The uncomfortable truth about Eskom

Public Enterprises Minister Pravin Gordhan recently unveiled the government’s plan to rescue Eskom, which he said will be a long process that has to be undertaken with discipline.

Eskom is crippled by its R450 billion debt, but it is also struggling with low productivity, poor flexibility, no competition, and corruption which is milking the company’s coffers dry.

Gordhan admitted that the impact of state capture at Eskom has been huge and that corruption at the company is systemic.

These are some of the points which pushed the government towards its big plan to restructure the ailing power utility.

Apart from splitting Eskom into three divisions – transmission, generation, and distribution – the turnaround plan also includes introducing more competition.

Other aspects of the plan include lowering coal costs, increasing solar and wind energy, and disposing of non-core assets.

Nothing new

Shortly after Gordhan delivered Eskom’s turnaround plan, the rand weakened, signalling a lack of confidence from investors.

Stakeholders said Gordhan sidestepped some of the biggest problems at Eskom, like its bloated workforce, and was not decisive enough in its turnaround plan.

Another problem is that Eskom’s turnaround plan is nothing new. In fact, the government has unveiled numerous similar plans over the last decade.

President Cyril Ramaphosa was even in charge of one of these rescue plans and unveiled a “five-point plan” to save the company in late 2014.

Despite this, the deterioration of the company continued, with an increase in corruption, debt, and mismanagement.

It is therefore understandable that stakeholders are sceptical that the latest turnaround plan will be different from previous attempts.

Here is a quick summary of previous turnaround plans and what Eskom and the government said about them.

  • May 2008 – Former Eskom CEO Jacob Maroga said Eskom faced an electricity crisis and problems with financial sustainability. He said progress was made with Eskom’s recovery programme.
  • November 2009 – The Eskom board lost confidence in Maroga, who was seen as taking too long to develop and implement a turnaround strategy.
  • June 2010 – Eskom said its turnaround created the momentum needed to achieve long-term financial sustainability.
  • October 2013 – Eskom said it continued to show progress in restoring governance and improving efficiencies as part of its turnaround plan.
  • December 2014 – Then-Deputy President Cyril Ramaphosa took an active role in overseeing the turnaround of Eskom. A “war room” was established that created a “five-point plan” to save the company.
  • November 2015 – Former Eskom CEO Brian Molefe said the plan to reform the company and provide more electricity to South Africa and its economy was starting to show results.
  • April 2016 – Eskom’s board expressed its comfort on the strides made by management in turning around the company’s operational and financial performance.
  • July 2017 – Eskom assured all stakeholders that the company was stable and would continue delivering on its turnaround strategy.
  • March 2018 – Eskom said it is confident that the execution of the turnaround strategy would be accompanied by positive gains.
  • July 2019 – Eskom said it continued to show progress in restoring governance and improving efficiencies as part of its turnaround plan.

What should be done to turn Eskom around

Energy expert Ted Blom said the financial pressure on Eskom continues to accelerate, which puts a squeeze on margin and cash flow.

He said Eskom is now paying far more for lower-quality coal and that maintenance is costing the company more than ever before.

He added that Eskom’s payroll is R26 billion more than it can afford and what is justified. “They are sitting with 35,000 too many employees,” Blom said.

To turn this situation around will require tough decisions, which include the suggestions by stakeholders below:

  • Significantly reduce Eskom’s workforce by retrenching thousands of staff members.
  • Aggressively address mismanagement and corruption at Eskom, which includes firing and prosecuting corrupt staff members.
  • Ensure Eskom pays the lowest possible price for coal, equipment, and services. This may involve removing some of the BEE policies related to procurement.
  • Remove all regulatory restraints which stop small scale power generation plants from feeding into the grid.
  • Privatise parts of Eskom to improve productivity.
  • Invest significantly in renewable energy projects as a matter of urgency.

There is, however, not enough political will from the ruling ANC party and its alliance partners to execute a strategy involving cutting staff and privatising Eskom.

In fact, the government and Eskom said that there are no plans to retrench staff or privatise the company.

Fighting against corrupt and ideological politicians

Efficient Group founder and chief economist Dawie Roodt said Eskom is a great example of how political meddling and mismanagement can destroy a good company.

He said politicians want money to execute their ideologies and for self-enrichment, and Eskom was a great source of money.

However, instead of using money on infrastructure and maintenance, they steal it or spend it on non-essential things which destroyed the company and capital.

Commenting on the recent medium-term budget speech by Finance Minister Tito Mboweni, Roodt said it is currently very attractive and profitable for ANC politicians to be in government.

Mboweni is now trying to prevent this further plundering of state resources, which politicians are not going to like.

“I don’t think Tito is going to last that much longer,” said Roodt.

This is an opinion piece.

Now read: You are going to pay for the corruption at Eskom, SAA, SABC

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The uncomfortable truth about Eskom