04 Aug Eskom 2.0: Promising Plan or Misdirection?
Eskom 2.0: Promising Plan or Misdirection?
It’s a known strategy which has worked perfectly for many large corporations throughout the years – if you can’t make it go away, just reshuffle your deck. Whether failed department, project or venture, an organisational restructure is an easy way to cover up those bloopers.
Well, perhaps not easy, but quite efficient. It’s no surprise then that country leaders would find this bit of organisational tomfoolery a suitable answer to persistent mismanagement.
Out with the old and in with the same
Organisational restructure – whether for small businesses, large corporates or even state owned enterprises are, of course, perfectly legal. It’s not always inefficient either. But a rather obvious problem with such restructures is that they usually don’t lop off the dead wood at the top – those who are sent on their way are usually lower down the totem pole.
It makes sense in a way – if you’re ‘strapped for cash’, it’s far cheaper to pay severance packages to 20 ‘non-essential’ staff members, instead of an enormous package for an executive (who will probably drag you to court if you don’t offer what they want). But herein lies the problem. While failing enterprises are granted the olive branch of restructure by our legislation, they usually just start over with the same management which failed to keep the ship afloat before.
The futility of promises
Perhaps the president’s plan for fixing Eskom will have looked less like window-dressing had we not heard the story one too many times before. Is this not the same old tale spinned to us by previous presidents and Eskom bosses? Have our current president and Eskom head not regurgitated the same promises a thousand times before?
Alarmingly, instead of actually pruning the top of the tree and removing diseased branches to stimulate growth and strengthen roots, the plans put in place will simply make it easier for corruption to fester indefinitely.
It’s a bit hard to determine exactly how Eskom is fairing, since they tend to release their results in bursts and spurts with significant delays in making information available publicly. Additionally, if they use the same vague and nondescript language when briefing staff on their responsibilities as they do in their financial and performance overviews – it’s not surprising that the utility is struggling to make heads or tails from their own mandates
Let’s look at some statements from the Eskom group annual results for the year ended 31 March 2021 (dated October 2020), and Group annual results for the year ended 31 March 2021 (dated August 2021):
– ‘Financial results challenging, net loss after tax of R18.9 billion.
– ‘Headcount reduced by 4.5% employee costs contained.’
– ‘Gross debt burden reduced by R81.9 billion, with Government support of R56 billion contributing towards debt servicing.”
So what is the president’s plan?
Let’s take a look at the action plan for Eskom 2.0…
1. Boosting recruitment of skilled workers – including former Eskom personnel
Employing skilled workers at any business is generally a win-win. But Eskom’s track record of managing staff and talent reads more like a script for a satirical exploration of Human Resource inefficiency than a narrative of efficient business management.
By January 2021, Eskom chief in charge, Andre de Ruyter, had ‘gotten rid of’ 2000 employees in the previous year alone, and stated his intent to cut a further 6000 employees. According to De Ruyter, Eskom needed to cut back on costs, which meant reducing staff. Three years before, the World Bank reported that Eskom needed 14 000 staff to operate efficiently – the company had more than 42 000 employees in 2021.
Getting rid of redundant and incompetent staff is always a good idea, but:
– If the intention is merely cost-cutting, then it should be noted that staff salaries aren’t Eskom’s biggest haemorrhage.
– If employee expenditure is indeed the issue, perhaps one should first look at executive income like De Ruyter’s, which stands at R7 138 000 per year (salary + ‘other pay’ including phone costs, security services and vehicle expenditure) and other group executives, most of whom earn between R1 million and R6 million per annum.
– While the company is lamenting employee expenditure, it is bizarre that directors alone can receive housing loans from the state owned enterprise of R10 million per annum.
– Eskom provides medical benefits to all employees (save for managers appointed post May 2003), if they stay on with the company until retirement (from age 55). Such incentive is certainly laudable, but it begs the question whether employees are encouraged to seek personal and professional growth if such benefits aren’t universal and offered elsewhere. Eskom financials state that the post retirement benefits are unfunded and according to their own vague phrasing:
“The cost to the employer, in the form of employer contributions, is actuarially determined. Provision is made for the estimated cost over the period until the date of early retirement at age 55 when further service by the employee will lead to no material amount of further benefits to the employee. Actuarial gains or losses are recognised in other comprehensive income within re-measurement of benefits. Interest and other expenses related to these benefits are recognised in profit or loss.” – “Annual Financial Statements 31 March 2021.” ESKOM HOLDINGS SOC LTD
– While the president didn’t specify whether the former Eskom staff members were retrenched or left of their own accord – but in either instance the implications are that their reappointment will come at a hefty cost – either because they will have already received severance packages OR if they resigned, they will necessarily expect far better packages to return to their posts.
2. Addressing sabotage and theft
The purpose of a ‘plan’ whether executed in business or elsewhere, is that it requires actionable steps. Vague and indistinct phrasing are hallmarks of incompetent leadership. While the public can certainly not expect leaders to share intricate details of project plans meant for certain eyes only, a bit more detail would be appreciated.
In his address, the president stated that Eskom power stations as well as transmission lines have been subject to deliberate theft, fraud, damage and sabotage – something which has been noted over several years.
Despite this being a persistent and pervasive issue, his note that law enforcement agencies have made progress in tackling these issues doesn’t quite boast of confidence.
3. Increasing Eskom’s budget for maintenance and increasing reliability of generation capacity
Phrases like these are what have South Africans fuming. While it is clear that the energy utility is completely incompetent in managing its finances, human resources or executing plans – they just keep asking for more. More money to fix this and that, more money to keep the lights on, more money to appoint more specialists.
Consider that the Medupi and Kusile plants have critical design flaws that keep plunging the country into darkness – it seems unfathomable that the public are responsible for footing the bill for errors made by qualified engineers. The lack of accountability by anyone involved with Eskom affairs seems truly unfathomable.
4. Easing restrictions and regulation
Red tape is certainly a hurdle to progress and innovation, but in South Africa’s case it is cause for alarm when the government eases licensing restrictions and regulations for corruption frontrunners like Eskom and local municipalities. If state capture showed us anything, it’s that cronies will leap at any opportunity to get a slice of the state budget pie.
The easing will certainly allow more independent energy producers to sell to private businesses and municipalities, but if municipalities don’t even feel beholden to the state to pay their existing electricity bills, how will they suddenly feel compelled to pay for private sector procurement?
5. Cutting red tape to make it easier for Eskom to buy equipment and maintenance supplies
As with the previous point, it makes one shudder when imagining that the government is allowing Eskom to cut even more corners and acquire equipment and supplies with even less oversight.
6. Buying surplus capacity from existing independent power producers
It fills us with glee to know that Eskom is finally getting more power from independent producers, but the president’s phrasing indicates that these aren’t necessarily producers who are already on Eskom’s books – simply third parties who can temporarily address Eskom’s shortfall. The implications being that the cost of such additional power will be higher than electricity supplied by providers who have followed the formal bidding process.
This may not be the case, but we don’t have sufficient information to know for sure.
7. Buying surplus power from Botswana, Zambia and other neighbouring countries.
According to the OEC, South Africa is the 14th largest exporter of electricity in the world – in 2020 alone we exported electricity to neighbouring countries valued at R11 169 982 200. Between March 2021 and April 2022 our electricity imports increased by 17.5% while our imports for this period increased by 27.6%.
In April 2022 we exported R414 million TO Mozambique and imported R417 million FROM Mozambique in the same month. In that same month, we cut 1 954 gigawatt-hours of power through loadshedding. Compare this to the 2 521 gigawatt-hours cut for the entire 2021.
South Africa already covers around 20% of Lesotho’s peak energy demands through Eskom and Lesotho has made it clear that this is to be sustained. Given the tenuous relationship between two nations regarding the Lesotho Highlands Water Project – in 2021 Lesotho purposely let six months’ worth of water supply deemed for the Integrated Vaal River System flow into the Atlantic Ocean, according to the South African Academy of Engineering. While the dams in SA which usually receive the water were already full, Lesotho couldn’t afford to stop the water flowing since they generate 72MW of electricity through the Muela hydropower station. The Katse and Mohale dams which form part of the system were at a mere 79% and 40% capacity respectively due to drought, and yet the nation was compelled to let the water go to waste in order to keep the lights on.
8. Announcing a plan to deal with Eskom’s debt by Oct 2022
A plan which states that it plans to announces a plan sounds rather nonsensical, but when it comes to Eskom it’s just another day.
If you recall, the president announced a plan to deal with Eskom in February 2019 – the utility was to be separated into three entities and addressing its debt through short-term stabilisation methods, restructuring debt relief and through careful assessment of Eskom’s daily cash flow management. Additionally, Eskom’s capital structure was to be modified to reduce and ‘ultimately end’ their reliance on government support. The deadline for separating Eskom into three entities was set for 31 March 2020, while the legal separation of distribution and generation functions were to be completed by 31 December 2021.
The Treasury pertinently stated that the Eskom Board was to ‘demonstrate measurable progress in instilling rigorous cash management discipline, and achieving operational efficiencies’. They were also mandated with appointing new boards and entities and show clearly that business units were managing operation within their means. Operational changes were to be completed by the end of 2021.
The Government published a rather extensive document, Roadmap for Eskom in a Reformed Electricity Supply Industry 2019. Their perceived electricity generation for 2022 included 513 MW provided from storage (something which has not been done previously), an additional 1 000 MW from new additional capacity and 1 600 MW from Wind generated power. We were also supposed to decommission electricity generated from coal from 37 149 MW in 2019 with 2372 MW in that same year, 557 MW in 2020, 1403 MW in 2021 and 555 MW in 2022. This calculates to 32 816 MW of electricity from coal for 2021, and 31 972 MW for 2022. Of course, Eskom doesn’t seem to understand any briefs – so they increased their coal usage with 38 733 MW generated by this source in 2021.
In the 2019 medium term budget policy statement the Treasury showed provisional budget support for Eskom of R230 billion over 10 years – R23 billion per year. In 2021 alone, we more than doubled that spend with R56 billion in financial support to Eskom for the year. Now, a mere three years later, and the Treasury is finalising plans to take over ‘a portion of’ Eskom’s R396 billion debt – in addition to all the billions already spent.
We have to ask ourselves what the purpose of all these proposals and plans are if nothing is ever followed through, and no one is ever held accountable. At this point we should perhaps start with showing them how to tie their own shoelaces.
9. Eskom’s programme for encouraging efficient energy use by consumers and reduce peak demand
It’s never a bad idea to encourage individuals and businesses to be more environmentally conscious and manage their energy expenditure more accountably.
But ‘encouragement’ can be achieved in numerous ways. While the president may want to position this ‘new programme’ Eskom is working on as an incentivisation scheme, in every likelihood it will most probably be a penalisation scheme.
It just seems increasingly unfathomable that the public needs to carry the weight of this state owned corpse on our backs and pretend that it’s still alive and well.
10. Encouraging solar energy for households with Eskom’s feed-in tariff
Dubbed ‘incentivised’ solar by the chief in charge, this is another infuriating ‘programme’. It’s unclear what the rationale is, but it seems the government wants individuals to pay for off-the-grid electricity, force households and businesses to feed back into the grid, and then incentivise them in some way for doing so.
How they plan on incentivising such plans while the utility can’t even manage their petty cash is anyone’s guess.
Of course, as is the norm for SA – everything starts with appointing committees. In this case, the president has established a National Energy Crisis Committee. If all else fails, at least we have committees.
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