Eskom chair and acting chief executive Jabu Mabuza has put his weight behind the appointment of Andre de Ruyter as its new CEO, saying he was not a surprise candidate but the right person for the job.
The announcement of De Ruyter as the man who will take the wheel at Eskom, as it puts its turnaround strategy into gear, was met with criticism from its major unions.
It was also met with general surprise, as the outgoing Nampak CEO had not been touted as a candidate in media reports.
Speaking at the utility’s interim results presentation on Thursday, Mabuza said that De Ruyter’s appointment came after a credible and thorough process.
Lightly joking about the number of people who applied for the post, Mabuza said the utility would have not been able to employ all 142 applicants who ranged from school leavers to 75-year-olds and “any and everything in between”.
Mabuza was part of the board that interviewed the final six candidates and said four were white and two were black. He mentioned that these candidates were not the ones listed in media reports, which speculated that the job could go to former Eskom CEO Jacob Maroga, energy expert Thembani Bukula or former executive Dan Marokane, with the preferred candidate being Andy Calitz, former CEO of LNG Canada.
“It was also not our place to comment on that list, so the so-called surprise is because there was no leak,” said Mabuza. “Commentators had their own list and they were surprised when we did not use their list to choose the three we recommended.”
The Nampak factor
The issue with De Ruyter extends beyond him being a surprise candidate, with many calling into question his tenure at packaging company Nampak, which has seen its share price decline by more than 80% since he took over in 2014.
On Nampak’s performance, Mabuza said that while a company’s share price is an important indicator, it is not “the only indicator”.
He said there are many South African companies that have lost a third of their value in one year for doing business in markets that Nampak went into before De Ruyter was appointed.
“We also want to assure you that we are satisfied as the board of Eskom and are very grateful that the shareholder [government], having followed its own rigour, had come to the same conclusion that Andre de Ruyter is the most suitable, able, available and willing South African to take this job.
“I would like to plead with all South Africans, that not only does Andre need all the support he can get, he needs the space and the time to lead us out of all these challenges that are facing us,” he added.
And the challenges are grave.
While Eskom reported a net profit of R1.3 billion in the six months to September – more than double compared with the same period last year – the power utility is far from being out of the woods in terms of its financial and operational difficulties.
It predicts a R20 billion loss by year-end. Eskom’s debt has increased to R453 billion, while the R5.6 billion in cost savings it was able to achieve is at risk of being negatively affected by spending on diesel to stabilise the grid due to breakdowns in the unreliable generation fleet.
Savings will also be impacted by the escalating debt of non-paying municipalities, including Soweto. Collectively, this debt has increased by R5.2 billion since March to R25.1 billion.
Mabuza said that if municipal arrears continue on this trajectory the debt will escalate to R30 billion by its financial year-end in March 2020. By this time next year municipal arrears could be the second-largest cost to Eskom after coal – as high as R38 billion.
Herd mentality compounding the problem
“The worrying issue here is it’s new people that were paying that are no longer paying,” said Mabuza. “It’s people where the need for them to pay for services has just been taken away, because they are seeing their neighbour getting services even if they don’t pay.”
Eskom group chief financial officer Calib Cassim said the utility’s cost profile has changed significantly over the years – where coal at R55 billion per annum is its biggest cost item, interest on debt has become the second biggest, at R38 billion.
This is even more than the amount Eskom is spending this financial year on employee costs and capital expenditure, at R34 billion each.
“I think this is a clear signal that something needs to [be done to] address and restore this situation,” said Cassim.
“You cannot have your interest be more than your capex spend – it is just telling you that you are not sustainable.”