Message from the Eskom Chairman – Valli Moosa

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.

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 to respond.

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.

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 government.

There has been tremendous progress since the 2004 decision of Cabinet. Eskom has spent a total of R53 billion (2005/6: R10,6 billion; 2006/7: R17,7 billion; 2007/8: R24,7 billion) with a forecast spending of R46 billion for the 2008/9 financial year. Six new transmission substations have been completed and 1 026km of transmission lines constructed since 2004.

A total of 2 582MW of new power generation capacity is now on line with 1 061MW of this total installed during the 2007/8 financial year. To date, the board has approved projects to the value of R260 billion with 16 304MW of new generation and other capacity committed.

Finally, it is my sincere wish that South Africa as a nation will also become an integral part of the solution to the challenges at hand and will work with Eskom. Let us all conserve our vital energy sources – the lifeblood of our economy. Together, let’s build the power base for sustainable growth and development.

Message from the Eskom Chief Executive – Jacob Maroga

Power supply interruptions of the scale seen during the reporting year have been unprecedented in South Africa. Meeting an increasing national demand for electricity with a much-diminished reserve margin has undoubtedly been Eskom’s biggest challenge for this past financial year.

The convergence of a diminished reserve margin, increased unplanned generation plant outages as well as coal supply and quality constraints forced Eskom into an undesirable position of having to interrupt the supply of electricity nationally.

Between October 2007 and February 2008, emergency load shedding was implemented. In order to avoid a potential overall nationwide blackout, a national electricity emergency was declared on 24 January 2008.

Load shedding activities undertaken during this period – and at any other period – have been a source of distress and discontent to most South Africans, causing major disruption to all sectors of the economy. As the national utility, we have used every available opportunity to explain the underlying reasons, improve how load shedding is managed, and minimise its impact on the nation. While the explanation would have resonated with some, the inconvenience is, however, deeply regretted.

The challenge of operating a power system that has a low reserve margin should not be underestimated. It is serious, deep, material and will take a few years to resolve. Our response to this challenge has to be comprehensive, with interventions on both the demand and the supply side.

In response to this challenge Eskom, in partnership with the South African government and major stakeholders, has already made significant progress in rolling out the national recovery plan. We successfully stabilised the power system after the extreme events of January and February 2008, coal stockpiles have significantly increased with the target of an average of 20-system days reached, and undertaken the required maintenance in anticipation of the winter peak season.

With the contribution of our key industrial customers and the broader South African public, we are well on track to successfully implement a power conservation programme.

The past year has been a testimony to the old adage “through adversity comes strength”. We are heartened by South Africa’s response, especially when asked to conserve electricity. We are also grateful to all who have made a contribution to the work of the organisation during the past year.