Investing5.10.2024

André de Ruyter’s mistake about Eskom

André de Ruyter claimed that Eskom was being replaced by the private sector during his stint as CEO, saying it would be left behind by companies pouring billions into alternative energy sources. 

However, the utility’s chairman, Mteto Nyati, said this is not the case, with the private sector still fundamentally reliant on Eskom for baseload power. 

There has been much debate as to whether Eskom is actually being replaced by the private sector as companies rapidly built alternative energy sources to combat load-shedding. 

While these systems were intended to mitigate against the impact of load-shedding on a company’s operations, they also enabled businesses to use cheaper renewable energy instead of electricity generated by Eskom. 

The shift to these sources of energy can be seen in Eskom’s sales revenue, which declined by a steady 2% year over year. 

Some of Eskom’s largest clients, South African mining companies, took some of their operations completely off the grid. 

The shift to renewable energy, particularly rooftop solar, was driven by a need to mitigate against load-shedding. However, as load-shedding seemingly comes to an end, this change has been driven by rising electricity prices. 

De Ruyter, when he was CEO, identified the trend of Eskom’s paying clients dumping the utility’s product as an existential threat to the company. 

He said the private sector was well on its way to effectively replacing the utility, with 66,000 MW of renewable projects in the pipeline. 

This is roughly 25% larger than Eskom’s entire installed capacity. “That is enormous. That is a gob-smacking number.” De Ruyter said. 

“In the absence of engagement with these political issues, with these complicated and challenging conundrums related to the energy transition and load-shedding, the private sector will do its own thing and effectively privatise the electricity industry.”

“That is what seems to be happening now, and Eskom is going to be left behind in that process,” De Ruyter said. 

If you extrapolate from current trends, Eskom will be left with a customer base of “people who cannot afford electricity and therefore will not pay for it”. 

Many of Eskom’s biggest paying customers will be the first to go off-grid and reduce their reliance on the ailing utility. 

De Ruyter explained that private capital will invest where there is the least resistance and good returns – not in the interest of coal lobbies or businesses. 

De Ruyter was wrong

Mteto Nyati, Eskom chairman

Nyati told Biznews that this kind of analysis regarding the shift to renewables is flawed as companies are still heavily dependent on Eskom for baseload power. 

For example, while a solar farm may reduce the costs of operating a mine and provide a share of its electricity needs, it cannot power up smelters or processing facilities that require significant baseload power. 

Because of the need for baseload power for industrial processes, Nyati said many private companies still ask Eskom to present to them how the utility can power their facilities. 

“People may wish it is the case. However, the reality is that most businesses expect base load power to come from Eskom,” he said.

Nyati also explained that as Eskom’s performance improves and load-shedding is kept at bay, companies will increasingly question whether they need to invest in alternative energy sources. 

He added that their current priority is to drive down costs at Eskom, which will impact their electricity prices in future.

“We are not pricing ourselves out of the market. We are conscious of the cost, and we are increasingly moving toward renewable energy,” he said.

Nyati said that as more renewables come online, electricity prices will be driven down, and Eskom will remain competitive.

Eskom’s chairman has repeatedly pointed out the shortcomings of Eskom’s prior performance under De Ruyter, saying he was wrong about many things at the utility. 

He explained that after a deep dive by the board into the issues at Eskom, he began to question the narrative coming from the management team. 

Nyati said the engagements with power station managers were very insightful and revealed that the problems at Eskom had been misdiagnosed. 

“These issues were more fundamental. For example, we have leaders there who are not leading at all levels. We have managers that are not managing.” 

“People were sick and tired, saying, ‘We need to follow standard operating procedures, and things are not being followed’. That is because we had the wrong people employed in certain roles.” 

“You need to have people who get it and understand what is going on. You need people who can pick up that feedback from employees at the plants, make sure it is accurate, and then hold people accountable.” 

“When you have got leadership that cannot communicate clearly and just accepts whatever feedback comes from below, that is a problem. So, we had to change leadership within this company.” 


This article was first published by Daily Investor and is reproduced with permission.

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