SOLVED ESKOM
CASE STUDY
ESKOM CASE STUDY
Background
Eskom is an electricity supplier to the national power grid in South Africa. Eskom uses the latest
technology to generate electricity from coal. Eskom has lately experienced a number of incidents that
caused power outages which, not only resulted in a loss of income and human life, but also dented the
company’s reputation as a reliable electricity supplier.
The company was also severely criticised by industry experts for its short term focus, while the energy
industry requires long term planning due to the capital outlay and time taken to commission new power
stations. Planning by the energy industry also requires an integrated approach as power stations need
to be close to supplies of coal and water to ensure economic viability. Eskom has also been recording
losses for the last three years. Management created the perception that they stumble from crisis to
crisis and was not able to give credible answers on the way ahead or how to turn the company around.
The company has also received negative publicity in the local and international media. News that made
the headlines were based on the shortage of coal at some power stations, impact of the transport
policy on roads and the local community and an explosion of a turbine with fatalities. Management did
not manage the media properly and thought that blaming the media for sensationalism and
underplaying the causes and the impact of the events will make the problems go away.
A number of rating agencies have also downgraded the company’s credit rating. The impact of the
downgrading is that it will be more difficult for the company to obtain credit and more expensive to
service existing debt.
The Minister of Energy, business organisations and lobby groups have questioned the risk
management capacity of Eskom, which has also raised concerns regarding the board’s commitment to
good governance in general and compliance with the Code of Corporate Governance (King III)
specifically. In reaction to all the criticism, the board of directors has decided to change the risk
management culture.
A further concern raised by the chair of the board was that the board is uncomfortable with
management’s lack of awareness of potential problems and that most of the incidents came as a
surprise. The time to react was therefore very limited and the board felt that they were left to manage
the situation.
The process
The power station has six electricity generating units, with each unit producing a maximum of 600MW
at full capacity. Electricity is generated by burning coal to heat water in a boiler to create steam up to
700o C, which is then pushed through the turbines to turn the generator. The turbine speed is monitored
and controlled via a centrifugal governor and steam release valve.
The coal is supplied to the power station from mines in close proximity. Transport is outsourced to
small enterprises which use road instead of rail transport to create work in the local community.
Delivery to the power station is approximately 850 000 tons a month. The power station has two
loading areas (staithes).
The coal is moved from the loading areas (staithes) to the boiler bunkers, of which there are six per
boiler. Each bunker has a capacity of 650 tons, which ensures sufficient storage capacity at the boilers
for 12 hours operation at full load. When a boiler is started up, fuel oil is used until the combustion of
the pulverised coal is stable. Two storage tanks are used for fuel oil.
CASE STUDY
ESKOM CASE STUDY
Background
Eskom is an electricity supplier to the national power grid in South Africa. Eskom uses the latest
technology to generate electricity from coal. Eskom has lately experienced a number of incidents that
caused power outages which, not only resulted in a loss of income and human life, but also dented the
company’s reputation as a reliable electricity supplier.
The company was also severely criticised by industry experts for its short term focus, while the energy
industry requires long term planning due to the capital outlay and time taken to commission new power
stations. Planning by the energy industry also requires an integrated approach as power stations need
to be close to supplies of coal and water to ensure economic viability. Eskom has also been recording
losses for the last three years. Management created the perception that they stumble from crisis to
crisis and was not able to give credible answers on the way ahead or how to turn the company around.
The company has also received negative publicity in the local and international media. News that made
the headlines were based on the shortage of coal at some power stations, impact of the transport
policy on roads and the local community and an explosion of a turbine with fatalities. Management did
not manage the media properly and thought that blaming the media for sensationalism and
underplaying the causes and the impact of the events will make the problems go away.
A number of rating agencies have also downgraded the company’s credit rating. The impact of the
downgrading is that it will be more difficult for the company to obtain credit and more expensive to
service existing debt.
The Minister of Energy, business organisations and lobby groups have questioned the risk
management capacity of Eskom, which has also raised concerns regarding the board’s commitment to
good governance in general and compliance with the Code of Corporate Governance (King III)
specifically. In reaction to all the criticism, the board of directors has decided to change the risk
management culture.
A further concern raised by the chair of the board was that the board is uncomfortable with
management’s lack of awareness of potential problems and that most of the incidents came as a
surprise. The time to react was therefore very limited and the board felt that they were left to manage
the situation.
The process
The power station has six electricity generating units, with each unit producing a maximum of 600MW
at full capacity. Electricity is generated by burning coal to heat water in a boiler to create steam up to
700o C, which is then pushed through the turbines to turn the generator. The turbine speed is monitored
and controlled via a centrifugal governor and steam release valve.
The coal is supplied to the power station from mines in close proximity. Transport is outsourced to
small enterprises which use road instead of rail transport to create work in the local community.
Delivery to the power station is approximately 850 000 tons a month. The power station has two
loading areas (staithes).
The coal is moved from the loading areas (staithes) to the boiler bunkers, of which there are six per
boiler. Each bunker has a capacity of 650 tons, which ensures sufficient storage capacity at the boilers
for 12 hours operation at full load. When a boiler is started up, fuel oil is used until the combustion of
the pulverised coal is stable. Two storage tanks are used for fuel oil.
