EDITORIAL: Put Eskom rescue plan into action already
The government has to be decisive about the failing utility, as there is no time to waste
The parting words of exiting Eskom CEO Phakamani Hadebe at Tuesday’s results presentation were ominous: “Eskom does not need light, it needs fire; it does not need rain, it needs a storm, it needs an earthquake.”
These words, spoken after Hadebe revealed the company’s most disastrous set of financial results, which included a R20.7bn loss, underline the frustration he has faced in his 18 months as CEO in which he was given a job to do but was not empowered to do it.
While Eskom is a problem of gargantuan proportions, there is no big mystery to tackling its crisis. The power utility is a large, inefficient monopoly that, due to an ambitious and badly managed programme to build new power stations, has amassed a mountain of debt. It is unable to generate enough revenue to service its debt. It is also unable to produce electricity efficiently enough to even cover the costs of doing so.
As sales are shrinking and costs are growing, it cannot trade itself out of the situation.
There is lots of evidence and experience to draw on from both the public and private sectors on how restructuring could be carried out. Dozens of countries have by now disaggregated their vertically integrated state-owned energy companies to make them more manageable and enable the liberalisation of the market.
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Splitting the transmission and distribution functions from the generation of electricity allows a different set of incentives to be put in place. An independent but nonetheless state-owned transmission company will have an incentive to buy energy from the most efficient and cheapest producer, no matter whether it is private or state owned.
It also provides managers with a clear line of sight over costs and makes it possible for them to be held accountable.
On the corporate finance side, SA also has a wealth of experience and expertise to draw on. While it will certainly cost taxpayers, restructuring Eskom’s balance sheet is not the impossible task it has been made out to be. Similar business rescues have been done in the private sector, and as Eskom still has a multibillion-rand product to sell — everyone needs electricity — the answers lie in separating the good and the bad businesses and putting in place the right incentives in the good business to ensure disciplined behaviour in how it is run in the future.
The Eskom board and management produced a turnaround plan in December that drew on some of these elements, proposing the three-way split and a plan to significantly cut costs. An expert task team appointed by President Cyril Ramaphosa has also been at work since December, and has given much more detail on how the split can happen. Together with work done by corporate finance boffins, firm ideas have been advanced as part of the task team’s report on how the balance-sheet restructuring could be done. But the government has nothing to show despite all that work.
Eskom is in a worse position now than it was 18 months ago when Ramaphosa came into office and replaced the board and the management. As no reports or plans have been made public, all we have is public enterprises minister Pravin Gordhan’s word that progress on “the roadmap” is being made.
Gordhan has now promised that a policy paper on the future of Eskom will be drafted by mid-September. But surely it is now time for government to put the plans on the table and make decisions?
Decision-making is clearly not the strength or inclination of the Ramaphosa administration, which has become expert at kicking the can down the road. And that is what lies behind Hadebe’s parting words: changes to be made at Eskom will indeed require an earthquake — one that must be felt in the highest office in the land.