The former US consultant speaks out.

ALEC HOGG:  The goings on at South Africa's electricity parastatal has captured the public's attention over the past few weeks.  Shortly after its shock request for three successive 45% a year increases in electricity prices came boardroom shenanigans that led to the departure of both the chairman and the chief executive.  The official opposition, the Democratic Alliance (DA) can claim much of the credit for the shake-up after making public a number of sensitive internal documents, presumably leaked to them by Eskom insiders.  The most important of these was September's release of an internal memo dating back to 2007 that was drafted by the respected American based strategic consultant Susan Olsen.  It identified problems but was apparently ignored by the then chief executive, Jacob Maroga.  Miss Olsen joins us in this special edition of the Boardroom Talk Podcast.

Susan give us some background of how you became involved in the first place.

SUSAN OLSEN:  I arrived in Johannesburg to start the work in May of 2006 but five or six or seven months of negotiations prior to that led up to the actual decision for me to come down on an 18 month consultant's contract - it was a fairly convoluted process actually.  So I arrived in May 2006.  The consulting agreement was an hours-based agreement that effectively would have equalled 18 months.  But by April 2007, it just was clear to me that I wasn't going to be making any progress there and I needed to try to stop what I was doing and move on.

ALEC HOGG:  Susan how did it become clear?

SUSAN OLSEN:  The charges I had under the consultant services agreement one by one were taken away from me.  I was ultimately - I'd negotiated in fact a suite of long and short term contracts in good faith with some of the collieries as well as some of the third-party suppliers and they were cancelled, which effectively made my word no good, and that was I guess the straw that broke the camel's back for me.

ALEC HOGG:  Different to other experiences you've had in the power field...

SUSAN OLSEN:  Yes, very different.

ALEC HOGG:  So why did you write a memo if your services had been terminated?

SUSAN OLSEN:  Well that's also, I suppose, an odd thing but I was so concerned about what I had seen there and so worried and the Primary Energy Division - that was called Generation Primary Energy at the time, was so insulated that quite frankly I felt that I needed to make known what I had found to at least the new CEO and it would be his choice to do with it what he wanted, but the way things were I knew it would never ever - my findings would never leave Primary Energy.

ALEC HOGG:  Susan is it possible to put the blame at the feet of the chief executive or the chairman of a company, because it does appear in this instance that it was one department - the procurement area - where the problems existed...

SUSAN OLSEN:  I'd say that's correct.  Let me say that the ladies and gentlemen that are, 24-hours a day, charged with keeping the lights on at the power stations have nothing but my admiration and complete awe.  These guys, in my mind, are magicians.  They have kept the plants running in the face of receding fuel that in some cases was a little more than effluent - and the delivery of that poor fuel was not the fault of the coal suppliers.  You have coal supply managers who are supposedly charged with ensuring that they get the quantity and quality of coal that the plants are designed to burn.  That has not been the case.  I think that in the absence of getting the fuel procurement department squared away and staffed with people who understand coal as an organic material, as a fuel, and the necessity for it to match up to the plant in which its being burned, and to have that staff also have an understanding of the commercial implications of coal as a fuel are critical.  And I believe that until that can be sorted out, you're not going to get very far.

ALEC HOGG:  Did you have much reaction or interaction with the CEO of Eskom, Jacob Maroga?

SUSAN OLSEN:  I'd never met him before... but he was kind enough to agree to see me.

ALEC HOGG:  Was this at the time that you gave him the memo?

SUSAN OLSEN:  Yes, that day.

ALEC HOGG:  And what was his reaction?

SUSAN OLSEN:  Well as you might imagine, he was sort of shocked, because they're pretty strong statements, but he read them and we discussed them and he asked me whether I would consider staying on and advising him on these matters.  If we could sort out the problems with the termination of the contract and I said absolutely - I said my job isn't done.  It wasn't an investigation, it was to come in and do a certain number of things - to accomplish a certain number of things from helping develop a standardised coal supply agreement to renegotiating some of those contracts, to negotiating new ones and also to do some skills training and transfer with some of the young people that were there in primary energy.  I did not have direct contact with the Generations side except in researching the actual coal specifications for each of Eskom's generating plant.  My side was strictly fuel.

ALEC HOGG:  And for those who haven't read your memo or been exposed to it, what were the key take-outs.

SUSAN OLSEN:  What I explained though was no real understanding of the business of coal and coal procurement and a complete lack of understanding of how to undertake commercial negotiations and properly structure a coal supply agreement to benefit the purchaser.

ALEC HOGG:  Its quite strong stuff.  From the other electricity utilities around the world that you've been exposed to, if they were on average at a level of five in this field, where would Eskom have rated?

SUSAN OLSEN:  Gosh - in terms of commercial understanding and ability, I think I'd be generous if I said a two...

ALEC HOGG:  So there definitely were issues which when you interacted with Jacob Maroga he seemed to identify with and he wanted you to consult directly to him.  What happened from there?

SUSAN OLSEN:  Well he asked if we could sort out the termination of the contract, would I be willing to continue and advise him on the issues that I had raised, and I said absolutely.  He said, "please give me two weeks to respond to you" and I did - he called me exactly two weeks to the day later, and said that he was sorry but he was not going to be able to engage my services but thanked me nonetheless and wished me a safe trip home.

ALEC HOGG:  Were you fired then by him, or had you perhaps been fired before...

SUSAN OLSEN:  The contract had been terminated before that, oh absolutely.  There was no relationship contractually between myself and Eskom when I met with Mr Maroga.

ALEC HOGG:  Was any reason given for the termination of the contract, given that there were major problems that eventuated on the coal supply as the whole country knows, not long after...

SUSAN OLSEN:  Well we had been in negotiations for the winding up.  I'd approached the general manager and had said, "you know lets face it, this isnt going anywhere and rather than continue to disagree, lets just wind this up".  And in any contract, the winding up takes some negotiations and we were in the middle of that.  They were not particularly friendly negotiations but nevertheless they were ongoing and in the middle of them it was terminated.  The letter of termination said there had been a complete breakdown in the relationship and that was that.

ALEC HOGG:  Was there any legal implication?

SUSAN OLSEN:  Certainly...

ALEC HOGG:  ...and are you pursuing those?

SUSAN OLSEN:  I initiated them back in 2007 but I frankly think I am out-lawyered - and have basically done nothing in the two years.  There are things that you can fight and there are things that you cannot fight.

ALEC HOGG:  You've no doubt been following with some interest the way that things have been bandied about in the South African media in the last little while, and your memo as well.  There is stuff there that seems to be at odds with what you've spoken to us about today.

SUSAN OLSEN:  Yes - it appears that some people have taken it upon themselves to speak on my behalf or just ascribed motives or circumstances that just are not true and that probably could have been cleared up with a phone call.

ALEC HOGG:  One of these is that the memo was ignored because you are white - do you put any credence to that?

SUSAN OLSEN:  Not at all.  I'm a coal person - I could be plaid and it shouldn't make any difference.  It's a small group of people, it's a specialised industry to an extent and I was brought in simply because of my background.  I ascribe no racial motives to it at all.

ALEC HOGG:  The issues that you felt needed to be addressed back then in 2007 - have they been?

SUSAN OLSEN:  I have no idea - I have absolutely no idea although from what I see in the press I don't see that any progress has been made.  If that memo was such a bombshell when it was released, I can only infer from that that things are still not well.  If the problems no longer existed it would be - well so what, we fixed all of that.

ALEC HOGG:  But if you have look now at - there's going to be a new chairman, there's going to be a new chief executive - if you look specifically on the coal procurement side, is there any advice you would suggest to them?

SUSAN OLSEN:  My advice remains the same.  You need a confident, knowledgeable staff, you need good contracts, you need to know how to negotiate those contracts, you need to understand quality control, you need to take your lead from your power station managers who are the poor saps that are charged with burning the stuff.  They should be the ones making the decision on the coal quality, not some third party person sitting in a cubicle.

ALEC HOGG:  Susan Olsen, a consultant speaking to us from New Hampshire.

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Escom shame. This is not surprising. There must be more of this in the rest of the parastatals. I hope we don't have to wait another 2 years for things to come out from the sabc. by Miles Bowker on November 18 2009, 20:15 Find this comment inappropriate? Report it

Alec, one question you might have asked: did she had any contact with Bobby Godsell during his tenure at ESKOM? by Dave on November 19 2009, 07:52 Find this comment inappropriate? Report it

Coal AWA by Hook on November 19 2009, 08:47 Find this comment inappropriate? Report it

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