It is a privilege for me to deliver this annual report, the last under
my chairmanship, in the aftermath of one of the most challenging
periods of Eskom’s history. Allow me to reflect on an exciting
journey at the helm of our national electricity utility.
Overview of challenges
From the early days of my tenure, it was clear that Eskom was on
an unsustainable path – both from a financial perspective as well
as our ability to meet national power demand. This came to a
head in the closing months of 2007 and the first quarter of 2008
when the national demand for electricity could not be met by the
available generation capacity.
For many years Eskom had been the crown jewel of the South
African state-owned enterprises. Several awards and honours
were bestowed on the utility, which bears testimony to this fact.
In 2001 Eskom won the Financial Times Global Energy Award
for the Power Company of the Year. This was in recognition of
the organisation’s success in “providing the world’s lowest-cost
electricity while at the same time making superior technology
innovations, increasing transmission system reliability and
developing economical, efficient and safe methods for combustion
of low grade coal”. This has been an exceptional achievement.
As a country, we promoted South Africa as an attractive
destination for foreign direct investment on the back of low cost
and reliable electricity supply. At the turn of the century, Eskom
had high excess capacity with the reserve margin at an impressive
25% in 2002.
With all the accolades, it was exceedingly difficult for Eskom to
convince anyone that the organisation was on an unsustainable
path. The mindset of most South Africans did not reflect the
fact that electricity was fast becoming a scarce resource. Within Eskom, however, the mood was completely different. There was
a sense of urgency and anxiety to act – and act decisively. It was
almost as if Eskom had a premonition that there was an electricity
crisis looming which had to be averted.
It was this premonition that drove a lot of the decisions of
the board in the first year of my tenure – how do we operate
within the constraints of the current policy and regulatory
environment whilst preparing for an uncertain future? In this
regard we started preparing for that future, refocusing Eskom’s
strategy away from an African-wide, diversified, unbundled
business model to one which focused on the core business
of power generation, transmission and distribution, with a
focus on South Africa’s market. In parallel with this process we
engaged vigorously with government to establish an enabling
environment for the sustainability of the business.
The road to recovery
In October 2004, government took the first bold step and
allowed Eskom to lead this current phase of building new
electricity generation capacity. While there is consensus that we
started late with the programme, this decision of Cabinet was
to be welcomed as undoubtedly an important scene setter for
the future of the electricity industry. The decision by Eskom to
continue with planning while we were prohibited from building
new capacity, placed South Africa in a much stronger position
My experience as the chairman of the Eskom board for the
past three years has given me comfort that the utility is well
on the road to recovery. Significant progress has been made
to address all the key challenges identified. Jacob Maroga was
appointed as the chief executive effective on 1 May 2007.
He brings with him vast technical and Eskom
experience. During the reporting year, further
changes were made to the executive committee and
the overall organisational structure.
This is not an easy business environment for Eskom’s
new management team. There are six key challenges
that needed urgent attention – keeping the lights
burning on the back of inadequate reserve margin;
addressing artificially low tariffs; building new generation
and transmission capacity to meet the rising demand
for electricity; mobilising all South Africans to become
more energy efficient; responding to climate change
imperatives; and mobilising all three spheres of