Eskom is, according to President Cyril Ramaphosa, “just too important to fail”. He told a conference organised by Goldman Sachs after his recent election victory:He is not wrong. Eskom holds the key to South Africa’s future firmly in its coal-dusted hands. It must provide enough reasonably priced electricity to power up the economy which must grow at 5% or more if there is to be any hope of containing debt and absorbing the swelling ranks of the unemployed.
But can Ramaphosa fix Eskom? The sheer scale of the problem makes it easily the government’s biggest financial challenge since the dawn of democracy. And then there are the political fetters, some self-imposed, which appear to limit Ramaphosa’s options. Together they would have supplied South Africa an extra 9,600MW of power. In 2019 both were still under construction and the units which had come online were suffering from massive technical failures due to poor supervision of the contracts.
The state of Eskom’s management has been helped by the appointment of no fewer than 10 CEOs since 2007. Jacob Maroga , Mpho Makwana , Brian Dames , Colin Matjila , Tshediso Matona , Brian Molefe , Matshela Koko , Johnny Dladla and Sean Maritz all came and went during the Zuma years. Meanwhile, Eskom’s debt is rapidly expanding, and its debt profile is deteriorating as it retires debt obtained under more favourable conditions a decade ago, and continues to service the expensive debt it accrued as its rating went through seven negative gear-changes during the Zuma years.
The most obvious target is the hyper-inflated wage bill which resulted from years of patronage dispensed during the Zuma years. According to areport, the utility has a jaw-dropping 600-strong layer of managers known as the “E-band” which flourished while the utility was captured. Whatever it is that these managers are overseeing, they are not doing a great job. The myriad failing construction and maintenance contracts attest to that.
In 2016, a World Bank study found that Eskom was 66% overstaffed. It had the largest workforce when compared to 39 other countries and it only needed 14,244 employees if it followed the typical developing country standard of one employer per 413 electricity customers. The only other possible solution would be to sell off some of the generation or transmission assets to the private sector, but that raises the dreaded “p-word” — privatisation.
Exactly how the private sector will be persuaded to become “partners” in a massively indebted, patently mismanaged and highly risky business without having an equity stake or management control of some kind has yet be spelt out.