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Is Eskom’s new CEO up to the job?

A competent CEO needs those with engineering skills to advise him on technology; he doesn’t need it all in his own head, explains energy analyst Roger Lilly.

NOMPU SIZIBA: Late in the day yesterday the announcement was released by the Department of Public Enterprises that Eskom now finally has a permanent CEO, one Mr Andre de Ruyter. He is currently the CEO of packaging firm Nampak, and is due to start his duties at the utility on January 15 2020 – next year. News of his appointment has been met with mixed sentiments. Parts of labour have questioned his lack of engineering qualifications, adding that they would have expected the qualifying candidate to at least have that, given Eskom’s operational problems.

Well, to give us his take on the appointment, and what the new leadership now means for Eskom, I’m joined on the line by Roger Lilly, an independent energy analyst. Thanks very much, Roger, for joining us, as always. A lot of people have expressed their two cents’ worth on the latest appointment, which of course had been eagerly awaited, with others being fairly neutral and looking to give the guy a chance, just by wishing him “all the best”. Where do you stand on the spectrum, and why?

ROGER LILLEY: Good evening to you and your listeners. Thank you for having me on your show.

Andre is a good guy. He’s going to do a good job in the sense of restructuring the organisation – if he’s given the free hand to do so. He is apparently a man who is not a stranger to restructuring of organisations, and is able to be strong in terms of making difficult decisions, unpopular decisions. He’s going to need to do that with Eskom.

I think the difficulty that he is going to face is that he is the 13th man in 11 years to be CEO of this entity. Each one of these has suffered basically the same problem. That is too much political interference and too much resistance from organised labour – in other words, the unions. Those are the challenges he is going to walk into on day one.

The challenge that he is going to face in terms of the financial situation, I think, is greater than the operational one. There are plenty of really qualified and competent people working within Eskom’s operational centres, who can do what is needed in terms of operational excellence. But the difficulty and the stumbling block has been finance – the fact that the utility is facing this enormous burden of R450 billion of debt, and the fact that it is struggling to recover debt that is owing to it in turn from municipalities and direct users. At the same time the demand for electricity is declining.

This puts the utility in a very difficult position, because it needs to sell more electricity in order to increase its revenue income, and at the same time it can’t do so by increasing tariffs because, if it simply increases tariffs, it just chases customers away. So, it needs to do very creative in terms of trying to attract people back to using electricity. It can do that only by structuring tariffs in such a way that they become really attractive as an energy source.

Now, [……3:53] means as much residential user as the industrial user and the commercial user. These are the ones that need to be entrenched to using Eskom’s product, and that to me is going to be big selling job. It’s going to be a difficult task because, at the same time as doing that, you have to be able to assure the client to whom you are trying to sell your product, that you are capable of supplying it reliably, which unfortunately Eskom has not been able to do. He really is stuck in a very difficult position; I don’t envy Andre de Ruyter one bit.

NOMPU SIZIBA: Given the dynamics that you’ve just outlined, do you think that Mr De Ruyter is going to immediately flag up the overloaded staff complement at Eskom? The World Bank has said that Eskom is overstaffed to the tune of two-thirds. I recall when the former CEO, Phakamani Hadebe, tried to institute a no-wage-increase agreement, he was sticking to his guns, the board was sticking to their guns, and then of course there was some sort of intervention.

Now, if it were to come to the issue of retrenchments, surely that political intervention that you are talking about would raise its head again?

ROGER LILLEY: Yes, this is the difficulty. Apparently what happened during the Zuma years was that extra staff was taken on by the state-owned entities in order to help the president at the time’s promise of creating extra jobs. He didn’t create extra jobs, he simply forced the state-owned entities, because he had the power to do so, to employ more people than they needed.

Now, what’s happened apparently at Eskom is that in this interim period between then and now the organisation has restructured itself internally, so that everybody who is there has a job to do. There is no one sitting there twiddling their thumbs with nothing to do. The difficulty of course is that now you’ve got to restructure, remove a layer of people, perhaps, so that you can free that up and get those people out in an environment where these people are probably not going to find other jobs easily. You are going to have a lot of resistance to that. But, if he doesn’t do that, he’s never going to manage the financial challenges that Eskom faces. So the only he can do that if the central government is prepared to stand behind him and allow him to do these things with its blessing.

So he’s going to have to work very, very closely with the Minister of Public Enterprises, and then have to come to an agreement, which is then probably then have to be taken back to cabinet for ratification, so that everybody is saying the same thing in the same direction, so that Eskom can indeed be recovered.

If we just allow things to go on as they are, business as usual – Eskom is already in the utility death spiral, as it’s known – this spiral is going to simply continue. What’s then going to happen is, when it goes down, it’s going to take with it the entire economy of South Africa because we are 100% reliant on Eskom for electricity. It supplies 90% of the power that is used in this country. Eskom, as you said in your introduction, on the one hand is too large to fail; on the other hand it’s too large in its current form to succeed.

So the CEO and the board and the chairman and the minister are going to have to work in cooperation with each other, moving in a unified direction, with unified messages to the public, with unified messages to the employees. A clear, open strategy is going to have to be shown and followed. That’s going to be the only way that Eskom can survive in future.

NOMPU SIZIBA: I’ve come to learn that a CEO is somebody who gets things done, who executes strategy, and doesn’t necessarily have to have the core skill of the operation that he is running. Of course, there are lots of debates running about that. But, with Mr De Ruyter’s lack of engineering skills, presumably it would make sense for the Department of Public Enterprises to ensure that any future board appointments have more of an engineering leaning, ultimately getting Eskom fixed. Obviously, this is not a one-man job, just as Nesan Nair said before you.

ROGER LILLEY: That is true. Nesan is 100% right, and so are you in this case. An engineer is not necessarily better qualified than a shrewd businessman at the level of CEO, where he is not dealing with the bolts and the watts and the amps; he is dealing with rands and cents and he’s dealing with strategy, and he’s dealing with market forces. Those are the things that he needs to understand. He needs to draw around him, perhaps, those with engineering skills who can advise him in areas where he needs to understand certain levels of technology, but he doesn’t need to have it all in his own head. I don’t think that’s necessary. It’s not a one-man show. He needs to work with a team and be advised and act accordingly.

NOMPU SIZIBA: Well, let’s watch this space and see how he gets along, and whether he is able to deal with political factors that he is going to have to contend with.

Thanks very much, Roger, for your time.

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