STEPHEN SADIE: Governance entropy at Eskom

These days, you can go to any party, family gathering or school function, and one topic will inevitably come up: the Eskom crisis. Everybody, it seems, has become an expert on load-shedding. But what of governance? Where does it fit into the overall picture?

At a very basic level, governance revolves around the critical relationship between the shareholder, board and executive management of a company. It should go something like this: the shareholder appoints a board and provides a mandate to it; the board develops a strategy and appoints executive management; executive management implements the strategy.

If these three components work together, with each doing what it is supposed to do, the company should make progress. If not, problems will creep in at all levels.  

So let us consider the health of the governance ecosystem of the energy crisis.  

First, the shareholder. The government is in disarray, with three ministers in charge of energy: Gwede Mantashe, Pravin Gordhan and Kgosientsho Ramokgopa. Not helping this unusual division of responsibility is that there is a wide chasm between Mantashe and Gordhan over the future direction of energy.

As minister of mineral resources & energy, Mantashe is the shareholder responsible for adding new energy to the grid. On this, he has failed dismally: to date, not 1MW has been added.

Mantashe seems wedded to coal and has been slow off the mark to fast-track renewables, despite their dramatic drop in price. At the same time, he’s given his support for the Karpowership deal, which has been stuck in legal wrangling with the department of forestry, fisheries & the environment over bungled environment impact assessment processes.

Public enterprises minister Gordhan, who played such a powerful role in resisting state capture and protecting the National Treasury, has also not moved quickly enough on the governance processes on energy. To his credit, he supports the just energy transition plan: having $8.5bn on the table to finance the just energy transition could be a game-changer — if there is action on those plans.

Unfortunately, South Africa is being held back by turf wars in the ruling party. Mantashe, as chair of the ANC, wields a fair measure of power. Gordhan, in contrast, is no longer on the party’s national executive committee, so his influence may have dwindled somewhat.

In the middle of the tension is electricity minister Ramokgopa.

Ramokgopa started with a blitzkrieg two-week tour of power stations to understand the situation on the ground — a sensible move. It also allowed him to develop rapport with power station employees, and he seems to be open to listening to their concerns.

Well qualified for the job, Ramokgopa has indicated that he wants to understand the technical issues, design issues, poor planning and lack of investment in the utility.   

Still, it was probably premature and unfortunate to announce that corruption is not an issue at the Tutuka facility. After all, the media has long reported on corruption at Eskom — and it was comprehensively dealt with by the Zondo commission of inquiry into state capture. Ramokgopa’s recent presentation to the cabinet also didn’t seem to go over too well, and he was sent back without his plans being accepted.

Importantly, President Cyril Ramaphosa has still not delegated any powers to Ramokgopa, two months after his appointment. There is apparently pushback from Mantashe, who feels that his energy powers are being usurped.

Taken together, it’s clear there’s no real direction coming from the shareholder, with obvious impact on implementation of any energy plans. Between the three ministers, there is no unified strategy, which is creating uncertainty among the public as well as potential investors.

Battle of the board

Then there’s the board. The previous Eskom board had dwindled to five members before the current board was appointed in October. Given the size of the utility and its central role in the economy, the board has a tremendous responsibility. So it’s difficult to understand how Eskom could have such a small board. The boards of most NGOs are larger.

At the same time — as is the case with most state-owned entities — there seems to be overreach from the shareholder. This creates a problem for the board, often leaving it paralysed. At times, the executive has apparently even gone over the head of the board, dealing directly with executive management.

That immediately sets the stage for tension. In March, Mpho Makwana, the relatively new chair of the board, indicated that load-shedding would be limited to stages 2 and 3. However, André de Ruyter, then the CEO of the utility, came out saying that Eskom couldn’t guarantee that load-shedding wouldn’t exceed these stages. It’s highly undesirable when the chair and CEO contradict each other in public.

Another important board should be that of the National Transmission Co South Africa. The company is fundamental to the realignment of energy, due to the urgent need to grow the country’s limited grid capacity. Even though renewable energy is taking off in the Eastern, Northern and Western Cape, the power can’t be fed into the grid due to the lack of capacity. Substantial investment is long overdue. Yet the transmission company’s board has yet to be appointed.

Finally, there’s executive management. In December, Mantashe made the spurious claim that De Ruyter was “actively agitating for the overthrow of the state”. This was despite De Ruyter’s attempts to put an end to state capture and to root out criminal syndicates at Eskom.

De Ruyter submitted his resignation that same month — a decision that should have come as no surprise: such a public attack by the shareholder would be difficult for any CEO to countenance. 

It is now four months since De Ruyter announced his resignation and there is no information on a replacement, other than that CFO Calib Cassim has been appointed in an acting capacity.

The gaps in executive management have been aggravated by the retirement of COO Jan Oberholzer this month. And a number of key vacancies at senior levels have yet to be filled. Clearly, succession planning hasn’t been a priority.

Numerous commentators have mentioned how Vietnam made tremendous gains with its widespread rollout of household solar panels. This may be just the kind of bold move South Africa needs. But that requires co-ordinated action — governance, in other words.

On that count, however, we have a situation where there is no permanent CEO, problematic boards, and three ministers all competing to see their own visions realised. This is not the way you work yourself out of a crisis.

The energy crisis affects us all, every day. As the Chartered Governance Institute of Southern Africa, we leave it to the engineers and energy specialists to sort out the operational specifics. But when it comes to governance, we believe there is much room for improvement. The shareholder, board and executive management need to be more closely aligned, and work more cohesively, to get the country out of the mire.

* Sadie is CEO of the Chartered Governance Institute of Southern Africa