Eskom continues to maintain its position as a market leader in an increasingly competitive energy sector
Eskom Holdings SOC Limited is a power utility that is wholly owned by the South African government and conducts its business within a highly regulated environment. The company has a unitary board structure with a majority of independent, non-executive directors, appointed by the shareholder in consultation with the board, which retains full and effective control over the operation of the organisation. This responsibility is facilitated by a well-developed governance structure comprising various board committees and a comprehensive delegation of authority.
As a South African State Owned Company (SOC), Eskom is accountable to the South African Government through direct reporting to the Department of Public Enterprises (DPE). The DPE acts as the representative shareholder of the South African Government with oversight responsibility that includes governance and the statutory compliance of many SOCs, and, indirectly, to the Department of Energy (DoE), which leads in the effective implementation of energy policies.
The relationship between Eskom and the DPE is governed by a shareholder compact which is a mutually agreed set of strategic intent, key performance areas and targets. The compact includes strategic objectives, policies, financial, technical and other significant key performance indicators and reporting requirements. Eskom’s performance against these targets is monitored through the submission of quarterly and annual reports to the various government departments. The DPE also facilitates the SOC’s interaction with the National Treasury in certain instances, such as requests for loan guarantees from the government.
The shareholder compact measures are determined in line with Government Treasury regulations under the Public Finance Management Act (PFMA), the objective of which is to secure accountability and sound management of revenue, expenditure, assets and liabilities. The PFMA provides a mechanism for holding public sector managers – including those employed by Eskom – accountable for ensuring the timely provision of quality information and the elimination of waste and corruption in the use of public assets.
Eskom regards corporate governance as pivotal to the success of its business. It is therefore essential for Eskom to fulfil its mandate in a manner that is in keeping with governance best practice and in particular, with regard to accountability, transparency, fairness and responsibility. The company is proud of its significant involvement in the realm of corporate governance in South Africa through its participation in the compilation of all three versions of the King Reports on Corporate Governance, the earliest being in 2001 and the latest, King III, in April 2010.
The company uses its integrated reporting system as a primary vehicle, bringing together material information about strategy, governance, performance and prospects in a manner that reflects the commercial and environmental context within which it operates. Eskom’s commitment to continually improving its governance practices was acknowledged when the company’s Integrated Report in 2011 was awarded second place in the South African Ernst and Young Corporate Sustainability Reporting Awards.
Eskom is pleased to have consistently applied the Global Reporting Initiative (GRI) guidelines. The company has been actively involved in the technical committee responsible for developing the GRI Electric Utility Sector Supplement (EUSS), which is seen as a detailed guideline with a suite of sector-specific indicators that should be disclosed by electricity utilities when compiling their sustainability reports.
In order to present a balanced and understandable assessment of its position, Eskom is persistently striving to ensure that its reporting and disclosure to stakeholders is relevant, clear and effective. Eskom’s key stakeholders include employees, consumers, trade unions, local communities, analysts, academics, industry participants and experts, the media, parliamentary portfolio committees, regulators, suppliers, financial markets and investors. Communication and interaction with stakeholders are ongoing and addressed through various channels depending on their different needs.
The absence of competition in the electricity sector in South Africa necessitates stringent regulation to ensure that the interests of customers and other stakeholders are balanced and protected while ensuring the industry’s sustainability. Eskom is regulated by the National Energy Regulator of South Africa (NERSA). NERSA’s mandate is to regulate the electricity, piped-gas and petroleum pipeline industries in South Africa.
The green future
In relation to Eskom’s operations, NERSA’s key powers are to issue licences for the operation of generation, distribution and transmission facilities, regulate imports, exports and the trading of electricity, determine and approve electricity prices, tariffs and the conditions under which electricity may be sold. Eskom also has a nuclear licence issued by the Nuclear Energy Regulator, which regulates the operations of the company’s only nuclear plant, the Koeberg Power Station.
The company is required by law and a variety of regulations to manage and mitigate the impact of its operations on the environment in line with South Africa’s commitment to reduce greenhouse gas emissions, as pledged in the United Nations Framework Convention on Climate Change (UNFCCC). Recently, Eskom embarked on an energy diversification programme that prioritises the use of renewables as alternative energy sources. The renewables programme is fast gaining momentum and Eskom supports the government in its commitment to ensure that by 2030, 40 percent of the company’s additional capacity will come from renewables. Eskom intends to continue setting the benchmark for good corporate citizenship through heightened compliance with all legal requirements, including those prescribed in the Companies Act 71 of 2008 while acknowledging and abiding by other pieces of legislation. Notably, the Consumer Protection Act 68 of 2008 and the National Energy Act 34 of 2008, which are all aimed at ensuring that current, potential and future customers are protected, that Eskom is sustainable and that the national policy objectives are realised.