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Tinkering with Eskom’s structure yet not fixing the business model

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Editor: It was Albert Einstein who is widely credited with saying, “The definition of insanity is doing the same thing over and over again, but expecting different results.” Refer to the 4 points below in Ted Blom’s comments

Dear MyPE

Much speculation has arisen since the Annual Results presentation at Megawatt Park last Tuesday, however, with very few answers. The usual Q&A session (which traditionally accommodates questions from overseas analysts & investors) was cut short to provide Minister Gordhan extra time to reprimand commentators who are unimpressed by the Eskom board’s lack of action over the 18 months since appointed. Shooting the messenger is an old South African political hobby.

My version is that a great opportunity to clean out the rot has been missed. This miss will leave the hapless Eskom in ICU until government’s ability to inject ever-increasing funds into the bottomless pit is arrested by opposition from the public.

In the meantime, Eskom has announced a simple four-part turnaround plan:

  1. Increase tariffs by challenging the previous Nersa RCAS & MYPD decisions in court – with a target of increasing electricity tariffs by around 80%,
  2. Cut some costs (yet undefined),
  3. Restructure / unbundle,
  4. Future applications to Government for more bailouts.

A proper cleanout of Eskom – especially the costly oversized headcount of over 30 000 persons – would have placed Eskom on a leaner and more agile platform able to reduce electricity tariffs from around R1/kwh to a pre-corruption level of R0.40/kwh (which we were told does not carry the President’s blessing). This, in turn, would spur massive job creation and new business injections as South Africa’s competitive advantage would be restored. Old mines and smelters could re-open – giving substance to the President’s call for cheaper electricity & beneficiation as per the National Development Plan (“NDP”).

However, we are left with the ideology of tinkering with Eskom’s structure, instead of fixing up the business model.

What we need to see at Eskom, is a write off of the more than R1 000bn from an inflated asset register, the introduction of competent non-conflicted leadership, and a clear vision to again become the leading utility of the world. Instead, Government has opted to leave intact a Board with near Zero of the requirements Eskom desperately needs to turn around the sinking ship, while leading Eskom to its biggest loss in history as well as a Continental record in term of size of the loss.

What was not quantified on Tuesday is the extreme loss of jobs and opportunities for the increasing masses of unemployed people – mostly the very people who put the current government in power.

Eventually, the penny might drop, but by then it could be too late as skills fly off to greener pastures. And by then Government will no longer be able to afford to continue life support.

Power to the people.

Regards

Ted Blom

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Port Elizabethan

This author is a 'catch-all' for occasional articles and letters written to MyPE. The Author of each article can be found in the signature at the bottom of each individual article.