Eskom: Turning fortunes around with power

Delivering a sustainable and reliable energy supply remains a huge issue within South Africa and the remit falls squarely at the feet of Eskom.

According to its website, Eskom generates approximately 95 per cent of the electricity used in South Africa and approximately 45 per cent of the electricity used in Africa. Eskom generates, transmits and distributes electricity to industrial, mining, commercial, agricultural and residential customers and redistributors.

Additional power stations and major power lines are being built to meet rising electricity demand in South Africa. Eskom will continue to focus on improving and strengthening its core business of electricity generation, transmission, trading and distribution.

Eskom buys electricity from and sells electricity to the countries of the Southern African Development Community (SADC). The future involvement in African markets outside South Africa (that is the SADC countries connected to the South African grid and the rest of Africa) is limited to those projects that have a direct impact on ensuring security of supply for South Africa.

Within South Africa, Eskom’s role is essential, as the corporate website explains:

“The electricity supply industry in South Africa consists of the generation, transmission, distribution and sales, as well as the importing and exporting of electricity. Eskom is a key player in the industry, as we operate most of the base-load and peaking capacity. As noted earlier, we sell electricity to a variety of customers, including to municipalities, who distribute power to end users under licence.

“IPPs have been invited to participate through a renewable energy programme run by the Department of Energy (DoE). Potential players were shortlisted and successful bidders have been contracted to supply energy into the national grid owned by Eskom. All grid planning is done by us, lines are constructed under specific licensing criteria and conform to a National Grid Code which is overseen and regulated by NERSA, South Africa’s energy regulator.

The Integrated Resource Plan 2010-2030 (IRP 2010) sets out South Africa’s long-term energy needs “and discusses the generating capacity, technologies, timing and costs associated with meeting that need. The electricity market is regulated by NERSA in terms of the National Energy Regulatory Act, 2004. NERSA issues licences, regulates all tariff increases, provides national grid codes, etc.

“The National Nuclear Regulator (NNR) ensures that individuals, society and the environment are adequately protected against radiological hazards associated with the use of nuclear technology, and in our case, regulates Koeberg, our nuclear power station.

“We support Government’s proposal of drafting a new Electricity Bill, which will replace the ISMO Bill and will accommodate the entry of IPPs while allowing the System Operator to manage the current supply situation without extraneous distractions, thereby minimising potential interruptions to supply.”

With power supply under so much pressure, South Africa is looking at new ways to generate electricity, to meet ever growing demand. The nuclear route is one option under consideration and in February 2017, Eskom stated that it was pleased to report that the response to the Request for Information (RFI) it issued in relation to the proposed South African Nuclear New Build Programme has been very positive. Some 27 companies have stated that they intend to provide a response to the RFI, including major nuclear vendors from China (SNPTC), France (EdF), Russia (Rusatom Overseas) and South Korea (KEPCO).

Eskom’s Interim Group Chief Executive, Matshela Koko, stated “Eskom is looking forward to the information supplied to confirm our understanding of the key issues that impact the timing and affordability of a nuclear program.”

While the intention to submit a response to Eskom’s Request for Information (RFI) does not commit a company to submit a response to a potential future Request for Proposal (RFP), the quantum of the response to Eskom’s RFI shows the level of competitive interest in the South African Nuclear New Build Program.

The RFI was issued on Eskom’s website on 20 December 2016 and asked companies that felt they could provide relevant information to confirm by 10:30 on Tuesday, 31 January 2017 that they would be submitting a response to Eskom (for both Eskom and NECSA use) by 10:00 on 28 April 2017.

It is fair to say that Eskom has endured a tough couple of years, with strong criticism and challenges to maintain South Africa’s power supply.

At the end of January, the company issued a media release on how it has progressed over the last two years:

Having been appointed in December 2014, the Eskom Board inherited a company that was in crisis, faced with many challenges that had macro-economic impacts; subsequently appointed Dentons to conduct an inquiry into the status of the business challenges faced by the utility.

The Board was presented with the preliminary findings from the review conducted by Dentons, at a special Board meeting held on 25 June 2015. A draft report was thereafter delivered to Board on 3 July 2015.

After reviewing the report, the Board found that there were no new issues that were revealed by the inquiry. This confirmed the Board’s assessment of the areas of improvement that was required to turn the business around.

The prompted was invariably prompted to question the value of a continuous review, given the time constraints as well as costs involved. Consequently, the Board decided to start a rigorous implementation process of the recommendations immediately.

Having been delegated the responsibility of oversight of the recommended improvements, the final report was received by the Audit and Risk Committee (ARC) from Dentons on 21 July 2015.

Driven by management, under ARC’s strict oversight, a full implementation plan was then developed, with clear targets and tightly-monitored milestones that were incorporated into the turnaround strategy presented to the Minister of Public Enterprises and Minister of Finance, as this formed part of the conditions relating to the equity injection provided by Government to Eskom.

By November 2016, the majority of the recommendations had been fully implemented. It was the Board’s considered view that releasing the report, at the time, would have an adverse impact on the employee morale.

The Board’s decision to swiftly implement the recommendations of the review rather than suffer from analysis paralysis as well as not impacting employee morale negatively has been vindicated by the significant achievements of the turnaround strategy.

These include no load shedding in excess of 18 months, EAF of 78 per cent compared to 69 per cent, excess capacity of 5,600 MW, new build delivering ahead of schedule – contributing in excess of 2000MW, significant improvement in profitability of the Company as measured by EBIDTA performance, 86 per cent of the funding for 2016/17 financial year has been secured which allowed the auditors to remove the emphasis of matter qualification from their audit report relating to going concern.

Eskom is on a positive trajectory with its energy availability sitting at 77.3 per cent (from 70.3 per cent) as well as its new operational surplus capacity of 5,600 MW.