustainability committee

The sustainability committee comprises five non-executive directors and the chief executive. It is chaired by an independent non-executive director.

The committee addresses integrated sustainability (economic, environmental and social) issues. It approves and makes recommendations to the board on policies, strategies and guidelines, particularly for safety, health, environmental, quality and nuclear issues. The committee performs an oversight function to provide assurance that nuclear safety at Eskom’s facilities exceeds compliance with minimum regulatory and internal standards, while remaining consistent with international best practice.

Three meetings were held during the period. Attendance of members at these meetings is reflected below.

Sustainability committee
	May	Aug	Mar
Members	2005	2005	2006
RJ Khoza (chairman)²		n/a	n/a
MF Baleni (chairman)³
SE Funde²	A	n/a	n/a
TS Gcabashe		A
LG Josefsson⁴	n/a
WE Lucas-Bull⁴	n/a	n/a	A
MV Moosa⁴	n/a	n/a
TN Msomi²	A	n/a	n/a
U Nene⁴	n/a	n/a
VM Rowjee⁵	n/a		n/a

^1.	Special meeting.
^2.	Retired July 2005.
^3.	Appointed as chairman August 2005.
^4.	Appointed August 2005.
^5.	Co-opted member for August 2005.
^6.	These are divisional managing directors and not directors of the company.
	Present.
A	Absent with apologies.

Ad hoc electricity distribution industry restructuring committee (EDI committee)

The EDI committee comprises three non-executive directors, the chief executive and finance director. It is chaired by an independent non-executive director.

The committee was established in June 2005 to assist with Eskom’s contribution to the electricity distribution industry restructuring process. It assists the board in developing strategic positions regarding this process.

Four meetings were held during the period. Attendance of members at these meetings is reflected below.

Ad hoc electricity distribution industry restructuring committee (EDI committee)
	Aug	Sept	Nov	Jan
Members	2005	2005	2005	2006
AJ Morgan (chairman)
MF Baleni
TS Gcabashe			A
JRD Modise
B Nqwababa			A

Executive management committee (Exco)

Exco comprises the chief executive, finance director and the managing directors of Eskom’s divisions. It is chaired by the chief executive. Details of the Exco members appear earlier in the report.

Re-taping the harness of a high voltage transformer at Rotek

The committee assists the chief executive in guiding and controlling the overall direction of the business and in exercising executive control. It is responsible for ensuring the effective management of the day-to-day operations of the business.

Exco is assisted in carrying out its delegated duties by its procurement, operations, investment and sustainability subcommittees.

Twenty-seven Exco meetings were held during the period. Two of these were strategic workshops. Attendance of members at these meetings is reflected below.

Executive management committee

Attendance

Members

(27 meetings held)

TS Gcabashe (chairman)

NL Angel¹

BA Dames

JA Dladla

SJ Lennon

ME Letlape

PJ Maroga

EN Matya

PD Mbonyana

M Ntsokolo

B Nqwababa

¹.	Appointed June 2005.
	Present
A	Absent with apologies.

Public Finance Management Act

The board is the accounting authority in terms of the PFMA, in which Eskom is listed as a schedule 2 public entity. This act also applies to subsidiaries and entities owned or controlled by Eskom, as they are also classified as schedule 2 public entities.

The PFMA focuses on financial management with related outputs and responsibilities. Eskom has an ongoing process of awareness, education and advice on the PFMA to the business.

Directors comply with their fiduciary duties as set out in the PFMA. The responsibilities of the board, in terms of the PFMA, include taking appropriate action to ensure:

economic, efficient, effective and transparent systems of financial and risk management and internal control are in place
a system is maintained for properly evaluating all major capital projects prior to making a final decision on each project
implementation of appropriate and effective measures to prevent irregular or fruitless and wasteful expenditure, expenditure not complying with legislation, or losses from criminal conduct
all revenue due to Eskom is collected
the economic and efficient management
of available working capital
the definition of objectives and allocation of resources in an economic, efficient, effective and transparent manner

Integrated risk management

The Eskom integrated risk management strategy and process is a focus area in the organisation. Risks and opportunities, against business objectives, are identified during risk assessments throughout the organisation, from both a line and functional perspective. Risk integration between divisions and subsidiaries is reviewed by various committees to ensure a coordinated approach to risk mitigation measures.

The process of risk management, including a related system of internal control, is the responsibility of the board. Management is
accountable to the board for the design, implementation and monitoring of the process of risk management, and integrating risk management into the day-to-day activities of the organisation.

Risk accountability is defined by the risk accountability matrix, which is periodically updated to ensure relevance. Risk categories defined in the matrix include finance, technical, environmental, legal, human resources, information, stakeholders, regulatory and strategic. Each category has separate subcategories that ensure all risk areas are covered, and promote effective risk identification and evaluation.

A methodology for determining major risk values has been defined. This will assist the organisation to better identify which risks should receive priority and will show the value of risk mitigation measures. Aligned to this valuation methodology are risk tolerance levels for the organisation and risk appetite parameters for each functional risk area. A tolerance level for the organisation has been proposed and is currently being refined before implementation. Refer to the directors’ report for information regarding Eskom’s major risks.

Eskom continues to align itself with the recommendations of the King II guidelines, and has adopted the Institute of Risk Management South Africa’s Code of Practice.

Interaction with Eskom’s corporate audit and technical audit departments is essential to the ongoing success of the integrated risk management strategy, particularly risk integration aspects between divisions, subsidiaries and functions. Specific attention is given to Eskom’s top ten risks when preparing audit plans.

Ethical business conduct

Eskom is committed to the highest standard of ethical conduct in all its actions and decisions, underpinned by its key value of integrity. The organisation strives to act in a manner that promotes trust, dependability and honesty at all times.

The ethics office, a section of the risk management department, endeavours to inculcate a high standard of ethical conduct in the Eskom group. It assists the chief executive in setting the framework, rules, standards and boundaries for ethical behaviour.

This is achieved through an ethics management programme, based on King II recommendations and other best-practice initiatives.

Priorities addressed during the financial year included:

an independent ethics climate survey was conducted among stakeholders to review the Eskom business conduct policy. The survey gave stakeholders the opportunity to participate in developing a code of ethics that would reflect the ethical values shared by all Eskom stakeholders. The representative sample of respondents included members of the board, employees, labour unions, customers and suppliers. Employees will have an opportunity to influence the revised code of ethics before its expected implementation during the next financial year
a conflict of interest policy and procedure to manage declarations, where the emphasis is on procurement practices, is under development for implementation during the next financial year
the corporate audit department conducted ethics audits throughout the organisation to monitor compliance with the business conduct policy and verify ethics status reports
there was ongoing ethics awareness training
unethical conduct, crime and irregularities can be reported via a dedicated helpline, website and e-mail address, as well as an external confidential toll-free crime line. These reporting facilities are also available to Eskom’s stakeholders
a database is maintained of all reported unethical behaviour. The database tracks areas that require specific attention and monitors progress of investigations. Access to the database is restricted to maintain confidentiality of whistle-blowers
the ethics website provides information to employees on the business conduct policy, including key ethical issues, frequently asked questions and training material
employees are required to record gifts given and received in a courtesy register. The business conduct policy provides guidance on what may be considered acceptable gifts and entertainment
Eskom is a founding member of the Ethics and Compliance Officer Association (Ecoa), an international non-profit organisation with more than 1 000 members worldwide. The Ecoa is a forum to share information and strategies among those responsible for integrity, compliance and business conduct programmes in their organisations.

Internal control

The board has ultimate responsibility for establishing a framework for internal control. The controls throughout Eskom focus on those critical risk areas identified by operational risk management, and confirmed by executive management. Controls are designed to provide cost-effective assurance that assets are safeguarded, and that liabilities and working capital are efficiently managed. Organisational policies, procedures, structures and approval frameworks provide direction, accountability and segregation of responsibilities, and contain self-monitoring mechanisms.

Both management and the corporate audit department closely monitor controls and actions taken to correct deficiencies as they are identified.

Koeberg nuclear power station profiled against Table Mountain

Safety check in progress for liveline work

Audit

In line with the requirements of the PFMA and good governance, corporate audit, (Eskom’s internal audit function) provides the audit committee and management with assurance on the appropriateness and effectiveness of internal controls in place. This is achieved by an independent, objective appraisal and evaluation of risk management processes, internal controls and governance processes, as well as by identifying corrective actions and suggested enhancements to controls and processes. The risk-based audit plan covers major risks emanating from Eskom’s integrated risk management process. The audit plan responds to changes in Eskom’s risk profile.

The corporate audit department is fully supported by the board and audit committee, and has full, unrestricted access to all organisational activities, records, property and personnel.

The external auditors are responsible for independently auditing and reporting on the financial statements in conforming with International Financial Reporting Standards.

Technical audit

The corporate technical audit department provides assurance to executive management, through the audit function, on the technical, environmental, quality and safety performance of Eskom. It also carries out incident investigations and performance monitoring. The department is responsible for the measurement and verification of energy efficiency and load shifting projects in Eskom, which is a new function with the aim to participate in all energy management-related activities.

Audit programmes are based on one-and three-year cycles. Additional safety, health, environmental, quality and technical risk audits, reviews, assessments and incident investigations are conducted.

Security risk management

The board is responsible for ensuring that an integrated crime-prevention plan is implemented to minimise the risk of, and opportunity for, crime and irregularities – particularly fraud.

The security risk management department was established to provide a cost-effective risk-based approach to address threats of crime and irregularity against Eskom. This includes strategies of crime prevention, detection, response and investigation that support business objectives.

Where serious fraud, corruption and irregularities are suspected and reported, forensic investigations (a section of security risk management) investigate and establish the facts to enable management to deal appropriately with the issues, and to prevent recurrence.

Stakeholder engagement

Eskom values constructive dialogue and relationships with stakeholders. Ongoing interaction enables the business to improve customer service, satisfy stakeholder needs, meet regulatory requirements and play a more significant role as a catalyst for economic growth and nation-building.

Eskom has a formal and continuous programme of engaging with specific groups of stakeholders and addressing issues that are critical to the execution of its business strategy.

Stakeholder engagement
Stakeholder issues identified and the response strategy and control measures include:

Issue	Response strategy/control measures
National electricity	•	Embarked on build and return-to-service programme to increase capacity
supply constraints	•	Refurbishment and network-strengthening projects under way to enhance
		quality of supply
	•	Western Cape recovery plan implemented
Appropriate planning	•	A robust planning process is in place that is annually reviewed and updated with
procedures to enable		expected changes in supply and demand
Eskom to manage	•	Planning process is aligned to that of the Department of Minerals and Energy
future challenges		and Nersa
	•	Follows a process of public participation with environmental impact assessments
Management and	•	Consolidating and optimising existing skills and resources
retention of critical	•	Source critical skills from multiple sources, with a focus on BEE
skills	•	Internal training and development programmes and recruitment practices
		focuses on building skills base
	•	Eskom Learning Institutions increased intake of students
Safety standards and	•	Renewed focus area from top management and down into organisation
the prevention of	•	Electrical safety awareness initiatives implemented to educate the public about the
fatalities		dangers of electricity inside and outside the home
	•	Renewed focus on behavioural safety programmes to address vehicle fatalities
	•	Quality of job observations and safe working procedures improved
Comprehensive	•	Maintenance practices, procedures and programmes refocused to take account
maintenance of assets		of ageing critical plant
	•	Focus on enhancing engineering, operating and maintenance skills
	•	Pipelining of sufficient critical staff for the future has been accelerated through
		recruitment and training initiatives
	•	Large maintenance partners included to ensure skills are focused on priorities
		such as quality assurance
Management of HIV and	•	Manages impact of HIV and Aids through integrated response strategies.
Aids among employees	•	Strategies which aim to empower employees through self-awareness, education
		and training, care and support, high risk areas, policies and practices, information
		management, communication and partnerships
	•	Special focus on Voluntary Counselling and Testing
	•	Employee assistance programmes in place
Minimising environmental	•	Environmental management system implemented to ensure continual
impact		improvement in managing the impacts on the environment
	•	Environmental management an integral part of decision and business processes
	•	An environmental help-line allows both internal and external stakeholders to
		engage with Eskom on environmental issues
Affordable and	•	Eskom supports the Nersa objective of safeguarding the interests of customers
sustainable tariffs		and is committed to fair pricing and consultation with the Nersa
	•	Eskom intends to keep the price of electricity as low as possible, combined with
		a pricing policy that ensures gradual, stable and predictable price increases

Eskom regularly reviews the effectiveness of its stakeholder programme. This includes surveying stakeholders to understand shifts in perceptions and needs. During the review period, Eskom commissioned an independent research consultancy, African Institute of Corporate Citizenship, to facilitate two formal sessions with stakeholders for feedback on the 2005 Eskom annual report and the process of reporting to stakeholders in general. It was encouraging that the overall response was positive. Many of the issues raised – spanning economic, social and environmental concerns – have been addressed in this report.

Eskom will continue to make every effort to enhance this engagement process and address stakeholder issues and requirements.

To present a balanced and understandable assessment of its position, Eskom continually strives to ensure that reporting and disclosure to stakeholders is relevant, clear and effective. The organisation emphasises integrated reporting on economic, environmental and social matters, as well as being transparent in addressing both positive and negative aspects. Local and international guidelines for sustainability reporting, including the Global Reporting Initiative (2002) and King II, are used in compiling the annual report.

The 2005 annual report was independently benchmarked against best practice in integrated sustainability reporting to ensure continual improvement and relevance of information reported. The findings and recommendations were considered in preparing this annual report.

Eskom was benchmarked against 17 reports from South African and international energy, water and resource sectors, all acknowledged as leading examples of integrated sustainability reporting. Eight integrated reports from electricity utilities were included.

The exercise highlighted several aspects, including:

The need to implement a more structured stakeholder engagement process to assist in identifying issues of material interest to stakeholders.
The need to assess the effectiveness of the current approach to reporting.
The need to make a more compelling case that sustainability issues are effectively integrated in Eskom’s core strategy.
A number of material issues that should be reported in more detail, including some of the potential dilemmas associated with Eskom.
Developing a summary report that presents core quantitative data for a snapshot of Eskom’s key highlights and disappointments.

Eskom identified the main stakeholders to whom it is accountable and who it expects to use this annual report. Primary and secondary stakeholders were identified in the preparation of the report.

Eskom engages with stakeholders in a variety of ways, including:

government and regulatory bodies – regular one-on-one engagement, joint working groups, shareholder compact and written communication
customers – one-on-one engagement, call centres, customer satisfaction surveys, newsletters, joint working groups, internet, conferences and dedicated account managers
employees – Eskom plasma and touch screens, intranet (internal website), electronic communication, internal publications, newsletters, conferences, annual road shows by executive management throughout the country and employee satisfaction surveys
unions – one-on-one engagement, joint working groups, consultative forums, negotiating councils and structures
financial community (investors, financiers and rating agencies) – road shows, internet, Eskom publications, regular interaction and presentations
media – regular press conferences and briefings, one-on-one interviews, internet and Eskom publications
suppliers – procurement policies and procedures, supplier forums, one-on-one engagement and internet. Refer to the stakeholder engagement table

Sustainability, occupational hygiene, safety and environmental management

The chief executive, as chairman of the sustainability subcommittee of Exco, is accountable for Eskom’s overall sustainability performance.

The co-ordination and determination of Eskom’s strategic direction on sustainability, including environment, occupational hygiene and safety is undertaken through the Eskom sustainability, environment and occupational hygiene and safety liaison committees.

Eskom’s safety, health and environmental policy, the National Environmental Management Act, 107 of 1998 and the Occupational Health and Safety Act, 85 of 1993, remain the guiding principles for achieving the group’s occupational health, safety and environmental strategies and performance targets. The operations subcommittee of Exco monitors and assesses occupational hygiene, safety and environmental performance and reviews major incidents to ensure the necessary corrective measures are taken. Overall strategies are reviewed by the sustainability committee of the board.

Sustainability Liaison Committee

The Sustainability Liaison Committee makes recommendations on issues referred to it by the Exco sustainability subcommittee, the board sustainability committee or other Exco subcommittees and board committees, and on such issues identified by the committee as requiring comment. The committee debates and makes recommendations on Eskom's position or policy on sustainability matters, and provides appropriate guidance and direction on sustainability matters affecting Eskom and specific divisions.

The committee reviews, debates and monitors performance and formulates strategies on a variety of sustainability matters, such as Eskom's sustainability performance indicators and the impact of legislation and policy (actual or proposed) on Eskom's sustainability performance, and gives input or comments on draft legislation and policy. It tables issues for consideration by the Exco sustainability subcommittee and the board sustainability committee. Subcommittees are established as needed to address specific issues relating to the committee’s responsibilities.

The committee is chaired by the general manager–corporate sustainability. Principal members include senior managers or representatives from Eskom's divisions and the Eskom Development Foundation. Senior staff members representing environment, nuclear, quality, safety, economics and financial, health, risk and social responsibility are represented on the committee.

Environmental Liaison Committee

This subcommittee of the Sustainability Liaison Committee has been established to give guidance on relevant policies and strategies for environmental issues within Eskom and its subsidiaries. The committee is represented by divisional environmental managers and representatives.

It debates and makes recommendations on Eskom’s position or policy on all environmental matters and provides appropriate assurance, guidance and direction on environmental matters affecting Eskom.

The committee reviews and deliberates the impact of environmental legislation and policy (actual or proposed) on Eskom’s environmental performance, and provides input/comments on draft legislation and policy. All contraventions of environmental legislation are reported to this committee.

The requirements of the Eskom policy or position regarding the ISO 14001 environmental management system within Eskom are reviewed and discussed by the committee. It makes recommendations on Eskom environmental indicators.

Occupational Health and Safety Liaison Committee

The aim of this committee is to:

make recommendations on occupational health and safety matters to the organisation
guide the organisation on the effect of legislation
recommend an Eskom position or policy on all related matters
provide guidance and direction on matters affecting Eskom and specific divisions.

Nuclear safety

The independence of the nuclear safety assurance function from the electricity production function is assured by separating Eskom’s nuclear infrastructure into two structures. The nuclear business arena is directly accountable to the managing director of the Generation division for all aspects of electricity production at Koeberg power station, including safety. The nuclear safety and compliance section, a separate department in the Generation division with its own technical experts and resources, provides independent assurance of nuclear safety and compliance with licence requirements.

Eskom has a three-tier system of nuclear safety governance, in line with international best practice. The first tier is the sustainability committee of the board, which dedicates a number of its meetings each year to nuclear considerations. These meetings are attended by a number of experienced international nuclear experts, thus bringing an international perspective to the committee’s deliberations. The second tier is the nuclear management committee, chaired by the managing director of the Generation division. This committee monitors, reviews and recommends for approval aspects of the Eskom nuclear business, including nuclear policy, standards and rules in relation to international standards and benchmarks and Eskom’s overall business requirements. The third tier is the safety review group, a forum that brings together nuclear expertise from different parts of Eskom to debate and evaluate nuclear safety issues, and make appropriate recommendations to senior management and the higher tiers of committees.

The nuclear management committee consists of:

Managing director (Generation Division) – chairman.
Managing director (Resources and Strategy Division).
General manager finance (Generation Division).
General Manager Nuclear Cluster (Generation Division).
General Manager Human Resources (Generation Division).
Generation Safety and Assurance Manager (Generation Division).
General Manager Generation Strategy (Generation Division).
Senior Manager Generation Stakeholder Management (Generation Division).
General Manager Risk Management (Corporate Division).
Eskom's Chief Medical Officer.
Koeberg Power Station Manager.

Corporate citizenship

The objective of government’s Accelerated and Shared Growth Initiative for South Africa (Asgisa) is to promote economic growth and halve poverty and unemployment by 2014.

Eskom’s contribution is centrally coordinated and facilitated through the office of the chief executive. Eskom’s most significant contribution to Asgisa will continue to be through its core business of supplying affordable, reliable electricity, thereby facilitating economic growth. Eskom will also optimally leverage associated activities, including its current corporate social investment (CSI) programmes, for the development of the second economy.

These associated activities include:

optimising Eskom’s proposed capital infrastructure investment programme for local content, skills development, small and medium enterprise (SME), black women owned businesses and black economic empowerment (BEE) participation.
accelerating the electrification drive to facilitate the achievement of government’s stated objective of universal access by 2012.
focusing the organisation’s current corporate social investment programmes to deliver increasingly on Asgisa objectives of job creation, poverty alleviation and capacity building.

Eskom’s activities are aimed at contributing to the development of the disadvantaged where it operates. CSI activities include initiatives for skills development, job creation, education and health.

Many of Eskom’s CSI initiatives are executed by the Eskom Development Foundation, a company established for this purpose.

The Eskom Development Foundation’s mission is to contribute to the improvement of the quality of life of the disadvantaged through integrated, efficient and effective development programmes.

The Eskom Development Foundation has a board of directors that uses various committees to manage the grant-making activities of the company.

Subsidiaries

Eskom Enterprises (Pty) Limited

Eskom Enterprises and its subsidiaries, in South Africa and across the African continent, subscribe to the principles of good corporate governance and high ethical standards.

Board of directors

Eskom Enterprises’ board comprises the chief executive: B Dames, the Eskom chief executive: TS Gcabashe, the Eskom finance director: B Nqwababa and an Eskom managing director: S Lennon.

There were no changes to the board during the period under review. At the annual general meeting, B Nqwababa was re-elected as shareholder representative.

Board committees

The audit, integrated risk management, investment and finance as well as the tender and procurement committees are governed by written terms of reference and are integrated with Eskom governance structures.

The board committees met regularly during the period under review, and were effective.

Internal control

The Eskom Enterprises board bears ultimate responsibility for the group’s system of internal and financial control. Controls are designed to provide cost-effective assurance that assets are safeguarded and that liabilities and working capital are efficiently managed. Organisational policies, procedures, structures and approval frameworks provide direction, accountability and segregation of responsibilities.

The corporate audit department provides the internal audit function for Eskom Enterprises.

Other material Eskom subsidiaries

Eskom’s other wholly-owned subsidiaries – Eskom Finance Company (Pty) Limited, Eskom Development Foundation, Escap Limited and Gallium Insurance Company Limited – are governed by independent board structures and internal control measures. The directors are fully accountable to Eskom as shareholder, through the shareholder compact. The subsidiaries comply with the requirements of the PFMA and Companies Act, 61 of 1973 as amended and are guided by the principles of good governance.

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