A strong focus, during the year; was to stabilise the organisation and implement steps to root out financial mismanagement, address corruption, restore effective governance and build confidence in Eskom.

 Under the leadership of the Chairman of the Board, and acting Group Chief Executive, Mr Jabu Mabuza, Eskom set out to implement a financially viable plan which could address its liquidity challenges and ensure access to capital markets.

 However, these restorative steps were implemented against the backdrop of three significant events – industrial action which resulted in rotational load-shedding; a rapid and unexpected deterioration in generation plant performance; and a significant decline in liquidity, which was exacerbated by rising municipal arrear debts and lower than required price increases awarded by Nersa.

 Eskom’s Group Chief Executive, Mr Phakamani Hadebe, described 2018 as “the most challenging period in Eskom’s 96-year history”.

 “Without comprehensive changes and Government assistance, the company might have struggled to meet its financial obligations for the coming year,” Mr Hadebe noted.

 Eskom recognised that its financial stability and future sustainability had a significant impact on South Africa’s macro-economic environment, the country’s reputation and the ability to attract investment and credit.

 As the largest state-owned company in South Africa, its contribution to sustainable growth could not be understated. “We need to turn around our operational and financial performance and rebuild Eskom as a sustainable organisation with a strong developmental mandate,” the annual Integrated Report noted.

 In his State of the Nation Address, Pres Cyril Ramaphosa highlighted the severity of the problems facing Eskom and noted that “Eskom is too vital to the economy to be allowed to fail.” In the subsequent National Budget, an amount of R23bn per year over ten years was allocated to Eskom to ensure liquidity and make up for the tariff shortfalls.

 The company committed itself to find creative ways to address primary energy and people costs – the most significant elements of its operating expenses.

 The Board moved decisively to address past breaches of corporate governance and restore Eskom’s reputation. It cooperated with law enforcement agencies who conducted investigations into fraud and corruption and supported the work done by the Judicial Commission of Inquiry into State Capture – the Zondo Commission.

 Internally, it conducted lifestyle audits of senior employees, opened disciplinary cases and handed over high-risk cases to the Special Investigation Unit for further probes.

It also took far-reaching steps to address issues relating to irregular, fruitless and wasteful expenditure, raised in external audit reports.

 Following a comprehensive strategy review the Board adopted a turnaround plan, supported by four pillars:

•  Cost containment,
•  Revenue optimisation through tariff increases and sales growth,
•  Debt relief, and
•  Unbundling and separation.

 The plan created a focused platform for the business to drive the implementation of its strategy and place Eskom on an upward trajectory towards sustainability.

 Operational challenges resulted in a significantly lower energy availability factor across the generation fleet and placed Eskom in an uncertain position, with a very limited reserve margin. Moreover, the ageing fleet was operated at much lower levels than industry norms, creating increased risks of plant failures.

 This compelled Eskom to introduce extensive and costly emergency response measures, including the frequent introduction of national load-shedding, to stabilise the grid.

Investors remained concerned about Eskom’s liquidity position and its ability to service debt given the inadequate revenue determination, above-inflation cost escalations and the weak balance sheet. There was a weak demand in the local market for Eskom bonds which was partly offset by an appetite from international investors. Eskom issued an international bond during the year which was oversubscribed.

 Cash savings alone, would not be sufficient to improve Eskom’s financial health. Eskom continued to advocate the reality that the price of electricity has to reflect the true costs of generation, transmission and distribution. The average selling price has been far below the levels required to be cost reflective for many years.

Municipal arrear debt escalated sharply to R20bn in 2018. Eskom noted that it has exhausted many avenues to recover the money from defaulting municipalities and that urgent Government intervention is needed to resolve the impasse.

 A comprehensive recovery plan which was introduced to address deficiencies in the generation businesses, started to bear fruits. The energy availability factor (EAF) gradually improved and Eskom was able to reduce its usage of open cycle gas turbines, despite the concerns about rotational load-shedding.

More than 40 new coal contracts were concluded resulting in an increase in coal stock levels at all the coal-fired power stations. However, coal quality remained a concern and was receiving attention through the recovery plan.

The new plants at Ingula, Medupi and Kusile have not achieved the expected levels of performance and reliability due to a combination of plant design deficiencies and operational and maintenance inefficiencies. Corrective actions were taken to introduce technical solutions and improve plant availability.

Eskom notes in its annual Integrated Report that despite the various challenges it had no intention to stop the new build programme and remained confident that the programme would be completed by 2022/23, barring delays due to contractor performance, industrial action or other issues outside of its control.

During the year the Board approved a process to streamline Eskom’s executive structure in line with its objective to become a more efficient, coast-effective and sustainable organisation. One of the key elements of the turnaround strategy is to drive a culture of engagement, teamwork, performance and accountability and to ensure that the right people are placed in the right positions.

Mr Hadebe conceded that Eskom’s performance over the past year “… did not come close to meeting the expectations of our shareholder, our investors, our customers or the broader public.” However, he added: “We know where the challenges lie, we are working to address them, and we have already made notable strides in achieving our targets.”

A nine-point generation recovery plan was introduced to improve performance in the generation plant. The programme entails:

1.    Address major design and construction defects at new stations.

2.    Reduce the incidence of trips and full load losses to improve the reliability of coal-fired stations.

3.    Accelerate the return to service of units on long-term outages.

4.    Decrease partial load losses and boiler tube leaks which prevent units from operating at full capacity.

5.    Reduce outage due date stops and duration.

6.    Fill critical staff vacancies and enable the training of key staff.

7.    Maintain sufficient diesel stocks to enable open-cycle gas turbines to perform for extended periods.

8.    Ensure a 14-day buffer of dry coal at power stations during the rainy season, and

9.    Rebuild coal stockpiles at power stations.

Eskom recognised that it is operating in a world in which traditional business models for utilities are being reassessed and in which industry-changing technology is creating a more competitive environment. There are continuous shifts in the market and demand trends as well as customer needs and choices, as the way in which electricity is produced, transmitted and stored evolves.

In its annual Integrated Report Eskom states: “Our ability to respond to these changes will inform our future success.”

A sustainable Eskom can play a significant role in improving the economic climate. It can improve investor confidence through the way in which it deals with corruption and weak governance; it can drive investment in key economic sectors by improving the reliability of electricity supply; it can support social transformation through the continuous roll-out of its electrification programme; and it can support innovation through its investment in, and support for, renewable energy technology.

In this process Eskom was cognisant of the global shift away from coal-fired electricity generation. However, this trend had to be implemented in the context of the impact it might have on surrounding communities and local economies that have grown in the vicinity of Eskom’s fleet of coal-fired plants.

It also required investment in new equipment and technologies so as to generate cleaner energy, this in addition to the introduction of eco-friendly appliances that can reduce the electricity demand of consumers.

The national electrification programme continued to deliver success, despite the challenges associated with difficult terrain and the low density of rural populations. A Smart Grid Centre of Excellence was launched as a pilot project near Ficksburg in the Free State. The microgrid plant is located in shipping containers and harnesses solar energy through photo-voltaic panels. The prospects are that this design for rural microgrids can, in future, be extended to provide electricity to communities living in remote areas.

In a changing electricity environment Eskom Enterprises played a critical role to explore new opportunities and enter new markets for products which leverage on the group’s intellectual capital. Through the years Eskom Enterprises shifted its strategic vision from supporting engineering and maintenance services to become a vehicle for growth and innovation.

Eskom’s continuing investment in research, testing and development contributed to initiatives which produced innovative technology in the fields of bulk battery storage, smart metering, home automation and micro-grids. The digitisation of existing processes also contributed to higher levels of efficiency in service delivery and a better customer experience.

The Eskom Development Foundation was recognised for its ongoing contribution to social and economic development in the fields of education, healthcare, enterprise development and rural infrastructure. It was named as a finalist in the community upliftment category in the Sunday Times Top Brands Survey; received a global best award from the International Partnership Network and an African Gold Award for the Eskom Contractor Academy Programme.

Its flagship programme, the Eskom Expo for Young Scientists received an award from the National Science and Technology Forum for its projects devoted to education and training initiatives.

The Eskom Business Investment Competition encourages small and medium enterprises to thrive and lead the process of economic transformation in the country. Finalists received prizes with a combined value of R1.3m to enable them to take their operations to the next level. They were also supported by training programmes to improve their business skills.

A Small Business Expo was held at Johannesburg during which finalists were able to market their products and services and network with potential customers and investors.

The Simama Ranta competition is designed to foster a spirit of entrepreneurship among high school students. It is an initiative which aims to proactively curb youth unemployment by teaching young people the skills which will enable them to run successful businesses and become job creators.

The Eskom Development Foundation has supported the SciMathUS programme at the University of Stellenbosch since its inception in 2013. The initiative helps students from disadvantaged communities to gain access to higher education and prepares them for success in their tertiary studies

Through its Rural School Infrastructure Development Programme, the Foundation made major investments in community-based projects, such as new classrooms at the Dr J L Dube High School in KwaMashu, north of Durban; fully equipped classrooms for students at Nkantolo in the Eastern Cape; funding for an egg production initiative located close to the Ingula power station in KwaZulu-Natal and a donation of learner material to the Thubelihle Special Opportunity School in Ladysmith.