Minerals & Energy Portfolio Committee; Public Enterprises Portfolio Committee & Labour & Public Enterprises Select Committee Joi

MINERALS AND ENERGY PORTFOLIO COMMITTEE; PUBLIC ENTERPRISES PORTFOLIO COMMITTEE & LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE JOINT MEETING
24 October 2006
ESKOM FINANCIAL STATEMENTS AND ANNUAL REPORT 2005/06

Co-Chairpersons: Ms P Themba (ANC), Mr P Hendrickse (ANC) and Mr N Mthethwa (ANC)

Documents handed out:
Eskom PowerPoint presentation: 2006 results
Eskom Annual Report (available at www.eskom.co.za )

SUMMARY
Eskom stated that its company was in a strong position and able to increase capacity to ensure that future development took place. It was a predominantly coal driven energy system. It should begin to diversify its energy mix. Keeping the price of electricity down was one advantage that it had. It was the lowest cost producer in the world in terms of a survey done by a UK firm and released in April 2006. There was a 30% gap between Eskom and Australia which was the second lowest cost producer. More investment in infrastructure and capacity would lead to pressure to increase prices. The profit made during the year under review was R4, 6 billion down from R5, 4 billion in the previous year. The cash generated from operations was R12 billion and capital expenditure amounted to R10 billion. Electricity sales were lower than last year due to a somewhat warmer than average winter. The average selling price of electricity was 17, 05 cents per kilowatt up from last year's 16, 04 cents per kilowatt. However, the average total cost went down from 14, 25 to 13, 99 cents per kilowatt.

The CEO said he was highly disturbed by recent reports that had suggested he had turned a blind eye to any misdeeds that had happened within the company. He assured the Committee of the company's commitment to maintaining the highest level of governance and transparency. There were 15 000 active suppliers and over 8 600 running projects or contracts. A total of ten cases of fraud had been uncovered and reported to the police this year. There were seven incidents of corruption. The number of reported and investigated matters handed to the police was higher than in previous years. It was incorrect to suggest that Eskom had turned a blind eye to corruption. He could not respond substantively about the allegations dealt with in the press because the matter was before the police.

Eskom would like to encourage people to report malpractices but the difficulty with anonymous allegations was that one did not have a person to refer back to in order to get more information. It had instituted disciplinary action following a KPMG report and three managers had been suspended. A manager who was responsible for the relevant unit had tendered resignation earlier in the year. The matter was also reported to the police in September for further investigation. It was also looking at civil litigation to recover what could have been lost. An amount of less than R20 million should be recovered.

Eskom had experienced a number of challenges this past year that included:
- The disruption of power supplies in the Cape region. The power supply had since been addressed and no power failures had been experienced since 27 July.
- Safety had become a challenge as Eskom increased the number of contractors in response to the need for more capacity. Such incidents involving contractors were becoming higher than one would expect.
- Planned major refurbishment of existing infrastructure. Most of the plants were in the middle of their design life and at a point where major refurbishment was required. This might necessitate putting systems off operation in order to undertake the refurbishment.
- Capacity expansion programme. Eskom had R97 billion of capital expenditure to undertake in the next five years.
- The slow progress in the EDI restructuring impacted on the retail end of the value chain.
- Enhancing procurement processes. There were many challenges given the sheer volume of work that had to be done.
- Land and servitude acquisition remained a major challenge. Transmission lines had to traverse people's land and it was not easy to get people to agree to give servitudes to Eskom.

MINUTES
Mr Thulani Gcabashe (Chief Executive Officer), Mr Bongani Nqwababa (Finance Director), Mr EN Matya (Managing Director: Generation Division), Mr I du Plessis and Mr F Zulu attended the meeting. Mr Gcabashe made the presentation. (See document attached). He said that the Chairperson of the Board could not attend the meeting due to the Eid celebrations. He said that he would take the Committee through the annual results and address allegations of fraud that had been circulating in the media. Eskom was bold enough to title the presentation " A strong platform for growth" because it believed that the company was in a strong position and able to increase capacity to ensure that future development took place.

He said that Eskom was a predominantly coal driven energy system. It should begin to diversify its energy mix. Keeping the price electricity was one advantage that Eskom had. It was the lowest cost producer in the world in terms of a survey done by a UK firm and released in April 2006. There was a 30% gap between Eskom and Australia which was the second lowest cost produce. More investment in infrastructure and capacity would lead to pressure to increase prices. Eskom could manage this in way that it could still remain the lowest cost producer.

Mr Gcabashe said that in comparing the 2005/06 financial results and the previous financial year results, one was comparing a 12 months year to what was a 15 months year. Eskom's shareholder had requested that the financial year should be aligned with that of the government. This meant that Eskom had to have a 15 months year in order to catch up with the government's cycle. The profit made during the year under review was R4, 6 billion down from R5, 4 billion in the previous year. The cash generated from operations was R12 billion and capital expenditure amounted to R10 billion. Electricity sale was lower than last year due to a somewhat warmer than average winter. A lot of commodity producers had taken outages in order to deal with a very long production cycle in response to very good commodity prices. The average selling price of electricity was 17, 05 cents per kilowatt up from last year's 16, 04 cents per kilowatt. However, the average total cost went down from 14, 25 to 13, 99 cents per kilowatt. The return on assets had dropped and the debt equity was still very healthy.

He said that he was highly disturbed by recent reports that had suggested he had turned a blind eye to any misdeeds that had happened within the company. He assured the Committee of the company's commitment to maintaining the highest level of governance and transparency. There was a need to imbue in the staff the integrity and recognition that it was extremely important to carry out duties without being hindered by other interests. Eskom had proactive measures to deal with malpractice that included ethics training at orientation or when contracts were renewed. There were means to respond whenever crimes or any irregularities had been detected. There was a hotline on which anonymous allegations were received. There was also a forensic investigations website wherein anyone could place his or her complaints. There was also a confidential fax through which issues could be sent in writing. Eskom had always tried its best to guarantee the confidentiality of people who had brought its attention to certain issues.

Mr Gcabashe said that there was a forensic investigation team that was always ready to follow on allegations submitted to the company. An internal department did the actual investigations but there was also a panel of external service providers. Eskom preferred to use outsiders in cases that involved complicated issues. It also reported sensitive investigations to the Commercial Crime Unit once evidence had been gathered. The management involved in the area would normally be requested to give a mandate around the scope of the investigations. A report was then given to the relevant management after which there could be corrective action, civil litigation to recover losses or referral to the South African Police Services.

He said that Eskom was a large organisation with over 31 000 employees. The operating budget was just over R21 billion and the capital budget was R16 billion. Eskom collected revenue of around R38 billion. There were 15 000 active suppliers and over and over 8 600 running projects or contracts. A total of 10 cases of fraud had been uncovered and reported to the police this year. There were seven incidents of corruption. The system described above in relation to dealing with allegations was working. The number of reported and investigated matters handed to the police was higher than in previous years. It was incorrect to suggest that Eskom had turned a blind eye to corruption. He could not deal with any substantive issues in relation to the allegations dealt with in the press because the matter was before the police.

There were anonymous allegations that he had received in 2003. Eskom would like to encourage people to report matters but the difficulty with anonymous allegations was that one did not have a person to refer back to in order to get more information. Issues that were referred to him were investigated and there was a report on them which uncovered no fraud. Some corrective measures were proposed and carried through. It was only late in 2005 that two individuals were prepared to come forward and work with investigators. KMPG was then instructed to carry out some investigations with a view to conclude the matter. KPMG finished its report in June 2006. There were allegations that Eskom was sitting on the report. Eskom had instituted disciplinary action following the report and three managers were suspended. A manager who was responsible for the relevant unit had tendered resignation earlier in the year. The matter was also reported to the police in September for further investigation with a view to institute criminal proceedings. Eskom was also looking at civil litigation to recover what could have been lost. An amount of less than R20 million should be recovered.

Discussion
Ms D Ntwanambi (ANC)[Western Cape] noted that South Africa did not have big rivers and some rivers dried up in winter. There were big dams that could be used for hydropower. The Eastern Cape province had a big dam in Lady Frere that never got dry all year round. She also asked why 12 years into democracy there were still farmers who lived far from the roads and had electricity whilst people close to electricity poles did not have electricity. She noted that the Atlantis gas turbine would be operational by next year. She asked how far was the Darling Wind farm project that was not far from Atlantis. Would it assist in ensuring that the recent power cut experienced in the Western Cape did not occur in future? She also asked for a progress report on the Kudu gas project.

Mr Gcabashe replied that Eskom had been negotiating with NamPower for a power purchase agreement whereby Eskom would purchase a minimum of 60% of the output of the plant. The project had been delayed because of negotiations between the company that owned the gas field and the utility on the Namibian side that would acquire the gas and sell it to NamPower. The issues were around price and indexation to the dollar. He was not part of the negotiations and therefore did not have much information. NamPower would not be able to conclude an agreement with Eskom until such time that an agreement had been secured.

With regard to hydro plants, the issue was that the dams had to be designed for power generation right from the start. He suspected that the dams that Ms Ntwanambi was referring to were built for agricultural purposes and therefore not fitted with the ability to generate power. One would also need to know how steady were the flows into the dams. He suspected that the dams were inherently not designed for power generations and could not be easily converted. There was potential for mini hydros. An example of this could be found in the former Transkei where there was about six stations in various places where the geological conditions allowed for hydro generation. The potential existed in small quantities. The current policy was to encourage the development of mini hydros.

Mr du Plessis replied that the provision of electricity to communities was done within defined programmes. Eskom received money from the Department of Minerals and Energy (DME) and allocated it to specific towns through a structured process. The money was aligned with the integrated development plans of the towns. Historically, the issues of lines that went to farms followed a very different process whereby farming schemes were developed and the costs to electrify the farms were shared by people participating in the scheme. The schemes were still available but had a different cost structure. The contribution differed from contribution expected in electrification projects. It was an unsubsidised supply to the individual.

Mr Gcabashe replied that Eskom linked generation plants to the grid whenever they were built. Eskom was not undertaking the Darling wind farm project. There would be no problems should the people running it wish to link it to the grid. He suspected that there would no direct link between the two other than that both were sources of power in the same general vicinity or point in the national grid. It would make contribution even though the two would not necessarily be linked to each other. He could not comment on its progress because it was being run by a different entity.

Mr J Stephens (DA) said that it was easy to congratulate Eskom. He was proud of Eskom because it was a great SA institution. It was part of proof that one could have a state owned enterprise (SOE) that was efficient and cost effective. It could price-in the social costs of service without passing them on to consumers. He wondered why the company had average cost going down and average charges going up. What was the basis of increasing charges if they were not cost driven? With regard to allegations made in the media, he asked where the R129 million figure came from. It was very difficult to have a corporation of Eskom's size and have no fraud or theft. It sounded like Eskom had efficient systems in place but one was perturbed that R20 million could be lost before the company could figure it out. It was poor people's money that was being lost. He asked if there were any plans to jerk the system up given that R20 million had slept through.

Mr Gcabashe replied that he had not been able to establish the origin of the R129 million. The nature of the report was in fact untested evidence. One had to look further and this was where the criminal investigation came into picture. There was a need to establish what portion of the amount was related to fraud or corrupt activities and which expenditure amounted to a transgression of process even if there was no loss. The focus had been on recovering what Eskom thought had been lost. Mr Stephens had raised a very valid question on how could R20 million be lost without detection. The answer was that one could get to a quantum such as that when dealing with multiple contracts. Such fraud could go on for a number of years without detection depending on the nature white collar crime involved. Eskom was unhappy that it had happened and had instituted far closer checks on contracts. The entire division had been restructured and new managers were being recruited.

Mr Y Wang (ANC) said that the annual report stated that there was a 0,8% sales volume growth. It also stated that the 0, 8% growth was actually for the 2004/05 comparison. He asked why this was stated in the 2006 report. The company credit rating had improved and this was good. He noted that an amount of R543 million was spent on training employees and asked what percentage this was of the total budget. An amount of R2 million was contributed for the HIV/AIDS support but the target was R17 million. He asked what had happened to the R15 million difference. There was a R15 million expenditure on the South African Aids Vaccine Initiative and the spending would continue until 2007. He asked what would happen after 2007.

Mr Gcabashe replied that the amount of R15 million was advanced in the previous financial year. It was clear that there would be no approved vaccine by 2007. Eskom had supported the project since about 2001 and had made its commitment in a way that gave an opportunity to review the work that had been done by the team under the Medical Research Council. Eskom was not leading the research but merely participating. It was felt that the most prudent thing to do was to commit the company for three years at a time and then review progress as time went on. Eskom had to be convinced that the money was being utilised properly and was contributing towards a final solution in terms of the vaccine. A review would be done when doing the budget for 2007/08 and the company might commit further should the Executive Committee and the Board decide to do so. There was no intention to just walk away because the project was for a very good cause.

Ms N Mathibela (ANC) asked how many or what percentage of bursary holders were successful in finding employment within Eskom. She also asked if there had been any success with the revised safety strategy and if there were measure to deal with staff members or contractors who displayed dangerous behaviour.

Mr Gcabashe replied that it was difficult to say if the strategy was successful given the number of incidents that had occurred. The fact that the numbers had gone down was no comfort at all because such incidents were not supposed to occur in the first place. Eskom was bolstering the strategy through lessons it could learn from other companies that have had better luck. A full investigation was undertaken whenever there had been a safety incident, especially a fatality. The investigation was done at the level of an operation committee and the matter was also discussed by the Executive Committee. The Chief Safety Officer also visited the site in which the incident had taken place and had sessions with the team involved in order to find out what had gone wrong. Disciplinary proceedings were instituted in cases where it was clear that the incident was caused by an act or omission of an individual. Some people had been dismissed as a result of their unsafe behaviour.

On the issue of bursary holders, an official from the Department replied that a very small percentage were failing or defaulting. Eskom would endeavour to employ all of them.

Mr D Gamede (ANC)[KwaZulu-Natal] asked whether the slogan "A strong platform for growth" applied to infrastructure, the bottom line of the balance sheet or job creation. The CEO had admitted that the connections were down and access to free electricity seemed to be over 90%. He asked how to reconcile the two. Were there any disconnections? Connections to schools and clinics were also down. He asked what informed the downward trend.

Mr Gcabashe replied that the Eskom was saying that there had been steady growth in the economy for the last ten years. The focus was now on sustaining it at 6%. Eskom was concerned that the growth had not been equally shared. The company should, in spending its money, broaden the participation in its system. The slogan was focussed on believing that the company had the means to contribute meaningfully to sustainable growth. The issues of the electrification connections being down while free basic electricity was at 90% were slightly unrelated. The connections were about new customers who had come into the system. The capital for this was provided through DME. Eskom and municipalities received money from the Department to connect the customers. It was correct that connections were down by 50% but this was very much based on how much was available. With regard to free basic electricity in Eskom's areas of supply, Eskom had to enter into agreement with municipalities in terms of which Eskom would provide services and recover the money from municipalities. It was in this context that he had said agreement with municipalities was up to 90%. Eskom could not give free electricity to communities without agreements with municipalities in place.

Mr du Plessis reminded the Committee that the electrification programme was about prepaid customers. The disconnections that were normally associated with non-payment of bills did not come into the picture. He did not have the specific number of disconnections but such would be limited to customers who were billed for consumption and paid afterwards. Eskom would also disconnect people in case where they had bypassed the meter. A reconnection fee had to be paid before the household could be reconnected. Eskom had received funds for the connection of schools and clinics from the Department of Education and the Independent Electoral Commission because it was an election year.

Mr Nqwababa replied that Eskom was regulated by the National Electricity Regulator of SA (NERSA). NERSA looked on the cost base and capital invested in the business. The Prices were going up because the primary energy cost had been going up. The key challenge was containing the price of coal. Another element that was pushing the prices up was the high capital expenditure. There was a need to get a return on the expenditure.

Mr P Hendrickse (ANC) complimented Eskom for a good credit rating. He asked how the construction of a railway line fitted with the core functions of the company. The Committee had received and accepted the apology from the Chairperson of the Board. It was unfortunate that this was a third Board Chairperson who had failed to appear before the Public Enterprises Portfolio Committee. Boards were accountable to Parliament in terms of the Public Finance Management Act. The CEO should ensure that the Board knew of the meetings of the Committee. The Board had an important function or role to play.

He noted that there were two board members that he did not know. Mr W Lucas-Bull and Mr M Makwana had missed five out of their eight meetings. Mr Makwana had missed six of the seven meetings of the audit Committee. He wondered if there was anything done about the poor attendance of meetings. Those people were appointed to the board for very good reasons. They were not serving as a favour to the country because they were paid a salary. Ms U Nene had missed three of the five. Mr M Bello had missed all of the meetings. It did not seem that board members were discharging their duties as expected. The report indicated that non-executive directors received a honorarium and a fee for their contribution to the board and committees on which they served. Some people were paid R185 000. He asked if this was a honorarium or a fee per meeting. How did Eskom determine the remuneration? The report also indicated that a conflict of interest policy and procedure to manage declarations was under development. How asked far the process was and if any member of the board had business dealings with Eskom.

Mr Gcabashe replied that the construction of a railway line was clearly not a core function of Eskom. The issues that confronted Eskom made it necessary for the company to take action. The issue of damage to roads was quite a serious and costly matter. Eskom had engaged with Transnet and looked at the best way of funding the expenditure. It was agreed that it would be better if Eskom funded the project and Transnet operated it. Eskom was not getting into the railway business but merely funding it. Eskom was also looking at a very comprehensive railway network to support stations where it knew that they might run out of coal before their lives and stations that might need an augmentation of coals. Eskom would again sit down with Transnet and decide how to go about it.

He said that he would ensure that there was a substitute in cases where the Chairperson of the Board was not able to appear before the Committee. The issue of attendance of board meetings was related to the fact that some board members were appointed during the year and some of the meetings had taken place before their appointment. One could also find that people who had been appointed in the middle of the year had already committed themselves to other issues and this made it impossible to attend the meetings. He would raise the issue with the Chairperson of the Board because he had close a very close interactive management style with the board. The Chairperson of the Board sometimes conducted one on one meetings with the members of the board.

Mr Gcabashe said that the company had a register of interest that had to be updated every board meeting. He could not say if board members had interest in Eskom but he did not think so. Members were paid a retainer on monthly basis and an attendance fee on top of this. People who did not attend meetings did not get the attendance fee but only get the monthly retainer.

Mr C Kekana said that he could understand the CEO's explanation about the alleged criminal offence. He said that there was a public meeting in Soweto where he was invited to address the public. The meeting was scheduled to start at 14: 00 and the Sunday Times newspapers had publicised it in the morning. The Councillors had seen the allegations and knew that they could not explain them. Some parts of the country had experienced power outages and people could raise their concerns about this with anger. They would be tempted to think that the power blackouts were happening because people were misappropriating money. It was difficult for a person who had simply read about the allegations in a newspaper to explain what was happening. The press would always sensationalise issues. The Committee should be informed about cases that had been refereed to the police especially when it was clear that they could be reported in the media.

Mr Gcabashe replied that the company would act on the suggestion made about informing the Committee about issues that might appear in the press. However, it would not always be feasible to inform the Committee because the company would not always have an idea about issue on which the press might report. The report was not made public mainly because the company did not want to interfere with the investigation.

A member of the Committee referred to the power disruptions experienced in the Western Cape. She asked if there had been any claims and how much had been claimed in relation to damage to electrical appliances following the power outages. She also asked if the HIV/AIDS support offered by the company came as a package that included nutrition. There were people who stole power from houses as opposed to street lights. She asked how quickly this was traced and if there were means to such acts from occurring.

Mr Gcabashe replied that he did not have the latest figure on how much was received in terms of claims. His recollection was that the amount was less than R2 million. On the issue of HIV/AIDS, he said that Eskom offered a comprehensive package. It would ensure that the medical aid scheme that were available to employees provided the ability for comprehensive care to be given to people who were suffering from HIV/AIDS. This would include the prescription of ARVs. Sometimes the allowances within the medical schemes could not sustain the patients throughout the year. There were interventions to augment the schemes in cases where members run short. Eskom ensured that ARVs were available throughout the year.

A member of the Committee focussed on Black Economic Empowerment (BEE) and women at managerial level and was not impressed with the ratio. Women constituted 52% of the population of the country but only 31% were represented. There was an amount of R11 million of discretionary expenditure to small and medium BEE enterprises. He asked if there was some monitoring team that ensured that the money reached disadvantaged communities. The Committee was in Camden towards the end of July and the management there had failed to respond to questions about BEE. They simply spoke about contractors instead of BEE.

Mr Gcabashe replied that representivity seemed rather low. But looking at the percentage of women in employment and looking at other State owned enterprises, one would be hard pressed to come up with 31%. Eskom had moved rapidly from an average of 12% ten years ago. It had worked extensively to ensure that women were trained and given opportunities. One of the initiatives was the CEOs women programme in terms of which women who had a Bachelor of Science degrees were recruited, trained and given the necessary exposure to enable them to take up managerial positions within the company. Most of the recruits had remained within the company and were beginning to occupy positions of responsibility. He accepted the challenge to do more.

He said that Eskom looked at how it could empower people who were operational as contractors. The intention was to encourage and grow the capacity of small and medium enterprises that had technical capacity. They were matched with original equipment manufacturers so that there could be a transfer of skills. This would enable them to become the main contractors in due course. The projects did not offer big equity participation in the way a normal BEE deal would be understood. It was correct that the contract work was not producing big BEE deals but it was playing a fundamental role in building capacity at the medium enterprise level. The project management in Grootvlei project was done by a joint venture between a US based firm and a local based firm. The local firm might in future be able to tender on its own this was real empowerment.

Mr H Schmidt (DA) said that issues had already been raised about the number of connections. He was not sure how to address the problem because it appeared as if Eskom was waiting for finances. He asked if finance was the only concern. Were there no any other logistical or skills concerns that would hamper service delivery? He also asked how many households, schools and hospitals still needed to be connected in terms of percentage and number. People had not yet forgotten the power outages that took place in the Western Cape. He noted that a gas turbine had been commissioned. It was envisaged that the gas turbine would be commercial by 2007. He asked what would be the percentage of excess capacity that would be in place by next year winter. Winter 2007 would be crunch time again.

He said that he had interacted with people regarding with roads in Mpumalanga. The roads were being rebuilt from the scratch because of the trucks that were using it. The roads were not built for the capacity that they were carrying now. He asked by when the Majuba railway line would be operation. He felt that the roads that were being rebuilt would not last for long given the amount of load that they were carrying. He asked why the report about corruption or malpractice was not made available to the public and if anyone had appeared in court for fraud, corruption or contravention of policy. The report was received in September and it was now October.

Mr Matya replied that the company had been dealing with the road situation for some time by facilitating the moving of resources to the area. It had engaged all spheres of government to try and see if funds could be accelerated. The direction from government was that this was not Eskom's area of responsibility and therefore Eskom could not spend money on roads. However, it could assist in project management. The issue was again raised and it was agreed that Eskom could participate in funding. A huge amount of money would be required to fix the roads.

Mr Gcabashe replied that it was important to note how power was supplied to the Western Cape. The real crisis was created by the shortage of units at the Koeberg station. There were only two units and one had broken down. Eskom was immediately on contingency because it was going to take sometime before the unit was fixed. Any other incidents on the network that head led to power shortages had all been fixed. There had since been no technical issues arising from Koeberg since July when all units were running. There was a need to reinforce or increase the capacity of the transmission lines that supplied power to Western Cape so that there could be more safety buffer in case one unit went down. There would be a high voltage line that would carry substantial amount of power to the Western Cape. The building of the gas turbines would cater for morning and evening peak periods, particularly in winter.

Eskom was confident that there would be reliable supply with the gas turbines and the high voltage line being in place. However, there was a need to build another base load station in the Western Cape in the medium term. The choices were limited to a combined-cycle gas turbine or a nuclear plant because there was no coal available in the province. There were specific research, enquiries and feasibility studies that were being done for the technologies. There would be enough power due to the new peak plants. The risk remained in cases of breakdowns because of the absence of other big stations.

He said that Eskom had an interest in successful criminal proceedings and recovering what could have been lost. Publicising the report would not have served the desired purpose. Nobody had yet appeared in court and this was a function of the police. There was a need to verify the information before people could be charged.

Mr du Plessis replied that Eskom was working closely with DME in understanding the work that had to be done to get to universal access. They were putting plans in place to achieve universal access. It was estimated that at least 4 million houses still had to be electrified and 2, 5 million of them were under Eskom areas of supply. Approximately 9 000 to 10 000 schools still had to be electrified. Looking at the current rate of electrification, one could see that it fell short of what had to be done per annum to get to universal access by 2012. The main constraint was the availability of funding. Skills shortage was not a challenge.

Mr Gcabashe added that the risk was that Eskom would not be able to retain the skills should it not get the funds. There was a far bigger challenge in terms of the bigger projects. It was important to resolve the matter very soon so that the company could utilise its capacity.

Mr E Lucas (IFP) said that it was important for Eskom to train its own people. Nuclear waste was a major concern. Some people had said that there was no problem and that they simply buried the waste. Eskom should assist with solar systems. There was a need to look at alternatives. There seemed to be a slow down in terms of the electrification of rural areas. He asked if the Kudu gas was sufficient to supply the turbines and if the turbines would also be dependent on other sources. It would be pointless to have the turbines if there would be no fuel to use for them. Eskom was a flagship and had done well but there seemed to be negative reports after the power outages.

Mr Matya replied that what was done in relation to the management of nuclear waste was done internationally. There were no established underground final repositories of waste. Most countries were doing research on this. Eskom was also doing this and the process was driven by DME. The Koeberg station was designed in a way that one could generate and keep the waste in the station until such time it was decommissioned.

Mr Gcabashe replied that there were no proven reserves to indicate that there would be sufficient long term generation from the gas but explorations were taking place in the west coast. The Ibhubezi field held some promise. The open cycle turbine would be driven on liquid fuel but one would want to convert to combined-cycle gas turbines. One could only hope that gas reserves would be found. One would have to source liquefied gas from somewhere that would be transported in tankers, re-gassified and burnt in the stations.

He said that it was very difficult to say how much the company had contributed in terms of skills development. It had always reported on how many bursaries it had awarded and how many graduates had come through. He believed that the company had made a significant contribution. With regard to the negative reports in the press, he said that the media had an important role to play in a democracy. The issue was the angle that journalists wanted to take. He had no suspicions or conspiracy theories about the negative publicity.

On the issue of solar system he said that Eskom had a joint venture with Shell. The system was implemented on a pre-paid basis. The intention was to try and create a sustainable business. The venture was not successful. There were problems of non-payment, theft and vandalism of units. The venture had since folded. The biggest impact that one could have with regard to solar system was related to implementation of solar water heating. This was being piloted in the Western Cape. Water heating took lot of power and it would be effective if there was a move to solar. Eskom wanted to pilot a large-scale solar generator that would be located in the Northern Cape. It was looking at a system that could generate as much as 100 megawatts

Mr C Gololo (ANC) appreciated the clarification given around the allegations of fraud. He asked for a progress report on environmental impact assessment in relation to the Pebble Bed Modular Reactor (PBMR). It seemed that Eskom was about to swallow Arrivia.kom. He asked what was meant by discretionary expenditure on BEE and who were the main beneficiaries of the expenditure.

Mr Matya replied that there was a court case in relation to PBMR and Eskom was waiting for the decision before it could start the process of launching the demonstration model.

Mr Gcabashe replied that the company bought back its shares from Denel because Denel wanted to exit the investment and this gave it majority ownership. The future of Arriva was a matter of current discussion. Eskom was not seeking to become an operator of an information and technology company.

Mr Nqwababa replied that the expenditure was across big and medium organisations. The expenditure in terms of BEE was not in soft areas such as security and cleaning but in core the business of the company. The BEE policy was comprehensive and Eskom was of the view that it should not be chasing numbers but look at it holistically. It was aligning the policy with codes of best practice as published by the Department of Trade Industry.

Ms Themba asked if Eskom had any project that dealt with air pollution related diseases. She also asked if there were measures to reduce environmental hazards.

Mr Matya replied that Eskom had worked within the government standards in order to meet the requirements. It had done much better than what was required.

The meeting was adjourned.