Eskom feedback on the challenges facing it

Meeting report

Chairperson’s opening remarks
The Chairperson said that the Eskom Board would give a briefing on recent developments at Eskom, which would include stability at the company, the operational performance of its power stations, labour unrest, load shedding and overall leadership at the institution. The Committee’s intentions were not a “witch hunt” but rather the invitation was for Members to work with Eskom to understand and resolve the current challenges. The Board had a judicial responsibility to ensure that the company ran smoothly, and therefore needed to understand the weight of the responsibility which they carry. Without Eskom, the country would not be able to reach its job creation goals or grow the economy, and the triple challenges of poverty, inequality and unemployment would not be addressed. Eskom played a huge role towards realizing South Africa’s goals as a developmental state. There needed to be a common understanding on how the Committee could assist Eskom; the Committee also had a responsibility to ensure that no challenges were swept under the carpet. The reality and extent of the challenges needed to be uncovered so that solutions could be devised.

Eskom was asked to not cover its entire presentation document but rather to highlight only the important aspects of the document.

Eskom Feedback
Dr Baldwin Ngubane, Acting Chairperson of the Board, Eskom thanked the Committee for the invitation. He explained that the Chief Executive Officer for Eskom would be leading the presentation.

Mr Brain Molefe, Chief Executive Officer, Eskom explained that the purpose of the meeting was to have an interaction with the Eskom Board on the challenges facing the company, which include governance instability, operational performance such as the delays in the build programme, labour unrest and load shedding, financial challenges and issues of maintenance. Eskom would also provide the Committee with an update on the five point plan and the war room.

He explained that Eskom’s labour relations have matured over time; since 1998 Eskom has never had a strike, rather isolated localized incidents of work stoppages. Eskom was currently undertaking a R280 billion capex programme over five years. The delays in the New Build programme have been primarily caused by Eskom’s contractors through strikes and/or technical non-performance. He explained that Eskom had a maintenance backlog due to its commitment to “keep the lights on”. This has led to deteriorating power stations. Eskom therefore needed between 3000-5000MW to buffer either through supply-side or demand-side management options in order to close the backlog within 3-5 years and avoid load shedding. He indicated that Eskom has developed a turnaround strategy to address its financial strength, operational excellence and new build delivery.

Eskom’s Capital Portfolio was made up of almost 8000 projects, costing around R280 billion. The main drivers of the capex were:
- New build/ new capacity R159 billion
- Major overhauls that were capitalized R29 billion
- Refurbishments and replacements R63 billion
- Customer connections R10 billion
- Compliance (legal, regulatory, safety, environment) R19 billion

He indicated that Eskom’s revenue had experienced a 5.4% growth from R78 billion to R82 billion in the last financial year, however municipal arrears debt had increased to R4 billion, negatively impacting liquidity. Municipal debt was largely confined to Free State, Mpumalanga and North West provinces. Several interventions have been pursued by Eskom, provincial and national government but there has been no improvement in reducing the growing municipal debt. Eskom was restricted from effecting disconnections in these defaulting municipalities. Capital investment was critical to the reliability of electricity supply. Eskom had a revised funding plan of R200 billion which ran from 1 April 2014 to 31 March 2018; a total of R65.5 billion has been secured to date. Eskom would be engaging various rating agencies to try and bring Eskom back to a good rating.

With regard to labour relations, the building of the Medupi and Kusile power plants was contracted to private sector companies and Eskom’s role in facilitating and monitoring compliance was limited. The employee conditions of the 15 575 employees at Medupi were managed by the respective private contractors. These employees have been on strike since 25 March 2015. Over the years Eskom has under maintained its generation fleet, leading to a backlog in maintenance. Maintenance was carried out in three ways: shutting down the machine, running the plant at half load to gain access to areas which need maintenance and through online maintenance. The challenge was getting the additional 3000MW needed to allow for Eskom to shut down its machines for maintenance without load shedding. Bringing in more Independent Power Producers (IPPs) was one of the main solutions to the problem. The construction of the wind farm in Ceres has been completed. Structurally Eskom had more than enough capacity to meet demand however the company needed to catch up on maintenance. Stage 3 load shedding, which was the highest level that the country experienced, was not an indication of a crisis; during those times the country still had electricity 96% of the time. The war room was created to resolve these current challenges.

Discussion
Mr N Singh (IFP) said fundamental issues needed to be addressed at Eskom and the Committee was there to see how it could make meaningful contributions to address the challenges. Some of the questions Eskom needed to answer were: For how long would there be load shedding? Was there a possibility of stage four  load shedding (national blackout) on the cards? Was there a plan in place to deal with a national blackout should it occur? What process was followed for the suspension of the four board members, why were they suspended? Was there enough money at Eskom to deal with all the issues? Was there enough skills capacity within Eskom to deal with maintenance on a daily basis? Where there qualified artisans and engineers who could conduct maintenance on the ground? He argued that there was chronic mismanagement within Eskom at certain levels of management. There were allegations that certain managers had their “fingers in the cookie jar” particularly in the issuing of tenders; was the Board aware of these allegations? The country has been delinquent with maintenance; who was responsible for this backlog, who were the managers responsible for conducting maintenance these last 20 years and what disciplinary measures were in place to address this incompetence? What plans were in place to assure investors that things at Eskom would turn around and that the country would resume normality?

Ms G Nobanda (ANC) asked what the Board has done to ensure that the build programme yielded the desired results in transforming the economy? What were the actual challenges that Eskom was facing with the coal supply contracts?

Dr Z Luyenge (ANC) asked about the constitution of the Board; did any of the members hold conflicting roles. What was the average number of companies which board member served as a board member and did the board members have the necessary skills to fulfill the roles they were assigned to? How were conflicting roles managed? He asked if there was likely to be a staff adjustment to correct the MYPD 3 decision.

Ms N Mazzone (DA) said it was unfair that Mr Molefe was the one called in to answer questions about Eskom when he had been at the company for only a few days. She asked that he not take any personal offence to the questions Members would be raising during the interaction. She wished him well on the job currently at hand. She argued that the country was in a national electricity crisis. Load shedding was not normal. It was understandable that there was a need for load shedding to avoid a blackout; however the country could not become complacent and accept the situation as normal. The main reason for the current crisis was that of Eskom being a monopoly in the electricity space. This needed to be changed because no financial investment would be made in a country which could not ensure stable electricity supply.

She said since Eskom had made a R21 billion profit there would be no need for the 25% tariff increase which had initially been proposed because Eskom was in a good financial position according to the presentation. She asked that clarity be provided about what the difference was between stage three and stage four load shedding. The general public was in a panic because Eskom was not communicating efficiently to the people. She spoke about the salaries and bonuses awarded to Eskom executives, who were some of the top earners in the country. Due to the current state of affairs at Eskom, could the company assure Members that there would be no bonuses or salary increases for the 2015/16 financial year? During 2014/15 over R11 million was paid out in bonuses and this was not acceptable. Key Performance Indicators (KPIs) needed to be changed because employees were being rewarded for not doing what they were supposed to be doing, which was keeping the lights on.

She asked what plans were in place to deal with a national blackout should it occur? Could Eskom assure the country that there would not be a national blackout? During the Committee’s interactions with Minister Lynne Brown, the Minister indicated that there was no communication between the Board and Eskom, was this still the case or has the matter been resolved?

Mr E Marais (DA) raised a concern about municipalities; what was Eskom doing to deal with the rising outstanding debt from municipalities? This had serious impact on Eskom’s cash flow. What were the differences between the contracts signed for Medupi and Kusile, could Eskom get out of these contracts with constructors seeing that the strikes had serious implications on delivery time for these projects? Winter was a season where there would be spikes in electricity demand; where there any plans in place to bring in small power producers to help ease the demand?

Mr P van Dalen (DA) agreed that the years without conducting maintenance were the main contributing factors to the problems currently experienced at Eskom; who would take the blame for this? Where has the money for maintenance gone? Why has Eskom’s financial report not been qualified? He agreed with Ms Mazzone that the 25% tariff increase should not be implemented since the Chief Executive Officer has said Eskom was doing well financially. He asked why the aluminum smelters were not being shut down.

Mr G Mackay (DA) said the tone of the meeting was surprising; the ideal picture being painted around Eskom was not real. He reiterated the sentiments that there seemed to be a lack of communication between the Board and the war room; why were the four executives suspended? Load shedding had serious implications on the country’s economy and the Board needed to be honest about the scope of the problems which Eskom was facing. It was public knowledge that the strikes at Medupi were as a result of poor project management within Eskom and Eskom needed to take responsibility for this. How did Eskom see itself moving forward with the electrification programme? Has any consideration been given to how the 25% tariff increase would impact the lives of poor people who were already struggling with the current costs of electricity? The proposed pricing path would further contribute to the challenge of illegal connections. The tariff burden on consumers needed to be minimized. Running gas turbines was expensive. He argued that the report by Eskom did not inspire any confidence.

Mr N Kwankwa (UDM) said the country ululated when the war room was convened but it was disappointing that board members were seemingly fighting among themselves now. What was Eskom’s concrete plan for resolving the maintenance backlog and how long would it take to resolve this? The burden of the tariff on the poor was very important to address, people in rural areas especially were already collecting firewood because they could not afford electricity. It was pointless to keep connecting households to the grid when people would not be able to afford the cost of electricity. This was not an achievement by the government. During an oversight visit to Eskom, Members were told about Eskom’s best labour relations model it was therefore surprising that there were still problems as Medupi and Kusile with the same contractors. What happened to the implementation of this model? There were also allegations that workers from certain ethnic groups were being discriminated against; that Xhosa and Zulu people were not welcome to work there. Was Eskom aware of this? The management of Eskom needed to provide leadership.

Ms P Van Damme (DA) said load shedding was very serious. Sectors such as small businesses depended heavily on the lights to be on for them to survive. What were the latest construction costs for Medupi and Kusile? According to the presentation municipal debt owed to Eskom was at R5 billion yet the report makes no mention of Soweto; has the municipality paid its outstanding debt? From where did the instruction to not disconnect defaulting municipalities come? How much electricity was Eskom losing as a result of illegal connections and electricity theft?

Mr R Tseli (ANC) asked about the progress Eskom had made in dealing with the R5 billion municipal debt. What were the terms of reference for the investigation of the four suspended board members? What was the procurement strategy for securing new coal mining contracts? To what extent did Eskom oversee labour relations contracts between the contractors and their employees?

Mr K Morapela (EFF) said Eskom was facing the same problem it is has been facing since 2011. He argued that management at Eskom was “scandalizing” black management, feeding into the perception that everything they touched broke down.

Mr Kwankwa asked whether Eskom had a policy to ensure that IPPs in rural areas were not overlooked.

Ms T Mahambehlala (ANC) acknowledged that the Chief Executive Officer has inherited a parastatal which had serious challenges. What plans were in place to resolve ageing infrastructure? Electricity generation from coal would assist with the current challenges. Eskom had recently signed a 20 year contract with Gencore overlooking Exaro which was a state owned company because Exaro produced zero grade coal; what plans were there to improve such a situation? How was the country going to achieve generating electricity from coal when there was no quality coal locally? What were the critical issues in the implementation of the five year plan? She also asked about the outstanding debt from municipalities; how was Eskom going to make sure that these debts were settled?

Ms Rantho said Members were all concerned about the economy of the country and Eskom should not simply brush aside the suspension of the four members of the board. What was the reason? If the matter was sub judice, when the information would be made available to the Committee? There were much speculation in the media and Eskom needed to provide the accurate information. At what stage would Eskom be receiving the guarantee from National Treasury? Has the transfer been done? What were some of Eskom’s strategies for improving the company’s credit rating? What were some of the non-core strategic assets which Eskom was considering selling off? What was Eskom doing to close the gap between the reflective cost tariffs between IPPs and those of Eskom?

The Chairperson said the sentiments expressed by Members were the same sentiments expressed by millions of South Africans. What was the role of the audit risk committee in ensuring financial stability within Eskom? How did the Board conduct oversight over the build programme? How often did the Board visit the sites? Eskom seemed to be shifting the blame about the labour unrest; had the board approved the contracts? Who would take responsibility for the projects not being completed on time? Did Eskom provide a social facilitation process with other partners involved in the labour unrest? What was the progress on the collapse of Majuba coal silo? Did Eskom have a contract with PetroSA for diesel supply, if not why not?

Mr Molefe responded to the question on how much longer load shedding would be and said Eskom needed to source about 3000 MW of electricity to allow the company to do maintenance without load shedding. Suspending load shedding would not be prudent for the economy because Eskom would not be able to conduct any maintenance. Eskom was hoping to find the additional 3000 MW by the end of the year.

The Chairperson asked what the Committee could do to assist.

Mr Molefe relied that Eskom would need to get back to the Committee on that question because the company would have to sit down and assess all possibilities; this was a question of where Eskom could get the additional 300MW and at what price. IPPs were one avenue, and accelerating certain parts of the build programme was another option, but Eskom still needed to develop a proper plan. On the suspension of the four board members, his understanding was that investigators have been appointed and Eskom was waiting for their report. It was only when the report was available that there could be a clearer picture of what transpired prior the suspension. On whether Eskom had enough money and capacity to deal with maintenance, Eskom needed a plan to ensure that there was enough money available for maintenance. It was possible that the money could be raised. Eskom also needed to look at a balance between tariffs and debt because if the feeling was that tariffs should not be increased then Eskom would have to borrow the money to do maintenance and the capital build. The question would then be to what extent can the country allow the status of Eskom to deteriorate, keeping in mind that Eskom has already been classified as a non investment grade by rating agencies. There need to be a balance between the health of the balance sheet and tariff increases.

Eskom would not be able to respond to the allegation about managers having their “fingers in the cookie jar”; the allegation did not have sufficient details for Eskom to act on it. If there were any specific details, Eskom had a toll-free number where any problems could be reported anonymously. Members were encouraged to provide specific information on which Eskom could act on. A lot has been said on maintenance delinquency. Eskom has been accused of having been delinquent in not building more power stations and in not maintaining existing power stations. Eskom however has been asking for money to do these things and the company has not received the necessary tariff increases or transfers from National Treasury over a long period of time and this was the reason for the maintenance backlog. The situation now was that maintenance needed to be done and new power stations needed to be built, Eskom needed to look to the future for solutions to the current problems. On what the intended results for the build programme were and what has the board done about this, he said the board has held the executive accountable over the coal build programme.

Dr Pathmanathan Naidoo, Non-executive Director, Eskom Board, said on Monday 20 April 2015 he chaired a meeting between the board and Eskom executives. Under the coal build programme part of the agenda the meeting looked very closely at Medupi, Ingula and Kusile. The objective was to lock down cost for the build projects. The board understood the history around these projects and the strategy was how Eskom could “claw back” in terms of the history and how the productivity of these projects could be enhanced moving forward. Lock-down details had been developed for Medupi in terms of time cost and quality, for Kusile and for Ingula. The board was comfortable that these plans were on the table and the concentration would move towards recovery, “claw back” and productivity enhancement.

Mr Molefe responded on the composition of the board, saying the board was properly constituted; board members have been allocated to sub committees which met on a regular basis.

Mr Malesela Phukubje, Company Secretary, Eskom confirmed that the board has been properly constituted and functioned in a very robust manner. The board held more meetings than an ordinary company due to the situation currently at hand at Eskom. The board met on a regular basis to deal with issues as and when they arose. Board members were adequately suited to attend to the requirements of the company, however there were still vacancies on the board; these were being filled.

Mr Molefe replied about conflicts of interests between members of the board and the number of companies they were allowed to sit on. There was a policy on the management of conflict of interests and members were required to make declarations in line with company policy.

Mr Phukubje confirmed that board members were asked to sign a declaration of interests. Eskom monitored conflict of interests on a regular basis. Eskom had a system of property checks for transactions above R300 million, these property checks were not only conducted on board members but also on their spouses / partners. Eskom had an active system of trying to monitor conflict of interest and deal with these appropriately should they arise.

Mr Molefe respectfully disagreed with Members’ sentiments that load shedding was the norm. What was normal in South Africa was that the country had lights on more often than instances of load shedding. South Africa was not a country which was in complete darkness 22 hours a day. He agreed that for some parts of the day certain parts of the country did not have electricity but generally the country had lights. The periodic interruptions were not because Eskom did not have the necessary capacity to provide electricity; the interruptions were necessitated by a need to catch up on maintenance. On the fact that the interruptions were costing the economy around 1.5% of GDP, he said there would be even more to be emotional about if Eskom did not do maintenance. Without maintenance, the cost to the economy would be a hundred times more. On bonuses to executives, he said no bonuses were paid out in the last two years.

Ms Elsie Pule, Acting Executive Manager: Human Resources, Eskom, responded that Eskom had a performance framework. Bonuses were based on KPIs. If the KPIs were not met the bonuses would not be paid out. No bonuses were paid out to executives for the past two years.

Mr Molefe said Eskom had a robust policy on bonuses and there has been no deviation from company policy. These policies were in line with good governance. On the question on war room communications, he said the war room met every Friday and Eskom has been attending all the meetings.

Mr Louis Maleka, Senior General Manager, Eskom, said Eskom was an active participant in the war room, focusing on the five point plan which was approved by Cabinet. The war room was set up to look at issues of collaboration, quick decision making and opportunities regarding how Eskom could be assisted in terms of supply and demand options. The meetings took place every Friday at the Union Buildings. Eskom’s Chief Financial Officer and Chief Executive Officer were standing officers. Other departments which took part in these engagements were National Treasury and the Department of Energy (DoE). Once a month the war room met with the Deputy President to give feedback on the progress of the war room.

Mr Molefe responded to the questions on municipal debt. He said the problem was that there were people who paid electricity to their municipalities, even though some people did not pay regularly. The money was handed over to municipalities who would then pay Eskom, however municipalities did not pay Eskom. This debt was on the rise. Around 20 municipalities were severely defaulting, there has been talk about cutting off these municipalities from the grid. He advised the board that Eskom should bypass these municipalities and provide electricity directly to the residents on a prepaid basis. In this way there would be no need to shut down any household which was not paying its electricity. This was his personal view and that this was a matter which would still need to be discussed with all stakeholders involved. This system would be highly beneficial to users who were paying their electricity on a regular basis. This would also stop the increase of the debt. Prepaid electricity allowed for Eskom to improve its cash flow and balance sheet. He supported the idea that in the future the whole country needed to move towards prepaid electricity. This would fund Eskom upfront and Eskom would ask for lower tariff increases.

On winter demand, he agreed that electricity demand would increase in winter. Eskom had two choices in this regard, either to slow down maintenance or to intensify the programme to educate South Africans about the need to switch off utensils which were not being used in an effort to manage electricity more effectively.

An Eskom representative agreed that winter came with different elements, one being that in winter the availability of Eskom machines improved this led to a higher reliability and performance of the machines. Ssecondly, Eskom conducted less maintenance in winter so that more machines were available to meet the peak demand also the profile of the load in winter was lower during the day, there was a peak in the morning and in the evenings. The challenge of meeting demand was then limited to a few hours in the mornings and evenings. Eskom was currently busy with a plan on how it would approach the coming winter.

Mr Molefe said disaster simulations were an important aspect of disaster recovery. However disaster simulation drills did not mean that Eskom was getting ready for a disaster, this was a normal practice in all companies such as Eskom. On the question why auditors have not given Eskom a qualified audit, he said Eskom had external auditors who were members of a profession which acted independently at all times. The decision to qualify or not qualify Eskom’s financials was informed by the agency's professional ethics. This was not an issue to worry about. Aluminum smelters consumed around 2000MW however these smelters were needed to manage electricity and load shedding. The smelters provided Eskom with a steady load shedding capacity.

Mr Mike Rossouw responded to the question about contracts for the aluminum smelters and explained that the contract was generally quoted as a price related contract, however the BHP Billiton contract was a revenue contract over a long period of time, hedged against aluminum and dollars. Eskom was exposed to dollars and aluminum prices and consequently opposed the risk through the BHP Billiton contract. The only way to judge the BHP Billiton contract was to look at the contract over the long term, such a study was done until the end of 2008 and the contract broke even. This needed to be reviewed from time to time. one needed to consider the participation of BHP Billiton in avoiding load shedding, if the plants were shut down for a lengthy period of time they would freeze and re-starting the smelt would take months if ever able to be restarted. However these smelts were able to shut down instantaneously if called to do so. Cahora Bassa contributed 1500 MW, and there was not a single machine within Eskom which could respond that quickly. even if BHP Billiton was switched off the next day Eskom would have to go buy a switch of 1500MW to replace this with.

Mr Molefe said the allegation that Eskom’s project management has been disastrous needed cold facts to support this statement. Eskom would then be able to respond on the basis of the evidence provided. The reason Eskom was asking for tariff increases was that Eskom’s gearing ratio should not be allowed to further increase. It was more prudent that the country paid for its consumption rather than for Eskom to borrow for consumption. He agreed with the suggestion that there was a need to synchronize and coordinate Eskom’s maintenance plan. Eskom was looking at starting with maintenance in areas which would provide the utility with maximum benefit.

Mr Mongezi Ntsokolo, Executive Management: Generation, Eskom, said Eskom had a robust maintenance plan in place. The plan outlined the scope of work which needed to be done and at what intervals. The issue was prioritizing what would give Eskom the best returns.

Mr Molefe responded to the statement that it was not an achievement to keep connecting households if people could not afford electricity. Use of materials such as firewood was more expensive. As a developmental state the country needed to make a decision that poor households were better off with electricity than without. People would be connected to the grid irrespective of class, level of wealth or affordability.

Mr Abram Masango, Acting Executive Manager: Group Capital, Eskom responded to the questions about labour relations at Medupi and Kusile. In 2013 Eskom did a deep-dive on labour issues and came up with a partnership agreement framework. This framework stipulated very clearly what Eskom expected from its contractors and its unions. One of the biggest challenges Eskom was faced with, particularly at Medupi was that the people working at Medupi chose not to operate within this framework. In response Eskom has decided to hold the contractors accountable for operating within the agreed upon framework, every signatory to this framework was mandated to comply. The recent strike has compelled Eskom to institute a deep-dive into the entire labour unrest at Medupi. Currently contractors were following an interdict to resolve all labour issues with their employees and it was hoped that all issues would be resolved soon.

He said that there were approved business cases on Kusile and Medupi projects however as part of project management Eskom identified the risks involved and tried to mitigate these, risks were also cost quantified. The business case at Medupi amounted to R105 billion, at Kusile the business case was at R118.5 billion. He agreed that Eskom needed to improve its efficiency so that this became part of mitigating risk. One of the biggest challenges was that when a project went on strike, delays and costs were incurred, however the contractors were being held accountable according to the contracts in place.

Mr Molefe said the recent strike involved private sector contractor employees. Eskom employees were not on strike. He assured the Committee that having been appointed Acting Chief Executive Officer he was pleased that Eskom had an executive in place in every single portfolio and the acting ones would be addressed soon. The executive was made up of a group of highly skilled and competent individuals. He was confident that the team would be able to execute the mandate of Eskom. The executive had a meeting regarding the attitude of its members towards the problem and a decision was taken to become very positive. The executive would be breaking away to do detailed strategic plannimg. He assured Members that Eskom would be able to meet the electricity demands of the country. He responded to the contradiction which existed about workers demanding better salaries and bonuses, saying this was a matter between the private sector contractors and labour unions. Eskom was trying to ensure that there was peace and that the work commences.

An Eskom representative responded to the question about what Eskom was doing to ensure that IPPs in rural communities were not overlooked. The programmes were being managed by the DoE. However, there was no procurement on Eskom’s side which stated that the projects should be sited in poor areas. The siting of these projects was driven by geographic reasons, depending on where there was more sunlight and wind. However the concern would be taken to the steering committee with the DoE.

Mr Ntsokolo responded about the 20 year contract Eskom entered into with Exxaro. He did not have the exact details of the contracts but when Eskom designed a new power station the quality of the coal was looked at and the robustness of the boilers was designed to be able to take the coal. In South Africa the power stations burn some of the poorest coal in the world because of the way the machines were designed. Irrespective of who the supplier was, the specification of available coal was taken into context when designing the machines. This was a tradeoff between the price of good coal and the performance of the station.

Mr Maleka responded to the question about the five point plan and the deployment of senior managers to the critical areas the plan spoke to. The plan revolved around supply and demand issues. From a supply side Eskom identified generation maintenance operational efficiencies as one key element of the plan, here Eskom and government was working on identifying what else could be done over and above what was being done to procure and monitor all available options to augment the shortage of supply. Maintenance could only be effective when Eskom had enough head space to do the work, this was where the 3000 MW shortage came in. The plan also spoke to co-generation which dealt with IPPs which were selling to Eskom to top up Eskom’s capacity. Another element of the plan was gas-to-power generation, the plan also focused on Demand-Side Management. The simplest thing which South Africans could start doing was to switch off the areas which were not using electricity, this was part of energy efficiency.

Ms Nonkululeko Veleti, Acting Chief Financial Officer, Eskom responded to the question about money from National Treasury. The R23 billion from National Treasury was expected in two tranches; one in June 2015 and another before the end of the financial year.

Mr Molefe replied on how Eskom would improve the company’s credit rating, saying the only thing which the executive of Eskom could do was to go back to the rating agencies and ask them for a detailed breakdown of what Eskom needs to do to improve its credit rating. Eskom would then work towards implementing each of the steps provided. He was confident that Eskom would be able to achieve this. One non-core asset which needed to be sold was the home loan book, if Eskom could agree with labour this could be sold because the asset had a potential of around R7 billion. However the list of non-core assets would still need to be reviewed.

Ms Chwayita Mabude, Non-executive Director, Eskom Board, spoke to the work of the Audit and Risk Committee which she said was working very hard. There was a lot of work which involved looking at every aspect of Eskom’s income statements and balance sheets, and to look at opportunities where Eskom could decrease its expenses, shifting some of the projects which could be done later to another time. The Committee has managed to save a lot of money through the business productivity programme; these savings were used for the projects currently underway. The Committee has also managed to raise about two tranches of money for Eskom, and there has also been a 8% tariff increase which was approved by National Treasury.

Ms Veleti said Eskom was driving the programme to ensure that the business was run more efficiently, and selling some non-core assets was part of this initiative. Eskom has been running its operational expenditure well and these have not grown with inflation, thereby reducing growth. For the past year Eskom has been able to save more than R8 billion which has been used to support other initiatives within the business.

Ms Nazia Carrim, Member of the Board, responded to the question about suppliers charging above the market price, saying the  board committee was made up of four board members, and the committee was delegated to deal with all matters which were above a certain threshold. The concern that certain people were benefitting from tenders was being addressed, as the committee was tasked to do all the checks and deal with all concerns. The board then made a final decision with the committee’s recommendation being taken into consideration.

Dr Ngubane added that before any tender process was finalized, independent auditors were called in to follow the whole paper trail right through to the recommendation. There was no decision taken without a property check and assurances by independent auditors.

Dr Naidoo replied about oversight of the build programme, saying Eskom’s electrification programme was done with the DoE; 3.5 million customers were on the project plan.

Mr Masango referred to the silo collapse at Majuba, saying Eskom responded very positively to the matter; out of four solutions identified, two of them have been implemented. These solutions made the plant produce 85% of its total capacity. An interim solution was currently being implemented, and it would be completed around September 2015. Eskom was also looking to fast track the permanent solution to ensure that before 2016 the plan was implemented. The solutions which Eskom has implemented were operating and the plant was running well.

Mr Molefe responded to the question on PetroSA and whether Eskom was coordinating its activities with the entity. Eskom has signed Memorandums of Understandings (MOUs) with both PetroSA and the Central Energy Fund (CEF) and these were being coordinated through the war room.

Mr Maleka agreed that MOUs have been signed with PetroSA and the CEF and Eskom was looking forward to any permanent solutions which came from these agreements.

Ms Mahambehlala referred to the presentation which stated that Eskom wanted to resolve critical issues within the 5 point plan through the deployment of senior managers; what were these critical issues which needed to be resolved? What was the vision for the board meeting more than required?

Mr van Dalen indicated that the question on how much debt was still outstanding from Soweto had not been responded to. The response to the question on smelters was ridiculous.

Mr Mackay said the problem with Eskom’s project management skills was that the projects were well over delivery time. He suggested that Eskom conduct an audit on these projects and make this information available to the public to prove that Eskom was not at fault with the delays. How many electrical engineers were part of the Board and what was the average experience level of all the Board members?

Ms van Damme indicated that the question on who had issued the instruction to stop Eskom from disconnecting municipalities had not been responded to. Who was responsible for this?

Ms Mazzone said load shedding should not be accepted as a state of normality within the country. On bonuses, Eskom’s responses were disappointing. She had written a letter to the Minister of Public Enterprises asking her for an explanation for the bonuses of top executives at Eskom. In the Minister’s response on 3 March 2015 the Minister indicated outlined the dates for all bonuses which were paid out during the last two years, bonuses which amounted to R15 million. How was it possible that the Board indicate to Members that this had not been the case? She indicated that the letter would be made available to the Chief Financial Officer who should provide some light on the matter.

Mr Kwankwa said Eskom should not politicize the issue raised about electrification; the simple question which Members wanted an answer to was whether Eskom has taken any steps to cushion the poor against the proposed tariff increases.

Mr Singh said one meeting was not enough for Members to thoroughly interact with the Board and with the executives at Eskom. He suggested that within the next few weeks the Board be called back to interact further with the Committee. The question about the suspension of the four executives had not be sufficiently responded to. The suspension was at a cost to Eskom because salaries of these executives were still being paid out, and they would be paid out until the investigations were concluded. What were the reasons which gave rise to the suspensions which received confidence from the President?

Mr Morapela said Eskom was not stable and this was an emotional issue for the entire country. In addition private contractors were not treating their employees well, there were various legislative processes which Eskom could intervene through in attempting to resolve these labour issues; why was Eskom not intervening?

Mr Tseli asked if National Treasury not releasing budget allocations to defaulting municipalities this did not contribute to municipalities not being able to pay Eskom. He asked about the shareholder complex; what were the consequences which the Department of Public Enterprises (DPE) imposed on matters relating to non performance of its entities? Members were expected to play an oversight role on the DPE and its entities but they did not know what the agreement was between the two.

Ms Van Damme indicated that the question about how much electricity Eskom was losing as a result of electricity theft and illegal connections had not been responded to.

Dr Ngubane responded to the question on why the board was meeting more than required, he said it did not matter how many meeting were held because there was no financial gain for holding the meetings. There was no incentive for holding extra meeting. The reason for the extra meetings were that, as pointed out by the Members, the situation at Eskom was of a very serious matter and the board was committed to ensuring energy security.

Ms Mahambehlala said Dr Ngubane was out of order to indicate that any Member has suggested that there was a financial motive for holding more meetings than normal.

Dr Ngubane apologized and said he was explaining that some boards received paid increases based on attendance of meeting. He was simply excluding that possibility. Members of the board were meeting more than needed because the board was new and the energy security of the country needed extraordinary attention and excellent performance was needed. If possible logistically board members would be meeting every day.

Mr Ntsokolo responded to the question asked about the critical issues at power stations, saying first was that of the critical vacancies at the power stations. Eskom was therefore trying to use the skills it had to not have to hire. Secondly, people at the Head Office were more experienced and by going to the stations they could coach and mentor employees to increase the capacity within the stations. Lastly, Eskom was reviewing the current state of the system as “business unusual”, every employee with capacity needed to go and lend a hand in the frontline.

Mr Molefe responded to the questions on Soweto and reminded Members that Eskom was looking to bypass municipalities but this was a matter which still required discussion with government, the National Energy Regulator of South Africa (Nersa) and municipalities.

Ms Veleti indicated that the outstanding debt for municipalities was R4.5 billion; Soweto had an outstanding debt of R8 billion.

Mr Thava Govender, Executive Manager: Transmission and Sustainability, Eskom, spoke about the processes which were being followed for collecting debt. He said the problem with Soweto run very deep. Over the last two years Eskom has been running a programme where areas of Soweto were being converted to prepaid meters however there has been some resistance from the communities therefore the process was moving very slowly. Another challenge was that in block residences some people were willing to convert and others were not, and in these cases Eskom implemented disconnections.

Mr Edwin Mabelane, Acting Executive Manager: Technology and Commercial, responded to the question on where the instruction not to disconnect municipalities came from. He said there was a court case where municipalities took Eskom to court, there were about four actions currently in court. Eskom has been following processes mandated by the courts.

Mr Masango responded to the questions on project management at Medupi and Kusile, saying Eskom has taken a decision to identify the gaps in terms of skills shortages for these projects, this led to a process where international contractors were brought in to supplement these skills shortages. However Eskom has also brought in some companies to do the audits of the entire audit management of these projects to identify the shortfalls. The competency for these projects from an Eskom point of view was that the projects would be completed. Some of the contractors however were international companies who brought in their own skills. These projects were audited every two years.

Dr Naidoo responded to the question on how many board were board members part of. He spoke on behalf of electrical engineers, saying as a past President of the South African Institute of Electrical Engineers, electrical engineers who were registered were the ones dealing with matters pertaining to electrical engineers.

Mr Molefe indicated that almost half of the members of the board were engineers. On bonuses, he said the answer previously given was correct. Bonuses which Ms Mazzone spoke about were paid out in the previous years but recorded now. To retain executives when they earn a bonus in a particular year, a portion of the bonus has to be withheld and would be paid out in the coming years. Bonuses earned in 2013/14 were paid out during the 2014/15 financial year. No short term incentive bonuses were paid out during the last two financial years.

Mr Ngubane said the framework put in place included a framework which needed to be followed and implemented by the contractors. One of the challenges faced by Eskom was that when the work was completed the contractors dissolved the workforce. Eskom’s role was that the contractors complied with the demobilization processes, such as the Unemployment Insurance Fund (UIF) payments.

Mr Molefe said Eskom was working on devising strategies which would cushion the poor on the proposed electricity tariff increases. This was a very important matter; he apologized for any misunderstanding in the earlier responses. The Board supported the sentiments that members should come back for further engagements with the Committee. Eskom would need to take legal advice on how to deal with the labour relations issues currently experienced at the major sites. He agreed that Eskom needed to ensure that the labour relations between the contractors and their employees were sound, however Eskom needed to be wary not to committing to additional obligations beyond the initial contracts signed with the contractors.

Ms Veleti said in some cases National Treasury has held back the equitable share which was meant for municipalities but the intention was that municipalities would still make payment arrangements with Eskom. Eskom was monitoring those municipalities which were not honoring their arrangements.

Ms Ayanda Noah, Executive Manager: Distribution and Group Customer Service, Eskom, responded to the question on how much electricity Eskom was losing through theft, saying energy losses were currently below 7%. This meant that the losses from the energy sold for the current year were at 6.7%, 60% of this number was as a result of technical losses, the non technical losses were around 40%, and these were as a result of illegal connections and customers billed incorrectly or it might be as a result of ghost vendors which was a serious challenge. Eskom estimated that last year it lost about R2 billion in losses, but through various initiatives put in place, there has been an improvement. Eskom was looking to save around R650 million this year, one of the initiatives was the Operation Khanyisa programme another was that of disconnecting illegal connections. Eskom was also busy with implementing speed metering (prepaid electricity) especially in places like Soweto.

Ms Matsietsi Mokholo , Acting Director General, Department of Public Enterprises, appreciated the presentation from Eskom and the engagements between the board and the Committee.

Ms D Viroshini Naidoo, Non-Executive Board Members, Eskom, thanked the Committee for the engagement. She said the sentiments expressed by Members were fully understood by the Board. Eskom was not disillusioned about the crisis the country was in and the situation at Eskom. The Board was committed to providing transparency, she hoped that the enquiry currently underway on the suspension of the executive members would be able to give the board a better view and provide solutions to the problems. The board had made a strong commitment to comply with all its duties and with the Public Finance Management Act (PFMA). In the mean time, South Africans could help out by reducing energy usage where possible.

Dr Ngubane thanked the Committee for the hearing and he thanked Members for their interaction.

The Chairperson thanked the board for providing light and a bit of comfort that the challenges currently faced by Eskom would be addressed. The board and the executive needed to monitor closely the work of Eskom moving forward. She said the Committee was pleased that the board and the executives were committed to implementing its plans and in running the company efficiently. The Committee was fully supporting the work of Eskom, the success of Eskom was the success of the entire country. She said the pressures had been very high in the meeting and she apologized for any language which was used to address members of the board or the executives which might have been offensive.

The meeting was adjourned.