Engagement with Eskom on the energy crisis and Koeberg

Meeting report

Mr Mpho Makwana, Eskom Board Chairperson, said that the board assumed office on 30 October 2022 after the Minister of Public Enterprises announced their appointment. Since 30 October, the board has had several engagements, firstly to constitute themselves as a board to create the requisite board committees based on their initial understanding of what they believed the challenges would be. In terms of the Eskom Memorandum of Incorporation (MOI), they had generally maintained the standard committees such as audit and risk, investment and finance, human capital and safety and sustainability. But they had created a new committee, the Business Operational Performance Committee (BOPC) which was chaired by Mr Mteto Nyati, who could not attend the meeting that morning. This committee had a comprehensive list of board members with technical skill sets. It was also ensured that two out of eight members, plus the committee chair, had a financial or commercial background. The committee’s terms of reference were to ensure that the board would be able to zoom in on all the critical challenges that were challenging Eskom in terms of its ability to deliver on its technical core business of keeping the lights on. It would ensure a healthy energy availability sector and provide oversight of addressing maintenance challenges and all the key things that trouble their engineering and technical environment.

Further, the board created the equivalent of what most people would call a Directors Affairs Committee called Governance and Strategy which was chaired by the chair of the board. The committee comprised the chairpersons of all the committees where it is ensured that they had great integration of the governance and the strategy of Eskom to ensure more efficiency in terms of the quality of time that the board spent on matters brought before it. The board had had about three board meetings already. The first was introductory and the second was the introduction of the board to the teams and unpacking the work of those committees. He had already had his first power station visit to Kusile on a Saturday morning two weeks before to re-familiarise himself with the material conditions on the ground. He would have this as an ongoing practice because he believed that the board’s challenge would be one of leading on the basis of ground-up governance. The board would have to be an engaged board that ensured that it was actively visible and active, without interfering with the organisation's day-to-day management. On the previous days, the board had the first of many induction sessions of unpacking various aspects of the organisation. The previous day up to early afternoon, the board unpacked the strategy of Eskom and the Eskom 2035 plans and looked at all the key short-term, medium-term and long-term priorities. They also looked at various aspects of the energy mix and Just Energy Transition (JET). He wanted to assure the joint committee that the board had taken their role with the seriousness it deserved. The board had also taken responsibility to ensure it was actively engaged with the challenges the country expects it to resolve. Those who had been following public media reports would have followed an article on Sunday where Mr Nyati was, in the board’s view, misrepresented in terms of what he was purported to have said about Black Economic Empowerment (BEE) and transformation. The board had issued a public statement the previous day after its board engagements clarifying and setting the record straight in terms of what they believed Mr Nyati was saying in that interview.

Eskom presentation
Mr Andre de Ruyter, Chief Executive Officer (CEO), Eskom, took the Committees through Eskom’s presentation. He was aided by Mr Keith Featherstone, Acting Chief Nuclear Officer, Eskom, and Mr Rhulani Mathebula, Acting Generation Group Executive, Eskom. [Please refer to the presentation for full details]

The Steam Generator Replacement Project (SGR)
Eskom identified the need to replace the steam generators as an investment to extend the plant's life [at Koeberg] for a further 20 years when its nuclear license expired in 2024.
Assured that the National Nuclear Regulator (NNR) was rigorously providing oversight and ensuring regulations were being adhered to.
Eskom was closely engaged with the national nuclear regulator who exercised very close scrutiny over safety at the Koeberg plant. The steam generators had now been in service for close to 30 years and Eskom had experienced cracking on them, which did not impact the plant's safety.
However, Eskom believes the original steam generators need to be replaced for extended Long Term Operation (LTO).
Original installation was in 2014 contracted for installation starting in 2018.
Eskom rejected the conical forgings from France – which had to be re-manufactured. This delayed the installation from outages x23 to outages x25 (2021 and 2022)
As a result, Eskom implemented delay damages as per the contract – which stopped the contractor's cash-flow for a substantial period. (20% of contract value) The loss of cash flow was the main contributor to the strained relationship with the contractor
SGR was withdrawn from outage 123 and 223 and deferred to outage 126 and 226 respectively (see slides 6 and 10)

SGR Impact of deferral (slide 17)
The delay in replacing the steam generators does not impact the LTO application.
It does however increase the workload that has to be performed in the remaining time frame, which also impacts the resources of the NNR.
Eskom has received compensation events from the contractor associated with the deferral. These are still in various stages of assessment.
The total outstanding liability due to all the unresolved compensation events and disputes is still being evaluated for concurrency and culpability.

Long Term Operation (LTO) (slides 28-38)
The original plant design ageing assessments took into account an assumed 40 years of operation.
During 2019 the NNR changed the Koeberg Licence to be valid for the operation of the Koeberg Nuclear Power Station until 21 July 2024 unless, amended for subsequent licensing stages including long term operation; or varied, suspended or revoked.
The onus is on Eskom to demonstrate to the Regulator that the safety of Koeberg can be demonstrated for the period of Long-Term Operation requested through a formal licence application.
See slides 34-36 for current status and major work completed.
LTO activities are continuing according to plan, and being closely monitored as slippage could impact issuing the required license.
Eskom has submitted the LTO safety case to the NNR. The NNR has two years to conclude the review and provide an outcome.
Eskom understands that life extension approval is not guaranteed, but is a prerogative of the NNR.

Other challenges facing Koeberg and Overall Conclusions (40-42)
Upcoming long outages to facilitate the LTO work – impact on resources
Loss of experience as staff are attracted to other opportunities.
The current production uncertainty associated with the recently installed control rod drive mechanisms on Unit 2.
The steam generator replacement project will go ahead during the upcoming outages, and the level of preparedness has been significantly improved.
There are no known risks that would preclude safe long-term operation. The biggest licensing challenge remains the single end date in the licence which poses a risk to Unit 2 depending on when the licence is amended to allow LTO.
The commitments associated with Long Term Operation are progressing as planned and are being closely monitored.

Diesel Cost and Repurposing of Komati Power Station (slides 43-45)
The budget for diesel for the open cycle gas turbines (OCGTs) was R2.6bn in the year to date (YTD) at end September 2022, while the actual for the same period was R9.3bn. Projections range between R12bn and R14bn for the year. Note that OCGT usage depends on system status as influenced by factors such as variations in demand and the availability of the generation fleet.
Eskom has learnt lessons from the past, and processes are in place to ensure that only reputable dealers are given diesel supply contracts in an open and competitive process, rigorously reviewed by the generation board before approval.
A number of options for repurposing and repowering are being considered at Komati.
These include Solar Photovoltaic (P.V.) with battery energy storage systems (BESS), Synchronous Condensers, Wind, and Gas.
They are all at various stages of development and evaluation of responses to the Request for Interest.
The most advanced is the P.V. with BESS where operation is anticipated between late 2024 and early 2026.

Update on Reliability Maintenance Recovery (RMR) Plan (slides 49-52)
Challenges were experienced with the funding of the RMR Plan during the 2022 financial year (F.Y.). Reliability maintenance was sacrificed to ensure that statutory maintenance received priority to minimise the negative impact on the energy availability factor (EAF) .
A total of 73 outages were accommodated in the FY2021 RMR Plan. As at 31 March 2021, 52 of the 73 outages had been completed, with only one outage completed with RMR involvement.
As of the beginning of April 2021, 84 outages were accommodated in the FY2022 RMR Plan. As of 31 March 2022, 54 of the 84 outages had been completed, while one had been cancelled. 29 outages had been deferred to the FY2023 financial year.
An additional 47 short-term outages were executed in FY2022 (additional to the 84 planned outages).
The FY2023 RMR Plan base line is 80 Outages. Of the 80 outages (as at 17 June 2022), one is complete, four are in execution, 25 have been deferred within this financial year and 39 remaining, seven have been cancelled. Four outages have been deferred to the next financial year with an additional eight short-term outages having been executed.
Currently, the affordability limit for FY2023 to FY2027 is below the base budget required (by R4,9 billion).

Discussion
The Chairperson thanked the board for the presentation. He requested that Members start their comments on the SGR and be specific to what part of the presentation their question or comment was on. He told the chairperson of the board that he would try to allow for reasonable questions and comments so that the questions could be consumed. He stressed that they should avoid a dialogue. He opened the floor for questions and comments.

Mr M Mahlaule (ANC) welcomed the presentation from Eskom. He said Mr Nyati’s apology, as outlined in Mr Makwana’s opening remarks, was highly acceptable. The Committee was satisfied that he was not at the meeting, hence it highly appreciated that he apologised. Mr Mahlaule attended an event at the University of KwaZulu-Natal hosted by the President of Convocation in 2018/19. The guest speaker was Mr Nyati and that event did not end well because the remarks he made on that occasion were similar to those the board said he was misrepresented on. Therefore it was difficult for the board to convince the Committee that Mr Nyati’s comments were misrepresented. Because he had not read the statement by the board, could the board tell the Committee what Mr Nyati was saying to clear the air on his remarks?

[Slide 6] showed that the French company, which was a contractor, lost 20% of its cash flow. Mr de Ruyter was asked how much Eskom lost due to that loss and their non-performance of maintenance. Eskom budgeted R2.6 billion for diesel but spent R9.3 billion. Fairly enough, it did not plan enough for outages and had to compensate. But the solution proposed was a competitive bidding process to avoid some of the problems it was encountering. The statement on slide 44 was saying that there were non-reputable suppliers that had been getting tenders. Could Eskom expand on this? He thought that the diesel supply contracts were given on an emergency basis when Eskom was faced with a situation. How did the entity plan on putting out tenders? Competitive bidding would take two to three weeks of waiting for submissions and dealing with the bids. Would the country not be in the dark while the entity was busy processing the submissions? If Eskom was planning for this, surely some controllable expenditure that would not shock the entity would have to be found, unlike the current expenditure that shocked the entity and the public.

He liked that Eskom said no jobs would be lost from the repurposing of Komati Power Station. He said it sounded nice now but he knew how restructuring took place. Eskom was guaranteeing that none of the jobs would be lost because there would be construction, amongst other things. But what about after things were in place? For example, if Eskom were to put in wind turbines, in the construction phase, people would be trained and stay in their jobs. But he drove all the time to Port Elizabeth and East London and saw that these wind turbines were standing alone with cattle farms. No one was there except security sometimes waiting to see that there was no tampering happening. But workers were not there and because the wind turbines were finished, they only needed maintenance, which was outsourced. How did Eskom plan step-by-step to ensure that no jobs would be lost in the long-run?

Mr G Cachalia (DA) said the focal question was what would it take to end loadshedding? What would be the cost to finance operational interventions? Was it doable and over what time frame? Would Eskom agree that there was a need for a stable base load while generation from other multiple sources kicked in on a source-agnostic, lowest cost and fully costed basis? Would it agree that this was a need while the entity settled on a suitable least invasive and most energy-dense solution for the provision of electricity, with the least fall out across a host of parameters carefully entered into while it contemplates the bird in the hand? With that in mind, how much could renewables contribute to eliminating loadshedding, and over what timeframe? Could Eskom’s fleet be fixed and shored up to provide for the country’s electricity needs in the short to medium-term? Financially and operationally, as Eskom interrogated costs and consequences of other options in parallel, without closing the door to nuclear options, how would the fleet be fixed? To highlight some of the challenges by way of example, it had been 15 months since the explosion at Medupi. What repairs to the 800 megawatt unit have been effected to date? The effect on the economy was widely known which Eskom alluded to. [Treasury estimated, … the value of downtime, to be …in excess of R500 billion, while repair costs, as he understood it, for that unit was about R2.5 billion, and that was just one unit (wording not clear on the recording). Unit 5 at Kusile caught fire and had been out for one year. That was now two units at new plants. Would government’s substantial takeover of the debt allow for the much needed maintenance and repairs? He was also led to understand that significant components of Medupi’s Unit 4 had been removed as spares for units elsewhere—effectively cannibalising a new unit. Was this true and how would the situation be remedied? In this regard, what were the strict conditions government making contingent to this new bail out? Would the entity be allowed to focus on stabilising the base load or would it mean a new focus on other generation or a hybrid? Regarding generation, specifically renewables, how long would the repurposing of plants and the lease of land for renewables take to kick in and help counter loadshedding? If the entity were to replace the 1 600 megawatts lost at Kusile and Medupi with renewables, was it true it would need 5 000 megawatts because, from 100 megawatts of renewables, one would only get 30%? Similarly, it was known that 500 megawatts were to be installed in Northern Cape at Kenhardt which required 1 100 megawatts of power on battery to dispatch 250 megawatts because the request for proposals (RFP) was for dispatchable power. Given that the new RFPs were not for dispatchable power, did this mean Eskom had to live with that and, as a result, would seek higher prices from consumers? Was it true that two cleaning contractors were not allowed on site at Medupi 4 to remove debilitating ash because they did not meet localisation requirements and now a new RFP had been issued? He asked the board whether they would have supported Mr Nyati’s prescient call for removing encumbrances as per the mandate in chairing the BOPC, such as localisation requirements, preferential procurement and cadre deployment as amplified in a note that Mr Nyati authored that clearly evinced new misrepresentation. Eskom's board’s statement the previous day had put paid to that and one would ask why. Would the board still support a ring-fenced state of disaster being declared around Eskom to enable relatively unfettered action to fix base load and help end loadshedding, bearing in mind that the National Key Points Act and the National Security Act sat above all else? Was it true that the main contractor at Medupi for generation was General Electric (G.E.) and Eskom was restrained from dealing only with G.E.? Who benefits from this arrangement? The current question on everyone’s lips was what would solve loadshedding? Was it correct to say that multiple 1 000 megawatts of renewable energy could not solve loadshedding without 1 000 megawatt hours for battery storage? If so, was this affordable and doable given that the larger squad was Elon Musk in Australia, which was tiny compared to the prediction for their new battery augmentation and would need their government guarantees to kick in in 2050? Did South Africa have the time and the fiscal space? Could the chairman of the board explain his 10-year role on the board? This was based on the consideration of how the previous board oversaw the awarding of the Hitachi contract and the significant shares taken by Luthuli House, particularly in view of the new board’s mandate to be super vigilant about government’s conflicts and transgressions. Regarding diesel, who supplied Eskom and at what cost versus comparable stock prices globally at particular points over the life of contracts? Who held these contracts? Would the revision of these contracts under a legislative disaster management system assist Koeberg? How were extension plans for Koeberg’s life going to be finite? Could Eskom explain the cost benefit of Koeberg being completed for seemingly any cost like Kusile and Medupi were? What were the original budgets for the schedules? What was it now and what was projected? How did this impact other generative repairs and maintenance? He said he would appreciate specific answers to his questions. In the event of any deferred answers that could not be answered at the meeting, they could be highlighted, explanations provided and sent in writing as soon as possible. He would send his list of questions to the secretariat for good measure, monitoring and securing the answers and disseminating thereof. He would be happy to provide the list to anyone who wanted to it. He had raced through it and hoped it was well received as he tried to be reasonably concise.

Mr K Mileham (DA) thanked Eskom for the presentation and welcomed and congratulated the new board. What was the forecast total cost of the life extension project at Koeberg? Given that it was R24 billion around 12 years ago, what is it now? Regarding Mr de Ruyter’s statement that nuclear was the lowest cost carbon-free power supply, what was the estimated Levelised Cost of Energy (LCOE) per kWh after the life extension at Koeberg? How did it compare to the current purchase price regarding the entity’s power purchase agreements with Independent Power Producers (IPPs) for wind and solar? He asked for clarity on Eskom’s timeline for the life extension project. The presentation spoke about the impact of the SGR project on the critical path for life extension. What did the overall time line look like? What were the key milestones? Was the entity on track to meet the license renewal deadline of July 2024? The previous week in the Daily Maverick, there was a story that the 125 maintenance outage for Unit 1 had been changed to a refuelling outage and that the maintenance had been deferred. Could the entity confirm whether this was the case and if so, what were the implications for the life extension timeline? There was a huge amount proposed to be spent on the top six power plants, one of which was Tutuka. Tutuka has an energy availability factor (EAF) of just 28-29% at present. Was it worthwhile or justifiable to spend enormous amounts of money on a plant that was so incapable of meeting the needs of South Africa? Should that money not be spent elsewhere? What impact had the loss of refining capacity had on the security of Eskom’s diesel supply? Eskom failed to budget adequately for diesel in the 2022/23 financial year. What was it doing to rectify this in the 2023/24 budget? What were the long term budget implications for Eskom of ongoing loadshedding? It was stated that the changing dynamic of the electricity market had impacted the entity’s ability to supply and had implications on storage. What was being done to upgrade the transmission infrastructure and provide better load balancing? On Eskom’s RMR, there was a slide in the previous week in the Medium-Term System Adequacy Outlook that forecasted an EAF on the low side of 60% for the next financial year and 66% on the high side. This was a long way off the 72% figure forecast in the 2019 Integrated Resource Plan. How likely was the entity to achieve even the 60%, given that the trajectory at present was sharply downwards? Was the RMR Plan, on which Eskom had spent about R144 billion over the last five years, showing any positive results? Or was it just pie in the sky? Looking forward, Treasury and the Minister of Finance agreed to spend a further R170 billion on maintenance over the next five years. While this was vital to the long term survival of Eskom, it could potentially create about 15 gigawatts of new generation capacity. Why should Eskom continue to be propped up given its ongoing and continued failures? What was Eskom doing to step away from distribution at a local level? This had been an ongoing issue for several years with municipalities having demanded the last mile of reticulation in Schedule 4B. It seemed that there was role confusion between Eskom and municipalities in this regard and huge confusion at a consumer level where they did not know who they were billing or should complain to. As a result, there was an enormous opportunity for Eskom to step away and hand it over to the municipalities.

Mr N Dlamini (ANC) said that the presentation did not adequately address the issue raised by the National Union of Mineworkers (NUM). Members of NUM questioned the role of the Eskom Chief Operating Officer (COO), Mr Jan Oberholzer, and wanted to know to who he reported. Did the chief nuclear officer report to the group executive for generation or the COO? If he reported to the COO, why was this the case? He was concerned about the SGR project as was presented. It seemed everything was going to be blamed on the project management team. Who formed part of this team? Was it internal people or outside contractors? Eskom said that the delay was caused by the quality of some ordered equipment, which ultimately led to the crack [slide 4], which was exaggerated by some political parties in Parliament who said that the plant was a hazard and people were going to have to be evicted soon. Mr de Ruyter had said this was far from the truth and safety issues in that nuclear plant were taken very seriously. In planning for a project, a successful project had to meet three requirements. It had to be done on time within budget and the work must be of the requisite quality. Now, if substandard parts were ordered and Eskom was unable to pick up at that stage that the parts were not going to meet the required standard, it meant there was a problem with project management. Were the people managing the project present in the meeting to explain some of the decisions taken? He said that Eskom always presented the problem but never got to the solution. The Committee was aware of the ages of the power plants. What were the plans to end loadshedding? The Committee did not see this addressed. Mr de Ruyter said that when these plants were initially built, they were built for a small settlement for a specific market and because of subsequent changes, there was a need to supply more people. When it was originally designed it was meant to service the mining and manufacturing sectors which were currently not as active has they used to be. This had a direct bearing on the finances of Eskom. It was now understood that Eskom was battling to recover some of its money from municipalities. This created another problem for people who pay the municipality because when municipalities did not pay Eskom, Eskom disconnected these people. This was prevalent and well-documented in Soweto. In terms of the country’s population growth, there were about 54 million people in 2010. The country was hovering at 60 million now. This meant that there was a growing problem in terms of a growing population in numbers. Eskom was not presenting plans to ensure that the supply of Eskom was able to meet the escalation of the demand. The entity was stuck in a revolving door where it kept doing the same things and experiencing the same problems without necessarily gravitating towards a solution. If the presentation said that nuclear was one of the cleanest energy sources, contrary to what other people might not want people to believe, why was Eskom not considering nuclear as part of JET? He was asking this because when going towards Richards Bay port terminal, one would find kilometers of trucks taking coal away from South Africa to Europe specifically. And the same thing was happening towards Maputo, where a port terminal exported coal. Why was South Africa’s coal dirty locally? How did it get cleaner going towards Europe? Because if it was said that coal was harmful to the environment, South Africa’s coal plants had to be shut and the country had to stop selling coal because generally, coal was giving the world a problem in terms of emissions. Were these emissions getting less as they got closer to Europe and more in South Africa? What sense did this make? Eskom needed to address how currently, with the situation in Ukraine and Russia, Europe itself was moving away from renewable energies that South Africa wanted to rely on. He was aware that Germany had started digging coal again because of the situation. Was the money that Eskom was getting from the World Bank a loan or a gift? If it was a loan, how was it going to be repaid if Eskom was battling to collect revenue from consumers? What were the implications of this money coming to South Africa in the long run?

The Chairperson paused Members’ questions to allow Eskom to respond due to the barrage of questions. He advised Eskom’s team to steer clear of anything political that would implicate them.

Eskom Response
Mr Makwana thanked the Members for their questions. Mr Nyati had an interview with a journalist from one of the Sunday papers. The interview was meant to be about the role of the BOPC. During the interview, there was a conversation around challenges that the journalist raised with Mr Nyati regarding global supplies and challenges that may arise in terms of localisation and procurement requirements. He could not speak at length on Mr Nyati’s behalf because the interview was between two people. If need be, he would ask for a written response regarding the actual perspectives from Mr Nyati. The board was comfortable with the account given to them which was that there was going to be a need to find a way to balance the need for localisation with the fact that one would have global Original Equipment Manufacturers (OEMs) coming and not having BEE credentials. Therefore, they may not be alive to the requirements of the policy framework. Eskom was a 100% state-owned entity; therefore, the board was guided by the shareholder mandate they signed. The shareholder compact expects the board to do what they do, but also ensure that the majority of South Africans benefit substantially from the mainstream of the economy. This was their mandate and that was what they constantly committed to ensuring occurred. He asked the Committee to allow Eskom to revert in writing on Mr Nyati’s own account of what he said to the journalist in question, for the Members to get a first-hand account. But for the board, those were the key principles. They did not have a mandate from the shareholder to deviate from the existing government frameworks and policies on transforming the economy, on BEE and the need to transform supply chains to ensure that they represent the aspirations for the majority of South Africans to play meaningfully in the economy. Eskom would be guided by the fact that it is a state-owned entity with a developmental mandate in line with its shareholder compact.

He asked to be furnished with the list of questions Mr Cachalia had offered to provide. He undertook to respond comprehensively, factually and accurately.

Mr de Ruyter said he would try to respond to the questions as best he could. He would revert to the Committee if he did not possess all the information. He would be assisted by some of his colleagues who were familiar with some of the detail. On the question about the disputes with Framatome [the French contractor], it was important for the entity to record all the claims that Framatome put against Eskom but also the claims Eskom had against Framatome. There was a dispute resolution mechanism in the contract where all the various disputes were adjudicated. If any party was not satisfied with the outcome of that dispute adjudication board, then they may appeal to court and then the process would be taken forward. At this point in time, Eskom had a large number of claims against Framatome including for consequential losses. He did not want to disclose too much of Eskom’s legal case because that would compromise its position. Eskom intended to claim from them the losses due to the additional diesel it had to burn because of delays caused by Framatome. So Eskom was engaged with recovering money from Framatome. It was not a comfortable relationship but it was a commercial relationship and Eskom was ably assisted by lawyers and claims experts.

Eskom’s current diesel suppliers were PetroSA, Astron, Shell, BP and Engen and it got discounts off the wholesale list price varying between 40 and 60 cents per litre. There was also a rebate on various fuel levies because Eskom did not use the fuel for road transportation. These were reputable suppliers and Eskom tried to buy as much diesel from PetroSA as a fellow state-owned enterprise to keep the money in the business. Eskom would be opening up the market for diesel bids. Personally, he would like to see Eskom buying at a price that was closer to the basic fuel price and not the wholesale list price and Eskom should be aggressive in its bidding. This could require Eskom to obtain a wholesale license from the Department of Mineral Resources and Energy (DMRE). Eskom had already started the process of applying for such a license which would allow Eskom, from a regulatory perspective, to buy at the basic fuel price. There were various regulatory limitations on how Eskom could save money on diesel.

Mr Mahlaule was quite right that as Eskom transitioned away from coal, there would be some job losses in the coal value chain. This was why a transition needed to be carefully planned. It was going to be a gradual transition. There was no “Day Zero” when Eskom would suddenly stop burning coal. In fact, Eskom would be a very large user of coal for the next 50 years because Medupi was scheduled to run until 2069 and Kusile until 2071. As Eskom’s other stations approached their retirement age, that was when they stopped buying coal. So this was a very gradual transition and not a binary one. Eskom had taken a look at job creation in the renewable energy industry and it was very important that there was a supportive industrial policy that would allow for the creation of maximum jobs in South Africa by supporting local content, otherwise, jobs would be exported to China. Three studies were done: a cost-benefit study, a study by the National Business Initiative and a study by the World Bank. They showed that after compensating for job losses in the coal value chain, there would be a net new job creation of between 260 000 and 300 000 jobs based on the implementation of a transition on a gradual basis. But that assumed that manufacturing and procurement were done locally and that people were retrained and re-skilled. For that purpose, one of the elements of Eskom’s investment in [repurposing] Komati was a training centre in association with the Cape Peninsula University of Technology which would assist Eskom in training people currently working in the coal value chain to be qualified as P.V. and wind technicians so that they could be employed. Based on Eskom's work, and with these exhaustive economic studies, there would be a net new job creation as a result of the transition. There was also a recent study published by the Energy Information Association in the U.S which showed that 55% of the jobs currently in the energy sector in the U.S (the majority), were now in the renewable sector. There was a notion that renewables were job-free but the data collected suggested otherwise. This was not a conundrum that Eskom could solve on its own. It needed a supportive environment to deliver on the promise of new jobs.

Eskom estimated that the South African electricity industry required investment of about R990 billion in new generation capacity—this was just part of the cost of ending loadshedding. Some of the new generation capacity would be based on natural gas, some on renewables and some on storage. To upgrade Eskom’s transmission grid, Eskom needed about R130 billion to build between 8 000 and 11 000 kilometres of new transmission line and 101 new major substations. An equivalent amount of about R56 billion needed to be spent on upgrading the distribution network and installing smart meters for bi-directional metering so that there could be energy from, for example, rooftop solar flowing back into the grid. These extraordinary amounts added up to R1.2 trillion over the next decade or so. It was an extraordinary challenge and an extraordinary opportunity to develop an entire new industry in South Africa and create substantial new green jobs.

Mr Cachalia had asked about the notion of the stable base load. The nature of the power market in South Africa has changed significantly since the design of the power system. The current fleet was not very flexible as it did not ramp up and down in response to the market. Eskom’s energy planning department had run more than 100 different scenarios with different compositions to obtain the least cost generation system that would also meet the needs of maintaining 50 hertz on the grid 24/7. Eskom needed a very stable frequency to have a stable electricity grid. It was possible to make use of the complementarity between sun, which typically peaked at 12 noon, and wind, which had a profile that peaked in the mornings, evenings and overnight. So there was a portfolio effect, but according to Eskom’s modelling which the CSIR substantiated, South Africa required between 3 and 6 gigawatts of gas generation. Bearing in mind that Eskom did modelling based on currently available technology, assumptions could not be made on technology yet developed. Commercialising small modular [nuclear] reactors seemed imminent for the world, with several projects in Canada and U.S. The commercialisation would yield significant promise for cost-effective dispatchable carbon-free electricity from nuclear generation. Eskom was watching this with keen interest because it was an important part of the future going forward—but it was not yet commercially proved and Eskom did not want to experiment with South Africans’ money on unproven technology. It had done this in the past and did not work out well. It had cost Eskom a lot of money with little to show for it. [The reference here is to the investment in the Pebble Bed Modular Reactor (PBMR) project.]

Could Eskom’s fleet be fixed? That was a challenging question. The performance of Eskom’s fleet, particularly the coal fleet, could be, and had to be, improved. The current performance was not satisfactory nor acceptable. Eskom understood the dissatisfaction of not only the Committees but also South Africa at large with the performance of the coal fleet. His colleagues were seized with the matter of improving the performance of Eskom’s coal fleet. To fix the fleet, units needed to be taken offline for an extended period of time. If there was no spare capacity, this meant that by doing planned maintenance, the risk of loadshedding would be exacerbated. During the past period of loadshedding, Eskom had taken units off entirely to do planned maintenance that totalled between 6 and 7 gigawatts. This was more than two Matla-sized power stations that had been taken off. There were two choices: either not to do the planned maintenance, in which case the lack of reliability would be increased, or endure the pain of loadshedding to do the maintenance and bring the units back in a more reliable state. It had to be borne in mind that Eskom’s fleet, except Medupi and Kusile, was old and poorly maintained with an average age of 42 years. At three of Eskom’s power stations, Tutuka, Matla and Kriel, Eskom did not refurbish their cooling towers. To do these refurbishments, the entire unit had to be taken off for a period of between 100 and 120 days. Eskom effectively rebuilt the internals of each cooling tower. That would take time and money and eat up capacity. So if Eskom were to fix all the units, it would cause significantly worse loadshedding. There was a need for a fine balance between maintaining and keeping units online. It was an ongoing process to catch up with the backlog of maintenance that was not done.

Mr Cachalia’s had asked a question about Unit 4 at Medupi. Neither he nor Mr Rhulani had any knowledge on any of the parts at the unit being cannibalised for spares to be used at any of the other units. If the Member had any information on that, he requested that it be shared with him. In fact, the area had been secured and access to Unit 4 was tightly controlled. The cost for the repairs for Unit 4 was insured. There was an excess that would have to be paid and Eskom was in discussion with the insurers to recover the cost of the explosion that took place. The OEM of the generator, which was the unit that exploded, was G.E. and the unit needed to be replaced. Eskom could not go to the market and buy a different unit because of the specifications to which the entire plant was designed. Eskom wished to use the same OEM to supply the generators to that unit in the first instance. Or it would be like asking BMW for a quote to replace an engine for a Mercedes car engine that blew. It would not work because it needed equipment similar to the original. Similarly, Unit 5 at Kusile had not been handed over by the contractor Hitachi to Eskom. The loss and the cost associated with the fire that took place was for the account of Hitachi. Hitachi had to repair it and Eskom would claim against them for the late delivery of the unit. It was very unfortunate and highly upsetting that there was a delay on the unit, but at least there was no direct financial implication for Eskom.

It was correct to say that the average availability over 24 hours for solar power was between 24% and 28%. Wind was slightly higher, with anything between 32% and 38%. Renewables were so-called self-dispatching generation, meaning that they dispatched when the sun shone or when the wind blew, not when the system necessarily required it. This meant that there was a certain fraction that may be surplus to the requirement at any given time, depending on the amount of renewables invested in. This was why Eskom wished to invest in new storage capacity. Battery storage, in Eskom’s view, was not the entire answer. Based on current technology, it was a short-term solution that allowed Eskom to de-bottleneck the distribution work. To store at utility scale, pumped hydro storage needed to be invested in, which Eskom was experienced in. Eskom had three pumped hydro storage schemes which worked very well from a system operating perspective to maintain stability on the grid. Eskom was pursuing projects that would add an estimated 4 000 megawatts of pumped hydro storage capacity. The need for storage was not on a one-to-one basis. One megawatt of storage was not needed for one megawatt of renewable energy. The number varied and Eskom would convey exactly what that ratio was. The 4 000 megawatts [of pumped hydro storage capacity] would probably enable three times the amount of renewable energy to be deployed and effectively be rendered dispatchable. Additional pumped hydro storage would be a key addition to the electricity system going forward. These projects lasted for 50 years with almost no maintenance. They involved high initial capital cost but very low operating costs. So on a total cost of ownership basis, it was much more preferable to battery technology.

Mr de Ruyter said he was unaware of cleaning contractors who were not allowed at Medupi. He requested the Member to furnish the particulars in this regard so it could be investigated.

Eskom bought 506 million litres of diesel from PetroSA, 97 million litres from Astron, 23 million litres from Shell, 22 million litres from Engen and 29 million litres from B.P. The lion’s share was from PetroSA which was bought from the international market and imports. On Mr Mileham’s question on the impact of the loss of refining capacity on diesel supply security, he said there was an increase in the risk because of supply chains that were susceptible. For example, Eskom had a recent incident where a diesel vessel could not dock in Mossel Bay because of rough seas and delayed the offloading of diesel to power the gas turbines at Gourikwa. Eskom therefore did not have all of the capacity available that it should have had. Eskom had to manage its diesel reserves very carefully because of the shortage of generation capacity. Diesel reserves, together with pumped hydro reserves, were the insurance policies against failures of units in Eskom’s fleet. If a unit tripped, there had to be adequate reserves to keep the frequency at 50 hertz 24/7 because if not, there could be a total blackout which Eskom wanted to avoid. The grid code required Eskom to have 2 000 megawatts of reserves available at all times to prevent any catastrophic frequency variations, particularly a loss of frequency. On initial approval, the total cost of the LTO was R20 billion. The SGR was originally costed at R5 billion, but was currently sitting at R11 billion after escalation, bearing in mind that when Eskom approved it, it approved it without contract price escalation. Eskom would further unpack this to show what was due to escalation, in other words increases in cost due to inflation and what was due to the nature of claims which Eskom was providing for and hoping to recover from the contractors. Eskom could not guarantee that it would recover the costs because it was subject to a legal process. Eskom was on track to meet its license renewal for July 2024. Responding to Mr Mileham, he said he had also read the article from the Daily Maverick and was completely nonplussed. He said it was difficult to comment on anonymous rumours and said what was contained in the article was certainly not the case. He said not to believe everything that was on the internet. On whether Eskom should be spending money on the top six power stations instead of building new generation capacity, this was a fine balance it needed to maintain to enable new generation capacity to be added. Eskom could not simply stop doing maintenance entirely and divert all the funds to build new generation capacity because that would lead to an even quicker deterioration in the coal-fired fleet. Eskom had to manage a careful balance to run the coal fleet through to its planned life and also in accordance with the guiding policy document, the Integrated Resource Plan 2019 (IRP19).

Mr Caleb Cassim, Chief Financial Officer (CFO), Eskom, said that compared to the budget of R2.6 billion (up to September 2022), Eskom had already spent R9 billion on the diesel budget for the 2023 financial year. The majority of the R6 billion increase was linked to volume. When looking at the load factors of the OCGTs, this year Eskom budgeted for a load factor averaging at about 7% currently. So this was three times what Eskom anticipated and was directly linked to the performance of generation. Eskom’s assumption for the next financial year was a load factor assumption on diesel of around 12%.

Mr de Ruyter said he hoped he addressed Mr Mileham’s question on transmission upgrades which was very much an area in focus. The upgrading of the grid was a top priority for Eskom. It needed to invest in the grid to unlock additional capacity. It was not a particularly sexy part of the business but a crucial part that needed investment. The EAF was currently unacceptably low but the RMR Plan would contribute to improving the EAF. The EAF would improve as Eskom retired its old unreliable stations -the denominator changes of the equation used to calculate EAF would assist. Without additional capacity at scale, between four to six gigawatts, Eskom would be unable to do sufficient maintenance to bring back EAF to the level that is aspired to in IRP19. With respect, he did not entirely agree with Mr Mileham’s statement that the RMR was pie in the sky. Eskom certainly would have wished for better outcomes but the state of neglect of the coal-fired fleet was very significant and caused substantial reliability issues. In addition, there were significant challenges of criminal syndicates operating in and around the coal-fired power stations. Good quality coal was stolen and then exported. Mr Dlamini referred to the long line of trucks exporting coal. Some of that coal was stolen from Eskom as it was supplied with low quality middling coal with a much lower calorific value and much higher ash content. This was not coal that worked well in a coal-fired power station. Addressing the issue of crime and the criminal value chain in the power stations was a matter of real importance. Eskom relied on the diligence of the criminal justice system. Treasury interrogated all of Eskom’s applications very thoroughly before it allocated any money and imposed very strict conditions on the entity. It was definitely not an open cheque that Eskom could access whenever it wanted to.

Eskom had considered the transfer of certain distribution areas to municipalities. It was of the view that there were historically defined areas where Eskom supplied certain municipal areas. For example, if one looked at a map of Johannesburg or Cape Town, there was quite a patchwork of distribution areas. This allowed for inefficiencies in maintenance and inconsistencies in billing. The biggest issue was a misalignment between the accountability for service delivery which sat with local councillors and the electricity supply. Eskom had been engaging with the City of Johannesburg for two and half years to see how certain areas could be transferred to the City. There had been significant turmoil in the City of Johannesburg and that had held back the discussions. Eskom was also engaged in similar discussions with the City of Cape Town, which seemed to hold promise for the areas to be transferred for mutual benefit. Consumers would also benefit from improved service levels and improved access to councillors. So Eskom was not opposed to the transfers but needed to ensure that when it transferred areas, it did not exacerbate non-payment by municipalities. It would only engage in transfers with municipalities with a good track record of paying Eskom.

At that point in time, the chief nuclear officer did report to the COO, (as stated in the question from Mr Dlamini). This was a deliberate decision to relieve the burden on the group executive in charge of generation. Eskom’s coal fleet had significant operational challenges which required the full-time attention of Mr Mathebula. The decision was taken to have the nuclear operating unit report directly to the COO just to give Mr Mathebula more bandwidth to attend to the pressing issues in the coal value chain. In due time, once there was greater stability in the coal unit, the intention was to return the nuclear unit back to the reporting line it had historically. But given the current challenges of the LTO at Koeberg and challenges on the coal side, Eskom believed this was the most efficient way of structuring. In response to Mr Dlamini, he said that the project management team was not present (in the meeting) because they were on suspension while Eskom was investigating what had taken place. Once that investigation was complete, Eskom would revert to the Committee and share the outcome of that investigation. It just needed to be careful to respect the privacy of those individuals from a Protection of Personal Information Act (POPIA) perspective and it was important not to air too much in the public domain.

Eskom was often interdicted, in accordance with the Promotion of Administrative Justice Act (PAJA), from suspending the supply of electricity to paying customers within municipalities that do not pay [the electricity revenue they collect to Eskom]. So Eskom had to continue supplying these municipalities, even though they were not paying, as it was forced by law to do so. To manage the credit risk, Eskom applied the nominated maximum demand which was an indication given by the municipality of how much electricity they required which was what Eskom limited them to. Eskom recognised that this caused hardship in those municipalities and empathised with those customers in municipalities and other supply areas who diligently paid their bills. On the other hand, Eskom also had to put accountability where it belonged and that was with the municipalities that did not pay. This was a matter that was receiving the attention of the Deputy President and the political task team with a view to improving payment rates of municipalities.

He agreed that the supply of electricity needed to be increased to meet the needs of a growing population and, hopefully, a growing economy. Eskom itself was constrained in terms of the Energy Regulation Act from both building new capacity and buying new capacity. The procurement of new generation capacity fell in the domain of the Independent Power Producers (IPP) Office which reported to the DMRE. The construction of new power stations similarly required a Section 34 determination which needed to be obtained from the DMRE. There was a clear need for more generation capacity and Eskom had been saying so consistently since 1998, when the first energy White Paper was published. But unfortunately, it was constrained from both a regulatory and legislative perspective and a financial perspective. Given the state of Eskom’s balance sheet, it was unable to fund construction of new large projects and this incidentally included new nuclear. Eskom was definitely not opposed to new nuclear but it was very expensive and did not have the funds currently. This was a policy decision that had to be taken by government which Eskom would be happy to support. Eskom had a particular position on new nuclear. Firstly it supported it and secondly, it was of the view that Eskom should, as was currently designated, be the operator of new nuclear. This was based on the premise that if a third party were to build a nuclear power station, the first port of call for recruitment would be Koeberg, which would decimate Eskom’s already depleted skills base, creating a risk to Koeberg. Eskom would therefore like to remain the designated operator of civilian nuclear power generation facilities in South Africa. Eskom had two sites, with one in Thyspunt and the other in Duynefontein which was adjacent to Koeberg. These were eminently well-suited to nuclear plants. There were challenges from an environmental perspective so those processes were ongoing but Eskom was a land owner at those sites and looking forward to partnering to enable those projects to proceed. On the export of coal to be used in Europe, there was an interesting article by Dr Fatih Birol who was the head of the International Energy Agency (IEA). While it was acknowledged that there was a short term increase in the consumption of fossil fuels in Europe, the view of IEA was that this was a short term increase and that it would accelerate the de-carbonisation of the European economy using fuels such as green hydrogen and a reduction in the reliance on natural gas. There were a number of new nuclear projects being pursued in Europe with one in Belgium. Life spans of nuclear plants were being extended including in Germany. So the events in Ukraine prompted a re-look at the portfolio of generation technologies available in Europe. He agreed that the World Bank funding was a loan and had to be repaid. It was a concessional loan, meaning it came on favourable terms. The alternative to taking on the loan, to ensure the repurposing and repowering of Komati, was to put a padlock on the gate and walk away from Komati. If Eskom did not have money to invest in enabling the repurposing and repowering at Komati, then it would leave the community in the dark, which is not what it wanted to do. Again, Eskom’s finances were constrained so it needed to access money if it wanted to pursue projects that it believed were worthy from a social and moral perspective and ensure that it created a new future for the population of Komati and surrounding communities. Therefore this was a strategy the entity adopted with the support of government and Treasury.

Further questions
The Chairperson said that in his other life, he used to prepare a report and he would present the report but once people started to ask questions, he would bring in an even more thorough report. Consensus would be reached by fatigue because there would be no more energy to ask further questions. He told Eskom to be afraid of politicians and avoid getting deeper into their terrain. He advised Eskom by saying individual board members were entitled to their views and did not have to account for what they personally believed in. Board members had to only explain the position of the board otherwise they would find themselves in long debates on behalf of somebody else’s views. Advising Mr de Ruyter specifically, he said that all he needed to work on was getting money, putting things into place and managing everything, and the rest he should leave to the board. He said he could not limit Members’ speaking time but at 14:00 the meeting was supposed to wrap up.

Ms P Madokwe (EFF) asked for details on how the board came to the conclusion that Mr Nyati had been misrepresented. She said that the board had owned up to Mr Nyati’s comments which meant that those comments were no longer the assertions of one person. The Committee was owed a much better explanation than what had been given. On the forgings from France that had to be re-manufactured and the source of conflict between Eskom and the service provider [slide 4], when did Eskom realise that what it had been given was substandard? Her understanding was that before a supplier provided for a big project, they were at least supposed to provide samples for approval. How did it get to the point that when the product was supposed to be delivered, Eskom did not get what it expected? Who else was responsible for the project outside the project management team? What was the role of the CEO and the COO? What was the role of the previous board? This was a big and crucial project where everyone was supposed to have all hands on deck and not wait until the realisation that things were getting out of hand. On the unanticipated fuel consumption, Eskom had alluded that it was due to various factors including Eskom’s coal-powered plants not being able to provide what was expected. She also recalled that there were assertions that were made that some of the contractors for coal had been providing Eskom with substandard coal at very high prices. What were the implications for such coal providers? When the Committee engaged with [DMRE] entities the previous week, what it found was interesting and shocking. The state-owned mining company African Exploration Mining and Finance Corporation (AEMFC) had been established to ensure a stable energy supply and provided coal as well. AEMFC said Eskom would come to them on a needs basis and were not a primary provider of coal to Eskom. Why then was there a state-owned mining company which had a responsibility to provide coal but was not Eskom’s first point of contact? On energy storage, she said the reality was that the country was sitting with a persistent energy crisis. While Eskom was still putting its resources together to provide long term storage facilities, in the meantime, why was it not looking at battery storage facilities? She was asking this because it was always said that energy that could be of assistance was lost because of the lack of storage facilities. What was being done to ensure that excess energy was not being lost? What were the conversations Eskom was having with state entities including academic institutions involved in research and innovation that deal specifically with energy innovation projects? There were state entities that were creating various technologies in silos and there was no conversation between the entities and Eskom, whereas the issue of energy was a national issue where all resources should be used. On the energy crisis specifically concerning Koeberg, she agreed that the issue of loadshedding was urgent and needed to be attended to, but the elephant in the room was the looming decommissioning of Koeberg which was said to be scheduled for 2024. It was understood that there were conversations in the pipeline about extending the date for another 20 years. This had conditions where certain criteria had to be met before the extension was given, meaning that the extension was not guaranteed. What measures were being put in place to ensure that the criteria were met to get the extension? In the event that the 20-year extension was not granted, what would be the implications for South Africans? In the event that the extension was granted, it did not take away from the fact that the disposal and decommissioning of the power plant, especially concerning nuclear waste, would have had financial implications. What would be the projected cost of decommissioning the plant 20 years from now? What measures were being put in place to ensure that there would be funds to fund the decommissioning at that time? Were there funds currently to deal with the disposal and decommissioning of nuclear waste?

Mr V Zungula (ATM) said that in line with the Chairperson’s comment that the board must not account for the articulations of another board member, regardless of their personal views, the board had to always affirm government policies. The board must not be apologetic about localisation, the prioritisation of local labour, B-BBEE, affirmative action and all other progressive government policies and legislation. State-owned entities had to work in line to deal with immediate challenges facing the country, particularly loadshedding and unemployment. Many coal power stations were in line to be decommissioned, and Eskom planned to repurpose them for green energy in its JET strategy. Had Eskom conducted any socio-economic impact studies on the closure and the repurposing of these power stations? With green jobs, most people were required during the construction phase. After, only a few people were required to maintain the plants. This was the opposite of coal. How did Eskom plan to keep the jobs where a majority of the people in the country were not as highly skilled? Could the board explain what the future of coal was from their perspective? Would there be a complete transition away from it or where there any considerations for cleaner coal technologies? What was the relationship between Koeberg and the South African Nuclear Energy Corporation (Necsa)? What work did Koeberg do with Necsa? Was Necsa involved in the SGR project? Was it not worth capacitating Necsa to do most of the work in Koeberg instead of outsourcing the work? During the Budgetary Review and Recommendations Report (BRRR) process in Parliament, the Committee was informed that AEMFC supplied coal to Eskom but was not prioritised. Why was most of Eskom’s coal not supplied by AEMFC? Why was it not the supplier of choice for coal? Was Eskom’s board in the process of reviewing evergreen contracts? Contracts with Anglo American, Exxaro and BHP were a barrier to transformation, particularly because Eskom procured materials at higher prices than Necsa guidelines. For example, in 2019, Glencore was charging R607 per tonne, whereas Necsa guidelines provided R350 per tonne. In 2019, Eskom had to pay an extra R10 billion because it failed to negotiate a standard price for coal. What plans were in place currently to ensure that Eskom would be able to negotiate well so that the taxpayer would not be burdened with an additional unnecessary cost due to Eskom’s failures to negotiate?

Mr M Wolmarans (ANC) said that Mr Zungula covered many of his questions and comments. Relating to the issue concerning Mr Nyati, what was the communication policy of the board and Eskom? He was asking this because he did not know whether Mr Nyati had a mandate to do the interview, make a press release or provide any communication from the board. Was it the policy that allowed for any board member at any given space to give an opinion or to give an interview? When the members interacted with Eskom at Koeberg, there were engagements with the unions and the board. He said the presentation covered many of the issues that the unions had previously tabled. This meant that there was something common between what was raised then and what was raised now. For example, the three steam generators were supposed to be replaced by 2022 but were deferred to August 2023. The reason for the delay was that if they had been done at the planned time, there would have been a greater risk of loadshedding, which had happened anyway. There was a replacement that was supposed to be done in October [2022] and from the presentations, it seemed that the deadlines were not met. The unions were also not satisfied with those deadlines that were not met. He wanted to check whether Eskom was in sync with what the unions or the employees were saying at that time. When Eskom did the inspection on the generator, an Eskom official detailed how some parts came through from Japan or France. Was he correct that the official said Eskom or Koeberg must fly somebody out to go and check the quality of the product that Eskom received, tick it off and only thereafter would it be in the position to effect the necessary transactions and/or payments? From the presentation, it meant that there was a shortfall in terms of the quality of the product that Eskom had been receiving. He requested an explanation of why Eskom was saying there were improved relations and it was still in control of everything, considering it was in court with a supplier and was still struggling. On slide 42, the risk aspect as far as completion was concerned related to the NNR, where there were uncertainties about answers or a verdict that would come out from them. The NNR was an SOE of the DMRE and today, they were sitting as a joint committee of the two portfolios where Eskom was also an SOE of the Department of Public Enterprises (DPE). He failed to understand why it was impossible for the two entities to cooperate in expediting some of the issues without losing the quality of their independence and their mandate. It was similar to AEMFC versus the other mining companies, where no preference was given to some state-owned institutions. Some interventions were being seen and done on the repurposing of Komati. Did Eskom have statistics on the inevitable casualties of this repurposing? This was because eight out of the nine units had been decommissioned. Was there a possibility that there were jobs that had been lost within this transaction, or were all the jobs absorbed into other utilities? What would be Eskom’s analysis of the immediate socio-economic impact on the area around Komati and what was its plan thereof?

Ms J Mkhwanazi (ANC) said she really respected the Chairperson and the board’s response on the issue of Mr Nyati. Could the board share the lessons learned from that incident on respecting individual views, respecting the position of the board, the board’s responsibility over their position and the policymakers of government as they carried out their role? What was the progress in implementing the Department of Public Enterprises (DPE) 2019 roadmap for Eskom? What was the role played by Eskom on municipal debts and other debts? On the governance side, were there any stakeholder mandates that Eskom was implementing or was it only relying on the political war room in dealing with the matter? Eskom had elaborated on its role and the responsibility of the municipalities but she wanted to check whether there was any stakeholder arrangement that Eskom was implementing because that talked to the position of Eskom’s savings and finances. She understood the progress that Eskom had alluded to on slides 6 and 21 on the SGR project, particularly on the timelines and the budget estimates. Who was responsible for the budget estimates and the actual budget? Who was responsible for monitoring the project so far? How much would the procurement of the four IPPs contribute to addressing the issue of loadshedding?

Mr T Langa (EFF) said most of his questions had been covered. He asked when loadshedding in South Africa would end.

Mr F Essack (DA), referring to slide 17, asked what was deferred from Eskom’s side for it to have to contend with paying the R650 million in terms of the court order. Would it not eventually be considered fruitless and wasteful expenditure? He asked Eskom to provide more information on the issue of transparency. What were the costs associated with the suspension of staff? There were no timelines given on the suspensions and no disciplinary action was taken. He asked the board to respond to this issue. Could Eskom give the public details on outage 126 (slides 24 to 26) and the implications thereof? This was because the layperson was not able to understand what outage 126 was and requested Eskom to address the public and media on it for a better understanding.

The Co-Chairperson said that slide 6 made mention of outage 225 being a significant risk due to the lack of an agreed installation plan between Eskom and the contractor. Had this risk been dealt with? The question from Mr Langa was very important. Could the Committee be given assurance that the problem of loadshedding was being addressed? Could the Committee be taken through the process of dealing with the crisis? There was light at the end of the tunnel. Perhaps by this time of year next year, there would be some programmes.

The Chairperson said he was unsure whether there could be light at the end of the tunnel when there was loadshedding. He had listened to Members deliberately to ensure that every Member had an opportunity to ask questions. He acknowledged that the board chairperson and his team were new. His only worry with the presentation was that the issues were not as basic as Eskom always put it. In the report, nothing spoke about consequence management on issues that the entity itself had raised. At some point, there was loadshedding for the simple reason that the coal was wet. Surely somebody was responsible. He gave the example of growing up in rural areas cutting wood. They would know when it was going to rain and put the wood in a sheltered area to avoid getting wet. It was widely known that wet coal could not be used for generation. Was there no management or somebody responsible for ensuring a plan was made for certain conditions? There were lessons to be learnt from loadshedding, for example, the billions of rands Eskom paid for diesel to avoid loadshedding. Those billions of rands resulted from the dereliction of duty to ensure that the coal was not wet. He was concerned about units tripping in this day and age. He made an example of a car that could indicate how far it could go with a specific amount of diesel and could indicate when there was an engine fault. They could also indicate that the car needed to go for service after a certain period. Had Eskom not reached a stage where technology could detect when a unit would break down, fault or need to be attended to?
Another example was that of stolen Eskom poles. Most people who owned trucks or buses had tracking systems to monitor where the truck was going. With absolute respect for management, he said that Eskom had a management problem. He asked what the daily performance of the COO was as the person in charge of dealing with operations. On the issue of coal being mixed with stones, was it so difficult to get a system that could easily detect that it was not pure coal? He was aware of the issue of trucks taking a detour to mix the coal with stones and bring it back. Surely there was somebody who knew the duration from the pick-up point to the delivery point and that person had to explain why the truck had disconnected from the radar and was untraceable for that period of time. Was the truck not supposed to send signals the moment something untoward happened to allow for it to be checked when it got back? Eskom’s report was very complex and he needed a simpler answer to the question of when loadshedding would end. It seemed to him that Eskom did not have rich technology. If Eskom could determine how long it would take for the coal-fired power stations to be decommissioned, why could it not determine how much could be delivered if technology was brought in to address Eskom’s glaring problems? He agreed that some of the matters constituted criminal conduct but did not understand the general reason for some of the issues. Why was there loadshedding? He said that once the entity had a strong board, most of its issues would be attended to. When the Committee first came in, some of its entities had not submitted financial statements for more than three or four years. Some entities downplayed losses of R100 million when they were, in fact, wasting billions of rands. A strong board was needed on a daily basis not to overreach, but to ensure that performance addressed weaknesses. If Eskom was facing challenges, why did it get a qualified audit with findings? Why did it have fruitless and wasteful expenditure? These could not be accepted when the entity was in a state of crisis. Eskom’s board needed to closely scrutinise things to ensure effective management. Once the board did this, it would avoid issues such as the issue with Mr Nyati’s comments and could request that he either account for the comments or the board distance itself from them, which would be the story's end.

Eskom response
Mr Makwana said he had perhaps not been crystal clear in his initial response on the question raised by Mr Madokwe. He had said that the board would request Mr Nyati to put on record what had transpired between him and the journalist that wrote up the interview published in the Sunday paper. The board would revert back to the Committee with that written confirmation of what Mr Nyati had actually said. The board were aware that they were appointed based on a shareholder mandate. It had a shareholder who owned Eskom 100%, a shareholder with whom Eskom had signed a shareholder compact in terms of what had to be delivered on transformation, B-BBEE and ensuring that in its developmental mandate, Eskom delivered what was expected of it. This was part of ensuring that government policy—which articulated what needed to be achieved in terms of B-BBEE by Eskom and government policy, and which was very clear on localisation and what must be achieved in terms of preferential procurement—was fully executed as per what Eskom had committed itself to in the shareholder compact. Further, he confirmed that from a board point of view, they were happy with the fact that Mr Nyati gave unequivocal assurance to the board that, like everyone else, he served on the board of Eskom because he believed in the policy instruments that the shareholder of Eskom held dear, in line with the aspiration of ensuring that the majority of South Africans participate inclusively in the mainstream of the economy. This was in line with the efforts that Eskom would have put in place as a catalyst for transformation.

On the various matters that the Members raised, including the matter the Chairperson raised sharply in terms of the role of a strong board, he thought that his opening remarks had spoken exactly to that. He had said that they planned to be an engaged board. He had confirmed some of the steps the board had taken since they had been appointed, including creating a new committee of the board which did not previously exist to focus on business operational performance. The first sitting of the BOPC was going to take place in a week or so as the board was ahead of their end of November schedule of board meetings. The board was not a passive board or a board sitting on their laurels. They wanted to show that they took their mandate very seriously. He assured the Members that the present meeting gave Eskom a second bite at hearing what Members held dear on what needed to be achieved at the entity. It was a second bite, because two weeks previously, Eskom went through quite an extensive conversation in Parliament on exactly the same matters of consequence management with the Standing Committee on Public Accounts (SCOPA) https://pmg.org.za/committee-meeting/35786/. They were accompanied by the Special Investigations Unit (SIU) and the Hawks who gave a fully comprehensive account of where matters were in terms of those issues. So the departing message was the entity had heard the Members and took their concerns seriously.

Mr Featherstone said that on any projects where large components were manufactured, it was true, as Mr Wolmarans had said, that people from Eskom or contracted overseas specialists were sent to perform inspections. In those inspections, Eskom would determine whether it was comfortable with the quality that had been expected as per specifications issued to the contractor. The finding of unacceptable forgings was found at the beginning of the manufacturing process before any assembly of the complete steam generator was performed. Those forgings that were found to be unacceptable were just a part of the assembly. Those forgings were rejected at the beginning of the project, leading to the initial delay of two years on the project, from the initial planned installation window to the 2021 time frame. This was why delay damages were applied to the project.

Mr Makwana responded to the question on the lessons learnt from the matter involving Mr Nyati. There was a communications policy and the chairperson of the board was the spokesperson of the board. But what had happened was that in the first two weeks of the board assuming office, the chairperson of the board was invited to a few interviews on the general expectations of the new board. In almost 90% of all those interviews as he was talking about the BOPC, he had mentioned that Mr Nyati would be the chairperson of that committee. When Mr Nyati informed him that he had been approached for an interview, Mr Makwana felt it was fair and proper to afford Mr Nyati the opportunity, given that his name had been mentioned. The invitation was that he was going to be asked to speak about the BOPC—but then other topics cropped up during the interview. The board was now clear that henceforth the chairperson of the board was the spokesperson of the board and would not allow for that deviation to happen again.

Mr de Ruyter said the questions from Ms Madokwe and the Chairperson about coal and coal quality were vexed. Since Eskom moved away from taking coal on conveyor [direct from the mine], there has been an increase in the fraud and theft of coal. An opportunity had opened itself up and criminals had stepped into that space. To prevent theft and manage the problem, Eskom was testing the coal at the mine providing the coal. Eskom was then sequestrating the coal in a designated green stockpile and putting it on trucks under a seal top with an Eskom seal. The trucks had trackers which were monitored. The crooks were clever. They broke the seals and, through corrupt means, obtained alternative seals from Eskom employees who then received bribes. The crooks also had jammers for the trackers so when the trucks disappeared off the radar, they would offload and reload with the middlings coal. The ingenuity displayed by these criminals and the technology they invested in could have been directed to legitimate means in South Africa. This issue was a very difficult matter for Eskom to police. If Eskom found a supplier who had been non-compliant, they would be removed from the list of Eskom suppliers. Catching them in the act was the difficult part. Eskom was very pleased that during the recent SCOPA presentation, the commander of the Hawks, General Godfrey Lebeya, announced that the Hawks were investigating the theft of coal. This was a sign of support from law enforcement. Members had said Eskom was not buying from state-owned mining companies. Eskom bought from them, having bought 2.2 million tonnes from them. Unfortunately, these companies did not meet all of their contractual obligations and had to supplement the coal they were contractually supposed to supply from other sources. This may be due to the fact that they did not have access to all of the requisite reserves. The question of empowerment in coal was important and something that Eskom took very seriously. 97.4% of Eskom’s coal supply in the past financial year was from owners of mining rights who had more than 30% black ownership and only 2.6% was from mine owners with less than the requisite 30% as per the second version of the Mining Charter. The entity had a distinct policy of buying from black-owned suppliers.

Eskom was investing in 200 megawatts of battery storage. This was a very expensive technology with a cost of R11 billion. Therefore Eskom’s preference was to go for pumped hydro storage as a long term solution unless there were significant decreases in the cost of batteries. Battery storage was a niche application that would not give Eskom the utility scale storage required. Eskom was collaborating with the Council for Geoscience in investigating clean coal technology. They had a pilot project for carbon capture and sequestration at Eskom’s Majuba power plant to see if it was a viable and feasible technology to reduce the carbon footprint of coal-fired power plants.

The total provision that had been set aside for the decommissioning of Koeberg was R18.3 billion. Half of it was for the decommissioning of the plant and the other half was for the treatment and storage of spent fuel. This was not a cash amount in the bank but an amount provided for in Eskom’s finances.

Eskom was working very closely with the National Nuclear Regulator on expanding the license conditions, and the relationship was positive. The NNR had to fulfil its mandate, so if he had inadvertently created an impression that it was unnecessarily uncooperative or obstructive, this was not the case. The NNR did its job very well and very diligently and did not cut Eskom any slack. The country had to be grateful for a regulator on the ball and doing its job to the best of its ability.

Mr Featherstone added that the relationship with the NNR was very healthy and although there were occasional disagreements, it was generally a good relationship. Eskom had highlighted in its submission that there was one risk, which was a strategy to work very closely with the regulator in terms of the process of licensing the LTO, but the entity was working on addressing this risk. Mr de Ruyter assured Members that there was nothing to be concerned about in terms of Eskom’s relationship with the NNR.

Eskom has done extensive studies on the retirement of coal-fired power stations, including socio-economic studies. Numerous studies have been conducted in all areas affected by the proposed decommissioning of coal-fired power stations. Those studies were available for perusal and had been shared with the Presidential Climate Commission. He had personally been to Necsa and said it had a very high-tech manufacturing capability and very skilled people working for it. Eskom had a good relationship with Necsa and he got along very well with the CEO. Eskom was also in the process of transferring the Pebble Bed Modular Reactor (PBMR) to Necsa. This made sense for all parties concerned as it would be in the care of people who would be able to develop the technology going forward. This was essentially a no-cost transaction and Necsa would be paying Eskom R1 for the transfer. Necsa’s manufacturing capability did not extend to the fabrication of the steam generators at the scale at which they needed to be made.

On Eskom’s evergreen contracts, Eskom was now buying 94.7% of its coal from companies that complied with the Mining Charter in terms of empowerment. Eskom was taking this very seriously and was strictly applying the requirements. The entity intended to prepare very well for diesel procurement but a key enabler for pushing down the cost of diesel was the wholesale license from the DMRE.

Eskom was trying to implement consequence management as it was important for the entity to ensure that the relevant executives and managers who were responsible were held to account. Eskom had not yet taken disciplinary actions because it was investigating. It was important to ensure that Eskom had a fair and transparent process and Dr Thulane Ngele, Head of Employment Relations at Eskom, was highly versed in industrial relations. He ensured that Eskom was honest and compliant in ensuring that when it applied disciplinary action, it was not found wanting at the Commission for Conciliation, Mediation and Arbitration (CCMA).

The (2019) roadmap for Eskom was being implemented but was going slower than hoped, particularly for the legal separation of transmission. It was a complex exercise with many legal, regulatory and accounting matters that needed to be resolved. Eskom depended on NERSA, DMRE, DPE and Treasury to do certain things. Eskom’s blocks on its matrix of responsibilities were all green as it had done what it was supposed to do and was now in the hands of various institutions to enable them to operationalise the transmission company by April 2023.

Eskom tried to engage with municipalities to resolve the matter of municipal debt. In some instances, payment agreements were entered into in terms of which the municipalities could pay off the overdue debt. Regrettably, of the 18 or so payment agreements that were in place, only two were being honoured. After signing this agreement, municipalities tended not to honour them. Eskom also offered an active partnering approach that assisted the municipality in delivering services, collecting payment, improving metering and doing maintenance. However, the municipalities were unwilling to allow revenue payment into Eskom’s account because they preferred to maintain control over the monies for unknown reasons. Eskom also worked with Treasury, COGTA and SALGA to address municipal debt.

Eskom felt that the first round of leases signed with IPPS demonstrated a very innovative way of bringing more generation capacity to the grid.

On the question of when loadshedding would end, he had learnt from previous experience not to give a date. Looking at the capacity being put on the grid, he admitted that Eskom needed to improve on coal delivery. There were a number of embedded generation projects in the pipeline for registration at NERSA in excess of 6 600 megawatts. These were about two to three years away from implementation. Seriti had a project date for ploughing the windfall profits they had earned from coal into renewable capacity. This was a strategic move, and municipalities intended to procure (renewable energy themselves), with the City of Cape Town being at the front end. At Kusile, there were two more units to put into commercial operation, adding 1 440 megawatts. The land lease programme would add 2 000 megawatts. During the first round, the programme was three times oversubscribed so there was significant appetite for more of these projects. After the completion of the lease, the ownership of the capacity would revert to Eskom. There were also projects at Medupi Unit 4 for August/September 2024. So there was a huge amount of capacity being developed and worked on. Everyone was impassioned to have this capacity online sooner. If all arms of government and civil society worked together to enable it to come on the grid, the sooner loadshedding would end.

Mr Cassim responded to Mr Essack’s question about the R650 million (slide 17). Two elements were looked at. Eskom currently had a savings target of R20 billion across the business, and he chaired a sub-committee every two weeks to deliver on that. The savings that were forecast for the current year were about R19 billion. Like any capital programme, some projects were delayed for various reasons. So a combination of the savings and some projects that had not materialised made up the R650 million. In terms of fruitless and wasteful expenditure, Eskom followed due process and assessment of the analysis and conclusions would be disclosed in the financials. The delays in the SGR put pressure on the diesel cost. This impacted the finances. Over and above that, the delay led to loss of revenue during loadshedding.

Mr de Ruyter acknowledged that his team had to get better at explaining the highly technical matters on outage 126 because it was complex. Predictive maintenance (was managed with information systems). Typically a plant was run through a Distributed Control System (DCS) which was pulled together in a control room. The DCS had a variety of screens that indicated when certain parameters went out of kilter and which of those parameters could then lead to a breakdown. Eskom would intervene where it had the ability to pre-empt a breakdown by taking the unit down and addressing the issue. However, because of the shortage of generation capacity, and to avoid a bigger disaster, Eskom was sometimes required to keep that unit online and operate with a known defect until it could address the issue. So there was a fine balance to tread between minimising the impact of loadshedding while being responsible and prudent operators. At any given point in time, Eskom operated with about 6 000-8 000 megawatts at risk, where it was known that there were certain issues with the plant that could lead to a trip at any moment. Eskom was paying attention to predictive maintenance but it was not a simple task.

Eskom had been trying to implement a coal automation system to manage the quality of coal for eight years. For various reasons, it has always failed from the procurement stage to the design stage. One could speculate as to why Eskom had been unable to implement it. He had personally intervened on this issue by having a fortnightly meeting with colleagues from the primary energy division where they were specifically held to account on coal quality. The previous day such a meeting was held with Mr Cassim who could agree that it was not a comfortable meeting because Eskom was not getting the necessary traction. But control measures were going to be put in place to measure the quality of coal per truck in real-time as it was delivered to the power station, to prevent the shenanigans that occurred when the coal was in transit.

Mr Cassim said that audit opinions [depended on] closing out the opening balance, which was difficult as it covered a lot of transactions and had been a challenge for Eskom for many years. If there were qualifications, Eskom would always have an emphasis of matter around going concern based on the finances. Eskom remained a going concern with the support that it got from government to the equity support.

Mr de Ruyter said they would revert to Mr Mileham’s question on the Levelised Cost of Electricity (LCOE) after Koeberg as soon as Eskom had done the calculations. An official said they had been given these calculations: the 40-year life plan was R795 per MWh and for 60 years, the price went up to R839 per MWh.

The Co-Chairperson said that the long session was necessary. He thanked the board and executives of Eskom for being patient and being in a position to respond to Members’ questions. He said the Committee had not been a great forum that day because most Members had been disorganised by the fact that they were used to Zoom sessions. Eskom would be affected by the Committee’s physical sittings in Cape Town which would be the arrangement most of the time moving forward. He thanked Eskom for coming to Cape Town to meet with the Committee. He appreciated that there were common issues between Members in terms of correspondence but because of time, they would have to deal with these issues in a separate session.

The meeting was adjourned.