Eskom Annual Report 2007 - Executive summary

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Executive summary

Picture captions
1.	Typical cooling towers at a coal-fired power station.
2.	Sugreem Singh, Nelson Mayisela and Fanie Mhlanga discuss maintenance planning at Majuba power station.
3.	Palmiet pumped storage station near Grabouw focuses on conservation.

Executive summary

Eskom's principal challenge is to satisfy the increasing demand for electricity, thereby ensuring economic growth and keeping South Africa 's lights burning.

Over the next five years Eskom will spend R150 billion on capacity expansion at an unprecedented rate and scale (up from R97 billion), with 70% earmarked for generation, 14% for distribution infrastructure and 14% for the strengthening of the transmission network. Up to R100 billion of the capital expenditure requirements will be funded by raising debt in the financial markets, both locally and internationally.

The Eskom group financial performance for the year was good, driven primarily by the large growth in electricity sales volumes (4,9%). The operating profit before net finance cost for the group was R10 965 million including the impact of fair valuing embedded derivatives of R4 275 million. The profit for the year was R6 454 million, and if the impact of embedded derivatives is excluded, the profit after tax was R3 418 million.

To ensure supply reliability, Eskom plans to generate an additional 22 000MW by 2017. A total of 2 053MW will be added by the open cycle gas turbines at Atlantis (Ankerlig power station) and Mossel Bay (Gourikwa power station). Construction started in May 2007 at Medupi power station, the new coal-fired base-load power station in Lephalale, Limpopo. The station will deliver at least 4 500MW to the overall system. The first unit is scheduled to come into service early in 2011. Work has also begun on the Ingula pumped storage scheme near Ladysmith (a peak-load plant), scheduled for completion by 2012 and adding an additional 1 332MW for peak electricity demand.

In the meantime the reserve margin remains precariously low (8% compared with international norms of above 15%). An immediate action plan has been put in place where Eskom has raised its demand-side management target to a saving of 3 000MW by 2012. In an effort to lead by example, we have introduced an internal electricity-saving programme designed to deliver savings of one billion kilowatt hours, and have already achieved 18 million kilowatt hours since September 2006.

Electricity demand patterns

There are currently no restrictions that apply to Eskom's greenhouse gas emissions. In a pro-active approach, Eskom has developed a comprehensive range of voluntary climate change initiatives. This includes actively pursuing a more diverse energy mix. Coal currently accounts for 88% of its energy mix. This will be reduced to 70% by 2025. Nuclear power's contribution will rise to between 17% and 28% by 2025. Some 1 600MW of renewable energy will also be added to the mix by 2025 in the form of solar and wind power.

Eskom is making significant investments in human resources. It increased its training spend to R748 million in 2007 (up from R543 million in 2006) and has begun recruiting skilled personnel via national and international jobs fairs. The number of bursaries, learnerships and apprenticeships has also increased to 5 136 (2006: 2 163) and can be expected to continue increasing in the future.

Safety continues to receive top priority. The safety policy has been reviewed, training and awareness are being stepped up and Eskom leadership is making much improved safety performance a priority. We will commit increasing resources to vigorous safety and educational programmes among the public, our contractors and our own people in the quest for an injury-free electricity supply industry.

Higher capital expenditure over a prolonged period will create an opportunity for Eskom to make a bigger contribution to local economic prospects in the areas in which we are active, especially around our new sites.

Picture captions
1.	Tshepiso Ntsimane answers customer calls in Johannesburg.
2.	The dusting plant below the precipitators at Kendal power station.
3.	The new high-voltage yard at Ankerlig power station in Atlantis.
4.	Majuba power station from a side view.

HIGHLIGHTS OF THE REVIEW PERIOD

The profit for the Eskom company was R6 008 million. However, this includes the impact of fair valuing embedded derivatives which amounted to R2 912 million after tax (long-term commodity-linked pricing contracts with major customers that take a forward view on currencies, commodities and interest rates). A high growth in electricity sales volumes (4,9%) also contributed to the good results.

Eskom (company) rate of return on assets

The construction of two new open cycle gas turbine power stations has been completed in record time (Ankerlig near Atlantis and Gourikwa near Mossel Bay) and will soon come into full operation (four units were already in commercial operation at 31 March 2007). They will be available to assist in managing the winter peak demand in 2007.

The return-to-service programme for the previously mothballed Camden, Grootvlei and Komati power stations is progressing with 772MW commissioned in 2007, (2006: 190MW). Work has also begun with the construction of the Ingula pumped storage scheme near Ladysmith.

A major achievement in our research into clean coal technologies was the first flaring of gas at the underground coal gasification project next to Majuba power station, a first for Africa.

The transmission network was considerably strengthened through the building of around 430km of new lines.

Eskom supported 5 136 learners, students and graduates.

The procurement spend by the group with black business exceeded the target of 67% of all discretionary expenditure, reaching R16,56 billion against the budgeted R14,57 billion. This included expenditure with black women-owned business that increased to R2,10 billion against R1,30 billion in 2006.

For 2007, Eskom's national demand-side management (DSM) programme achieved verified sustainable savings of 169,8MW (2006: 72,3MW) contributing to a reduction of 289kt of CO₂emissions. (Its annual Nersa-approved target is 152MW for the evening peak period.)

Eskom has demonstrated the scope for significant energy savings by the success of a special DSM campaign during the Western Cape power shortages in the winter of 2006. Savings of approximately 500MW a day were achieved. As it was a crisis-driven, short-term situation these savings are only partially sustainable.

The number of black staff at management level in Eskom has reached 63,0% (up from 60,1% in 2006). The percentage of women at managerial level is now 33,3% (31,8% in 2006). People with disabilities account for 2,8% of Eskom staff.

Particulate emissions at coal-fired power plants were 0,20kg/MWh sent out against 0,21kg/MWh sent out in 2006.

Since Eskom's electrification programme began in 1991, 3 469 650 homes have been electrified. During the year 152 125 homes were connected, financed from DME and Eskom funds (135 903 in 2006).

The number of municipalities engaged in the free basic electricity (FBE) programme rose from 228 to 240. The number of meters reconfigured for FBE rose to 1 074 340 from 1 048 000.

The productivity gain this year was 1,9% or R667 million.

Eskom productivity improvement for all resources

A strategic sourcing initiative (project Sisonke) in supply chain management entailing sourcing strategies for complex and costly commodities was launched in 2006 to secure the long-term requirements for the build programme. Eskom achieved savings of R716 million against a target of R490 million for 2007. Cumulative savings targets to March 2010 have been set at R7,8 billion.

Picture captions
1.	Samantha Stephenson in the new control room at Ankerlig power station.
2.	Contractors look at the generator transformer at Ankerlig.

LOWLIGHTS

>	Eight employee fatalities occurred in 2007, and there was also a rise in the number of electrical contact injuries to Eskom workers (30 against 25 in 2006). Regrettably contractor fatalities rose from 13 to 18 and fatalities among members of the public rose from 34 to 41.
>	Eskom customers were for the second year affected by supply interruptions with two major incidents. One incident occurred on 18 January 2007 due to generation shortages resulting in the loss of 40,48 system minutes, and in a separate incident 1,24 system minutes were lost due to a sustained line fault.
>	Eskom water consumption rose from 291 516ML in 2006 to 313 064ML. Several factors contributed, including the need to run older coal-fired stations for longer and at lower efficiency levels at some stations.
>	Critical skills shortage in management is an area of concern which has been aggravated by the higher than anticipated skills turnover in the engineering field.

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