Eskom Progress Report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
12 November, 2003
ESKOM PROGRESS REPORT

Chairperson: Mr S Belot (ANC)

Documents handed out
Eskom PowerPoint Presentation

SUMMARY
Eskom gave a presentation on its strategy, shareholder compact and business plan and the restructuring of the industry in terms of electricity generation, transmission and distribution. There will be 30% external participation in electricity generation with 10% being BEE and 20% private sector.
Eskom's key challenges were identified as growth in demand, capital projects, SADC power projects and free basic electricity.

The funding terms have been worked out between Eskom and municipalities for free basic electricity. Municipalities identify households that would benefit from the programme. Eskom's brief would be to supply subsidised electricity then invoice municipalities on a monthly basis. National Treasury would fund the project and these contracts would be renewable on a yearly basis.

Discussion topics included rumours of increased nuclear power, the capacity of municipalities to absorb Free Basic Electricity funds from National Treasury and whether such funds would be applied to the intended purpose, the effect of restructuring on Eskom's personnel structure, the re-capitalisation programme and its cost to the consumer, rural electrification versus municipal free basic electricity, the pre-paid metering system, BEE and affirmative action. Eskom was asked to supply facts and figures on its transformation processes across the country.

MINUTES
Mr Thulani Gcabashe, the CEO of Eskom, gave a presentation on the Eskom group strategy that explained its mission, key competency, lines of business and core strategy. Thereafter he looked at the restructuring of the industry, its shareholder compact and business plan. Finally he identified Eskom's key challenges (see Powerpoint presentation).

On free basic electricity Mr Gcabashe noted that the funding terms have been worked out between Eskom and municipalities whereby the latter would identify households whilst the former would supply subsidised electricity then invoice municipalities on a monthly basis. National Treasury would fund the project and these contracts would be renewable on a yearly basis.

With regard to the BEE programme, he made the point that Eskom would undergo restructuring in which generation clusters and subsidisation would be created and that 30% of the business would be allocated to the BEE and the private sector. The BEE would be entitled to a 10% cut of the total generation cluster and the 20% would go to private sector concerns.

Discussion
Mr Shabiya (IFP) asked Eskom to confirm or deny the rumour that it is exploring the possibility of starting another nuclear power in the country.

Mr Gcabashe made the point that the country's energy policy is that nuclear power is a good option in view of its limited water resources for hydro-electricity and the unsustainable wind resources. He noted that the country has been involved in the development of nuclear technology, which was merely pregnant idea that is yet to mature into an implementable programme. He however clarified that if such a venture were to be pursued priority would be given to the country's needs. At present the idea is still at the policy planning level and that more work needs to be done before the extent of the programme could be unveiled.

Mr Shabiya asked Eskom to report on the status of the BEE and affirmative action programme in the power generation sector.

Mr Gcabashe undertook to furnish members with profiles on the BEE programme but noted that Eskom is at a point where the requisite clusters have not been identified and agreed upon to facilitate the rollout of the full BEE programme. He said that once clusters have been identified and agreed upon, Eskom would create corporate entities in consultation with the Department and the Minister who will give the necessary policy guidance for this.

As regards transformation, Mr Joe Matsau, corporate division manager, reported that 54% of supervisors and middle managers were black people and that 50% of the establishment in the generation division were black. He pointed out that in some areas women head the generation stations noting that Eskom's policy is to fast-track elevation of women engineers.

Mr Shabiya said that there have been unconfirmed reports that Eskom's old stations have been earmarked for black people as part of the BEE obligation. He added that there is a perception that Eskom does not look at the entire generation division to ensure the spread of the BEE programme. He further alleged that the BEE programme is concentrated at the head office whilst the outlying stations have been spared transformation.

Mr Gcabashe was emphatic that no unit of Eskom has been exonerated from equity imperatives and that, on the contrary, every Eskom business has been tempered with equity targets.

The Chair said that members were not interested in equity targets but that the germane concern was how many of these targets have been met. He asked Eskom to supply members with facts and figures on the transformation processes within Eskom so as to allay fears that not much has been achieved.

Ms Mnandi (ANC) agreed with the Chair's remarks and pointed out that when Eskom appeared before the Committee before the recess, they had promised to furnish this important information but have failed to meet this promise.

Mr Gcabashe undertook to make the transformation balance sheet available to members in due course. He tendered Eskom's unreserved apology for failure to supply the promised data. He clarified that as regards the BEE, Eskom would only rollout the programme on the basis of clear criteria and on the Minister's advice.

Mr Shabiya asked Mr Gcabashe to elaborate on his remark that the National Treasury would foot the Bill for the rollout of the free basic electricity.

Mr Gcabashe explained that the National Treasury would release funds to the municipality and that the latter would then identify the deserving regions in their jurisdiction for Eskom to supply free power and by what outage. He added that Eskom would only act on the basis of Municipalities' development plans.

Mr Shabiya wondered whether Municipalities have the capacity to absorb the funds from the National Treasury and whether indeed such funds would be applied to the intended purpose.

The Chair advised Eskom to compile a list of beneficiaries and the criteria used by the National Treasury in releasing the funds. This information should be supplied to members to assist in their oversight function.

Mr Mongezi Ntsokolo, distribution division manager, promised to make this information available to the committee in due course. He however clarified that each municipality is entitled to apply for this facility as long at it meets the set criteria.

In reply to Mr Shabiya asking if Eskom referred to the district or local municipality, Mr Ntsokolo said that the local Municipality was the point of reference.

Mr Theron (DP) noted that the financial ratio indicates that Eskom's growth is going down and asked if this development would affect the personnel component in any way.

Mr Gcabashe replied that it is projected that with the completion of the Mozal project, Eskom would experience a dip in its sales but was quick to point out that there was nothing abnormal about this development. He added that in fact Eskom would realise marginal growth in which case no negative impact against personnel is anticipated.

Mr Theron referred to the projected Eskom split into generation and distribution clusters and wondered whether this restructuring would have any impact on personnel.

Mr Gcabashe explained that the restructuring process envisages the transfer of personnel into the REDS and that this applies to the generation and distribution divisions as well. He noted that in accordance with labour requirements, the clusters that would be heaved out of Eskom would be transferred as a going concern to the relevant BEE company.

Mr Theron referred to Eskom's re-capitalisation programme and wondered if it is envisioned that the resultant cost would be passed to the consumer.

Mr Gcabashe remarked that Eskom has pulled out all stops to ensure that its balance sheet is ready to take in more debt for the envisioned re-capitalisation programme. He noted that it made business sense to borrow money to finance this project. He was non-committal on the question of whether or not the cost of this ambitious programme would be passed onto the consumers only stating that the decision lies with the shareholders.

Ms Mnandi applauded Eskoms' plans to distribute electricity to the rest of Africa but underscored the importance of ensuring that the home front has received adequate attention before moving beyond the borders. She faulted the strategy to base the free basic electricity at the municipal level noting priority should be given to rural areas that have been without electricity.

Mr Gcabashe acknowledged the reality that rural electrification does pose a formidable challenge for the government but noted that so far 70% of the country is electrified. He attributed this achievement to the fast-tracked rural electrification programme. He pointed out that the electrification programme was the mandate of the National government and that the question as to how these decisions are taken is beyond Eskom's mandate. He made the point that Eskom was merely an implementing agency whilst the process is driven by the Department of Mineral and Energy Affairs.

Mr Ntsokolo reported that one of the criteria for the electricity rollout was an open bias for rural electrification. He added that the other relevant criteria was capacity on the part of the relevant municipality to implement the electrification project.

Ms Ngcengwana (ANC) asked about the progress Eskom has made on its stated development strategy.

Mr Gcabashe made the point that Eskom's work is driven by economic imperatives noting that its expansion revolves around escalation in demand.

Ms. Ngcengwana (ANC) asked if profits from the SADC project would be repatriated to capacitate the rural electrification programme.

Mr Gcabashe reported that not much profit has been realised to date from the SADC project given that it is at a very nascent stage. However the plan is to redirect these profits to re-capitalise the SADC enterprise. He noted that the country stands to benefit from a source of supply that is cheap and environmentally risk free.

Ms Ngcengwana (ANC) reported that people are unhappy with pre-paid electricity and wondered whether Eskom could offer a better option.

Mr Gcabashe explained that the pre-paid system was introduced in marginal areas to alleviate concerns of affordability. He noted that the conventional method of first making a deposit was thought to be too onerous for these impoverished consumers. He explained that one of the main advantages of the pre-paid system is that people pay on the basis of affordability. He clarified that those who wish to utilise the conventional method are free to do so. It was really a matter of choice since no one has been forced into the pre-paid method.

The meeting was adjourned.