The absence of sufficient competition in the electricity sector in South Africa necessitates economic regulation of the industry to ensure that the interests of customers, licensees and other stakeholders are balanced, while also ensuring the industry’s sustainability.

The regulatory, legislative and policy framework in the energy sector has also been evolving. Some significant developments are set out later in this section.

Eskom is also regulated in the broader sense beyond electricity regulation. In 2002 Eskom was converted into a public company in terms of the Eskom Conversion Act (13 of 2001) and as such the legislative framework applicable to any corporate entity in South Africa is applicable to Eskom. These include the Companies Act, the National Environmental Management Act, the competition laws, labour laws and tax legislation, to mention a few. In addition, Eskom is also subject to legislation specifically applicable to state-owned entities – notably the Public Finance Management Act, Promotion of Access to Information Act and the Promotion of Administrative Justice Act.

It is therefore imperative that Eskom operates effectively within the policy, legal and regulatory framework. The compliance framework is being improved to ensure that Eskom implements best practices in this responsibility.

Regulatory framework

Eskom is regulated by the National Energy Regulator of South Africa (NERSA) in accordance with the Electricity Regulation Act (4 of 2006).

• Efficient, effective, sustainable and orderly development and operation of electricity supply infrastructure in South Africa
• Long-term sustainability of the industry
• Investment in the industry
• Universal access to electricity
• Diverse energy sources and energy efficiency
• Competitiveness and customer choice
• Fair balance between the interests of customers and end users, licensees, investors and the public.

• Issues licences for the operation of generation, distribution and transmission facilities
• Regulates imports, exports and the trading of electricity
• Determines and approves electricity prices and tariffs and the conditions under which electricity may be sold.

The National Energy Regulator of South Africa has significant influence and oversight over Eskom’s business. Eskom is regulated by separate licences for the generation, transmission and distribution of electricity. It also has a nuclear licence from the National Nuclear Regulator, which regulates the operation of its nuclear power station and all elements of the nuclear value chain.

Interactions with government

In addition, Eskom is subject to direct and indirect oversight by government, as shareholder and policy maker. Eskom needs to interact across all areas of government regarding the regulatory environment in which it operates, and it has the benefit of a number of relationships with various ministries and government departments.

Some of the key areas are outlined below.

Shareholder – Minister of Public Enterprises

The Minister of Public Enterprises is the shareholder representative of the South African Government and has oversight responsibility for Eskom. This relationship is governed by a shareholder compact. The shareholder compact sets and agrees on Eskom’s strategic intent, key performance areas and targets. The compact includes strategic objectives, policies, financial, technical and other key performance indicators and reporting requirements. Eskom provides quarterly and annual reports to the Department of Public Enterprises on its performance against the compact. Eskom’s performance against the shareholder compact for 2010/11 is set out in the leadership overview.

Eskom’s responsibilities, approvals and reporting in terms of the Public Finance Management Act are managed through the Department of Public Enterprises. The department is also a conduit for Eskom’s relationship with other government departments, as highlighted below. Eskom’s compliance with the Public Finance Management Act is discussed in the directors’ report.

Policy – Minister of Energy

The Minister of Energy, together with the Department of Energy (DoE) is the key policy ministry responsible for the energy industry, including the electricity sector, mainly governed through the Electricity Regulation Act (4 of 2006) and its associated regulations.

Additional financial oversight and reporting – National Treasury

In certain instances, Eskom needs approval from the Minister of Finance and provides information to National Treasury through the DPE and to the extent required in terms of the Public Finance Management Act. In addition, National Treasury has been instrumental in providing a government loan and guarantees in favour of Eskom. Further information about the loan and guarantees is set out in the Finance division section.

Environmental compliance

Eskom is committed to managing and mitigating the impact of its operations on the environment. Eskom is subject to a wide array of laws and regulations that ensure that environmental rights, as set out in the South African Constitution, are achieved. These rights relate to preventing pollution and ecological degradation, promoting conservation, and securing ecologically sustainable development.

Various independent authorities, including the National Nuclear Regulator, the Department of Water Affairs and the Department of Environmental Affairs, and the provincial and local emission licensing authorities, monitor Eskom’s activities as they impact on the environment. These authorities issue environmental authorisations for infrastructure projects, and permits and licences for emissions, waste management and water use, among others.

Further information on environmental compliance is set out in the Corporate Services, Customer Network, Group Capital and Generation Business sections found here, here, here, here, here, here, here, here, and here.

Economic planning and integration

Eskom’s operations, in particular the capital expansion programme, have a significant macroeconomic impact beyond the energy sector, and as such the organisation needs to build synergies in other areas of government. The infrastructure development needs to be aligned with national planning and economic development initiatives. Eskom’s construction programme could be leveraged to achieve sustainable benefits for local industry and manufacturing capability, and it needs to be aligned with South Africa’s industrial policy and industrial policy action plan.

Nuclear operations – National Nuclear Regulator

The role of the National Nuclear Regulator is to protect people, property and the environment against nuclear damage through safety standards and regulatory practices, to regulate safety across the nuclear sector, and to issue nuclear licences. The activities of Eskom’s Koeberg power station are regulated in this way.