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.
Coal is transported from the boiler bunkers to the pulverisers, where it is fed into the pulverisers along
with air heated to about 343o C. As the coal is pulverised, the hot air dries it and blows the usable fine
coal powder out to be used as fuel. The fine, highly combustible powder is blown from each pulveriser
into the boilers at some 60 tons an hour. It is critical to meet the minimum standards to ensure that the
coal burn as efficiently as possible.

Water is used inter alia for the boiler, water and steam circuit, cooling water for the steam turbine
condensers and the handling and disposal of ash. The water management process is also very
important as dirty water can significantly damage the turbines, but also create an environmental threat
if released untreated.

To reduce the environmental impact, the units are fitted with the latest pulse jet fabric filters which
reduce air pollution by removing 99% of the fly ash which would otherwise have been released through
the station’s chimneys.

The power station

The latest series of incidents occurred at the Duvha Power Station (4 March 2011).

Staffing at Duvha consists of the Chief Operations Officer (COO), a Consulting Engineer, two Senior
Managers, a Raw Material Manager, three Shift Leaders and a small support staff made up of general
administration, human resources, information technology and finance specialists. The shift teams
consist of the shift supervisors and teams to support the different processes and a maintenance crew.

The shift supervisors are highly frustrated with senior management as they believe that they are too far
removed from operations and do not understand the risks and the problems faced by the power station
or the crews. The senior managers trimmed the maintenance budgets to the bone and very little funds
are available for maintenance. A specific concern is that senior management expect the crews to do
maintenance online. When the risk of accidents was pointed out, the message was that the crews are
incompetent.

The primary role of the maintenance crew during shifts is to do routine maintenance and emergency
repairs. It is company policy to do maintenance according to the maintenance schedules as
recommended by the manufacturers. A maintenance report is kept, but the maintenance crews believe
that it is not accurate as some of the tasks take more than two weeks to complete, which also means
that the units must be offline at the time of maintenance.

The computer system in use by the power station is the Energy Generating Management System
(EGMS). The system is maintained at the head office, with a local instance implemented at Duvha.
During the discussion with the IT specialist, it was found that the last three updates from head office
were not installed. One of the updates was a patch to prevent data from being incorrectly overwritten in
certain databases. One of the databases contains data that is used to produce management
information. The other two patches were related to virus protection.

The IT Department does not have a copy of EGMS available in the event of a technical problem as
they are comfortable that they will be able to rely on immediate head office support. Backups of data
are made once the disc reaches 80% capacity, which is once every three to four months.

From discussions with a number of people, it is clear that an inventory of management reports was not
available. In discussions with people at all levels, people tend to be unsure of the reports that are
available and if there were reports, the purpose of the reports.

People manning the control room also pointed out a number of control instruments that were
dysfunctional. They were also not able to explain the measurements used and specific purpose of all
the control instruments.
The incidents
• The quality of coal received by the mines differs at times significantly from the required
specifications to obtain optimal combustion. This has compelled the shifts to have at least five, but
at times six boilers in production, which left insufficient time for servicing of the production line. This
has lead to breakdowns of various components with the result that at times only 25% of the
required electricity was generated.

It was found that maintenance crews do not adhere to the maintenance schedules and
requirements set by the manufacturers or company policy in this regard. The reduction in
production made headline news in the media and also received negative coverage in the
international media.

• The area experienced a higher than normal rainfall, which caused the loading areas to flood. The
flood repairs took six weeks. The stockpile, which should have a capacity for at least two months
production, was used. It appeared that the stockpile was over estimated by at least 100 000 tons as
the production units started to experience problems after five and a half weeks. Delivery of coal was
also delayed due to damage to the roads used by the transport company, which meant that it took
another two weeks to have the loading areas supplied before rebuilding the stockpile.

The situation became critical and the shift teams started to feed coal directly from the delivery
trucks into the boilers. This caused the furnaces to clog, with loss of capacity and forced downtime
to do repairs.

Two people were injured during repairs and maintenance. One of the reasons is that they did not
wear protective clothing such as hard hats and safety goggles as they felt that is uncomfortable.
This incident also received wide media coverage both internationally and locally.

• In a recent incident, a turbine was destroyed when the maintenance crew did a high speed test, as
prescribed by safety regulations. The crew however deviated from the laid down procedure when
they conducted the test during normal working hours when other crews were attending to their
duties. A pressure release valve did not work as designed and the maintenance team leader failed
to ensure that the control room was manned during the test, with the effect that the emergency
switch was not engaged. The control room is able to activate an emergency switch which will shut
the turbine down immediately.

Three people were fatally injured with another four seriously injured as a direct result of the
explosion.

This incident also made headlines worldwide. The company was not able to give a cost estimate of
the loss in their press release, which also caused significant speculation in the media, with
estimates ranging from R5 – R10 billion.

• The community filed claims against the company for causing damage to the roads and noise
pollution, as the roads pass close to a school and through residential areas.

• Production was disrupted for half a day due to a successful “denial of service” attack caused by a
computer virus. The production server on which EGMS is installed was attacked. The IT Operations
Department was only able to restore the system after five hours. The control room has an
emergency switch to close and switch off all production units in the event that EGMS is not
available.