Eskom entered a decisive stage in its growth and role as South Africa’s premier producer of electricity to industry, business and household consumers. As it neared its centenary year it was embarking on a process that will define its strategic trajectory and position the company for a new role within the broader South African energy landscape.

The operational challenges experienced by Eskom in recent years have affected vital national priorities, such as economic growth, job creation, and efforts to combat poverty. Its current capital structure and the poor performance of the generation business presented systemic risks to the economy and Eskom had to introduce far-reaching measures to mitigate load-shedding, improve its proactive maintenance programme and appoint new leadership in strategic positions.

 A new turnaround strategy was introduced to deliver on Eskom’s vision to drive economic growth by being a financially stable provider of energy solutions across Africa.

The strategy is underpinned by three pillars which aim to ‘stabilise, optimise and grow’ the business:

• The ‘stabilise pillar’ focuses on actions designed to rehabilitate the income statement and strengthen the balance sheet. It will lead to improvements in governance, a reliable electricity supply and a cost-reflective tariff path.
• The ‘optimise pillar’ ensures the alignment of the business and operations with the broad expectations defined in the Roadmap.
• The ‘growth pillar’ recognises that Eskom faces a rapidly changing energy market and positions the company to identify opportunities which will lead to growth.

The first phase would be to finalise the divisionalisation of the business, entrench transparency and accountability as well as optimise Eskom’s operational capabilities.  Government would develop a legal framework and alleviate financial concerns relating to loan conditions.

 The fundamental restructuring of Eskom received priority attention from the Board and Executive. The first step would be divisionalisation as each of the three primary business units – Generation, Transmission and Distribution – would be separated with the ultimate objective to create three legal, wholly-owned subsidiaries.

 Each of the three separate entities will continue to fall under Eskom Holdings SOC Ltd, but will, eventually, have separate assets, debt, employees and financial statements. The corporate centre will be the functional leader where strategic direction is provided, policies are set, and shared service functions are located.

Divisional boards were established, and their financials were ringfenced. A strategic decision was taken to accelerate the legal separation of Transmission. The end state of the envisaged process would be three divisions which are able to operate as standalone, financially viable businesses.

Eskom’s business was primarily conducted in terms of a broad set of rules which governs its operations. These include:

•  The National Development Plan 2030 which envisions a reliable, efficient and competitive energy sector that will expand access to electricity for consumers and is environmentally sustainable.
•  The Integrated Energy Plan and Integrated Resource Plan, 2019, which provide a broad framework for the growth and future direction of the energy sector to 2030.
• The Roadmap for Eskom in a Reformed Electricity Supply Industry which positions Eskom within the broader energy context and defines actions for its transformation.

The Eskom Board was reconstituted under the leadership of Prof Malegapuru Makgoba, a leading scientist, academic and deputy chair of the National Planning Commission.

The newly appointed Group Chief Executive, Mr Andre de Ruyter, prioritised the need for Eskom to regain the trust of all South Africans in its ability to provide electricity reliably, spend its money wisely, root out corruption and restore its reputation.

“Rebuilding and strengthening the public’s confidence and trust in Eskom is of paramount importance to our future success,” he noted in the 2020 annual Integrated Report.

The Board implemented measures to root out corruption as well as introduce a culture of honesty, transparency, good governance and ethical leadership. To achieve this, it worked closely with Parliament’s Standing Committee on Public Accounts (Scopa), various investigations into past corrupt activities at Eskom, the Special Investigative Unit and the Judicial Inquiry into State Capture – the Zondo Commission.

Summonses were issued against former members of the Board and former executives to recover assets, in addition; claims were instituted against several consulting companies accused of irregularities.

A Fraud and Risk framework was introduced so as to improve governance practices in the organisation. Whistle-blowing processes were strengthened, lifestyle audit for senior management were conducted and an anti-fraud and corruption awareness campaign was launched.

A Supplier Review Committee was established to ensure contracts comply with Eskom’s supply chain processes and to initiate action against companies that have engaged in fraudulent activities in the past.

The macro-economic environment remained constrained. South Africa’s sovereign rating was downgraded to sub-investment grade, and this had a ripple effect on Eskom’s financial sustainability.

GDP growth contracted sharply and nearly all economic sectors experienced a massive reduction in output following the outbreak of the global Covid-19 pandemic.

Eskom remained concerned about the fact that the electricity price it charged to customers is lower than the cost to produce that electricity. The tariff increases awarded by Nersa over the years were insufficient resulting in significant revenue shortfalls. During the year Eskom launched review applications through the High Court to challenge these decisions and argue for cost-reflective tariffs.

Eskom recorded a net loss after tax of R20.5bn for the year and the debt levels grew to more than R480bn. Sales volumes continued to decline due to depressed economic conditions and supply constraints. Primary energy costs increased significantly, driven primarily by a 16.3% increase in the price of coal.

Liquidity remained the biggest short-term concern, which hampered Eskom’s ability to achieve operational and financial stability. The inadequate price increases granted by Nersa, and the escalating municipal arrear debts further contributed to liquidity constraints.

The Board approved a new municipal debt management strategy with the objectives to reduce or eliminate overdue arrears, stop defaulting where it occurs and prevent future defaulting by paying customers.

Eskom recognised that some of its older power stations, such as Hendrina, Grootvlei and Komati were approaching their operational end of life and that this would have an impact on surrounding communities. The use of operational units at these stations were reviewed for extended use beyond 2025 or until sufficient new capacity comes online.

The Board took important decisions to prioritise maintenance and mid-life plant refurbishments which have been neglected in the past. This was required to improve the performance of the generation plants and reduce the high levels of breakdowns and partial load losses.

Government responded to Eskom’s request for urgent interventions to strengthen its balance sheet. It received R49bn in equity support from government for the 2020 financial year with a further R56bn to follow in 2021. This support was contingent on strict conditions and only to be used for the settlement of debts and interest payments.

In terms of the turnaround strategy, it was envisaged that Eskom would return to profitability by 2023. However, this would be dependent on fair regulatory tariffs, improved investor confidence, a significant reduction in debt levels and successful restructuring.

The Integrated Resource Plan published by Government provided clarity on Eskom’s future role in the electricity supply industry in the decade leading up to 2030. It introduced nine actions to ensure the security of the country’s electricity supply and support a diverse energy mix:

1.    Execute the power purchase programme to acquire capacity to supplement Eskom’s declining plant performance.

2.    Undertake technical and regulatory work for the 20-year life extension of the Koeberg Nuclear Power Station.

3.    Support Eskom’s compliance with the minimum emission standards over time.

4.    Move towards a consolidated and coherent Just Energy Transition Plan.

5.    Retain the current annual build limits on renewables until the Just Energy Transition Plan was finalised.

6.    Ensure all new coal power projects are based on high-efficiency, low-emission, and clean coal technologies.

7.    Support the development of gas infrastructure and convert existing diesel-fired power stations to gas.

8.    Commence preparation for a long-term nuclear build programme up to 2 500MW.

9.    Participate in strategic power projects to develop the cross-border infrastructure needed for regional energy trading.

The Integrated Resource Plan 2019 provided for the procurement of 11 813MW of additional electricity generation infrastructure, which was urgently needed given the existing supply constraints and the impact of load-shedding.

The changing global energy landscape plays an important role in Eskom’s plans to achieve long-term sustainability. Eskom will be the primary player in a Just Energy Transition through its electricity supply network, the impact of its environmental footprint and its social responsibility towards communities affected by its operations.

A Just Energy Transition Office was established to sharpen the organisation’s focus on the issue through:

•  Its commitment to a lower carbon future;
•  How plans for repurposing and renewables contribute to meeting the goals;
• The impact of its approach on all environmental goals – air quality, carbon emissions, and water;
•  The impact on socio-economic issues, including the shutting down of coal-fired stations;
•  Medium- to long-term technology requirements; and
•  How to attract and sustain funding for the initiatives.

Load-shedding was required on 46 days during the year and Eskom reiterated that load-shedding would be required intermittently for the coming 18 to 24 months while the organisation undertakes much-needed maintenance to improve the reliability of the generation fleet.

Load reduction was introduced in high-density areas associated with illegal connection practices, meter bypasses and tampering. The load on networks is actively monitored and, once demand increases beyond a certain threshold, areas are pro-actively switched off to avoid the overloading of transformers.

The first of six new replacement steam generators arrived at the Koeberg Nuclear Power Station during the year. Koeberg was first connected to the grid in 1984 and the generators will be replaced during the next refuelling and maintenance outage at each generator.

Through this programme, Koeberg’s operating life will be extended from 40 to 60 years.

An earth tremor with a magnitude of 3.4 on the Richter Scale occurred outside Cape Town in November 2020 but the seismic event had no impact on Koeberg, which was designed to withstand a magnitude 7 earthquake.

The Sere Wind Farm contributed 283GWh to the national grid and the eight rooftop and ground-mounted photo-voltaic sites at Eskom facilities added another 3.8GWh. Eskom intended to significantly expand its renewable portfolio through large-scale, grid-connected wind and PV plants as well as the introduction of rooftop PV on a commercial basis.

A ‘People Plan’ was approved by the Board to support organisational transformation. Eskom intends to drive a culture of performance and accountability; build critical capabilities; increase employee productivity; and manage employee benefit costs.

The group headcount by year-end stood at 44 772 and was declining, mainly through natural attrition. The financial constraints within the organisation contributed to a strong focus on internal skills development and the building of a strong leadership pipeline within the organisation. Constant progress was being made to ensure equitable representation of the workforce at all occupation levels, which truly reflects the demographics of the country.

The company stepped up its initiatives to improve transformation and inclusivity in its procurement spend and its corporate social investment of more than R123m on some 200 projects had positive impacts on the lives of close to 1.5-million South Africans.

The onset of the global Covid-19 pandemic introduced new challenges for Eskom and effected many aspects of its operations. Measures were introduced to protect employees in critical positions and to provide support to employees and their families who contracted the disease.

Eskom contributed prominently to the national fight against the Covid-19 pandemic. Its Academy of Learning in Midrand was made available as a quarantine site and Eskom’s research experience was used to design low-cost ventilators and produce low-cost reusable masks used by frontline medical staff.

Eskom’s contribution to the development of young scientists extended beyond South Africa’s borders. Two participants in the Eskom Expo for Young Scientists were selected to showcase their research at an international science fair in Taiwan.

The Business Investment Competition hosted by the Eskom Development Foundation was launched for the 13th successive year. The objective is to recognise, reward and boost small business that are contributing to skills development, job creation and economic growth. Finalists received cash prizes to a value of R1.3m and participated in a Business Connect webinar to network with other small businesses.