eskom presentation briefing meeting with scoa
TRANSCRIPT
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
Deviations Not Approved - Quarter 1
Group Capital
NT Ref.
No
Project Description Reason for Deviation NT Response
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
Deviations Not Approved - Quarter 2
Group Capital
NT Ref.
No
Project Description Reason for Deviation NT Response
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
Contract Value: R212 996 854.40
• 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
Project Description Reason for Deviation NT Response
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
Project Description Reason for Deviation NT Response
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
Deviations Not Approved - Quarter 2
Nuclear
NT Ref.
No
Project Description Reason for Deviation NT Response
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
Contract Value: R72 790 515.00
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
▪ 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
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
Project Description Reason for Expansion NT Response
73 Modify Task Order 237A for the
provision of safety, health and
environmental services at Kusile PS
project
Supplier: Atvance Empowered Risk
Management
Original Value: R9 954 912.00
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
Project Description Reason for Expansion NT Response
60 Task Order 237B for the provision of
quality and/or inspection services at
Kusile PS project
Supplier: Tivanathi Engineering
(Pty) Ltd
Original Value: R49 415 960.00
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
Project Description Reason for Expansion NT Response
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
Original Value: R14 365 650.79
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
Expansion Not Approved - Quarter 3
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
Expansion Not Approved - Quarter 3
TransmissionNT Ref.
No
Project Description Reason for Expansion NT Response
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
Expansion Not Approved - Quarter 3
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
Original Value: R91 140 481.42
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
Expansion Not Approved - Quarter 1
Transmission
NT Ref.
No
Project Description Reason for Expansion NT Response
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
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
Conditionally Supported Deviations
Legal & Compliance
Number Project Description Supplier Value of
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
Conditionally Supported Deviations
Group Capital
Number Project Description Supplier Value of
Contract
Reason for
Deviation
Approval Condition/s
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.
NT supports the deviation
on condition that the rental
per month is market related
and the market is tested
within the approval period
BN
25
Conditionally Supported Deviations
Group IT
Number Project Description Supplier Value of
Contract
Reason for
Deviation
Approval Condition/s
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
Conditionally Supported Deviations
Distribution
Number Project Description Supplier Value of
Contract
Reason for
Deviation
Approval Condition/s
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
NT supports the deviation on
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
Number Project Description Supplier Value of
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.
NT supports the deviation
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)
NT supports the deviation on
condition that the cost
implications are reasonable
and no other authorized
agents are disadvantaged
Conditionally Supported Deviations
Generation PD
29
Conditionally Supported Expansions
Group Capital
Number Project Description SupplierReason for
Expansion
Original
Contract Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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
Conditionally Supported Expansions
Group Capital
Number Project Description SupplierReason for
Expansion
Original
Contract Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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
Conditionally Supported Expansions
Group Capital
Number Project Description SupplierReason for
Expansion
Original
Contract Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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
Conditionally Supported Expansions
Group Capital
Number Project
Description
Supplier Reason for
Expansion
Original
Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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
Conditionally Supported Expansions
Distribution
Number Project Description SupplierReason for
Expansion
Original
Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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
Conditionally Supported Expansions
Transmission
Number Project Description Supplier Reason for
Expansion
Original Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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
Conditionally Supported Expansions
Primary Energy
Number Project Description Supplier Reason for ExpansionOriginal Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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
Conditionally Supported Expansions
Primary Energy
Number Project Description Supplier Reason for Expansion Original
Contract Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
48
Q2
Request for approval to modify
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
Request for approval to modify
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
Number Project Description Supplier Reason for
Expansion
Original
Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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.
Conditionally Supported Expansions
Generation PD
38
Number Project Description Supplier Reason for
Expansion
Original
Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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
Conditionally Supported Expansions
Generation PD
39
Number Project
Description
Supplier Reason for
Expansion
Original
Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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.
Conditionally Supported Expansions
Generation PD
40
Number Project
Description
Supplier Reason for
Expansion
Original
Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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.
Conditionally Supported Expansions
Group IT FB
41
Number Project Description Supplier Reason for
Expansion
Original
Contract
Value
Value of
Contract
Extension
Value of
previous
extensions
Approval Condition/s
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.
Conditionally Supported Expansions
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
▪ 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
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.
• 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
• 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
• 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 have been achieved
(4/4) SN
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
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)
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
Recovery of Overpayment at Kusile and Medupi
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
Recovery of Overpayment at Kusile and Medupi
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
Recovery of Overpayment at Kusile and Medupi
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
Recovery of Overpayment at Kusile and Medupi
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)
Recovery of Overpayment at Kusile and Medupi
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
Recovery of Overpayment at Kusile and Medupi
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
▪ 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
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)
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 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)
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)
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
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
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
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
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
▪ 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
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)
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)