Eskom Financial Results: briefing

public enterprises portfolio committee
24 October 2001
ESKOM FINANCIAL RESULTS: BRIEFING

Chairperson: Â Mr B. Martins

Documents handed out:
No Documents

SUMMARY
The delegation from Eskom briefed the Committee on the financial results for the year 2000 and the progress regarding the ten RDP commitments Eskom made in 1994. These RDP commitments included: electrification of home targets; changing the staff profile of the company; education and training; maintaining transparency and including workers in decision making; a reduction in the real price of electricity; assisting employees to own a home; encouraging small and medium enterprise development; financing its work from its own resources; and protecting the environment. The Eskom representatives elaborated in detail on two of these issues which they felt were of priority to the Committee namely, Eskom's Electrification Program and Human Resource Development programmes. The Committee members were then given an opportunity to ask questions and comment.

MINUTES
The Chairperson welcomed the delegation from Eskom and asked them to begin their presentation.

Ms M. Letlape, Executive Director for Human Resources at Eskom, thanked the Chairperson and introduced the delegation. She then asked Mr M. Adam to present the background on the presentation.

Mr Adam told the Committee that they were going to focus on the 2000 results as well as electrification, black economic empowerment, women's empowerment and human rights strategies, as these were the 2001 issues in which the Committee seemed most interested. .Â

Eskom Financial Results for 2000
Mr J. Bayley, Manager of Corporate Management Accounting, proceeded to elaborate on the financial results for 2000 and the performance regarding the ten commitments made in 1994. He said that Eskom was among the top seven utilities in the world and one of the lowest cost producers of electricity. The aspiration was to get 50% of their revenue from new products and services by 2005. He said that Eskom had a record demand for electricity in 2000, and it was exceeded in 2001. Results for 2000 pointed to excellent overall performance, substantial improvements in net profit, finalisation of the tax framework and delivery on the Reconstruction and Development Programme (RDP) commitments. According to the sustainability index, Eskom was above target reflecting technical excellence, and the electrification target was also exceeded. Mr Bayley then showed the Committee the income statement showing that the net profit before tax, revenue, and costs were all up. He explained that Eskom had officially become a taxpayer that year, but payment of those taxes would be deferred. Then he showed the breakdown of the costs into primary energy, operation, and interest and finance charges. He further broke these figures down and provided the percentage changes with inflation considerations. Depreciation had been brought down significantly as well to reflect the technical realities of the costs. He concluded the overview of Eskom's financial position with a balance sheet showing current and non-current assets and Eskom's general status as of the end of December last year.

Mr Bayley continued the presentation with Eskom's performance regarding the ten RDP commitments. First, they had committed to electrify 1 750 000 more homes by the end of 2000. Eskom had exceeded this number by 50 by the end of 1999 and had exceeded  2 000 000 homes by the end of 2000 - 29% of this was urban and 71% rural. He also broke it down by province, showing that the largest percentage was 21% in the Northern Province. The second commitment was to change the staff profile of the organisation, making 50% of management and professional staff black South Africans. This was also accomplished and would be exceeded by the end of this year. Thirdly, Eskom was required to educate, train and upgrade a sufficient number of people to meet their future needs. He explained that there were currently over 2 600 black trainees and bursars who had completed their training and other mechanisms were in place to further accomplish this goal.Â

The fourth commitment required maintaining transparency and upholding consideration of workers in decision-making. He explained that the new Recognition Agreement they had signed would ensure this. Next, Eskom was required to reduce the real price of electricity by the end of 2000. Including money set aside for the electrification fund, the percentage reduction in the real price was 15.6%, though without consideration of this cost it only reached a 14.1% reduction. Contributing R50 million per year for the electrification of schools, clinics and other community development activities was the sixth demand. The total spent in this manner had now reached R306 million. Seventh, Eskom was to enable all employees to own a home. By the end of 2000, they had enabled 21 400 employees to own a home and provided 1 680 employees with rent subsidies.

The eighth commitment concerned encouraging small and medium enterprise development. Eskom expanded this definition to include large black enterprises as well and spent over R4 billion to this end. With regard to a duty to protect the environment, as accorded by the ninth commitment, Mr Bayley explained that Eskom judged their performance with an Environment Sustainability Index and an environmental report given annually, and, according to the index and report, Eskom retained a good performance in this respect. The final commitment, with which Eskom also believed they had been successful, was to finance its work from its own resources and South African resources as well as overseas development funds. The organisation was not to be a burden on the State.

Considering goals for 2001, Mr Bayley said that Eskom aimed to maintain excellent technical performance and to keep any price increases stable, gradual and predictable for clients. He gave several examples of targets beaten by June this year including reducing total system minutes lost and unplanned automatic grid separations as well as its level of commitment to black economic empowerment. This completed his portion of the presentation regarding finance and the results of the RDP commitments and 2001 goals.

Eskom's Electrification Program
Next, Mr I. Sokopo, the Corporate Consultant for Mergers and Regulations, discussed the electrification program. He said their success could be attributed to their slogan, “We promise to deliver.� He said they had always under-promised and over-delivered. They delivered the promised number of homes connected a year ahead of time and would keep exceeding that target. The number of rural households electrified had increased from 12% in 1994 to 50% by the end of last year. The country had been 34% electrified and was now 77%. Eskom had become better at what it does and was now aiming at an average connection cost of R2000 per household while it had been between R4000 and R5000, and they would be careful to ensure that the connections were sustainable as they would use the prepay method. Mr Sokopo referred to the Soweto problem stating that a committee had met concerning delivery of electricity and the issue was being sorted out, but they would not compromise on electricity theft, their safety procedures or anything endangering people. He also addressed the question of possible free basic electricity. He said that there were many logistical problems that made it very difficult to work out practically. It was not possible because Eskom was not capable on its own of producing it and because they insisted on sustainable efforts that could not at this time be guaranteed for free basic electricity.

Eskom's Human Resources Work
Ms Letlape completed the presentation by discussing human resources matters. She said that Eskom was investigating what direction they were headed in, what skills they needed and where the gaps were, and they were making initiatives in these areas. A skills management program was in place, and there was also a need for transformation leadership development programs that were also being implemented. The rewards and grading systems needed to be updated, and they had reviewed human resource policies already to ensure that they were in line with labour policies and that they would remain relevant. They had been updated and placed online for better access. Other important issues were maintaining the consultative processes, managing the impact of HIV/AIDS, and implementing employment equity. This year, Eskom was focusing on gender, looking at the organisation to see what was gender insensitive and what they could do to improve. Targets and plans would be set up in the next couple of months. Additionally, human resources was beginning to focus on people with disabilities and how they could ensure that these employees had a safe and fair working environment. Eskom was currently in a good position with race issues.Â

Concerning particular initiatives with women, Ms Letlape described a particular programme specifically dealing with rural women that brought them into engineering management and science positions. In the Warwick Program, 40 women were brought in who would all have finished studies and a thesis this December. Another 40 women were involved in a business management program. The bursary intake for women was up to 52% this year, and the engineering bridging course was now 6% women. The total breakdown of all of Eskom's trainees and bursars was 40% female and 84% black. Concerning those trainees and bursars already working full time for Eskom, the numbers were 29% female and 87% black. She said, however, that they needed to improve on the number of women engineers. The root of the problem with improving the numbers of female and black engineers, she explained, was the low number of these individuals matriculating with high grades in sciences and maths. Eskom had worked well with universities, but it was necessary to go to high schools, and they would be working with the Department of Education to try to improve this.Â

Questions and Discussion
The Chairperson opened the floor for questions.

Mr C. Frolick (UDM) told the delegation that he was happy to see that Eskom had not let them down, but he wondered what form of work they would do with the Department of Education to improve the students.Â

Ms Letlape responded to the queries about Eskom's work with the Department of Education. She said that she had a paper written in collaboration with the Department that they would soon be submitting back to the Department, and the primary objectives it stated were to actively support a small number of schools to increase the quality of math and science education and increase the pool of matriculants with high grades in these subjects. They would assist in researching successful methods of teaching these subjects, become a key partner with these schools, and assist in funding the programmes. The Eskom Development Foundation provided social investment funding for things such as teacher development and infrastructure improvement. The Department of Education would form a Foundation for Education that would work with them. Eskom was looking for middle range schools headed by good principals with effective managerial skills and a passion for maths and sciences. They would also have an inclination towards schools with more girls. At least one school would be chosen from every province, and, as the programme would become more refined, the number of schools would increase.Â

Mr B. Komphela asked how many schools had actually benefited from the fund. He said that the presenters had offered amounts of money but not numbers of schools. He also asked how many black enterprises that Eskom had assisted were actually developed and could stand on their own. Additionally, he mentioned Ms Letlape's breakdown of blacks, women and disabled people involved in development. He wanted to know how they brought these people into the whole picture of Eskom rather than just the development aspect.

Mr Adam responded to the query concerning viable SMMEs and black enterprises that Eskom assisted. He did not know the number of how many total they were dealing with, but he explained that the assistance included help with funding, access to technology and know-how, and connection to helpful third parties. They told people what criteria were necessary to get accredited and assisted them in meeting these criteria. Once accredited, the business would be able to work with Eskom. It was a detailed and scientific process in order to assure that the process and enterprises were legitimate.Â

Ms Letlape responded to the question of bringing blacks, women and disabled people into the whole economy of Eskom. She said that the percentage totals for managerial and professional positions were 51.7% black and 19.4% female. In the large scheme, they looked at what the barriers were and what changes could create enablers for these groups of employees. With regard to the provincial data on bursaries, the differentiation in trainees and bursaries from different provinces reflected largely a difference in the numbers of applicants from each area. She said that they employed a woman whose job required traveling to the different provinces to encourage more applicants. The breakdown on this matter was difficult as well because some students might be from one province but study at another, so it did not necessarily provide an accurate picture.

Another Committee Member asked about the electrification rate in KwaZulu-Natal. She said that her province had less electrification than anywhere else, and she had heard many complaints in her constituency about the poor service.

The Chairperson then said that the precedent had been set for discussion of particular provinces, so he expected Mr Louw to speak up since his province, the Northern Cape, had the lowest increase in electrification according to the figures given earlier.

Mr J. Louw (ANC) said he was indeed curious about the low figure for his province and would appreciate an explanation.Â

Mr Sokopo said that the Northern Cape was the second most electrified province in South Africa, so it was not getting a high increase in electrification because it was already high above average and doing quite well. Concerning KwaZulu-Natal, He said that this province was one of three that were only taken over by Eskom in the past couple of years as they had previously been separated because of homeland status. This had largely delayed the improvements in electrification. Additionally, terrain in KwaZulu-Natal was very tough making connections much more expensive than average. They were addressing these problems currently with the Department of Minerals and Energy, but he understood that there was reason to complain. On the quality of electrification, he said that many people in rural areas could not afford the R50 deposit or even the lower deposit that Eskom arranged for very poor areas. He said they started a pilot programme that gave a low amount of electrification that could be upgraded as it could be afforded. The response had been a very low interest in upgrading. Additionally, the quality was at the level that most people could afford and access. Mr Sokopo stated that Eskom had been target driven before but now had the opportunity to really work with communities. He said local governments would have to include electrification in their development plans as well. Because local governments would better know what was needed and what they wanted, it was up to them now to lead Eskom and guide their work in particular communities.Â

The Chairperson thanked the delegation from Eskom as well as the Committee Members for their time in this busy time of year for Parliament. He said that they could all see from the level of engagement that the information offered was very important. The meeting was adjourned.

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