Ferial Haffajee: Reading the signs, Eskom’s death spiral is about to speed up

31-07-2019
Read : 183 times
Fin24
Source

Like a man liberated from the yoke of economic correctness, outgoing Eskom CEO Phakamani Hadebe put a name on what’s happening at the electricity utility, Eskom – it’s in a death spiral, he said on Tuesday, as he presented the company’s annual statements.

It is. Eskom made a loss of over R20bn; lower than predicted, but still the outcome of crippling debt and sinking sales. The only good news, as Investec’s Nazmeera Moola wrote, is that the energy availability factor has improved, suggesting that the emphasis on the maintenance of power stations is beginning to bear fruit.

Other than that, Eskom’s reform has stalled, as this week’s numbers show, and as the extraordinary Treasury bailout last week revealed. It is running on empty and it threatens to drag the country down with it. Eskom’s debt is now bundled up with sovereign debt, to all intents and purposes, and Finance Minister Tito Mboweni’s efforts to ringfence one from the other has not worked.

At the same time, the government’s promises to restructure Eskom have come to nought. To great acclaim, President Cyril Ramaphosa promised a restructuring plan for Eskom in February, and the unbundling of the utility into its generation, transmission and distribution components, with the promise of private participation (which provides skill and capital injections) in parts of it.

That plan has gone nowhere, because trade unions at Eskom quickly objected. Then, Ramaphosa did what he does when faced with a problem: he set up a presidential advisory panel and soothed the unions with a promise that there would be no job losses.

Since then, nothing has been heard of the plan. Public Enterprises Minister Pravin Gordhan is also obviously stressed because he is making poor decisions at Eskom.

Two part-time heads

As has been pointed out, his decision to make Eskom chairperson Jabu Mabuza the executive chairperson is out of kilter with best corporate governance practice. Not only that, but Mabuza’s a busy man. He sits on many boards and runs a fabulous business empire of his own. Eskom is now a 24/7 job but Gordhan has made an appointment of an executive who is too busy for that, as good a business leader as Mabuza is.

Then, Freeman Nomvalo as the new chief restructuring officer (CRO), beggars belief. Nomvalo is the Treasury’s former Accountant-General and ran that institution with rigour and aplomb ,but now he will remain as CEO of the SA Institute of Chartered Accountants (SAICA) while heading a restructuring office at Eskom.

Can you see the problem here? You have two heads of Eskom who are essentially part-time. In addition, Gordhan’s communiqué says that SAICA will provide a secretariat or brains trust for the Eskom restructuring. This is just madness. SAICA is a regulatory body that oversees accountants and trains future CAs. It does that very well and it has assisted government to fix its vocational and training colleges. But it has never restructured an electricity utility, never mind one that is in its death spiral, nor does it have experience negotiating with the hard-balling trade union bosses who run Eskom.

SAICA interprets its role over the next six months as follows. "SAICA is to assist the government with a programme aimed at reorganising the operational and funding structures of Eskom for the purposes of making it profitable while at the same time meeting the country’s needs. The project will be part of SAICA’s Nation Building initiative."

For SAICA, this is a corporate social investment project; for the country, it’s doing or dying. There is nothing in that description that aligns with Ramaphosa’s promise to restructure Eskom and the scripting of it suggests it was decided hours before Eskom announced its financials.

If this is the best plan Gordhan and Ramaphosa can come up with after so many months, it is perhaps a consideration that the almost permanent war with Public Protector Busisiwe Mkhwebane is beginning to take its toll on the usually razor-sharp strategy brains of both leaders. Our leaders need to go back to the drawing board or else South Africa may join Eskom in the death spiral.