It would be highly irregular for the Eskom board to, as it claims, suspend the utility’s CEO, financial director and two other top executives without any suspicion of wrongdoing and it would open the company up to claims from the executives.
That is the opinion of corporate governance expert Charl Kocks, who is partner in CorporateGovernace.Pro. Kocks is not buying Eskom chairperson Zola Tsotsi’s assertion that Eskom CEO Tshediso Matona, finance director Tsholofelo Molefe, group capital executive Dan Marokane and group commercial and technical director Matshela Koko were suspended to prevent interference into an independent enquiry into the state of the company, but that there is no suspicion of wrongdoing on their part.
“A board does not do something this drastic, unless an executive is implicated in doing something wrong, is involved in someone else’s wrongdoing or could possibly help cover up any wrongdoing,” Kocks told Moneyweb.
Tsotsi announced the suspensions on Thursday at a hastily convened press briefing. He said the decision was taken during a “prolonged” board meeting and “a lot of soul searching”. The step is supported by government as shareholder, he said.
Tsotsi said the four were asked to “step aside” to ensure an independent enquiry to establish the state of Eskom is not interfered with.
He again denied a crisis at Eskom and said President Jacob Zuma and Public Enterprise Minister Lynn Brown were “aligned” that there is no crisis. However, he did admit to “several challenges we have to manage”.
The enquiry, expected to last three months, was prompted by Eskom’s poor performance with regard to the poor performance of generation plants, delays in the new build programme, high cost of primary energy and cash flow problems, Tsotsi said.
He stressed that no impropriety is suggested with regard to the four executives, but that the board wants an independent assessment of the state of the utility to get “a baseline” from where it can plan future strategy.
The Eskom executive consists of 11 people. This includes group executive for generation Mongezi Ntsokolo and his predecessor in that portfolio Thava Govender, who is now in charge of transmission and customer service. Tsotsi did not explain why there is no similar precaution with regard to these two executives, as the poor performance of the generation fleet is one of the focus areas of the enquiry.
Matona started at Eskom late last year after his predecessor Brian Dames resigned in December 2013 and vacated his position on March 31 last year. After his appointment he filled several vacant positions on the executive, including that of the financial director. Molefe has been acting in the position since January 1 2014, after the earlier resignation of Paul O’Flaherty.
Kocks said being in a role for a short period does not mean one couldn’t have been in a position to do something wrong. “You only need to lie to the board in a material way once, for example”, he said.
Shaun Nel, spokesperson for the intensive energy users group that represents Eskom’s thirty odd largest industrial customers, expressed the organisation’s concern about the effect of the suspensions on stability at Eskom. “The country cannot afford instability now from a confidence or a power supply perspective,” he said.
Afrikaanse Handelsinstituut (AHi) CEO Christo van der Rheede said the announcement came as a surprise and asked why at such a critical stage such a step was deemed necessary.
“The AHi views any independent inquiry into matters such as poor performance of generation plant, delays in bringing the new generation plant on-stream, high costs of primary energy and cash flow challenges as very dramatic and a sign of no-confidence in the current management,” Van der Rheede said in a statement.
“The AHi appeals to government to resolve this matter speedily and to appoint highly qualified and experienced experts from the energy sector to take Eskom forward. The denial of a crisis at Eskom whilst suspending executive personnel does not inspire confidence in an entity that serves a critical purpose in the South African economy.”
Van der Rheede said organised business demands a comprehensive and well motivated substantiation about the reasons for this inquiry – not just a news release as was done on Thursday morning.
Nomura Eskom analyst Peter Attard Montalto said in a statement that the announcement comes at a most difficult time for Eskom, “an important company in crisis”. He said it is doubtful whether the investigation will bring any new information that the government doesn’t know already.
He said it may only serve as a distraction “at a time when Eskom needs decisive, stable and strong leadership.”
Montalto said even if an inquiry is needed, it is unclear why senior leadership has to be removed. “We think it suggests they would obstruct something if they were to remain in place.”
He said strong political currents are at work and suggests the announcement may be a response to increasing unhappiness by Cosatu-aligned unions with Matona and his criticism of previous government action with regard to Eskom.
“Overall we still do not believe the government fully understands the crisis that is occurring in energy security – as evidenced by the delays in providing an equity injection and this morning’s announcement.”
“This news adds further negativity to the Eskom bond story and sovereign credit, though local rates and the currency are unlikely to be affected”, he said.
Tsotsi said the inquiry may lead to further inquiries, for example an audit of the state of generation capacity.
Tsotsi said the panel doing the investigation will be appointed within the next week. Lawyer Nick Lennell has been appointed to coordinate the process.
One of the current non-executive board members, Zethembe Khoza, has been asked to assume the position of interim CEO, Tsotsi said. Khoza will be supported by Nonkululeko Veleti (Finance), Abram Masango (Group Capital) and Edwin Mabelane (Commercial and Technology). They are all long-standing Eskom staff.
Managing director of EE Publishing Chris Yelland tweeted the following in response:
South Africans should brace for announcements by the Eskom board of massive further cost overruns at Medupi and Kusile in the days ahead.
— Chris Yelland (@chrisyelland) March 12, 2015