Implementation of SCOPA recommendations: meeting with ESKOM
Public Accounts (SCOPA)
24 January 2023
Chairperson: Mr M Hlengwa (IFP)
ATC220530: Report of the Standing Committee on Public Accounts on its oversight visit to ESKOM and its infrastructure projects of Medupi and Kusile, from 20 to 22 April 2022, dated 25 May 2022
ATC191016: Report of the Standing Committee on Public Accounts on its oversight visit to ESKOM and its projects of Medupi and Kusile, from 26 to 30 August 2019, dated 16 October 2019
The Standing Committee on Public Accounts convened in Parliament to receive a briefing from Eskom on its recommendations as adopted by Parliament and an update from the Special Investigating Unit (SIU) on its Eskom investigations. The Committee asked Eskom to provide an update on the load-shedding crisis and how they planned to end or reduce it significantly.
The Eskom Board chairperson said that on 10 December 2022, the Board had approved a turnaround plan for the generations division relating to dealing with all the critical matters of deep concern to the country, which revolved around Eskom keeping the lights on. The turnaround plan was long overdue, as it had started prior to the Board's appointment. On 25 July 2022, the President set out five priorities to turn Eskom and the electricity supply chain around. Central to those key priorities was the improvement of energy availability.
The Board’s approach had always been based on how to fix the system challenges in the fleet that was available at Eskom, while simultaneously adding megawatts into the grid. If the country could find ways to add megawatts into the grid with speed, this would create space for the technical teams at Eskom to fix the machines, but if the machines were constantly overworked without the reprieve of being relieved by new megawatts added on to the transmission lines, the current problems would persist. The announced two-year plan would see Eskom move the current Energy Availability Factor (EAF) to the upper 59% and 60% by 31 March 2023, and by 31 March 2024, it would be ramped up to 65%. The final milestone of the turnaround strategy would be on 31 March 2025, when the EAF would have reached 70%.
The Eskom chief executive officer said the current capacity constraint had been long coming, as the country had known about the possibility of load-shedding since 1998, when the Energy White Paper had specifically recorded that Eskom was asking for new capacity to be added on an urgent basis. Government at the time disagreed, stating it had other priorities and that the available money needed to be allocated to other needs. Eskom had no choice but to create virtual capacity by deferring maintenance, postponing midlife refurbishments, and running their power plants harder than the international norm indicated.
The plan to end load-shedding would require EAF recovery, additional capacity and government enablers through improving Eskom’s plant performance, while urgently bringing additional capacity online. The Generation’s Operational Recovery Plan was geared towards improving the EAF from 57% to at least 70% at the end of the 2025 financial year and onwards. By recovering capacity and commissioning new build, 6 000 megawatts could be delivered by generation in the next 24 months. Eskom had regrouped its efforts to focus areas on improving people, plant and process performance, which was essential for the turnaround strategy.
The Committee felt the ultimate question that needed to be answered was energy certainty for the economy and the people. Eskom needed to tell the Committee and the public when load-shedding would end, because if they did not provide a timeline, it would make the process of holding them accountable difficult. The Committee also asked for more details on the international project management or private intelligence investigators, and the material facts that had led to their appointment. This was important, because the constant need for Eskom to outsource certain functions and responsibilities raised many questions and criticisms about the entity being overstaffed.
Eskom told the Committee that any forecasts about when load-shedding would end were tentative because it was out of Eskom’s hands. It should be recognised that since the responsibility for the procurement of additional generation capacity was placed on the Department of Mineral Resources and Energy (DMRE) and the Independent Power Producer (IPP) office, Eskom could no longer be regarded as the supplier of last resort. To assert that load-shedding would be eliminated within a specific time period would be very brave, but considering Eskom’s turnaround plans and seeing the substantial addition of new capacity, the risk of load-shedding should diminish. It would be crucial not to lose momentum in adding new capacity and investment into the electricity industry, especially in the transmission grid, which was the enabler of adding new generation capacity.
The global firm was a new initiative that the Board had discussed with Eskom management, because they wanted to relieve each other of the challenge where they would give a systems status update and interested parties would start poking holes in it. The global firm would allow Eskom to have a way to do checks and balances. It was not necessarily outsourcing, but an addition of capabilities into the dialogue, and a skills transfer would be provided to Eskom personnel included in the contract to be signed with the global firm. If Eskom was to have any credibility in South Africa, it needed to have this independent voice that would verify the information provided.
The SIU also briefed the Committee on Eskom investigations. They fundamentally highlighted the observations made by the Committee that a key component of turning Eskom around was a concerted effort to ensure that investigations ran their full course and arrived at their logical conclusions.
Chairperson’s opening remarks
The Chairperson welcomed the Members, the Eskom Board members and Executive team, the Head of the Special Investigating Unit (SIU), Adv Andy Mothibi and his team, as well as the team from the Auditor-General of South Africa (AGSA) and the members of the media that were present in the meeting. He said the meeting was about the follow-ups on audit matters and on the reports that SCOPA tabled to the National Assembly, but the dark cloud that continued to linger was the issue of load-shedding, and he expected that Members would naturally want to discuss it and expected that Eskom would be able to provide answers to the questions from the Members.
The mandate of Eskom was to supply stable electricity efficiently and sustainably to contribute to lowering the cost of doing business in South Africa, and the question was whether that was currently happening. The entity had a significant role and impact on the economy and ordinary South Africans and the current load-shedding in the country was taking its toll on various fundamental sectors of the economy. The intensity of the power cuts negatively affected the country’s economy, and billions of rands were wiped off the country’s GDP each day because of load-shedding. Various sectors of the country were heavily impacted, including small businesses, agriculture, mobile networks, etc., and load-shedding carried huge costs for households and businesses. At the same time, there was the looming electricity price hike that the National Energy Regulator of South Africa (NERSA) had approved.
He said it was no secret that jobs were being lost and businesses were closing while the country was trying to recover from the impact of COVID-19 which had brought the country to an ultimate standstill, so generally, Eskom had defined itself outside of the national interest. Considering the 2021/2022 financial year’s audit report, where the entity had received a qualified audit opinion, which was the case for the past five years, their net loss after tax was R12.3 billion, irregular expenditure was R67.1 billion, and fruitless and wasteful expenditure was R4.9 billion. Losses due to criminal conduct, non-compliance with legislation, issues around procurement and contract management, and consequence management were also cited by the Auditor-General (AG). Things were not going well at the entity regarding the financial and audit outcomes perspective.
The Chairperson recalled meeting an elderly woman during his visit to the south coast of KwaZulu-Natal (KZN), who told him that as much as she understood the challenges faced at Eskom, she felt unsafe during power cuts at night, especially with the problem of gender-based violence and femicide (GBVF) in the country. From whatever perspective one may look at the load-shedding issue, the fact was that it needed to be solved urgently.
Mr B Hadebe (ANC) said in preparation for the meeting, the Committee had made it clear that key among the issues that ought to be addressed were the issues of the current load-shedding, but he had not received a presentation that had spoken directly to that.
The Chairperson said what the Committee had told Eskom was that they were to update the Committee on their progress with the implementation of the recommendations from the two oversight visits and a follow-up on the issues raised during the meeting held in October 2022, but the discussion on load-shedding was inevitably going to happen in the meeting because it was a burning issue.
Mr N Paulsen (EFF) said it would also help to have an idea of the maintenance costs of the power stations, because it would help in understanding the causes of load-shedding.
The Chairperson asked Mr Paulsen to hold his questions for the discussion session of the meeting, as Eskom still needed to present to the Committee.
He asked the Chairman of the Eskom Board to make his opening remarks.
Eskom Board Chairperson’s opening remarks
Mr Mpho Makwana, Eskom Board Chairperson, said the meeting had started against the backdrop of a series of consultations that Eskom had held which were led by President Ramaphosa, where Eskom had extensively shared its status in terms of the turnaround of the power utility, specifically on the generation recovery plan.
On 10 December 2022, the Eskom Board approved a turnaround plan for the generation division dealing with all the critical matters of deep concern to the country, which revolved around Eskom keeping the lights on. The turnaround plan was long overdue as it had started prior to the Board's appointment. On 25 July last year, the President set out five priorities to turnaround Eskom and the electricity supply chain. Central to those key priorities was the improvement of energy availability.
The Board was announced at the end of September, and it began its work on 1 October 2022, where it found that the task at hand meant they would have to balance resolving dynamic constraints, including the liquidity capital constraints that went together with technical constraints. The Audit and Risk Committee and the Investment and Finance Committees had to consider a range of challenges and possibilities from income statements' constraints and balance sheet constraints, while simultaneously considering the internal control environment.
The Board also created the Board Operational Performance Committee, which had started doing a lot of ground-up work with the generations' sectors of the employees. The turnaround plan tabled before the Board in December followed a series of engagements. The plan was taken to the shareholder ministry for review, because Eskom was unlike any other industrial organisation where they would simply approve their technical plans and hit the ground running and inform the shareholders only when doing the results presentations at a later stage. Everything that was done at Eskom had a systemic impact on the economy of the country and the lives and livelihoods of ordinary citizens, so it was incontestable that processes of comprehensive consultation with the shareholder had to be followed. The consultations had been fruitful, and in January this year, the Board had started seeing traction in some slow-paced areas.
They had always felt that there were a lot of constraints outside of Eskom’s control, including the regulatory framework and the legislative environments, where certain enablers needed to be put in place. The engagements that were had with the National Energy Crisis Committee (NECOM) went far in terms of removing several obstacles. On Monday, 23 January, the Board had another engagement with NECOM where a new set of initiatives ready for implementation had been introduced.
The Board’s approach was always based on how to fix the system challenges in the fleet that was available at Eskom, while simultaneously adding megawatts into the grid. If the country could find ways to add megawatts into the grid with speed, this would create space for the technical teams at Eskom to fix the machines, but if the machines were constantly overworked without the reprieve of being relieved by new megawatts added to the transmission lines, the current problems would persist. The announced two-year plan would see Eskom move the current Energy Availability Factor (EAF) to the upper 59% and 60% by 31 March 2023, and on 31 March 2024, it would be ramped up to 65%. The final milestone of the turnaround strategy would be on 31 March 2025, at which point the EAF would have reached 70%.
He said the Board felt they were making breakthroughs guided by the two-year turnaround plan co-owned by the Board and the management of Eskom, and they felt they were on a good path to deliver what South Africa expected them to -- which was keeping the lights on. There were several acts of value erosion that Eskom was engulfed in, and he paid tribute to the Eskom Chairperson of the Audit and Risk Committee, as Eskom had managed to sign off its outstanding financials for the financial year that ended on 31 March 2022 during its annual general meeting on 23 December. The Board and management were working hard to ensure that they were doing what was expected of them in ensuring internal integrity in the climate of control and compliance within the entity, as governed by the Public Finance Management Act (PFMA).
Eskom Load-shedding update
Mr Andre de Ruyter, Eskom Chief Executive Officer (CEO), provided an update on the current load-shedding crisis in the country, and said the current capacity constraints had been long coming, as the country had known about the possibility of load-shedding since 1998 when the Energy White Paper had specifically recorded that Eskom was asking for new capacity to be added on an urgent basis. Government at the time disagreed, stating it had other priorities and that the available money needed to be allocated to other needs. Eskom had no choice but to create virtual capacity by deferring maintenance by postponing midlife refurbishments and running their power plants harder than the international norm indicated. He then provided a timeline detailing the events that led Eskom to its current capacity constraints.
He said the plan to end load-shedding would require EAF recovery, additional capacity and government enablers through improving Eskom’s plant performance, while urgently bringing additional capacity online. The Generation’s operational recovery plan was geared towards improving the EAF from 57% to at least 70% from the end of the 2025 financial year and onwards. In the current financial year, Eskom would prioritise setting up for success by developing the enabling structures, including the implementation of turnaround plans and reliability maintenance, guarding performance and current flagship stations such as Medupi, Lethabo, Matimba and Peaking, as well as focusing on the top six priority stations (Tutuka, Duvha, Majuba, Kusile, Matla and Kendal).
By the end of the 2024 financial year, Eskom aimed to ‘execute excellence’ by focusing on the next priority stations (Kriel and Amot), successfully executing the execution of Koeberg 1, sustaining the excellent Medupi performance and embedding principles of operational excellence by addressing internal skills gaps. The entity also aimed to return Kusile 1, 2 and 3 and to synchronise Kusile 5. By the end of the 2025 financial year, Eskom aimed to reach world-class performance levels by achieving an EAF of 70% and above. During this time, the entity aimed to have Kusile fully operational and return Medupi 4 from long term forced outage. It also aimed to have closed the old stations as per the approved dead-stop dates and to focus on current and future skills by ensuring the successful implementation of the Koeberg 2 steam generator and long-term operating projects, as well as the commercial operation of Kusile 5.
He said that by recovering capacity and commissioning new build, 6 000 megawatts (MW) could be delivered by generation in the next 24 months. Eskom had regrouped its efforts to focus areas on improving people, plant and process performance, which was essential for the turnaround strategy. The strategy had 10 focus areas, including plant condition, inadequate capacity, skills and experience, fraud and corruption, policies and procedures, funding, environmental compliance, coal, new build defects, and Eskom risk industries.
The successes achieved thus far included that National Treasury had relaxed some requirements which would speed up procurement, and the allocation of outage budgeting had improved. They saw signs of improved outage readiness. The entity was receiving a lot of collaboration among external stakeholders with a willingness to assist Eskom. On the nine-point plan, there was success in the new build defect repair, as Medupi's performance was improving, the entity was achieving its coal stock days, and its rain readiness programme was in place. Additional focus to prioritise maintenance at the top six stations -- Duvha, Kendal, Kusile, Majuba, Matla and Tutuka -- had been initiated. These stations were specifically selected, as they were amongst the highest contributors to unplanned load losses. Any improvement in these stations would result in massive gains in EAF for generation.
On the current plant status and forward view, he said they were experiencing very high levels of plant unreliability and forced outages. This was compounded by high planned maintenance. Several large generating units were off for extended periods, contributing to the higher plant unavailability and loss of generating capacity. Medupi 4, Kusile 1, 2 and 3, and Koeberg 1 had planned outages, and Kusile 5 had delayed commissioning. This necessitated the implementation of stage 4 load-shedding for the evening peak until at least Friday to allow sufficient capacity to meet the demand and conserve reserves at the open cycle gas turbines (OCGTs) and pump storage.
Eskom was planning to reduce stages of load-shedding during next week, although this was very much dependent on units retuning to service and not incurring further losses. Due to the inherent unreliability of the coal fleet, there was a strong likelihood that load-shedding would continue and that stages could change at short notice due to the potential loss of further generating capacity.
Mr de Ruyter updated the Committee on the units at risk at 08h00 on Tuesday morning and the projected load-shedding outlook for the week. He also provided details on the flue duct failures in Kusile 1, 2 and 3, as well as a description and depiction of the incident of the structural failure in the flue duct in Kusile unit 1.
The Chairperson said the ultimate question that needed to be answered was energy certainty for the economy and the people. Eskom needed to tell the Committee and the public when load-shedding would end, because if they did not provide a timeline, it would make the process of holding them accountable difficult.
Ms B Van Minnen (DA) said the Committee had heard in several meetings that since 1998, there had been issues with policy and maintenance, and this had become a political problem that was now manifesting itself in the power plants, with the lack of maintenance and other issues that were highlighted. In the 15 years of load-shedding, the 25 years of lack of management, and the problems leading up to the load-shedding, what was different about the new turnaround plan, and why was it going to be successful?
She wanted to know about the extent of criminality at Tutuka. She asked which of the power plants were worth reconditioning and how long the reconditioning of the power plants would take, as well as what the payoff would be, because it would be pointless to recondition a power plant only to turn it off within two years. On the procurement of diesel, what initiatives were currently being introduced in the relevant ministries, and was work being done to move money in that regard?
There were a lot of stories and discussions circulating across the country regarding the outages and the sabotage and breakages happening at Eskom. On the one hand, there were conspiracies that there were political parties manoeuvring to achieve power shifts; on the other hand, it was sabotage to push for privatisation. In real terms, what were the causes of the sabotage? Was it criminality, an ageing fleet, was it deliberate or was it a combination of all those factors, and was there an element of truth in some of the conspiracies? Was progress being made in determining what was happening with the coal issues and the sabotage?
She said the municipal debt issue had also been extensively discussed at previous SCOPA meetings. She asked whether the Eskom Board had an opinion on the talks about large write-offs for certain areas. If there were large write-offs for certain areas, what would be the way forward to ensure that this would not happen again? The Flue Gas Desulphurisation (FGD) plant in Kusile was a roadblock to capacity generation. What would happen when these plants were installed in other power stations? How far was the legal separation at Eskom, and what was going to happen next in the process? Lastly, she wanted to know why there were larger peaks during the weekends than during the week, and how the pattern would change during the winter season.
Mr Makwana said the Board sought to create checks and balances, and would finalise a contract with an independent service provider to monitor the systems updates that the Board would receive from the executive team and form a second opinion. The system would corroborate whether what would be presented by Eskom would be factual -- meaning that the independent service provider would have validated the information that would be presented to the public.
The key needle shifter was the value chain alignment that the Board had accomplished through its participation in the NECOM, and an idea had been shared in the NECOM that when a major decision had to be made, the decision makers must all be in the same room. The Board had a clear picture of the funding model for diesel and other issues that it did not have certainty on, because the bureaucracy had been reduced significantly to provide a sense of seamlessness in the decision-making process of the turnaround plans for execution. There was greater urgency from both the government and Eskom, and greater alignment and collaboration across the value chain.
The Board's Governance and Strategy Committee that he chaired was already attending to the legal separation matter and had held a comprehensive Board off site on 17, 18 and 19 of January at its academy, where they had looked beyond the turnaround plan in generation, but also at the broader Eskom 2035 strategy. It had been a fruitful and comprehensive conversation on legal separation, and it would be prioritised and driven progressively.
Mr de Ruyter said what was different with the turnaround plan was not the content of the plan and when it was going to be executed, as it had become a common tale that South Africa was good at planning but was poor in execution, and Eskom was hoping to change that. On the criminality at Tutuka, he said there was a broader societal issue surrounding Standerton, which had given rise to the cartels that operated there. The criminality was well-organised and deeply embedded, so fixing it would not be easy.
The resistance to implementing basic control measures sometimes meant going to extraordinary lengths. For example, at one stage, a submission was made by certain procurement officials to the generation board proposing the award of a R432 million contract to an individual who, after due diligence, turned out to be operating from a suburban home in Germiston and had had his car repossessed. He had a judgment against him for falling behind on payments for his house. In this case, all three of the procurement officers had been suspended and one had left on 24 hours’ notice. The attempts of criminality were ongoing, and were not only external but also internal.
On whether Eskom should be looking at extending the life of old plants instead of replacing them with new capacity, he said they had considered this extensively. First, Eskom needed to make the plants compliant with environmental legislation. This would require the entity to spend more than R300 billion on plants that should be decommissioned imminently according to the internal operations plan (IOP). They would end up in a strange situation where as they started up the FGD plant, they would have to shut down the coal plant whose emissions they intended to improve, which would not make economic sense. Eskom’s suggestion to the Department of Forestry, Fisheries and Environment (DFFE) was that funds must be diverted to create new capacity, which would be a far more sustainable and prudent allocation of funds.
The costs of extending a plant’s economic life were very high because the spares were hard to obtain. In many instances where Eskom had already retired certain units in their older plants, the units had been cannibalised to reduce expense, and there was not a lot left at those units. Eskom had done the technical work of extending the life of plants, and to get 550 megawatts at Hendrina, it would cost them about R16 billion for five years of plant. The question would be whether to reallocate funding to that plant for capacity that would last for 20 years rather than only five years, and what the prudent economic decision would be. R22 billion would be required for the Grootvlei Power Station for 720 megawatts for five years, and that excluded the cost of coal and compliance. They had done the work, and extending the lives of the old units did not make sense.
He said it was not Eskom’s place to speculate on the motives of those who indulged in the sabotage of the entity. Perhaps it would be within the purview of the intelligence and investigating agencies to answer that question. The municipal debt remained a perennial problem, and Eskom had implemented all the measures that it could and was enforcing a nominated maximum demand, which caused significant hardship in the municipalities where some people were paying their accounts diligently to the municipalities, but the municipalities were not paying the money to Eskom.
The responsibility for this should not lie with Eskom, but with the councils and the municipalities which did not pay Eskom, because the entity needed to operate its business and collect revenue and could not collect on behalf of the municipalities. Eskom had suggested active partnership approaches where they would assist municipalities in carrying out maintenance to improve their billing by installing smart meters to avoid electricity theft and meter-tampering. The challenge in all the negotiations, except three municipalities, was that Eskom insisted that the revenue collected needed to be paid into an Eskom bank account rather than a municipal bank account. Municipal debt remained a structural problem that impacted service delivery, but when municipalities did not pay their debts, Eskom cut them off.
He said they were proceeding with the FGD plant project at Medupi, but they needed to take clear lessons from their experience at Kusile and make sure that they operated the plant with skilled operators that understood the technology, bearing in mind that the FGD had been a first for Eskom at Kusile.
He said Eskom had put everything in place to enable the legal separation of transmission, being the key enabler of additional investment in electricity generation capacity. Eskom had signed an asset transfer agreement with the National Transmission Company of South Africa, a wholly owned subsidiary of Eskom Holdings. Eskom was also engaging with lenders to obtain their consent, as they were understandably concerned that Eskom could be alienating the transmission business and the discussions were progressing well. However, there were some regulatory concerns and transfers of licences. Eskom also needed to appoint a full-time board, which was ultimately a shareholder decision. They were engaging with the shareholders to try and resolve those matters as soon as possible.
He said Ms Van Minnen’s observation that the markets were changing was true, and some of it was due to the fact that more people were installing inverters and batteries. When load-shedding was over, there would be an additional spike as the batteries would need to be recharged, so the effectiveness of load-shedding was diminishing. There were estimates that there was as much as one gigawatt (billion watts) every year of rooftop solar that was being added by private households. Certainly, when it was overcast in Gauteng, there was a significant increase and demand for the system. The market is dynamic and changing all the time, and when thinking about the electricity market, it is important to have an agile view of the market.
The Chairperson thought his initial question would have been responded to, and was unwilling to let it go. He reminded Ms Van Minnen that the meeting on Eskom's municipal debt would take place on 25 February in light of the question she had raised. While municipalities were encouraged to pay Eskom, the entity also needed to service its own municipal bills in its offices throughout the country, as the Umhlathuze municipality had had to cut off some Eskom offices because Eskom was owing the municipality.
Mr de Ruyter said any forecasts about when load-shedding would end were tentative, because it was out of Eskom’s hands. It should be recognised that since the responsibility for procuring additional generation capacity had been placed on the Department of Mineral Resources and Energy (DMRE) and the Independent Power Producer's (IPP's) office, Eskom could no longer be regarded as the supplier of last resort.
The electricity supply industry was going to a stage where additional capacity was required and now that the cap on embedded generation had been lifted, anyone could add new capacity. However, before the cap was lifted from one megawatt, all new capacity had to obtain Section 34 approval regarding the Electricity Regulation Act from the Minister of Mineral Resources and Energy. Such decisions lay in the hands of the DMRE and NERSA, who had to concur with requests to build. A request by Eskom to build a 3 000 megawatt gas-fired power station had been turned down by NERSA because Eskom should have applied for a Section 32 instead of Section 34 approval, but that would be resolved through further engagements.
Regarding when load-shedding would end, he said there was huge activity going on in terms of investing in new generation capacity that would be brought online in relatively short order, so the risk of load-shedding would diminish substantially in the next 18 months. To assert that load-shedding would be eliminated within that time period would be very brave, but considering Eskom’s turnaround plans and seeing the substantial addition of new capacity, the risk of load-shedding should diminish. It would be crucial not to lose momentum in adding new capacity and investment into the electricity industry, especially to the transmission grid, which was the enabler of adding new generation capacity. “It was not only about building new power plants; it was also about connecting the power plants to the consumers”, he said.
Mr S Somyo (ANC) referred to the performance of Eskom, specifically the planned improvements on performance on the EAF, and said the AG's audit outcomes indicated a need for an improvement of plant operations. Eskom’s targeted improvement for 2021/22 had been 74%, but the actual performance was 62.02%, and the CEO had mentioned that the planned improvement by 2024 would be 65%. He asked for assurance on how the target would be achieved in 2024, considering that Eskom had not met its target in the previous financial year. Eskom’s planned partial load losses were targeted at 3 969 megawatts, but the actual losses had been 4 851 megawatts. All these variables indicated that Eskom still had a long way to go if it wanted to reach its EAF target of 65% by 2024 and 70% by 2025.
Eskom said if there was money for diesel, load-shedding would have been significantly reduced and the Special Investigating Unit (SIU) was investigating an amount of R2.435 billion of diesel that Eskom had procured at some period. He asked if it would not be wise for Eskom to reconsider its procurement of diesel, as it was expensive. Note 3 by National Treasury assisted with some of the procurement of services by looking at the amounts and the confirmation of perpetual corruption exercises which continued to eat into the financial sustainability of Eskom. He also asked the CEO for details about the procurement of services previously queried as amounting to maladministration.
Mr Makwana responded to the questions about the procurement of diesel. He said perhaps the CEO could have mentioned that he was speaking about the conditions of the past rather than what was currently happening, because, during a Board meeting last week, they had spoken at length with members of the Investment and Finance Committee (IFC) regarding robust planning of the diesel funding model going forward. The Board also concluded the diesel funding model on Monday.
Ms Fathima Gany, Eskom Board member, said the newly formed Audit and Risk Committee (ARC) had met seven times since October, and its eighth meeting would be this coming Friday. Its primary concern was getting the audit to cross the line while at the same time looking at the internal controls and the forensic functions. The ARC had found a need for technical, financial skills in the financial organisation of Eskom, and this had become evident in the restatement of numbers from the previous years.
There was also a strong need for finance business partners, and whilst they had found that the systems and processes for risk management were adequate, there was a need for improvements in the effectiveness thereof. While there were well-drafted and documented policies and procedures, the application and execution was lacking in the business, which was where the strong need for a partner from finance in the organisation would assist. There was a need for compensating measures in internal controls every time there was a breakdown in internal controls. There needed to be a shift from those compensating measures to rely on a sound control environment to base reliability on numbers.
Overall, consequence management needed to be improved because there was not enough accountability being driven in the business. While there had been an investment in the assurance and forensics function, more investment in skills and resources and the definition of their mandate and independence in the organisation to be able to execute their functions was needed. The combined assurance model Eskom adopted was effective, but as the ARC got deeper in the organisation, they needed to be more robust.
Mr de Ruyter agreed that they had set targets for the EAF and consistent with those targets were the unplanned load losses, but regrettably, due to the performance of their generation fleet, they had not achieved those targets. He also agreed that Eskom had a mountain to climb in improving the performance of its generation fleet, especially considering the age of the fleet, the poor conditions of the fleet, lack of skills, corruption, changes to important variables, including coal policy matters, etc. They were focusing strongly on execution and capacitating themselves to execute their turnaround plan by bringing in support from their project management.
On the diesel matter, he said when Eskom had its budget discussions, they had set themselves a target for the performance of the coal fleet, which led them to set a budget for the diesel they would consume during the financial year. When the coal fleet did not perform, they had to buy more diesel. Eskom had maintained all the appropriate controls, expansions and deviations for the diesel it procured, and good governance had been maintained. Eskom bought the majority of its diesel from their fellow state-owned enterprise (SOE), PetroSA, and the expansions of the contracts were keeping in touch with good contract management, and Eskom did maintain the appropriate contractual controls to ensure that they did not incur any irregularity. The price of diesel was affected by the Ukraine-Russia war and the weakening of the rand, which contributed significantly to the increase in oil prices. If Eskom had more money for diesel, some stages of load-shedding could have been avoided.
Eskom had enjoyed good support from National Treasury, and the asset and liability team was playing a constructive role and assisting the entity with addressing balance sheet issues. The entity and National Treasury collaborated very well to ensure that procurement was done in a compliant way, and that the entity was not strangled by red tape.
The Chairperson said the Committee would also deal with the diesel issue when it considered the expansions and deviations reports that were also consistent with the Note 3 issues.
Mr Somyo said it was not only about receiving money, but how Eskom used that money. He was pleased to hear that the entity was prioritising its diesel funding model, which would be critical in the running of the power plants. At Medupi, there were about 18 million piles of coal because its major power source was coal, so if they wanted to change it into diesel, it would mean they would have to have an amount of diesel that was readily available and the model would need to change. He wanted to know Eskom’s approach towards funding diesel, because a reduction of load-shedding would have benefited from their ability to secure more diesel.
The Chairperson said Mr Somyo was referring to the three-year delay in the procurement of diesel that the CEO had referred to earlier in the meeting. The issue had arisen out of the Committee’s 2020 meeting, but it had been resolved.
Mr de Ruyter said the Chairperson’s recollection was correct, and he had nothing more to add.
Mr Hadebe was interested in reducing or ending load-shedding, and asked if Eskom had had enough money to buy diesel for the OGCTs to be used during the peak period, how much it would have cost them and what they had done about it. Was the cost less than the current burden imposed on South Africans economically? If the option was viable, why was it not implemented? Which relevant ministry had Eskom approached regarding the matter? He said the situation could not go unattended. He asked if Eskom felt the situation could be declared as a National State of Disaster so that funding could be reprioritised and directed to them have sufficient diesel to reduce the amount of load-shedding.
The Eskom Chairperson had spoken of an independent international company with an international standard of engineering experience that would be appointed to play a monitoring and management role in the implementation of Eskom’s turnaround plan. That sounded more like the Eskom Board was outsourcing their own roles and responsibilities, because Eskom had a board, engineers, technicians, and general personnel and human resources that were able to monitor its own progress. Was this in line with the PFMA regarding the outsourcing of services? What would happen to the internal Eskom personnel whose duties were to perform the same duties that the international service provider would now take over? This meant Eskom would pay double amounts for the same service. Had Eskom compiled a skills audit that would tell them what skills they had and what skills they did not have?
Mr Hadebe wanted to know where the new turnaround plan was, and whether Eskom had milestone projections within their turnaround plan and whether the plan included ending load-shedding. Within the plan, what was the projected timeframe to end load-shedding? It would have been convenient if the Committee had copies of the turnaround plan to reference information at its disposal.
He was discomforted by the fact that the only structure that was new at Eskom was the Board, and all the other establishments within the entity had been there for more than three years, including the management, yet they were presenting their turnaround plan as if it was brand new. The Committee had received multiple turnaround plans over the years, and nothing had changed.
The Chairperson asked for more details on the international project management, or private intelligence investigators, and the material facts that had led to their appointment. This was important, because the constant need for Eskom to outsource certain functions and responsibilities raised many questions and criticisms about the entity being overstaffed.
Mr Makwana said it was outside of the purview of Eskom to pronounce on whether load-shedding should be declared as a national state of disaster, but the relevant departments that participated in the NECOM had been reviewing the matter constantly and consulting legal opinions regarding the declaration of a national state of disaster.
There was a technical response to the question of when load-shedding would end, because load-shedding was minimised through the improvement of the EAF, so when the EAF reached the 70 and above percentile, it meant the grid was at a world-class level. Globally, there was no such thing as 100% energy availability, and even in the most developed countries in the world, energy availability was deemed normal if it was around 80% because at any given time, there were plants that were offline for maintenance. It should be accepted that if South Africa managed to raise its EAF above the 70% mark by 2025, it would be operating towards world-class standards or norms, and Eskom’s two-year plan took all of that into account.
The global firm was a new initiative that the Board had discussed with Eskom management because they wanted to relieve each other of the challenge where they would give a systems status update, and interested parties would start poking holes in the status update provided by Eskom. Eskom could not afford to mark its own homework in this instance, so the global firm would allow them to have a way to do checks and balances. It was not necessarily outsourcing, but an addition of capabilities into the dialogue, and a skills transfer would be provided to Eskom personnel in the contract to be signed with the global firm. If Eskom was to have any credibility in South Africa, it needed to have this independent voice that would verify the information provided.
In 2008, when the build programme commenced, there was a commitment to build new power stations without a funding model, and Eskom had to go through an elaborate process to have a funding model - the build project that raised the Medupe and Kusile power plants was the fourth largest build in the world. There were a lot of steep learning curves as that programme unfolded, so it was important that in the new turnaround plan and all the new initiatives that Eskom was doing, people should remember that the entity was also dealing with the remnants of all the other projects that were not well thought through or well implemented in the past. It helped to have a fresh pair of eyes alongside a new execution plan to ensure that future generations did not scorn what was being done today and why certain things were not considered.
Mr Calib Cassim, Chief Financial Officer (CFO), said Eskom had started this financial year with a budget of R8 billion, and was assuming a load factor of about 6% during the course of the year on the assumption that the EAF would perform at the targeted level. Eskom had spent R18 billion on diesel, which was R10 billion above the budget to date, and was an average of about R1.8 billion per month. If Eskom had the money and the funding model was sorted out, Eskom could potentially add about R2 billion for February and another R2 billion for March, ending probably at about R22 billion for diesel in the current financial year compared to the original budget.
For the next two years, Eskom’s load factor assumption in the NERSA application was 12%, costing about R17 billion each year. In their media release, NERSA said they had limited the OGCT load factor to 6%, effectively allowing for about R8.5 billion worth of diesel spending in the next financial year of 2024/25. Looking at that, based on a potential R2 billion spending per month, that would probably amount to a shortfall of about R16 billion. This was also affected by what oil prices were globally. If the situation improved, diesel prices could be expected to reduce and the practicality and logistics of getting diesel to the stations would need to be considered.
Mr Hadebe wanted to know if the relevant ministries had been approached.
Mr de Ruyter said they had spoken to the Department of Public Enterprises (DPE) and through their offices, they had established contact with the National Treasury and explained their challenge. They had also engaged with the DMRE to obtain a wholesale licence which would enable them to procure diesel at the basic fuel price, which would have given Eskom a considerable saving on a per litre basis and enable them to reduce the burden of the cash outflow. While the diesel funding model had been put in place, Eskom was funding the diesel from its internal savings and reallocations from its other priorities. The CFO had had to release funds from other sources to enable Eskom to buy as much diesel as they could responsibly procure because there was a limit, and the entity had to conserve its reserves responsibly.
A skills audit had been performed, and Eskom knew where its gaps were and where it had opportunities to improve, and the entity would be happy to share this with the Committee in a future presentation if needed. On the plan to end load-shedding, he said because there were dependencies out of their control, such as the addition of new capacity, it was difficult to give an estimate of when load-shedding would end, but if new capacity was added as planned, and if the appropriate government enablers, including addressing crime and corruption were put in place, there would be a significant decrease in load-shedding within the next 18 months. He admitted that as a CEO, he had achieved less than he would have liked in terms of improving the EAF.
The Chairperson said the fundamental issue on the question about when load-shedding would end was that there were projections for things that had been put on the table. For example, in the presentation, the CEO said the current status was that four generating units amounting to 1 680 megawatts were planned to return to service on Tuesday and Wednesday. This meant that some things could be pointed to, so when did Eskom plan to get South Africa into the world-class level of achieving the EAF? He asked this, because he felt that Eskom was giving information in a piecemeal form, and the question needed to be answered because load-shedding affected economic certainty, planning, business management, job creation, household planning and budgeting, etc. There must be a way to tell South Africans to plan and budget according to a specific plan and timeline. What also needed to be ascertained was the centrality and authority of Eskom to take its own decisions, and whether Eskom inherited decisions elsewhere and implemented them.
Mr Hadebe said the Committee understood the extent of the problems at Eskom as they had been presented multiple times, but it wanted to know how long the entity needed to fix what was wrong within it to be able to end load-shedding.
Mr Makwana said perhaps the challenge was that the Committee had not received the presentation on time and did not get enough time to internalise it, because they had answered all the questions the Members had asked. The responsible thing that they could do was perhaps to devote a series of presentations to the Committee at another meeting to dissect the presentation properly. The presentation was part of a bigger strategic plan by Eskom for the generation’s division over the next two years. Eskom would be gearing towards world-class EAF standards after 2025 after it reaches EAF levels above 70%.
Mr de Ruyter said the planning of the electricity supply industry in South Africa was a function of the integrated resource plan (IRP), which had a certain technology mix and dates by which certain plants were decommissioned, etc. The plan was premised on the assumption that Eskom would operate at a 75% EAF, and Eskom was not achieving that for the reasons mentioned, but it also did not have the liberty of adding additional capacity beyond the prescripts of the IRP. The overall accountability for energy procurement and how capacity was added to the grid needed to be considered. One of the outcomes was a review of the IRP under way, which was an extraordinarily important policy document to guide the country to the future.
Mr Makwana said NECOM was the national electricity crisis committee that afforded all the key players in the electricity value chain the ability to sit in the same room under one leader to deal with all the priorities at hand and fast-track decisions so that they could be achieved urgently through accelerated delivery of key outcomes. They could not shy away from the fact that there were internal issues that Eskom had got control over, but there were other external matters that Eskom had no control over, but they all had to be dealt with together. Eskom had a systemic impact on the economy, society and civilisation. Eskom could not fix its problems on its own, but in partnership with other role-players aligned around the same priorities.
The Chairperson said he did not want a solidified impression to be created around the issue of load-shedding being an ambush, as he had indicated on Monday that while the issues around the oversight visits and follow-ups were dealt with, the issues of load-shedding would be raised. He said public frustration must not be lost sight of, as it helped spur urgency.
He then allowed a ten-minute comfort break, and the meeting reconvened at 12h50.
The Chairperson said the meeting would end at 15h00 because Eskom needed to depart early as they were preparing for an oversight visit later in the week. He asked Members to be conservative with time when asking their questions and making comments and responses without compromising the quality of the questions and responses.
Mr Paulsen said that according to the Electricity Regulation Act of 2006, licensees may not charge a customer any other tariff or make use of revisions in agreements other than those determined or approved by NERSA as part of their licence conditions. How would the proposed 18.5% electricity price hike for next year affect Eskom’s plans going forward if it was suspended? In terms of Eskom’s plans going forward, what does the base load look like regarding the number of power stations or the capacity currently in the build phase, and which ones had been tested?
He said most of Eskom’s coal power stations were sub-critical type power stations, and some innovations could enable sub-critical type power stations to meet or exceed the combined heated power stations. He wanted to know if any of the sub-critical power stations were being upgraded to that level, or if they were beyond repair and just needed to be terminated. The IRP 2030 said the country would need 78 gigawatts of power by 2030, which was in seven years, so what were the chances of Eskom reaching that target?
On the criminality within Eskom, he said Eskom had mentioned some of their officials needing protection for themselves and their families, and wanted to know if the ‘kingpins’ or ‘queenpins’ of the organised crime syndicates operating within Eskom had been identified. He did not understand the logic behind mining companies and big businesses paying much less per unit of electricity than poor people, and wanted to know why this was the case.
He was uncomfortable with the Eskom CEO saying the end of load-shedding was out of his hands, and asked in whose hands it was in, because the President had also said his hands were tied. Who was going to end load-shedding?
Mr Makwana said the last question Mr Paulsen asked reminded him of Abraham Maslow's quote that ‘one who was good with the hammer tends to think everything else was a nail.’ He appealed to the Committee to hear them, because there was clearly an existing pain point for the nation. The CEO explained the journey Eskom had travelled with load-shedding since 1998. Even though they had put facts on the table to show that there was a way out of load-shedding, they were still being asked questions as if it was still 2021. They had put it on record publicly that there was a plan in place that showed that the first improvements would happen at the end of March 2023.
He said the fleet that Eskom had was the fleet that they could afford to have. There was nothing that would change that, and the trajectory that the country was following in opening transmission generation distribution was part of what the country was doing by allowing independent power producers (IPPs) to contribute because more megawatts must be added to the grid while Eskom continued to deal with load-shedding. It was not entirely up to Eskom to add new megawatts, as there were other opportunities to add new megawatts and citizens had a duty to contribute to saving energy through something as simple as using energy-saving lights.
He appealed to the Committee that as much as the dialogue was going on and was being followed by millions of South African citizens, about 40 000 people were working at Eskom to ensure that they kept the lights on for the country, so every time the comments came, they also affected their morale. He appealed to the Committee to try and change the narrative so that they, too, could feel inspired that the leaders of their country and Parliament appreciated the work that they were doing to make things better. He urged the Committee to change its vocabulary when talking about the matter, because it also demoralised the people it did not intend to.
He said the tariff was a statutory matter, as per the NERSA decision. The call by the President for Eskom not to raise the price of electricity, as he understood it, was for Eskom to look at whether there were other means at its disposal that it could employ to ease the burden on the majority of society. There were committees within Eskom looking at all those possibilities and what could be done to ensure that it could cushion the impact where it could. The reality was that Eskom had a statutory obligation to observe the legal decision that the regulatory authority had taken, so as soon as the mechanisms for easing the burden were found, Eskom would revert to its shareholder ministry and various role-players in the energy sector, including NECOM, to hopefully find ways of easing and cushioning against the burden on the majority of society.
Mr de Ruyter said the capacity planning for the new build was for the completion of Kusile. That would be Unit 6, and when it came into full operation -- which was scheduled for May 2024 -- it would add 700 megawatts. Eskom had a few smaller projects in the renewable energy space and a 2 000 megawatt natural gas-fired plant in Richards Bay. “Asking Eskom about the electricity supply situation was like asking Clover about the milk supply situation, because there were now many companies investing in electricity generation”, he said.
Eskom was already importing 300 megawatts from neighbouring countries, and was hoping to increase that to about 1.5 gigawatts. The rooftop server was also going to play an increasingly important role, and there were other initiatives as well that would allow for a feed-in tariff, which would allow consumers of electricity to turn into ‘pro-sumers’, meaning they would get a credit on their electricity bills for electricity that they produced. He said they needed to be careful that the move to rooftop servers did not exacerbate inequality, because it was a real risk that, ultimately, those who could afford it and have it installed were insulated from load-shedding while the poor were exposed to load-shedding, and that would not be a good outcome. Eskom needed to plan for this and clearly define its strategies around that.
He said they were also tapping into immediately available generation capacity, including paper mills, companies with heat plants and their own generation facilities, and the South African Property Owners Association, as they had an extensive network of shopping centre generators, rooftop solar panels, etc. Eskom was looking at how it could use that, as it could also amount to as much as 1.6 gigawatts. There were also existing IPPs with existing capacity because they had improved their plants over time, and that was where about 70 megawatts could be obtained.
In 2024, Eskom would see the return of Medupi Unit 4 and Kusile Unit 6 coming into commercial operation, which would be one and a half gigawatts. There would also be more private embedded generation which would amount to two gigawatts, and the renewables bid window five projects would also come online, which would be about 800 megawatts. The municipal procurement that the President announced in the 2020 State of the Nation Address (SONA2020), where municipalities in good financial standing would be able to procure electricity, would also happen in 2024. A few municipalities were already taking advantage of that opportunity, including Ekurhuleni, eThekwini and Cape Town.
In 2025, new projects under bid window five and bid window six would deliver another gigawatt, as Eskom was looking at pump storage to help cater for the lack of predictability or the self-dispatching nature of renewable energy. The 9 000 megawatts of projects he had referred to earlier in the meeting that was being pursued in response to the lifting of capped embedded generation, would start coming online in 2025. Eskom was also leasing land to developers to build renewable energy projects, and this would add about 2 000 megawatts.
Mr de Ruyter said several projects were being pursued by Eskom that would add to the new capacity. In total, they estimated that South Africa needed to invest around R1.2 trillion in the electricity industry over the next decade. Eskom did not have that money, and it was unlikely that the government would have it, so the country needed to figure out how it could enable investment to assist in that regard, which was why it was important to separate transmission legally. Given the age of the power stations, it was not possible to upgrade them.
There was a school of thought that said Eskom must stop burning coal at Komati, Grendel, Kendal and Grootvlei and replace the coal with gas, but unfortunately, the boilers were 50 to 60 years old, and the turbines and generators were also old. Combined cycle gas turbines would have to be installed to convert them into natural gas. It would also need to be considered that the plants were 1 600 metres above sea level, so there would be a 20% efficiency loss.
It made more sense to generate electricity from gas at sea level and transport the electrons through the transmission grid rather than transporting the gas molecules. The emphasis was to rather see how the existing power stations could be repurposed and repowered as they reached their end of life through the Just Energy Transition, to create a new alternative feature. The Komati project was a world-class benchmark for the Just Energy Transition. Indonesia had copied it, and they had secured $20 billion in financing because they were very nimble, agile, and committed in their decision-making.
The Komati project was 100 megawatts of EV (Solar) and 70 megawatts of wind. Eskom was reskilling and upskilling people working in the coal value chain to become workers in the renewable energy industry, where there were significant job opportunities. The estimates were that there would be 300 000 net new jobs created and if investment could be directed towards Mpumalanga, where the bulk of the negative impact would be of the station shutdowns, two things could be leveraged;
Because of the coal fire powered stations, there was an established transmission grid that was well-maintained and close to the market.
There were solar and wind resources, and attracting investment to Mpumalanga made enormous sense in leveraging the transmission grid and ensuring the creation of a new future for the people of Mpumalanga.
From a crime perspective, intelligence was not evidence, so evidence needed to be collected before one could be arrested. Eskom was collaborating with the South African Police Service (SAPS), and they had the support of the National Commissioner of Police and the organised crime syndicate leaders were receiving priority attention.
He said it was important to be able to distinguish between Eskom tariffs and municipal tariffs. Municipalities added a mark-up on top of the Eskom tariffs to compensate for the cost of distributing electricity, which was perfectly acceptable to Eskom. However, what happened in practice was that the mark-up, in some instances, was inflated beyond what was necessary. For example, the Nelson Mandela Bay municipality had a mark-up of about 18%, which was acceptable considering their costs, but when disaggregating the municipal tariffs, some municipalities charged the low consumption customers -- which were typically the poor households -- far higher tariffs than businesses, but Eskom could not do anything about it. Municipal tariffs also needed to be managed and controlled to ensure that they were fair and transparent, and that municipal wheeling frameworks were consistent across the country.
Regarding special pricing to large customers, some were contractual, and as they came up for renewal, Eskom ensured that they increased their tariffs significantly and that it had no loss-making customers. Bearing in mind that South Africa had used cheap electricity as a calling card during the period when there was excess generation capacity, there was a legacy of attracting large industries on the back of low-cost electricity. Over time, as the contracts were up for renewal, Eskom made the necessary adjustments and increased the prices.
The Chairperson said the call made by Eskom's chairperson about changing the narrative was well-received, but any change involved terms and conditions. One of the conditions was that for there to be a change of narrative, things must change at Eskom, because every single day in 2023, South Africans had been subjected to load-shedding. The employees of Eskom must not be demoralised but rather motivated to pull the institution out of the crisis. This meant that there must be a heightened reporting of bribery and corruption cases within the institution and a culture of discipline about work.
He said that according to the presentation, the projected EAF for 2025 was 70%, for 2024, it was 65% and for the current year, it was 59%, meaning that over the medium term expenditure framework (MTEF), it was expected to increase by five percent every year. If that was the rate, the world class performance of 86% would be reached around 2028.
He said the Committee would hear a briefing from the SIU after the load-shedding discussion, especially because Mr Paulsen had raised an issue about syndicates operating at Eskom. In October, the SIU pointed to three areas of organised crime or syndicates operating, including logistics. Kusile was built on a coal mine, yet 700 coal trucks were going into Kusile every day transporting coal. The SIU had also spoken about a running syndicate in the coal space in Eskom. Everything hinged on what the Eskom chairperson of the Audit and Risk Committee had said, which was consequence management at every level and every facet of Eskom, and that was where the change in the narrative would come from.
Ms A Beukes (ANC) said it was history that was being harsh against Eskom, as she noticed that during the presentation, there had been poor planning at the entity since 2007. She wanted to know what measures had been taken to address the problem of poor planning at Eskom since 2007, and whether the measures were reviewed and if they were effective. She wanted to know the life span of the temporary flues and the costs of repair if they were to fix them all at once. She was struggling to understand what was meant by 'design error,' because she understood design as the beginning of a process, so if designs were approved before a plant was put forward, why were problems discovered after the completion of the projects?
She said the AG had highlighted the need to build a culture that promoted appreciation and commitment to ethical behaviour and professionalism. This was the main thing to unpack regarding how it would impact the Eskom workers to take it upon themselves to showcase Eskom as their deployment of choice. She wanted to know how much time was spent on this recommendation in their consideration of the AG’s report, and commented that humanity and social care must be brought back to Eskom.
She said she was from the Northern Cape -- a province where they had the sun and land -- but they were not benefiting from the solar farms in the province, yet the Eskom chairman had said the Members also had to play their role. She asked how she was supposed to tell someone who could not afford to buy food because they were poor to buy an energy-saving light bulb. She said they were playing their part, but Eskom must assist them in playing their part. She asked Mr de Ruyter to explain why the lights were off, because if she did not understand as a Member of Parliament, she could not expect the ordinary people of her community to understand.
Mr Makwana said Ms Beukes must not underestimate the influence she had as a Member of Parliament, because she had the power to invite Eskom to her community and province to see how the entity could embark on public-private partnerships (PPPs) with the key players in the Northern Cape to help with the situation. Members should avoid letting their circumstances make them feel helpless. He agreed with her that Eskom had a duty to do its best to ensure that it delivered electricity to the people. The Board was driving Eskom to help South Africa to come out of the current circumstances as urgently as possible. The Board did not get to where it was overnight, and if it managed to achieve the things it had achieved within the 110 days since it started its work, it was certainly destined to achieve more.
He said as part of the training he had received on culture, he had learnt that culture eats strategy for lunch and one could have the best strategy and plans, but if the culture did not support the strategy, the plans would amount to nothing. He said the chairperson of the human capital committee could not make it to the meeting, but the chair of the social ethics committee was present. In the technical context of the work of the Board, they were constantly worried about the dysfunctional culture they had observed in the early days when the Board committee started engaging with the management team and the staff on the ground. He assured Ms Beukes that the Board was working hard to ensure they turned things around.
Mr Bheki Ntshalintshali, Eskom Board member and chairperson of the Social Ethics Committee, said they had adopted a motto that said the priceless asset in an organisation was the people. If the workers were not playing their roles and accepting their responsibilities, the organisation was not going to progress.
Mr de Ruyter said Eskom was in its current situation because, in the past, they had spent a lot of time talking about the future, and strongly advocated that time should be spent talking about how in the future they were going to plan proactively to avoid falling into the same situation again. He acknowledged the current problems that existed, but highlighted that they should not obscure the need for future planning.
Mr Jan Oberholzer, Chief Operating Officer, said that Eskom had decided to embark on temporary flue stacks because there were specialist companies that had gone to Kusile and said it was better that they clean and fix the existing stacks, rather than building new ones. The companies had concluded that the risk of a catastrophic failure was too high, so a decision was made two weeks ago to design and build three temporary smoke stacks. While the process was in progress, they would continue cleaning the existing ones. The assessment was that it would take between 10 and 12 months to build the temporary smoke stacks, so a decision was taken to proceed because of the 2 100 megawatts that would come online more quickly.
Regarding the design errors, he said back in 2007, when the contract was awarded for the boilers at Medupi and Kusile, it was awarded on a fleet strategy so all 12 boilers were awarded to the same company. At the time, it was alleged that some ‘creative tendering’ might have occurred, as the tender was awarded to Hitachi. There were some design defects in the boiler, as the boiler was 16 metres too short, which created a very high exhaust temperature and caused a lot of challenges. Eskom had done several modifications and achieved good success in taking the energy availability from 60% to around 80%.
Mr de Ruyter agreed with the AG’s remarks about Eskom being the employer of choice, and noted that this was the case historically and they needed to ensure that they restored it. Energy poverty constrained education and development, and a certain dignity came with having access to energy. Eskom had developed a technology called a Modular Micro Grid, which was a repurposed shipping container with solar panels, batteries and an inverter inside, which could be deployed to a site in two to three days and could provide electricity to 20 to 30 low-income households. Eskom would be manufacturing the Modular Micro Grids, as they had already commenced with the project at the Komati Power Station as part of their repurposing and repowering of power stations to become manufacturing hubs for addressing energy poverty. He said the modular containers were cheap and cost around R1.5 million each. He challenged corporate entities to start buying the Modular Micro Grids and deploying them to areas with low-cost housing in need of electricity. This could include schools and support for farmers with their irrigation systems and refrigerating. The technology was available, and Eskom would like an opportunity to collaborate with communities, especially in rural areas, as they were expensive to provide electricity to.
The Chairperson said the Committee would postpone Eskom’s presentation on the update on the Committee’s recommendations because of time, and would hear an update from the SIU instead.
Ms M Lubengo (ANC) said the CEO’s presentation had indicated that a duct bend had collapsed due to system weight. This meant there was no monitoring on the duct bend, and she asked Eskom to elaborate on why there was no monitoring and evaluation.
Mr Oberholzer said Ms Lubengo was spot on, because there had been insufficient oversight, monitoring and control in running the FGD plant, and they had asked for a thorough investigation on the matter. The difference between Medupi and Kusile was that Kusile was the only power station where Eskom implemented the FGD plant. The plan now was to bypass the FGD plant, where they would build the stacks and then take the flue gas as it came out of the boilers while at the same time cleaning the existing stack and utilising the time to fix the FGD plant and taking the employees through extensive training and development on how to run the FGD plant when it was ready to be commissioned again.
Mr Hadebe asked if there were no indicators of possible failures in Eskom’s system.
Mr Oberholzer said the investigation would pinpoint exactly where things went wrong, but it was definitely a combination of two issues -- the design, and the personnel being unskilled or trained to operate the system.
The Chairperson said this was similar to what had happened with the explosion at Medupi Unit 4.
SIU presentation on Eskom investigations
Adv Andy Mothibi, SIU Head, presented an update on their Eskom investigations. He said their investigations in the entity were focused mostly on the procurement of coal, the transportation of coal, the procurement of diesel, the appointment and payments to McKinsey, Trillian and Regiments, maladministration in the affairs of Eskom, as well as conflicts of interests involving Eskom employees.
He said the SIU had received new allegations, many of which fell outside the existing SIU Eskom Proclamations. As a result of the seriousness of the allegations, a motivation has been submitted to the Department of Justice (DoJ) to extend the scope of the SIU’s mandate in terms of both time and focus areas. He then provided a brief update on the status of the investigations, specifically on the conflict of interest, lifestyle audits that were conducted, coal supply agreements, diesel procurement, and build projects.
On the conflicts of interest, he said in some instances, Eskom officials approached complete strangers to set up sub-contractors and bank accounts to channel funds to officials. These links could be identified only from a review of bank accounts, email communications, cell phone records etc. What further complicated the identification of conflicts was that Eskom vendors often paid kickbacks to officials indirectly, such as by paying the creditors of the official directly (e.g. by paying the official’s child’s school fees or by paying the official’s service providers/suppliers directly). This allowed the Eskom employees to utilise funds held in the bank accounts of the Eskom service providers with very little chance of being exposed.
On coal procurement and transportation, he said to circumvent controls regulating coal transportation pricing, Eskom officials colluded with mines by entering into coal supply agreements (CSAs) where coal prices were inflated to accommodate transportation costs. Transportation contracts were then entered into between the mine and transporters linked to Eskom officials. Due to the fact that the transportation contract was between the mine and the transporter, the pricing was not visible to Eskom. Often such coal was procured from mines far away from the relevant power station instead of from mines producing coal at the required quality close to the power station, to increase transportation costs.
Mines and Eskom officials colluded with transporters and/or truck drivers to mix poor quality coal from certain mines with good quality coal from other mines – thereby ensuring that the contractually required quantities were delivered to the relevant power stations. Due to the fact that coal quality was often not tested once it was delivered to the power station, it was impossible to identify the source of sub-standard coal.
Eskom could mitigate the risk of this happening only by installing automated real-time combustion testing facilities that were able to link test results to a specific truck, and therefore the source, as soon as the coal arrived at the power stations, and before offloading. This would ensure that sub-standard coal could be linked and returned to the mine of origin, while Eskom would not be liable to pay for the coal, nor incur damage to its equipment due to the overly abrasiveness of the bad coal.
Some of the recommendations made by the SIU included that Eskom should consider implementing contractual terms that:
Allowed for access to the personal information of the employee, such as bank accounts of the employee (and his/her spouse & children), emails and cellular phone communications;
Allowed for voice stress analyses and lie detector tests to be conducted routinely;
Monitored the lifestyles and financial transactions of high risk officials;
Monitored declarations of interest;
Managed information obtained through declarations of interest (DOIs) by both officials and bidders – e.g. if an official declared his interest in a business, ensure that such business do not appear on Eskom’s vendor database and if they do, remove them.
Built a database of high risk officials/contractors identified in forensic and audit reports/bid documents etc.
The Chairperson said he would not take questions on the presentation by the SIU, because some of the issues that were presented were follow-up reports and updates from the previous meeting, and the recommendations and observations that were made were largely the same. They fundamentally highlighted the observations made by the Committee that a key component of turning Eskom around was a concerted effort to ensure that investigations ran their full course and arrived at their logical conclusion. He noted the presentation and the submission made by the SIU, and added that at the next meeting with the SIU, the Committee would start the deliberations with the SIU on the matters raised and take it from there.
Mr Somyo said the SIU had referred to one important element of ethical conduct driven through matters of transparency, including exemplary leadership. It was in the same venue about a month ago when the Committee met with the leadership of the State Security Agency (SSA). A reference was made regarding several of Eskom manager’s failure to submit documentation for vetting, and the Eskom CEO was listed among those people. He asked if the Committee could receive that confirmation or rebuttal from Eskom before the meeting was adjourned.
Mr Hadebe asked for clarity on the cases of conflict of interest. It was highlighted in the presentation that 120 cases were finalised and 71 people were found guilty, but there was no mention of the exact sanctions imposed on those who were found guilty. He asked for details on the sanctions that were handed to those people.
The Chairperson updated the Eskom Board chairperson on what had happened during the meeting with the SSA on vetting.
Mr de Ruyter said that based on what was reported in the media -- as Eskom was not represented in the SCOPA meeting with the SSA -- the statement made by Deputy Minister Zizi Kodwa was that the SSA had requested information from him in June 2022. Eskom had gone back into its records and could not find any trace of that request. The first time he had received a request to complete form Z204, a vetting form, was at the end of October 2022, so Eskom had a different version of the event based on the documents submitted to them.
He added that the vetting was now moot, given his resignation, because vetting him now would not serve much purpose. He found it strange that vetting him became urgent only recently when he had been on the job for almost three years, and added that perhaps this would be a lesson to be learnt by the people involved in the process -- that new incumbents should be vetted prior their appointment rather than more than halfway through their contract tenure.
Mr Hadebe said the request had been made in October, the meeting with the SSA was in December, and the Committee had been told that the SSA was still awaiting the documents from the CEO as he had not responded to the request. Upon receiving the request in October, had the CEO complied with the request, because, at the time, he was fully in charge of Eskom and had no intention to resign? What happened from October until December?
Mr de Ruyter said the Z204 document was quite onerous and required the disclosure of substantial amounts of information. He was in the process of collating the information when the decision to resign was made, so completing the form became moot.
The Chairperson said the response was understood and noted. The SSA had submitted its side of the story and the CEO had submitted his side, so the next step was for the Committee to await the report that was due to it and make a determination. He said the process was not moot to the Committee, because it took them back to an issue that they had persistently raised about vetting at Eskom. It meant that there was a systematic shortcoming that allowed the vetting process to be open-ended.
Mr Somyo said having met the SSA ministry and Eskom had broadened his understanding of the situation and the SSA’s attitude regarding the vetting process.
The Chairperson said that would be included in the correspondence that would be sent to the SSA.
He said there was an issue that had been raised that Tutuka was at an EAF of 15% to 17%, but he underscored the issue that a manager was working in a bulletproof vest with bodyguards on site and around his family, which spoke to the level of criminality that existed in that space. He would request Adv Mothibi in writing that the Anti-Corruption Task Team prioritise investigations around Tutuka urgently, because it would be a dereliction of duty to allow the level of criminality to continue.
He said the Committee had heard the Eskom chairperson -- the situation was urgent and dire, and required re-doubled efforts to take the country out of the quagmire of load-shedding.
Eskom chairperson’s concluding remarks
Mr Makwana thanked the Committee for the invitation and the quality of the engagement in the meeting. He re-emphasised that Eskom took its accountability seriously and would always avail itself when they were called upon to do so. He said as a Board, they would ensure in every way that they facilitated the enhancement of the quality of accountability, which was the reason they ensured that the chairs of the committees also availed themselves at the meetings. Unfortunately, some of them could not make it to the meeting on the day.
Chairperson’s concluding remarks
The Chairperson said he had received a letter from the Minister of Employment and Labour advising the Committee that Mr Victor Mafata, the Commissioner of the Compensation Fund, had resigned and there was now an Acting Commissioner, Ms Farzana Fakir.
He thanked the chairperson of Eskom and the Board members, as well as the management team, and the Head of the SIU and his delegation, for availing themselves for the meeting. He wished the outgoing Eskom CEO, Mr de Ruyter, all the best for his future endeavours.
The meeting was adjourned.
Hlengwa, Mr M
Beukes, Ms AJ
Hadebe, Mr BM
Lubengo, Ms ML
Paulsen, Mr N M
Somyo, Mr SS
Van Minnen, Ms BM
Zibula, Ms BT
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.