eskom presentation briefing meeting with scoa

Eskom Presentation

Briefing Meeting with SCOA

5 March 2021

Contents

▪ Coal Contract Renegotiations

▪ Update on Medupi and Kusile Construction

▪ Progress on recovery of debt owed to Eskom

Recovery of Overpayment at Kusile and Medupi

▪ Impact of government’s decision to issue electricity

generation licence

▪ Wilge Residential Development Project

▪ Deviations FY 2020/21 Q1 -Q3

▪ Expansions FY 2020/21 Q1-Q3

▪ Compliance with 2019 Special Appropriations Act

conditions

▪ Eskom Unbundling Update

Overview to Expansions and Deviations

• Eskom deviations and expansions are undertaken on an exception basis.

• Procurement through deviations compromises the principles of fairness, equitability,

transparency, competitiveness and cost-efficiency.

• National Treasury introduced instructions on procuring through deviations because

some organs of state were abusing this mode of procurement.

• Single source procurement may occur when more than one supplier exists in the market

that can perform the contract, but a particular supplier is identified as the preferred supplier

for various reasons, e.g. continuation of service. Prior approval is required from

National Treasury for single source procurement.

• Sole source supplier is where one supplier possesses the unique and singularly available

capacity to meet Eskom’s requirements. National Treasury approval is not required for

sole source procurement.

• Motivations must also be provided as to why procurement should be done through

deviation as opposed to testing the market and concluding a new contract.

• Equity condition reporting is implemented and reported on as required

3

JS

Eskom Deviations and Expansions requests to NT and status

4

New contracts FY 21 – 1109

All open contracts FY 21 – 4034

Application as % of Total contracts - Deviations 0.74%

- Expansions 1.14%

% Applications not supported- Deviations 23.3% (0.19% of open contracts)

- Expansions 17.3% (0.17% of open contracts)

JS

5

Deviations Not Approved - Quarter 1

Generation

NT Ref.

No

Project Description Reason for Deviation NT Response

72 Request for approval to solicit goods from a

limited market for the manufacture, supply

and delivery of air heater spares for

Generation power stations

Supplier: Balcke-Dürr Rothemühle GmbH &

Howden Power

Contract Value: R 172 500 000.00 for

Rothemule spares

R 80 500 000.00 for Quad sector spares for

a 3 year contract

1st Deviation request

• Manufacturing, assembly and

sub assembly drawings are

covered under copyright and

Intellectual Property protection

and Eskom has no drawings or

specifications to be able to issue

a comprehensive tender to an

open market

• Not supported.

NT Recommendation:

• Investigate Howden’s conduct for supplying the spares

and implementing design improvements even when they

did not posses the required licenses.

• Must ensure that only service providers who posses the

required licenses/accredited by the OEM for spares are

approached on fair and transparent manner.

Action Taken:

While Eskom was reviewing and analysing the recommendations

from National Treasury, Howden has acquired Balcke-Dürr

Rothemühle since December 2020 (effective from 29 January

2021). Thus as per National Treasury response, Eskom did not

implement a deviation from competitive bidding process to a

confined market.

Brief summary:

With the acquisition of Balcke-Dürr Rothemühle by Howden effective from 29 January 2021, the request for sourcing from a

confined market to National Treasury is no longer required. A feedback report to National Treasury is in process to close the

request.

PD

6


Group Capital

NT Ref.

No


75 Single source for Services of an

independent environmental control

officer (ECO) to monitor conditions

of the integrated environmental

authorisation (IEA) for

construction at the new Camden

ash dam project

Supplier: Leroy Building

Construction

Contract Value: R1 202 293.95

• Leroy Building Construction

was resident ECO from

June 2018

• Retaining the supplier

(Leroy) will also ensure

continuity whilst ensuring

legislative compliance.

• Not supported.

NT Recommendation:

• Eskom had ample time to ensure that a

competitive bidding process is conducted

when the contract expired in December

2019.

• Follow a competitive process

Action Taken:

• Required services sourced via Eskom’s Panel of

Environmental Service Providers Contract.

Brief summary

Incorrect procurement mechanism followed instead of using Environmental Panel

New supplier appointed in January 2021 through the Environmental Panel

BN

7


Group Capital

NT Ref.

No


73 Services for the completion of the

construction of the new ash dam: phase

1, ash water return dams and auxiliary

works at Camden power station

Supplier: WBHO


• Appointing a new Contractor

will delay the final completion

of the project

• Not supported.

NT Recommendation:

• Eskom has an obligation to ensure that any

contract for goods and services is in accordance

with a system which is fair, equitable, transparent,

competitive and cost-effective.

Action Taken:

• Appealed the first time then issued a competitive enquiry to the

market. Contract to be awarded by 01 April 2021.

Brief summary:

The new Enquiry was issued to the market.

BN

8

Deviations Not Approved – Quarter 1

Primary Energy

NT Ref.

No


68 Request for approval to solicit services from a single

source to offload 6 trains stationed at various

Transnet Freight Rail Sidings

• The deviation was for an estimated amount not

exceeding R2.18M incl VAT.

• The initial contract duration and value are not

applicable.

• The application dated 18 May 2020 was received

by NT on 22 May 2020.

• National Treasury responded on 4 June 2020

Approval was sought for the

deviation for use of a single source

to negotiate a once off agreement

with Makoya Supply Chain

Holdings facilities located at

Highveld Industrial Park, for the

offloading of 26 337 tons of coal that

was loaded on 6 trains stationed at

various Transnet Freight Rail (TFR)

sidings

Single source not

supported.

NT Recommendation:

Single source not supported but closed bid supported by NT

to be conducted for suppliers based in Highveld Industrial Park for

offloading of coal.

Action Taken:

The closed RFP was however issued to both suppliers as

per the NT response. Sable did not respond and a contract

was concluded with Makoya Supply Chain (Pty) Ltd.

The tippler incline conveyor structure and the 4 000 ton silo at Majuba were damaged by a fire on 18 December 2019 and

therefore the 6 (six) trains could not be off loaded. The trains cannot be returned to the mines because the mines do not

have off loading facilities.

There are only 3 (three) rail sidings in South Africa with rotary tippler facilities capable of offloading the coal from these six

trains. These sidings are at Highveld Industrial Park (Highveld), Richard’s Bay Coal Terminal (RBTC) and at Majuba. RBCT is

located 386Km from Majuba and Highveld Industrial Park is 178Km from Majuba.

SN

9

Deviations Not Approved – Quarter 2

Primary Energy


NT Reference 80

Deviation to negotiate coal supply

with a single source - contract

with South32 (tied colliery for

Duvha Power Station). Power

Station life estimated to be 2034.

Current contract is a 10Mtons

per annum agreement

• Estimated value of the

deviation for 14 years at

10Mtons per annum (incl. Vat)

R66.98bn

• The current CSA is a 30-year

contract ending on 31 Dec

2024, with an option to extend

for 10 years

• The initial contract value was

R11.4bn

• The CSA was modified 5

times

• The application dated 14 July

2020 was received by NT on

23 July 2020.

• National Treasury responded

on 19 October 2020

Continuity of supply – Duvha Power Station (“Duvha”) was built with an adjacent

long term tied colliery as the anchor supplier.

South32 has contractually declared hardship. Eskom appointed consultants to

perform a hardship verification. As one of the outcomes of the hardship

verification, in June 2020, the consultants recommended that Eskom engage

South32 to enter into a new contract with a revised price. Eskom accepted the

recommendation with due consideration to the availability of options. Accordingly, on

23 July 2020 Eskom submitted this deviation request to NT.

The deviation was to negotiate with the tied colliery to continue supply to Duvha

until the end of Duvha’s life. Duvha’s stock yard reclaim capability is limited to only 3

units of the productive 5 units of Duvha because it was designed to receive coal from

the adjacent mine. Therefore Duvha requires coal supply from the adjacent mine and

cannot rely completely on the stockyard reclaim capability on a full time basis to meet

full production requirements. NT declined Eskom’s application on the 19 Oct 2020.

On 25 October 2020, Eskom sent National Treasury an appeal letter related to the

South32 single source deviation.

Not Supported. Eskom

should test the market.

Allow other suppliers to

compete.

NT did not support the

appeal, but rather

supported the extension

of the interim addendum

by an additional 21

months over and above

9 months already

granted (30 months in

total) with conditions

Eskom’s Actions: Post NT not supporting deviation and based on recent developments and the threat of the

SAEC operations going into business rescue, Eskom is in the process of reapplying to NT for a modification of the

existing agreement based on the capability of the mine. At this point and based on the assessment conducted at

the mine by Eskom’s consultants, the mine will only be able to produce coal for the next 4 years. Eskom has gone

out to test the market via RFP, however, this will not solve the reclaim capability constraint at Duvha. The

RFP will be used to determine the long term coal supply options/solutions for Duvha Power Station.

SN

10


Nuclear

NT Ref.

No


85 Request for approval to solicit services

from a single source for the transfer of all

generator and transformer protection

functions to a new digital protection

system

Supplier: ABB


ABB South Africa (Pty) Ltd is the

preferred service provider

because of the existing

engineering and maintenance

knowledge base and experience

at Koeberg Nuclear Power Station

• Not Supported.

• This application will only be

considered after a market

analysis report is provided and

after receiving evidence that

other potential accredited

service providers will not be

able to render this service at

Koeberg Nuclear Power

Station.

NT Recommendation:

• Eskom should do a market analysis that includes

all the accredited service providers.

Action Taken:

Further analysis was done, ABB is the OEM as captured in the Eskom

Generation Standard and applied to other Power Stations

Brief summary:

The team applied the Eskom Generation Standard that supports the OEM

The team is currently awaiting the offer to then negotiate, feedback to be sent to National Treasury.

RB

Contents






generation licence





conditions


12

Expansion Not Approved – Quarter 1

Group Capital

NT Ref.

No

Project Description Reason for

Expansion

NT Response

59 Request for approval to modify a contract (Mod. 7)

for the Main Civils Works at Medupi Power Station.

Supplier: Medupi Power Station Joint Venture

Original Approved Value: R 4 160 325 176.00

Accumulative modification value up to Mod.6:

R5 388 855 669.00

Current Approved Value: 9 549 180 835.00

Mod. %: 129

Extension of Time/

Disruption/ Access Delay

Costs

Increased Scope

• National Treasury does

not support the

expansion of an expired

contract.

NT Recommendation:• Eskom must conduct an assessment of elements of fruitless

and wasteful expenditure on the costs incurred as a result of

numerous design changes, delays in document review and

approval times and take appropriate action.

• Furthermore, National Treasury does not support requests for

approval of unknown scope as this is viewed as an abuse to the

SCM Process.

Action Taken:• Works were suspended on 01 November 2020 and

Eskom is awaiting feedback from National Treasury as

per Appeal Letter dated 07 December 2020.

Brief summary:

• Normal Scope of work continued post DCF date (31 January 2020) until 30 October 2020.

• Eskom and the Contractor are in engagement to sought an amicable agreement to end contract - 31 March 2021.

• Scope of Work is being finalized to go on open market. – target 01 April 2021

BN

13

Expansion Not Approved – Quarter 1

Group Capital

NT Ref.

No

Project Description Reason for Expansion NT Response

70 Response to query relating to approval

to modify a contract for Unit Transformer

System and Earthing Equipment for

Kusile power station

Supplier: Actom

Original Value: R215 192 778.28

Mod. Value: R0

Mod. %: 0

Continuity of service National Treasury cannot support

this extension. Eskom will continue

to incur irregular expenditure until

completion of the project due to non-

compliance with paragraph 56 (a-h)

of the Irregular Expenditure

Framework.

NT Recommendation:

National Treasury (NT) cannot support this time

extension. Eskom will continue to incur irregular

expenditure until completion of the project due to non-

compliance with paragraph 56 (a-h) of the Irregular

Expenditure Framework

Action Taken:A condonation process has been initiated and Eskom to consider the

following options:

Termination and incur additional costs

Complete the works under the existing contract and continue incurring

irregular expenditure up to completion of the legal contract.

Brief Summary:On 24 October 2018, the Eskom Board approved modification no.3 as follows:

• To increase the contract period by thirty (30) months from ninety one (91) months to one hundred and twenty one (121)

months

NT granted a conditional extension of one month to 11 December 2018, subject to submission of additional information.

The additional information was not submitted to NT in time and the request was rejected on Appeal.

BN

14

NT Ref.

No


73 Modify Task Order 237A for the

provision of safety, health and

environmental services at Kusile PS

project

Supplier: Atvance Empowered Risk

Management


Mod. Value: R1 260 960.37

Mod. %: 12.7%.

• The reason for this modification

is to ensure there is stability

and no disruption on the current

services provided; for managing

the implementation of ISO

45001 management system by

all contractors in order to

maintain compliance and

certification. Continuation of

these services is required

because five (5) Kusile units are

not handed over to Generation.

The existing task order expires

on 26 November 2020.

National Treasury does not

support the extension of an

expired task order.

NT Recommendation: Eskom must go out on an

open and competitive process to secure a service

provider for the services.

Action Taken:

• Kusile demobilized the Atvance resources on 26 Nov 2020.

Current Status:

• The work was redistributed to other team members and to the

additional engineering resources that were moved to the project.

Brief Summary: A letter dated 24 Nov 2020, was submitted to National Treasury requesting for an approval to modify the existing task order with,

Advance Empowered Risk Management, by 3 (three) months from, 26 November 2020 to 26 February 2021, and to increase the

task order value by R1 380 000 (inclusive of VAT) for the provision of quality and/or inspection services. NT rejected the request

GC: Expansion Not Approved - Quarter 3

Group Capital BN

15

NT Ref.

No


60 Task Order 237B for the provision of

quality and/or inspection services at

Kusile PS project

Supplier: Tivanathi Engineering

(Pty) Ltd


Mod. Value: R 7 258 620.60

Mod. %: 14.6%.

• The need to continue with the task

orders is because five (5) units are not

handed over to Generation. The

inspection scope remains as per the

original project scope until all units are

handed over.

• National Treasury does

not support the extension

of an expired task order.

NT Recommendation:

Eskom must go out on an open and competitive

process to secure a service provider for the

services.

Action Taken:

Kusile demobilized the Tivanathi resources on 26 Nov 2020.

Work was redistributed to allow time to establish a new task order.

A new task order was requested from the current SHEQ panel of contracts

for a 3 month duration to allow continuity of service and for an RFP to be

issued to the market.

Kusile issued an RFP to the market for quality services for 25 months. The

tender closed 28 Jan 2021 and the Evaluation is in progress, expected

award is May 2021.

Current Status of Task Order 237b:

Closed.

Brief Summary: The deviation was to ensure there is stability and no disruption on the current services provided; for managing

the implementation of ISO 45001 management system by all contractors in order to maintain compliance and certification. Kusile

demobilized the Tivanathi resources on 26 Nov 2020. Also, it was to ensure there was sufficient time and money to conclude the

current commercial process to replace the current contract. Current Status of Task Order 267. The Task Order is on Approval

stage and will be presented to SPCC on 02 March 2021.

Expansion Not Approved - Quarter 3

Group Capital BN

16

Expansions Not Approved - Quarter 2

Generation

NT Ref.

No


45 Contract for conveying air quality

improvement

Suppliers:

Mabro Engineering and Technical

Services Pty

Contract Value: R14 365 650.79 on a

12 month contract


Mod. Value: R1 636 495.54 and 3

months time extension (on top of a 1st

modification of 3 months time only

extension approved internally in Eskom)

Mod. %: 11% on Value and 50% on

time

• Delays caused by the national

lockdown and the additional

scope variation to complete the

project.

• National Treasury does not

support ex-post facto approval.

NT Recommendation:

• National Treasury does not support ex-post facto

approval.

Action Taken:

As the contract already expired, the market was tested through an

open tender process to establish a new contract for the remaining

scope.

Brief background:

The team went out on open tender process (RFQ) twice since the contract expired on June 2020, with the 1st tender process

being non-responsive with no bids received.

PD

17


TransmissionNT Ref. No Project Description Reason for Expansion NT Response

66Softmax Software solution for the

supply and maintenance of support

for the OPSX and Chartermax

software system

Supplier: Softmax Software solution

Original Value: R351 816.00

1st Mod. Value: R42 408.00 Mod.

12.05%. Period: 4 months

To allow sufficient time to finalise

the commercial process to

establish a new contract from an

open tender process.

Not supported

NT Recommendation: Team should test the

market

Action Taken: As the enquiry for the services was out in the market,

the commercial process for the transaction was followed through, and

new contract has been awarded

Brief summary: the OPSX and Chartemax Software is a system used by Eskom for Flight Operations Management tasks,

such as flight scheduling, generation of quotations and monthly reports and reconciling aviation projects/jobsschedule and track

Eskom helicopters. The contract was established through a single source approval by National Treasury in 2016 for a period of

36 months with an end date of 20 April 2020. An Expression of Interest was issued to the market on 24/10/2019 in support of

NT’s instruction to test the market. There were delays in issuing the tender to the market, which was done on 25 March 2020.

There was a resulting need to modify the existing contract. Approval for 4 months and for R42 408.00 granted internally on 25

March 2020. The modification request to National Treasury was received on 22 April 2020, two days after the contract had

expired. National Treasury declined the request and advised the team to go to the open market. Enquiry process was finalized

and awarded.

SS

18


TransmissionNT Ref.

No


67

Provision of civil works at Merensky and Witkop

substation.

Supplier: Machite Engineering

Original Value: R8 495 934.t8

1st Mod. Value: R4 603 289.52, time: none

2nd Mod: Value: R823 415.39, time: 6 months

Cumulative value of Mod: 63.7%

The project was dependent on

outages and due to system

constraints, the outages were

delayed and/or cancelled, leading

to delays in the execution of the

remaining 20% scope of the

scope of work.

Not supported

NT Recommendation:

• Team should test the market.

Action Taken:

Eskom has complied with NT decision.

The market was tested through existing Civil Works Panel.

Brief Summary:

The civil works contract for Merensky and Witkop substation was approved on 13 December 2016 with a contract

commencement date of 22 January 2017 and ending on 21 January 2020 at a contract value of R7 452 574.37. the contract was

modified twice (x2). 1st Mod was for money (R4 603 289,52) and was approved on 22 March 2018. The 2nd Mod was for money

(R823 415,39) and time (additional 6 months requested). The request to modify the contract with National Treasury was on the

second modification and was submitted to NT on 18 April 2020 and received on 19 April 2020. National Treasury declined to

approve the modification on the basis that the 1st modification which was supposed to be submitted for approval did not reach

National Treasury. The reasons why the first modification was not submitted was because of the “and/or” rule on modifications

provided for in the Eskom Procurement and Supply Chain Management procedure. The mod was not pursued and the

condonation process was followed.

SS

19


Transmission

NT Ref. No Project Description Reason for Expansion NT Response

68

Construction of a new 100/132 Kv Terrace

at Komsberg MTS substation for IPP

Integration

Supplier: Rigamani Construction (Pty) Ltd


Cumulative Mod. Value: R32 652 298,57

Cumulative Mod. %: 55,76%

To implement the Adjudicator’s

decision award in favour of the

Contractor which is

enforceable under the NEC

contract.

Conditionally approved

NT Recommendation:

• Eskom is advised to submit a variation request to

National Treasury when the dispute resolution process is

finalised.

Action Taken:

Eskom is taking the matter to arbitration after the

adjudications' ruling.

Once finalized the matter shall be closed & feedback will ne

provided to National Treasury.

Brief Summary:

This transaction was a Task Order to the supplier from the Civils Panel. The first modification on the Task Order was for value

only for R18 194 984,21 (Ex Vat). The second modification was for time only, 1 month time only. The third modification request

was for 21 days (time only). Mod No4 was for R14 557 314,36 (ex Vat), no time requested. The request to National Treasury for

approval of the modification was submitted on 27 June 2020 and response received on 15 September 2020. The approval was

conditional and Eskom was requested to submit a variation request when the dispute resolution process was finalized.

SS

20


Transmission

NT Ref.

No


58

Legal services for Medupi Borutho

Line

Supplier: Gildenhuys Malatji Inc

Original Value: R1 150 000.00 (Incl.

Vat)

Mod.1: Value: Nil, time: two months

Mod 2: Value: Nil, time: 12 months

Mod 3; Value, nil, Time: 09 months

Cumulative Mod. Time: 23 months

Cumulative Mod. % Time: 192%

Continuation of services with the

originally appointed legal firm as

the matter had not yet been fully

resolved and the appeal process

was still pending

Not approved

NT Recommendation:

Modification request was rejected by National

Treasury as it was received after the contract expiry

date

Action Taken:

Eskom is pursuing a different procurement mechanism to access legal

services to see this transaction to completion.

Brief Summary:

This transaction was for the resolution of a dispute between Eskom and the Contractor (Instalaciones Inabensa) appointed for

the construction of the Medupi Borutho line. Eskom terminated the contracts for Medupi Borutho Sections A and B line and

applied for the release of the performance guarantees with the supplier’s Guarantor (Sanlam). The supplier filed an urgent

interdict to the request and to oppose the interdict, Gildenhuys Malatji Inc attorneys were appointed on 17 August 2018 for 12

months. The contract with the legal firm was for a year for R1 million (excl VAT). The contract has been modified two (2) times

for time only, and it was rejected by NT on modification number 3, which was also for time. The contract expiry date was 17

October 2020. The submission was received by National Treasury on 21 October 2020. National Treasury advised that it

cannot extend an expired contract. Eskom will be pursuing a single source application to National Treasury to mitigate the risk

of wasteful and fruitless expenditure and increased costs as a result of the appointment of a different service provider without a

background to the transaction.

SS

21

CONDITIONALLY SUPPORTED

DEVIATIONS

22

Number Project Description Supplier Value of

Contract

Reason for Deviation Approval Condition/s

71

Q1

Solicit coal from a single

source, South 32's Khutala

Colliery, for supply to

Kendal and other Eskom

power stations

South32 SA

Coal Holdings

R50.83 billion Khutala is situated

adjacent to Kendal with

an existing

infrastructure to deliver

coal through a

conveyor directly to the

Kendal electricity

generating units.

NT supports the extension of the

contract with South32 by an

additional 21 months over and

above 9 months already granted

(30 months in total) on conditions

that

Q1

Not on

NT

Register

Solicit coal through a single

source from Seriti, for supply

to Lethabo and Tutuka power

stations, respectively and

other Eskom power stations

Seriti Coal/ New

Denmark

Colliery

R76 billion The lifespans of the

respective power

stations have been

extended to about 50

(fifty) years hence the

additional coal supply

for further periods

subsequent to the

expiry of the CSAs is

required.

NT supports the deviation on

condition that the reasonableness

of the price is assessed, no other

potential suppliers are

disadvantaged and that there are

economic benefits to continue

with the cost-plus Coal Supply

Agreements until the expected

usage life of the power stations.

Conditionally Supported Deviations

Primary Energy SN

23


Legal & Compliance


Contract

Reason for

Deviation

Approval Condition/s

104

Q3

Dismantling and removal of 101

towers (31.7KM) of scrap steel

structures at Atlas-Matla Line and

Rehabilitation of Foundation

J.S Metals 524 428.75 Continuation of

service

NT supports the deviation

on condition that: a) The

remaining scope of work is

part of the original

appointment and contract;

b) Cost implications are

market related; c) Eskom

assesses the expenditure

for elements of fruitless and

wasteful expenditure and

submit a report to NT; and

d) The contract terms and

conditions still remains the

same.

NO

24


Group Capital


Contract

Reason for

Deviation


82

Q1

Contract Claims Service HKA Global (Pty) Ltd 314 990 728,09 Business

continuity

NT support the deviation for

a period of 18 months on

condition that the rate per

hour are market related and

that resources and hours

assigned for this project are

independently verified.

Q1

Not on

NT

Register

Leasing of property at Cator

Ridge site camp for the

storing of projects equipment

and materisl for Adriadne

Eros multi circuit line section

A project

Elizabeth Ann Dupont R828 000.00 The materials

abandoned by a

contractor when

they abandoned

construction

work are stored

in a secure site

and moving them

would result in

fruitless and

wasteful

expenditure.


on condition that the rental

per month is market related

and the market is tested

within the approval period

BN

25


Group IT


Contract

Reason for

Deviation


84

Q1

Provision of Financial Risk

Management Analytics Software

Maintenance and Support

Fincard Europe Ltd 978 309,60 Business continuity NT supports the deviation

based on the nature of service

for 24 months on condition

that Eskom concludes a

competitive bidding process

within this period, and that the

deviation does not regularise

any irregularities that may

exist in the current contract.

Q2 Solicit services from Nextec

Industrial Technologies for the

provision of application support of

meter data repository,

transmission meter data

management support and KSACS

metering data management

support

NEXTEC Industrial

Technologies (Pty)

Ltd

R59 321 914.28 Business continuity NT supports the extension for

a period of 3 years on

condition that Eskom finalises

the RFI process and submits

the outcome to National

Treasury for review purposes.

FB

26


Distribution


Contract

Reason for

Deviation


99

Q2

Request for approval to solicit

services from a single source for

site supervision from Mkondeni,

KZN to Twickenham substation in

Limpopo

Continental Africa

Power Supply

R107 941.44 To retain the

warranty of the

transformer


conditition that it is cost

effective to procure these

services directly from the

supplier and value for money

will be achieved.

100

Q2

Lease with current Landlord for

Thabakgolo Building in the

Limpopo Operating Unit (LOU)

Redefine Properties

Limited

722 390.24 Secure landlord NT supports the deviation on

condition that the rental per

month is market related and

the market is tested within

the approval period of 54

months.

MB

27


Contract

Reason for Deviation Approval Condition/s

72

Q1

Supply, delivery and

offloading of lubricants

BP Southern Africa (Pty)

Ltd, Astron Energy (Pty)

Ltd, Engen Petroleum

(Pty) Ltd and Shell South

Africa Refining (Pty) Ltd

378,585,761.98 The reasons for single

source methodology is

due to Eskom’s lack of

Lubricants

compatibility testing

capacity and the

uncertainty of the open

market or lubricant

manufacturer’s ability

to perform same.


the to appoint the 4 fuel

companies for 3 years on

condition that Eskom

completes the process for

obtaining the independent

SP for compatibility testing

within the 3-year period,

and immediately initiate the

tender for Fuel thereafter,

PRIOR to the 3-year expiry.

No further deviation on this

commodity will be granted.

86

Q2

Design, Supply, Install

Commission and Optimize

High Frequency Power

Supply Units at Matla

Power Station for

Particulate emission

reduction purposes

Castel SA 240 000 000,00 Expansion of scope

(time & material)


condition that the cost

implications are reasonable

and no other authorized

agents are disadvantaged


Generation PD

28

CONDITIONALLY SUPPORTED

EXPANSIONS

29

Conditionally Supported Expansions

Group Capital

Number Project Description SupplierReason for

Expansion

Original

Contract Value

Value of

Contract

Extension

Value of

previous

extensions


41

Q2

West Flue Gas

Desulphurisation

(WFDG) Plant

Alstom S and

E Africa (Pty)

Ltd

Expansion of

scope (time &

material)

27 048 958 274 590 776 308 937 779 NT supports the inclusion of contingency

costs on condition that they are reasonable

and measures articulated in paragraph 5

above are implemented. Furthermore,

Eskom is requested to submit the additional

information requested in the letter dated 30

September 2020.

43

Q2

Construction of

miscellaneous

structures at Kusile

Power Station

Stefanutti

Stocks Basil

Read Joint

Venture

Expansion of

scope (time &

material)

268 251 506 1 877 17000 3 178 921 724 NT notes the above response from Eskom.

However, Eskom is requested to provide

feedback regarding the status of the delay

damages assessment (i.e. how much was

applied and calculated) since it was still

draft at the submission of this letter in

January 2020.

62

Q2

Supply and delivery of

coal to Kusile Power

Station and/or any other

Eskom power station

HCI Expansion of

scope

8 605 221 840 309 380 700 0 NT supports the expansion of this contract

for the remainder of the contract period, on

condition that Eskom provide the following

information within 7 working days from the

date of this letter:

-A copy of the original contract with HCI

Commodities (Pty) Ltd;

-the specific contract clause that allows for

changes in the scope;

-the outcome of the negotiation confirmed

by both parties (Eskom and HCI);

-HCI’s confirmation that they can meet the

change through the combining of the two

contracted Eskom products, changes in

mining method and increase in coal

beneficiation/washing; and

-evidence of the cost comparison

BN

30


Group Capital


Expansion

Original

Contract Value

Value of

Contract

Extension

Value of

previous

extensions


56

Q2Procurement of Control

and Instrumentation

(P17C) at Medupi Power

Station

Siemens (Pty) Ltd Continuation of

service

1 284 080 088 167 824 729 101 622 509 NT supports the extension on

condition that and independent

assessment of costs is performed

prior to these payments being

made.

The cost of contingency fund of

R169 704 966.70 already

committed is independently

verified

and assessed before it is

processed.

- The validity of cost incurred for

Variation Orders (VO’s) of

Modification 2 are investigated.

- The time delays caused by

access delays should be

investigated and action must be

taken

against the officials who caused

delays as this is fruitless and

wasteful expenditure.

- Investigate if all the

design/technical changes done

and approved by Eskom

engineering

department were valid and

necessary.

- The outcome of the investigation

& independent assessment of the

costs is submitted to

National Treasury for review and

record purposes.

BN

31


Group Capital


Expansion

Original

Contract Value

Value of

Contract

Extension

Value of

previous

extensions


65

Q2

Turbine Generator (P03)

Medupi Power Station

Alstom South &

East (Pty) Ltd

Continuation of

service

13 364 641 808 116 567 868 0 NT supports the extension on

condition that these costs are

independently verified as follows:

-Internal audit must investigate the

validity of time sheets of additional

operators before

any payment is done.

-The cost for extension of time under

provisional amount is supported on

condition that

costs are verified and audited before

payment is processed.

-The costs incurred for storage and

preservation costs that have

increased as result of

late commissioning of the Units is

recovered against those who caused

delays.

-The amount charged for delay

damages is recovered

-The cost for Employer's Project

Attendance Bonus as part of the

Project Labour

Agreement is not supported.

BN

32


Group Capital

Number Project

Description

Supplier Reason for

Expansion

Original

Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


34

Q3

Boiler works

at Medupi

Power

Station

Mitsubishi Hitachi

Power Europe

and Mitsubishi

Hitachi Power

Africa

Sole Supplier

and/or Single

Source – e.g.,

OEM

465 336 659 22 204 739 303 3 242 525 478 NT supports the extension on condition

that these costs are independently verified

as follows:

-Internal audit must investigate the validity

of design discrepancies and employer’s

risk costs

before any payment is done

The cost for scope development is

supported on condition that costs are

verified and audited

before payment is processed.

-The costs incurred for access to site are

not as a result of poor planning by Eskom.

Any

delays to access to site must be recovered

from the relevant officials/ service

providers.

57

Q3Contract

Claims

Advisory

Services Panel

at Group

Capital for time

and money

HKA Vharanani

Properties Joint

Venture (HKA VP

JV), C-Squared (C2)

and Price

Waterhouse

Coopers (PWC)

Depletion of funds 389 500 000 38 208 043 0 NT supports the extension on condition

that appropriate measures are in place to

verify the hours and the actual work done

by these service providers.

BN

33


Distribution


Expansion

Original

Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


36

Q2

Provision of maintenance and

repairs to located high

voltage oil-filled and XLPE

cables from 44KV to 132KV

by joining and terminating

within Gauteng OU on as and

when required basis

J&J Cable Jointing;

Mbeu Engineering;

Vuka-u-Zenzele and

F&J Electrical

Business continuity R34 500 000 R17 920 833 R5 106 000 NT supports the modification for

twelve months only on condition that

the original terms and conditions of

the contract remains the same.

Eskom must ensure the process of

appointing new suppliers is finalised

within the approved period and the

cost be revised in line with the

approved period.

61

Q2

Provision of a panel of

electrical contractors for

minor and major work within

the reticulation portfolio

Panel of electrical

contractors

Continuation of

service

237 921 912 36 577 811 R19 549 042 NT supports the expansion on

condition that the cost implications are

market related and aligned with the

extension period.

63

Q2

Provision of Legal services Harkoo, Brijlal,

Reddy and

Incorporated

Continuation of

service

1 740 000 4 049 200 0 NT supports the variation on condition

that the internal auditors

independently review the costs before

payment is made, to justify the cost

implications.

70

Q3

Electrical contracts Panel of contractors To allow for

establishment of a

new panel

46 698 637 18 748 693 R9 201 210 NT supports the extension up to 31

October 2021, on condition that the

panel contract is established before

the expiry of the approval period and

the variation rate is market related.

71

Q3

SPU metering reading

services

Panel of contractors Insufficient funds 46 798 992 7 760 336 R6 801 283 NT supports the extension of contract

up to 30 April 2021, on condition that

the activities required to support the

revised strategy are realized.

MB

34


Transmission

Number Project Description Supplier Reason for

Expansion

Original Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


66

Q3

Provision of physical

security services for

Eskom Holdings SOC

Ltd and National Key

Points

Various service

providers

Increase in the

demand for security

services

1 515 550 650 269 647730 0 National Treasury supports

the expansion without the

contingency amount and on

condition that the

reasonableness of price is

assessed. Eskom must fast

track the procurement

process and ensure that a

new contract is in place

before the expiry of this

expansion.

69

Q2

Stringing and cabling

at Pluto and Midas

Substation

Gebane

Engineering

services cc

Outages 12 133 372 990 755 1 840 726 National Treasury supports

the expansion from 01

October 2020 to 30 June

2021, on condition that the

correct threshold was applied

for this expansion and that the

expansion is for construction

related services and not for

goods (items).

SS

35


Primary Energy

Number Project Description Supplier Reason for ExpansionOriginal Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


49

Q2

Request for approval to modify

a contract with Namane

Commodities for the supply of

coal to Kusile PS and/ or any

other Eskom PS

Namane

Commodities

Business continuityR1 261 859 580

NT supports the expansion of

this contract for the remainder of

the contract period, on condition

that Eskom provide the following

information within 7 working days

from the date of this letter:

-A copy of the original contract

with Namane Commodities (Pty)

Ltd;

-the specific contract clause that

allows for changes in the scope;

-the outcome of the negotiation

confirmed by both parties

(Eskom and Namane);

-Namane’s confirmation that they

can meet the change through the

combining of the two contracted

Eskom products, changes in

mining method and increase in

coal beneficiation/washing; and

-evidence of the cost comparison

59

Q2

Expansion request for Duvha

CSA with South32

South 32 To ensure continuity of coal

supply to Duvha while Eskom

and SAEC engage in the

proposed negotiations to

conclude a new coal supply

agreement for the life of Duvha.

R 11 416 000 000 NT supports the extension for a

period of nine months (1

November 2020 to 31 July 2021)

on condition that Eskom goes out

to market on an open and

competitive process within this

period to establish the long-term

contract. No further extension on

this contract will be considered

SN

36


Primary Energy

Number Project Description Supplier Reason for Expansion Original

Contract Value

Value of

Contract

Extension

Value of

previous

extensions


48

Q2


a contract with HCI (Pty) LTD

for the supply of coal to Kusile

PS and/or any other Eskom

PS

HCI Business continuity R8 605 221 840 NT supports the expansion of

this contract for the remainder

of the contract period, on

condition that Eskom provide

the following information

within 7 working days from the

date of this letter:

56

Q2


a contract for the supply of

professional legal services on

the South32 SA Holdings

divestment transaction

Poswa

Incorporated

Ensure the completion of the

works by Poswa Inc. and the

team of consultants for the

commercial due diligence

exercise on Seriti Resources

with respect to South32 sale of

its ~92% shareholding in South

Africa Energy Coal to Seriti.

R12 000 000NT supports the variation in

the amount of R4 633 962.13

(excluding VAT) on condition

that the appointment of Poswa

Inc. through the urgent

procurement process was

justified and not in

contravention of any

procurement prescripts and

the variation does not include

services already rendered by

Poswa.

SN

37


Expansion

Original

Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


53

Q1

The supply, delivery and

offloading of lubricants

to various power station

BP Southern

Africa (Pty)Ltd,

Alstron Energy

(Pty) Ltd,

Competitive

bidding in

progress

56 259 591.66 63 185 124.99 0.00 NT supports the extension for

six months, commencing on 1

September 2020, on condition

that the reasonableness of

price is assessed and that the

closed tender process, as was

approved on 23 June 2020, be

finalised within this approval

period.

54

Q1

Maintenance of Air

Heaters and Draught

Plant Fans and the

supply of spares for the

same plant,

Howden Africa Additional scope

of work

1,307,263,650 212,996,854.40 0.00 NT supports the extension on

condition that the tender

process will be finalised within

the extension period and that

feedback regarding the status

of the tender process is

submitted to National Treasury

by end of July 2021.

55

Q1

Supply, delivery and

Off-Loading of Sulphuric

Acid to Eskom's Coal

Fired Stations

Maano Water

(Pty) Ltd

Urgent

procurement

25,480,678.20 60,731,868.50 0.00 NT supports the request to

issue an urgent procurement

as an interim measure on

condition that the outcome of

the procurement process is

submitted to National Treasury

for review purposes.

51

Q1

Provision of diesel

storage and handling

for Ankerlig Power

Station in Atlantis

Vesquin

Trading (Pty)

Ltd

Competitive

bidding in

progress

113,850,000 5,369,750.00 0.00NT supports the extension on

condition that the storage cost

per liter has been assessed

and is market related.


Generation PD

38


Expansion

Original

Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


50

Q1

Procurement of the

investigation of the site

geology, micro-seismic

monitoring and the

execution of Senior

Seismic Hazard

Analyses Committee

(SSHAC) Level 3

Probabilistic

Council of

Geoscience

Change in contract

conditions and

scope change

264,024,021.85 24,930,997.59 0.00 NT supports on condition that the

reasonableness of costs was

assessed and the additional costs

requested are not fruitless and

wasteful expenditure, and Eskom

submits a breakdown of the financial

implication according to the three

reasons provided for modification.

55

Q2Supply, transportation,

erection and dismantling

of scaffolding and

insulation material

Southey

Contracting (Pty)

Ltd; Kaefer

Thermal

Contracting

Services (Pty) Ltd;

SGB-Cape, a

division of Waco

Africa (Pty) Ltd

and TMS Group

Industrial Services

(Pty) Ltd

Continuation of

service

378 499 500 551 425 000 6 119 911 519 NT supports the extension of the

contract for 6 (six) months from 01

January 2021 to 30 June 2021, on

condition that Eskom negotiates prices

to market related rates with the

suppliers for this extension. Eskom

must ensure that the tender process is

finalised by 30 June 2021 and

progress report on the status of this

tender process should be submitted to

National Treasury by end of March

2021


Generation PD

39

Number Project

Description

Supplier Reason for

Expansion

Original

Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


38

Q2

Maintenance and

Outage Repair

Services for Boiler

Pressure PARTS,

and/or the

maintenance and

outage repair

services for High

Pressure Pipework

for Generation

Power Station

Steinmuller Africa

(Pty) LtdBabcock

Ntuthuko

Engineering (Pty)

LtdActom (Pty)

Ltd

Business

Strategy/operations

(Recently found

with SOCs with their

turn-around

strategies)

851 000 000 2 764 848 780 15 610 026 394 NT supports the extension only for three

months based on the nature of service

and in order to allow Eskom to submit the

outcome of the RFI process as well as

the resolutions taken by the Board in the

meeting to be held in February 2021.

Q2

Not on NT

Register

Refilling and

servicing of fire

extinguishers on an

as and when

required basis for a

period of 36 months

MASUNGI FIRE

SYSTEM CC

Due to insufficient

funds to cover the

entire scope of

work.

R277 457.02 NT supports the modification in the

amount of R200 000.00 (including

R77 889 contingency) for the remaining

period of the contract on condition that

the rates charged are in line with the

current contract and market related.

59

Q3

LV Motor Repair and

Refurbishment services

for the procurement of

LV motor repair and

refurbishment services

Marthinusen and

Coutts Cleveland A

division of Actom

(Pty) Ltd

Depletion of funds 17 201 230 1 918 487 2 434 306 NT supports the variation from date of

approval of this letter until 31 December

2020 on condition that the cost

implications are assessed for elements of

fruitless and wasteful expenditure,

contract is not irregular and a report is

provided to National Treasury. Any

expenditure incurred from 08 September

2020 until date of approval of this letter

may be declared irregular.


Generation PD

40

Number Project

Description

Supplier Reason for

Expansion

Original

Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


46

Q1

IT Services

during

Disengagement

T-System

SA

Competitive

bidding in

progress

2,936,231,859 90,000,000 4,944,786,345 National Treasury supports the

extension for two months on condition

that the procurement process is

concluded within these 2 months, and

the reasons provided above does not

contravene any SCM prescripts and

the prices after the due diligence does

not change the ranking of the tender

process. No further extensions will be

granted.

48

Q2

Application and

maintenance

support for

Energy Trading

System (ETS).

NEXTEC

Industrial

Technologi

es (Pty) Ltd

Competitive

bidding in

progress

3 040 937.35. 1,344,423.76 0.00 National Treasury supports the

deviation for six months on condition

that the cost implications are

reasonable and the RFP process will

be finalised within the six months

68

Q3

Provision of

mobile

connectivity

services to all

Eskom divisions

Vodacom SA

(Pty) Ltd

Continuation of

service

80 000 000 53 200 143 0.00 National Treasury supports the

extension for 9 months on condition

that the reasonableness of costs is

assessed.


Group IT FB

41


Expansion

Original

Contract

Value

Value of

Contract

Extension

Value of

previous

extensions


39

Q2

Provision of Legal

services

Mothle Jooma

Sabdia

Expansion of

scope (time &

material)

230 000 517 500 0.00 On condition that the cost

implications are negotiated with the

supplier and reasonableness of

costs is assessed

61

Q1

Provision of legal services

in respect of various air

quality including Kendal

and other matters at

Eskom holdings.

ENS Africa Continuity of

service

R690 000.00 R575 000.00 0.00 National Treasury supports the

variation on condition that the

reasonableness of costs was

assessed

47

Q1

Provision of legal

services

Mamatela

Attorneys

Continuity of

service

402,500.00 517,500.00 0.00 On condition that the rate per hours

are cost effective and for actual work

to be performed and Eskom submits

the justification for the seemingly

exorbitant cost implications.

64

Q2

Provision of Legal

services

Reneqe

Attorneys

Continuation of

service

1 035 000 3 565 000 0.00 On condition that the internal

auditors independently review the

costs before payment is made, to

justify the cost implications.

58

Q3

Request for modification -

MKHULU – IMAB

CONSORTIUM Legal

Services

Gildenhuys

Malatji Inc.

Continuation with

arbitration matter.R 459 425.00 R1 610 575.00 0.00 NT supports the variation on

condition that the internal auditors

independently review the costs

before payment is made, to justify

these cost implications.


Legal & Compliance NO

Conclusion

• Eskom and National Treasury are engaging at a higher level to agree on the acceptable

turnaround time to process the applications. There are now regular meetings scheduled

between the parties.

• The finalization of the appointment of the Divisional Procurement leads is complete and

they are tasked with the responsibility to monitor compliance to the requirements of the

Ministerial Equity Conditions which include inter alia deviations and expansions at a

Divisional level

• Reconciliation of the NT registers and Eskom registers take place

• It has been agreed that regular feedback will be provided to ExCo and Board

42

JS

Contents






generation licence





conditions


Update on coal contract renegotiations

Eskom undertook a bottom-up cost of mining exercise on all existingShort/Medium Term coal contracts. The exercise was based on information availableto Eskom and the knowledge of internal coal mining subject matter experts.

Due to the low stock days experienced in FY19, a number of short to medium termcoal contracts were concluded through urgent and emergency procurementactivities. The desperate situation that was known to coal suppliers, Eskom had verylimited negotiation leverage and some of the contracts were sub optimally priced

Engagements were held with seven suppliers (i.e. suppliers with high profitmargins) to explore opportunities to reduce the contracted prices

Eskom approached suppliers on individual contracts; however, it soon becameapparent that most of the suppliers were only willing to engage on a portfoliobasis. This meant that the lower priced contracts would be included for re-opening onprice discussions. This resulted in higher overall costs to Eskom

Suppliers saw this as an opportunity to increase their overall supply to Eskomby either offering additional volumes or new resources as a condition for pricereductions. This approach did not present a cash savings for Eskom as theadditional coal offered is not the cheapest option and given the current low demandand high stock days this is not a viable solution

44

(1/4) SN

One of Eskom’s cost reduction levers was the optimization of the coal inventory byreducing coal deliveries to minimum contractual levels for all contracts, withoutcompromising the station grid code levels. In addition, due to the low demandexperienced in the first half of 2020, force majeure letters were issued to suppliersand engagements are underway to reduce coal deliveries to below the minimumcontractual levels.

These operational requirements posed challenges to the re-negotiation process assome suppliers wanted the resolution of operational issues as a pre-requisite for anyengagements on cost reduction initiatives. Given the current high stock levels, anincrease in their monthly volumes back to nominal levels is not feasible.

Out of the negotiations with identified seven (7) suppliers, only one (1) suppliernegotiation has yielded an indirect benefit to Eskom. This is related to an indirectsaving on changing the loading point of an existing contract thereby reducing thelogistics cost is currently in the process of being effected.

Eskom was unsuccessful in achieving the desired outcomes of renegotiating theprices down and therefore the direct savings value attached to the above high pricedcontract renegotiation initiatives are now valued at 0.

45

(2/4)

Update on coal contract renegotiationsSN

Feedback on negotiations per supplier

SUPPLIER No. Of

Contracts

SUPPLIER OFFER OUTCOME

Supplier 1 6 • Not willing to consider specific contracts but rather

a portfolio review and a price increase on their lower

priced contract

• The supplier has also requested a response from

Eskom on an offer from an associate company first

prior to the supplier responding back to Eskom on this

engagement. The associate company’s coal offer

was expensive for Eskom.

• Analysis shows increasing the price of the lower

priced contract and decreasing the expensive

contracts will be net negative for Eskom.

• Eskom’s position is that the offer tabled is

unaffordable

• No savings have been achieved and related

engagements have been terminated

Supplier 2 4 • The supplier offered a tiered discount based on

monthly volumes with the effective discount being

~10.3% subject to a 3 year contract tenure increase

and monthly volumes increase

• This would have resulted in an approximately 211%

contract value increase.

• The suppliers offer does not reduce the current

price to an acceptable level to justify a 3 year

tenure

• Based on the current low demand, additional coal

is not required and hence the conditions for savings

offered cannot be considered

Supplier 3 1 • Supplier has offered to double their monthly

contractual supply schedule and to be allowed to

supplement ~25% of the supply from alternate

sources for a period of 24 months.

• The price reduction offered is 2% on the ~25%

alternate supply for 24 months. This proposal results

is a small saving to Eskom

• Based on the current low demand, high stock days

and associated minimum offtake profile, any

consideration of an increase in monthly offtake

volumes are not feasible at moment.

• No savings achieved, however the offer is being

analysed to quantify the impact of the small savings

offered against the offer to double the monthly

contractual supply to ensure it is a feasible option

for consideration.

46

(3/4) SN

Feedback on negotiations per supplier

47

SUPPLIER No. Of

Contracts

SUPPLIER OFFER OUTCOME

Supplier 4 4 • An offer was received offering a 4% reduction on 2 of

the current contracts subject to the following

• Enter into a new contract from the identified contract

resource at a higher price and quality (for approximately

6Mt).

• Enter into new contracts from 2 additional resources

(approximately 40Mt)

• All Eskom’s new coal contracts have to come

through a tendering process and the proposal to sign

new CSAs outside of a tender process will result in

unfair procurement practices and is thus not

supported.

• No savings achieved

Supplier 5 4 • Offer based on other negotiations in portfolio

• Savings opportunities offered are being explored as

part of negotiations on the Kusile RFP and changing the

coal loading point on an existing contract

• Indirect savings opportunity in implementation stage

based on changing the loading point thereby reducing

logistics cost.

• The option to collapse an existing high price CSA

and conclude a new CSA under the Kusile RFP at a

lower price was being negotiated. However this CSA

has since expired as the contracted energy has been

delivered.

Supplier 6 1 • Operational issues (low monthly offtake) to be resolved

before price engagements can commence.

• However, they have offered coal from an alternative

resource that is not part of this contract with an

associated price reduction to an alternate Power Station.




volumes are not feasible at moment

• The proposal for the alternate resource for another

Power Station is not viable as this station is fully

contracted.

• This option is also not preferred as a contracted

resource being replaced by an alternate one with

associated legal implications.

• No savings have been achieved

Supplier 7 1 • Supplier requires that the contracts monthly nominal

values to be maintained (without any possibility of a

reduction) prior to any price reduction discussions




volumes are not feasible at moment.

• No savings have been achieved

(4/4) SN

Contents






generation licence





conditions


Update on Medupi and Kusile Construction

49

The target commercial operation (CO) date for Medupi Unit 1 is July 2021.

Medupi is expediting the Unit 1 commissioning schedule to achieve earlier CO

BN(1/4)

We remain focused on bringing new capacity online and driving effective plant defect corrections

FY 2015 – FY 2021

IngulaUnit 4

Mar-17Jun-16

333

IngulaUnit 1Jul-17

Aug-16

333

IngulaUnit 2

May-17Aug-16

333

IngulaUnit 3Jan-17Jan-17

333

MedupiUnit 5

Mar-18Apr-17

794

Kusile Unit 1

May-18Aug 17

799

MedupiUnit 4Jul-18

Nov-17

794

MedupiUnit 2Dec-19Nov-19

794

Sere Wind Farm

Mar-15

100

MedupiUnit 6Jun-15

Aug-15

794

MedupiUnit 3Jun-19Jul-19

794

KusileUnit 2Jan-21Oct-20

799

MedupiUnit 1Jul-21

794

KusileUnit 4Jan-23

800

KusileUnit 3

Mar-21

800

KusileUnit 5Dec-23

800

7 000MW commissioned since 2015 & 13 137MW commissioned since 2005 ….

FY 2021 – FY 2025

KusileUnit 6

May-24

800

Latest Eskom Board Approved Target DatesCompleted Units

…3 994MW to be commissioned over the next 4 years

Target scheduleAchieved CO on or earlier than target

Total new Generation capacity, end of the build programme : 17 132MW

Year to Date: Progress on

Synchronization milestones

• Kusile Unit 3 1st sync Apr 19• Medupi Unit 1 1st sync Aug 19

A

BN(2/4)

Major plant defects and high-level progress feedback: Solutions

51

In total, six major plant defects are applicable to Medupi and Kusile and one major plant defect is applicable to Ingula

Medupi/Kusile

• Pulse jet fabric filter plant (PJFF)

• Mill defects

• Dust handling plant (DHP), ash silos and conditioning plant

• Furnace exit gas temperatures (FEGT) and reheater sprayflows

• Gas air heater (GAH) performance and fouling

• Control and instrumentation (C&I) repeated distributedcontrol system (DCS) card failures.

Ingula

• Dual-Load Rejection (defect closed)

We are making steady progress in resolving the major new plant defect challenges:

• Major New Plant Defect Correction Plan is being executedand closely monitored

• Effective February 2020, the Ingula dual-load rejectiondefect was corrected successfully (units upgraded from245MW to 331MW sent out capacity)

• The availability and reliability of the synchronised units atMedupi and Kusile are gradually improving

• Medupi Unit 3 identified as a test case to implementdefects resolutions and establish root cause analyses,before implementing all the solutions on the other units.

• In April 2020, Medupi Unit 3 reached full generationcapacity (793MW) after implementing design defectmodifications. The Unit has achieved seven consecutivemonths of improved performance on the modified plantsince the implementation thereof.

Note:• At this stage, the defect costs will be split on a 50%-share

basis between Eskom and the contractor (MHPSA) at bothMedupi and Kusile. Meanwhile, an important contractualprocess (Clause 3.5 Consultations, Determinations) is underway through the Dispute Arbitration Board (DAB) todetermine liability.

• The current estimation for completing the effectivecorrection of the major boiler plant defects at Medupi andKusile is 2023, depending on the outage availability of theunits as per the Generation Division outage plan.

2-Mar-21

B

BN(3/4)

New Plant Major Design Defects: Medupi and KusilePower Station

2-Mar-21 52

B

BN(4/4)

Contents






generation licence





conditions



54

McKinseyIn 2018 Eskom recovered an amount of R1 billion from McKinsey.

DeloitteIn March 2020 Eskom recovered an amount of R171 million from Deloitte

MeagraEskom recouped R3m of the R35m from Meagra and we are pursuing the balance. The

owner of Meagra and a former Eskom employee are facing 53 counts of fraud and theft

ABBIn December 2020 Eskom recovered an amount of R1,577 billion from ABB

Brian Molefe and 11 others

Eskom is pursuing civil action against a number of former Eskom executives to recover

large sums of money lost as a result of State Capture.

Combined summons and particulars of claim for R3,4 billion were issued against the

12 defendants, with the SIU cited as co-plaintiff, on 3 August 2020.

Of the 12 defendants, we are only pursuing claims against the 7 former Eskom

executives, based on breach of fiduciary duties and contract.

In light of several notices and interlocutory applications having been filed by the

defendants, the matter has been placed under case management, and a judge has

since been appointed for this purpose. A meeting will be scheduled shortly.

NO(1/6)

55


Tenova Mining and Minerals South Africa (Pty) Ltd

Tenova initiated Dispute Adjudication Board (DAB) proceedings against Eskom arising

from the engineer's rejection of certain claims, and claims payment of an additional R339

million above the already paid R1.1 billion on purported settlement agreements that

Eskom alleges were not agreed to. The DAB will entertain certain preliminary defences first.

The SIU is investigating the directors of the company as it is suspected that they had

colluded with Eskom personnel, through third party subcontractors.

Tubular Construction (P11A Air cooled condenser / Kusile)

Tubular submitted an ongoing delay and disruption claim against Eskom in the amount

of approx. R240 million. Eskom successfully opposed the claim at DAB, and they

notified dissatisfaction. The civil claims are dormant but the SIU is investigating

NPA has charged Tubular directors and ex-Eskom employees with various fraud and

corruption charges. Once further information is available, Eskom will consider the option of

proceeding with a review application to have the contract set aside.

Tubular has since been placed in liquidation.

NO(2/6)

56


Trillian

Eskom instituted action against Trillian to recover payment of approx. R600m made on the

pretext of Trillian being a supplier development and localisation partner to McKinsey.

Judgment was awarded in Eskom’s favour. Trillian’s leave to appeal was refused, and it was

ordered to pay Eskom within five days from 2 October 2019. No payment was received.

Eskom launched liquidation proceedings against Trillian on 17 January 2020. Liquidators

have been appointed and are working with SARS on the liquidation. Liquidation proceedings

are underway.

The inquiry in terms of section 417 of the Companies Act, 1973 commenced on 26 November

2020, with the former CFO of Trillian giving evidence. He will continue to testify when the

inquiry recommences on 22-26 February 2021.

PwC

Eskom issued a letter of demand to PWC in April 2020 demanding repayment of the sum of

R95m that was unlawfully paid to PWC.

PWC was contracted by Eskom on a risk based contract to realize capex savings on its

generation projects. It has since been established that Eskom paid PwC R108 million, and

court papers will be issued and served shortly.

NO(3/6)

57


Stefanutti Stocks Basil Read (SSBR) – Estimated overpayment of R1bn

SSBR (P16) put in claims for additional preliminaries and general (P & G) due to

prolongation and stacking - working in multiple areas at the same time. These claims were not

substantiated as required by the contract

The employer’s representative and contracts manager at the time (2015 to 2018) made interim

payments to the contractor without the requisite substantiation, this was done on the basis

that they would conclude an overall “settlement agreement”. There was no consistency or

verification of the actual P & G’s being paid on a monthly basis. The monthly payments varied

between R15m to R50m per month

No settlement agreement was reached and in early 2018 the new project director stopped

the interim payments that were being made. SSBR referred this action (non-payment) to the

dispute adjudication board (DAB).

Eskom successfully defended this adjudication and is now in mutually agreed discussions

with SSBR and the standing DAB about the process to determine the actual claim

entitlement. Progress has recently been made in relation to the delay analysis between the

contractor and Eskom experts.

SSIJV (P28) - during the execution of the contract, certain compensation events (CE’s) were

agreed and paid without the final measurements being done. The contractor has also submitted

various other deemed accepted CE’s claiming that the work was done and needs to be paid for

at the contractor’s CE values. These disputes are currently in adjudication

NO(4/6)


58

Impulse International

Two summons were served by Impulse (R22 million to ERI and R61 million to Eskom

Holdings). Eskom is opposing the actions, and has also made an application requesting the

court to grant an order declaring the contracts previously awarded to Impulse unlawful and void

ab initio, and that they be set aside. Eskom is also requesting the court to order that it be

reimbursed for all payments made to Impulse International pursuant to these contracts

NO(5/6)

59


Econ Oil and Energy Pty (Ltd)

i) Overcharging Dispute

On 14 December 2020, Bowman Gilfillan Attorneys provided Eskom with its Interim Report on the

quantification of overcharging by Econ Oil in the amount of approx. R1.2 billion over a 5 year

period (2012-2017). Eskom instituted arbitration proceedings against Econ Oil (through AFSA) on

17 December 2020 to recover this sum. Econ has not yet complied with the AFSA rules regarding

payment of administration fees, proposals on the appointment of an arbitrator, and filing of its

Statement of Defence. Should it not comply, the arbitration will still proceed and Eskom would be

required to pay Econ Oil’s share of the relevant costs, including AFSA’s fee. If successful in the

arbitration, these costs would be recoverable from Econ Oil in terms of the arbitration award.

ii)Set aside of tender Bid Corp 4786

In a dispute regarding the validity of a contract for fuel oil between Eskom and Econ Oil, Adjudicator

Trisk found that a contract existed between the parties. Eskom has referred the matter to

arbitration in terms of the NEC 3 Supply Contract. Eskom denies that it concluded a contract with

Econ, FFS Refiners and Sasol Oil pursuant to Bid Corp 4786, and has filed an application to A) stay

the dispute resolution proceedings; to B) obtain an order declaring that Eskom did not enter into a

contract with Econ, FFS and Sasol pursuant to the award of Bid Corp 4786, alternatively and in the

event of the Court finding that a contract was concluded, the setting aside of the contract; and an

order reviewing and setting aside the award of Bid Corp 4786.

Presently Econ Oil is the only party opposing the review proceedings.

NO(6/6)

Contents





▪ Impact of government’s decision to issue

electricity generation licence





conditions


Impact of government’s decision to issue electricity generation licence to municipalities and private individuals

61

Eskom welcomes the addition of new generation capacity, inter alia by the private sector, to

resolve the current and emerging shortfall

The DMRE through the Integrated Resource Plan (IRP) determines the generating requirements

for the country.

South Africa has had private companies generating electricity for many years. Eskom has been

the buyer of the energy.

The recent regulations allow Municipalities to establish power purchase agreements with

IPP’s, instead of exclusively buying from Eskom.

The involvement of Eskom will still have to be determined e.g. will Eskom have to provide

back-up power or power during certain times (winter, peaks, etc.)

Special tariffs, besides the use of Eskom’s network, will have to be determined should Eskom be

required to provide additional services.

CC(1/2)

Impact of government’s decision to issue electricity generation licence to municipalities and private individuals

62

The operational and financial impacts are at this stage unclear. In order to assess the

operating and financial impacts of the proposed changes on Eskom it will be imperative, among

other things, to urgently do the following

establish a new overall market framework to ensure the reliability of the power system

and to correctly assign the technical and economic accountability for actions by various

parties, such as the municipalities and the contracted IPPS. This may, for example, require

the establishment of a reserves market

restructure the current Eskom tariffs: this is to ensure energy and network capacity

costs are clearly identifiable and appropriate tariffs can be designed and implemented to

recover costs to appropriate parties

establish an appropriate subsidy framework to address the current subsidies between

different classes of electricity customers

CC(2/2)

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generation licence





conditions


Overview of Wilge Residential Development Project

64

The Wilge Residential Development Project was undertaken in 2012 to build residential units for

the Kusile Power Station Project to accommodate artisans during the construction of Kusile Power

Station. Originally post-completion of Kusile, the flats would be rented out and be used for

outage projects accommodation (Eskom and contractors).

The Wilge Residential Development contract was awarded at R260,46 million for the completion

of 336 unit-flats by December 2013. The cost incurred to date is R632,64 million on the

development of the flats and an additional R207,44 million on common infrastructure and

related work.

On 4 August 2017, the Board Tender Committee resolved that Eskom should negotiate the

termination of the contract with Liviero Wilge Joint Venture for the construction of 336 residential

flats. Following this, the Contractor’s obligation to complete the works was terminated on 31

August 2017.

In December 2019, Exco approved the strategy not to continue with the construction of the

Wilge Residential Development Project and approved that the disposal process be initiated.

In accordance with Department of Public Enterprises procedure governing the disposal of non-

core assets, SOCs are required to give government the first right of refusal. Eskom has

engaged with the DPE to dispose of the property. Government is currently conducting their due

diligence in accordance with the PFMA.

Eskom has declared R840 million as fruitless and wasteful expenditure.

BN(1/4)

Wilge Residential Development Project

Figure 1: Status of Wilge Residential Development.

65

BN(2/4)

Historic ‘time and cost’ modifications submitted and approved

66

BN(3/4)

Consequence Management

67

• In 2019, Eskom appointed Bowman Gilfillan Inc. (“Bowmans”) to investigate various

allegations of fraud, corruption and financial irregularities, pertaining to, inter alia,

the Kusile Power Station build project (Kusile). Part of their findings included fruitless

and wasteful expenditure on the Wilge Project.

• Also in 2019, Eskom instituted disciplinary action against the General Manager of

Facilities of which the Wilge Project is part. The disciplinary process was concluded

in January 2020 and the General Manager was found guilty and subsequently,

Eskom terminated his employment.

• Eskom is currently concluding disciplinary process on an additional implicated

employee, this process is at an advanced stage

• Eskom has initiated a legal process recovering moneys from the General Manager

concerned

BN(4/4)

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conditions


Payment Levels Split Between Customer SegmentsAs at the end Jan 2021 – 12 Month Moving Average Results (12 MMA)

69

96.54%Total Eskom Overdue

95.73%Total SPU

93.29%Municipal Bulk Accounts

100.00%Total LPU

100.00%Top Customers

100.48%Other LPU

98.11%Other SPU

20.00%Soweto excl interest

If > 100% it implies

arrears are being

recovered

Source: Final Payments Level January 2021

(1/8) MB

Overall Revenue Collection for Households (SPU)

70

Out of Eskom’s customer base of 6.2 million small power customers, there are 5.8 million prepaid

customers (94%). Post paid residential customers only account for ~ 4% of customer base.

Eskom has actively driven an increase in deposits and securities to mitigate future risk by customers

identified as potential high risk defaulters as well as reducing bad debt write offs due to additional

securities on hand

We are indeed recovering the majority of our current debt in the Non Soweto residential debt sector

and growth is limited to additional interest charges on historical arrears

Good progress was being made to manage and recover the debt (including the impact of the COVID 19

first wave).

The impact of the second wave of COVID 19 can be seen in the December 2020 and January 2021

actuals.

(2/8) MB

71

Soweto Residential Debt

Eskom will continue to rollout split metering technology in Soweto. The project have been

delayed on numerous occasions due to community unrests preventing access to metering

installations and the replacement of existing technologies with split metering.

The majority of billed customers in most areas across the country are found in the suburbs where

generally, payment levels are high and outstanding debt is within acceptable levels. It is, however,

a challenge to implement this same approach in the townships due to factors such as:

Existence of pressure groups;

Community resistance and culture of non-payment;

Easy access to the network.

High unemployment

The current strategy in place is to convert the conventional meters to prepaid meters, therefore

reducing further debt growth as conventional sales & impairment will decrease. The impairment

reduces from a projected R287m (2020/21) to R122m (2022/23) as more customers are converted

to prepaid

Soweto roll-out of conversions from conventional meters to prepaid meters projected to be

completed by FY23.Prepaid Conversions and Installations

January 2021 ITD Installed and Converted 75 320

January 2021 ITD Installed 84 186

Conversions March 2020 YTD 10 422

Conversion January 2021 YTD 13 490

(3/8) MB

Update on Municipal Debt

72

• The benefits are realised with the current redistributor

(municipal) strategy of applying pressure from

government and Eskom with a positive contribution as

the debt growth declined for the month of January. The

latest projected year end target is R37.4 billion

• The Total Municipal overdue debt at the end of

January 2021 was R35.0 billion - an increase of R7.0

billion YTD. Almost R3bn of the R7.0bn YTD increase

occurred during September and October months; with

the current month reflecting a decrease in overdue debt

of R0.2 billion

• No new disconnection notices issued in January 2021. Planned supply interruptions for January 2021

did not take place due to the Supreme Court of Appeal ruling.

• Eskom Distribution strategy focused on addressing this non-payment through the Constitutional

Court. It is clear that legal interdicts will continue for accounts not settled.

• Eskom has adopted the Active Partnering model for joint service delivery

• Liaison with National Treasury (NT) to stabilise and improve financial controls of municipalities, thereby

creating municipal capacity to pay Eskom as one of their creditors

(4/8) MB

Top 20 municipal Debtors as at 31 January

73

(5/8) MB

Government Accounts

74

The total arrear debt owed to Eskom by large power user (LPU) accounts is R741 million.

Of the R40.7 million LPU arrear debt owed by government departments, Department of

Public Works and Infrastructure (DPWI) arrear debt owed to Eskom is R21 million.

Eskom and the DPWI are working in close liaison to ensure that accounts are paid

timeously.

Of the R267 million State Owned Enterprise (SOE) arrear debt, Transnet accounts for

R247 million.

The bulk of the Transnet debt is due to the revenue recovery project from Eskom

which identified under-billing of accounts

Transnet and Eskom is current in arbitration to resolve the dispute

Of the total small power user (SPU) arrear debt of R1, 682 billion, government accounts for

R33 million

Government debt is largely due to administrative delays. Although the debt is in arrears,

payment is eventually received

(6/8) MB

Private business debt as at 31 January 2021

75

The top 20 Private Business accounted for 48% (or R 184 Million) of the R 380 Million overdue

debt for private businesses

Debt owed to Eskom by private business is Primarily in Top customer and Large Power Users as

indicated below:

(7/8) MB

Top 20 Private Business

76

The top 20 Private Business accounted for 48% (or R 184 Million) of the R 380 Million

overdue debt for private businesses

(8/8) MB

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conditions


Special Appropriations Act conditions have been met

78

FY 2019/20 Conditions

Eskom’s and DPE’s level of compliance to the Special Appropriations Act

conditions for the FY 2020 was shared with the SCOA committee during

September 2020 by National Treasury

Majority of the Eskom conditions were found to be compliant by National

Treasury

• 3 were partially compliant

• 2 were non-compliant

Of the 5 partially compliant and non-compliant conditions, 4 were successfully

addressed (as determined by NT) and the one condition related to EFC loan

book disposal was extended to March 2021. This is mainly due to delays related

to the pandemic. Progress is being made on this disposal

FY 2020/21 Conditions

Eskom has complied with all the conditions related to the FY 2020/21 thus far.

CC

Contents






generation licence





conditions


80

Eskom Transformation focus areas

80

• To improve reliability,

reduce load

shedding, refurbish

networks and

address design

defects

• Fix New Build

Defects (Medupi and

Kusile)

• Partial Load Loss

Reduction

• Reliability

Maintenance

Recovery

• Environmental

projects execution

• Acquire Additional

External Capacity

• To strengthen

balance sheet

through liquidity

initiatives

• Sale of non core

assets (i.e. EFC,

property)

• Working capital

management

• Spares and

inventory

management

• Relaxing supplier

payment terms

• Optimise Capital

expenditure

• To achieve revenue

certainty, cost

optimization and

efficiency

• Tariff correction

• Improve municipal

debt collection

• International sales

contribution

• Primary Energy cost

savings

• Divisional

operational cost

efficiencies

• Procurement

efficiencies

• HR cost optimisation

• Reduce Sundry

expenses

• To divisionalise and

ultimately form 3 legal

wholly owned

subsidiaries of Eskom

• Legal separation

readiness

• Organizational and

labor preparation

• System and

technology

preparation

• Governance and

interfaces

• Create Market

Operation

• IT and systems

Improve income statement

Strengthen balance sheet

Operations recovery

Legal

separation

• To ensure that the

business is

sufficiently enabled

and supported to

transform

• Organisational Design

& Implementation of

the target structure to

create 3 subsidiaries

• People efficiencies

• High performance

culture and

accountability

• Define & Drive

stakeholder

management and

change

communication to

embed the desired

change

People

and culture

Key Outputs

321 4 5

Transformation Management Office (TMO) management

• Drive change agenda • Oversee strategic assurance planning, tracking

and risk mitigation

• Manage integrated internal and external

comms

Today’s focus VT(1/11)

81

The restructuring of Eskom should be seen in the context

of reforms in the ESI

Implemented ProposedKey:

1998

2001 2005

2010

20111995

2003 2019

Establishment

of the national

electricity

regulatorCorporatisation

of Eskom

Establishment

of

independent

regulator

(NERSA)

2001

restructuring of

DX

Independent

system and

market

operator bill

(ISMO)

Vertical

separation of

Eskom

Mention of

IPP’s in white

paper

Multi market

model –

horizontal

separation of

Eskom

Generation

Implementation

of REIPPPPs

Roadmap for

Eskom in a

reformed

electricity

supply

industry

Key policy drivers

Key policy drivers

81

VT(2/11)

82

Case for change – Internal Challenges

Current critical issues New model objectives and benefits

Accountability,

transparency &

Agility

• Vertically integrated utility with little transparency &

accountability – leading to poor ethics/governance

• Leading to high operating costs

• Performance and accountability is aggregated for the

Group

• Rigid processes leading to slow decision making

• Separate, accurate P&L’s & financial statements

to address accountability and transparency per

entity

• Enable cost & operational efficiency per entity

• Clear targets per entity

• Increased flexibility and individual accountability

Financial

sustainability

(R450B debt)

Profitability

• Debt at ~R450bn –requires increased borrowings and

equity

• Sovereign and company credit downgrades –

impacting the country

• Lack of of transparency of individual costs and tariff

structure per entity

• Lack of revenue certainty and tariff path

• Capital programme delays and cost over runs

• Positive economic impact for Eskom & SA

• Find path to debt reduction

• Improve credit ratings

• Sale of assets to attract investor returns

• Improved operational efficiency

• Better control and optimisation of costs

Outdated

operating model

• Inefficient organisational structure and large

workforce

• Decline in productivity and employee motivation

• Ineffective performance management per employee

• Poor stakeholder management

• Lean and efficient Centre/corporate function

• Improved company culture and productivity

• Effective performance management and

control

• Enhanced communication with stakeholders

VT(3/11)

83

Case for change – External challenges

Current critical issues New model objectives and benefits

Regulatory

advantage and

tariffs

Industry

structure and

economics

Environmental

impact• Opportunity to introduce cleaner energy sources

and technologies into the market

• Inclusivity will be achieved through an external

market, with new rules & principles.

• This will support both the transformation of the

electricity industry in SA and delivery energy

security, as well as enable economic growth.

• Provide universal access with ease and speed

• Allow for industry value chain growth and linkages

• Restructuring aligns with Government policy to allow

Municipalities and Private Parties to self-generate or

buy-from IPPs. This is turn requires:

o Separation of G-T-D as it is necessary to remove

conflict of interest between Eskom Gx and IPP’s

o Restructuring of tariffs to ensure all players “pay

their fair share”

o Need new regulations and balancing market to

ensure integrity of the power system

o Policy amendments to create an enabling

environment to address some of the delay in large

infrastructure projects

o Construction industry capacitation interventions

People impact

• Stimulation of labour market and promotion of

advanced skills which contributes to industrialisation

and GDP growth

• Enhanced employee productivity and skills

• Cross-subsidation of various parts of the

value chain – impacting Eskom’s costs

• Eskom is unable to effectively grow outside

of the regulated business

• Investors and regulators are unable to

analyse each entity – impacting tariffs and

credit ratings

• Monopoly market - limited competition

• Inability to meet demand - Loadshedding

negatively affects the country

• Industrial customers have reduced

dependency on Eskom due to lack of price

predictability and supply reliability

• Energy mix consists of ~80% coal resulting

in a large carbon footprint

• Impact of Fourth industrial revolution

• Changing world of work

VT(4/11)

84

High level Unbundling Roadmap

84

Phase High Level Roadmap

Deliverables

Roadmap

Timeline

1 Divisionalisation and Relinking:

Establishment of divisional boards

and heads appointed

Mar 2020

2 Completion of “Functional

Separation”

Transmission

Generation & Distribution

Mar 2021

3 Completion of “ Legal

Separation”2

Transmission

Generation & Distribution

Dec 2021

Dec 2022

VT(5/11)

85

• The TE will dispatch the generators

according to existing least-cost merit order

principles.

• The TE will be empowered to introduce

additional markets and products if

necessary, such as, a reserves market.

• A trading system starting internally will be

resuscitated, followed by legal contracting

when required. As market rules and

structure becomes clearer it will be rolled

out to other providers

85

Direction from the Eskom Roadmap indicates the following

The Roadmap allows for a transition toward an

“open-market model” but specifically required

that:

The Department of Public Enterprises issued the

Roadmap for Eskom in a Reformed Electricity Supply

Industry (“Roadmap”) in Oct 2019

The Roadmap provides for a Transmission Entity (TE)

which will effectively act as a Single Buyer (including

the SBO) which buys from Eskom Gx and IPPs and

sells to Eskom Dx, municipalities and LPUs.

VT(6/11)

86

THE TRANSMISSION BUSINESS MODEL (2/4)

Functions of the future TransmissionVT

(7/11)

87

Progress on Eskom unbundling – Focus now is on Legal

Separation of the TX entityF

UN

CT

ION

AL

S

EP

AR

AT

ION

LE

GA

L

SE

PA

RA

TIO

N

Legal Separation Program StatusNext steps

• Completed

• Completed

• Organised Labour engagements

• Implement final Org structures

• Review core processes and

interfaces

• Legal Separation design and

implementation

• Recommendations made will be

analysed and actioned as

appropriate, following due

governance

• Identification of the legislative, Regulative, licenses, Codes and methodologies that require amendment

Relinking

Divisionalisation

Operating Model Implementation

Legal Separation Readiness

Legal Entity and Transfer of resources

Details of areas completed

• ~8396 staff re-linked to the divisions

• Cost centres and profit centres allocated

• Divisional MDs and Boards in place

• Separate P&Ls in place through SAP

• Transfer pricing implemented

• Internal PPA and ESA in place

• Divisional DoA have been finalised and

going through internal approval

• N-1 and N-2 Organisation structures

approved

• Divisional org structure approved

• Intergovernmental Steering Committee and

task teams in place

• Due diligence on the Transmission business

is at an advanced stage, expected to be

completed by end Mar 2021

• Integrated plan developed

• PFMA application has been submitted to

government for the establishment of the

Transmission Company (DPE approved,

NT response is eminent)

In Progress CompletedDelayed

Focus now VT

There are no costs incurred for the business separation thus far except legal and financial advisory services. In future, costs will be

limited to board fees for external non executive directors of the Transmission Board. Apart from these cost types, Eskom envisages

that most of the work for business separation will continue to be undertaken internally.

(8/11)

88

High level integrated roadmap for legal separation Government

support is critical

Key focus areas

Setup Tx Company

• Diagnostic & Due Diligence

• Design & Development

• Implementation

Optimal Corporate Structure

Legal & Regulatory Amendments

Finance

Energy Markets

DPE

DPE, NT

DPE, NT

DPE

NERSA

DPE

DPE

DMRE

Mar

‘21

May

‘21

Jul

‘21

Sep

‘21

Nov

’21

Feb

‘21

Apr

’21

Jun

‘21

Aug

‘21

Oct

‘21

Dec

‘212022

Key

Dependencies

DCB• PFMA approvals

• Company Registration

• Licensing

• Legal, Finance, Governance & HR

• Org Transfer & migration

• Regulation compliance & amendments

• Identification of required amendments

• Development of definitive statements

• Implementation of amendments

• Diagnostic

• Design and Develop

• Implementation

• Clearing house Establishment

• Income Statements

• Balance Sheet

• Sustainable capital structure

• Tax

• Loans

• Treasury (debt)

DMRE

DMRE

NT

NT

DPE, NT

E

IH

F

G

E

J

K

L M N

O

P

Q

O

S T

R S

R S

R S

K

P

P

O

P

KFE

Critical path:

Government support key

to achieving timelines

(9/11)

89

Government support is critical to achieving Legal

Separation timelines

Inter-governmental

decision body

New Market Code

PFMA applications

MYPD methodology

Dependency

Establish an inter-governmental decision making body that will approve the proposed

policy, market rules and general governance around the process - Complete

Development of a Market Code - Tariff methodology – Wholesale & Retail, Regulatory

framework for CPA

Government approval for PFMA applications required to establish the new subsidiaries

Re-alignment of recognize new subsidiaries – transitional practice & decision (balance

of MYPD4 & MYPD 5)

Description

LicensingRegulator guidance on licensing requirements, scope, procedure and approval for the

establishment and operational functioning of the new subsidiaries

Government

Department

Corporate Structure

Legislative

Amendments

New tariff mechanisms

Government execution of identified required legislative and regulative amendments

needed to enact reform in the Energy Supply Industry

Electricity pricing policy, new pricing model, new wholesale & retail pricing structure

Government approval new Eskom Holdings corporate structure

DMRE

NERSA

DPE

NT

DPE

DMRE

NT

DPE

DPE

DMRE

NT

DMRE

NERSA

DMRE

NERSA

DMRE

NERSA

Labour engagements Government support required DPE

DMRE

Lender engagements Government support requiredDPE

NT

(10/11)

90

An Inter-Governmental Steering Committee with 3 functional

workstreams has been established to provide oversight and an

enabling environment to drive reform

Finance

Legal &

Compliance

Workstream Purpose and Objective

Energy Policy

Finance

Legal &

Regulation

Energy

Policy

SteerCO The Steering Committee seeks to provide oversight to the Eskom unbundling project

ensuring that the Government informs the reform of the ESI, provide leadership and an

enabling environment for Eskom to complete the stipulated milestones, sufficiently

address dependencies and provide mitigation to the identified risks.

Next meeting: End February 2021

Representation

DPE: DG (Chairperson)

DMRE: DG

NT: DG

Eskom: GCE

DMRE: DDG (Chairperson)

DPE

NT

Eskom: GM (Energy PI)

DPE: Chief Director

(Chairperson)

DMRE

NT

Eskom: GM (Legal &

Governance)

NT: DDG (Chairperson)

DPE

DMRE

Eskom: GM (Finance)

To evaluate the industry restructuring proposals by Eskom and clarify or make

proposals for the changes to the proposals and to the policies required to implement

the proposals which includes a review of policy, acts, regulations, rules, licensingand tariff regimes and other related matters.

To develop proposals on the optimum financial model for the unbundled entities, this

will include capital structure, asset transfers, tax implications and other relatedmatters.

To resolve dependencies in relation to legislative matters that will affect the

unbundling process. In the case where Government has to provide an enabling

environment for specific milestones to be achieved, the workstream will ensuresupport, preparatory work is done to give effect to, amongst others, the following:

1. Possible creation or amendment of legislation, regulation, policy impacting onEskom’s unbundling;

2. Possible creation, amendment or unblocking of governance processes toexpedite.

VT(11/11)

Conclusion

eskom presentation briefing meeting with scoa

Documents