PODCAST | Eskom’s new chair makes coal costs his first target

Mpho Makwana, the new chair of Eskom, has backed incumbent CEO Andre de Ruyter and set his sights on bringing down the price of electricity by reducing the cost of coal supplied to its plants while also improving the quality of the fuel it receives.

In an interview with Business Times this week, Makwana spoke about the link between Eskom’s climate commitments and the cost of coal supplied to the company. The vast majority of Eskom’s power-generating plants are fired by coal — most of them have outdated, less efficient emission-filtration systems — and the state-owned company has come under particular scrutiny in light of SA’s global commitments to reduce carbon emissions.

“The reality is that we will have to fulfil our climate-change reduction commitments in line with what the country is capable of delivering, given where we are,” Makwana said.

One of SA’s advantages, he pointed out, was that “the quality of our coal is low in sulphur content”.

“So the coal mining companies that supply Eskom have a duty to ensure they don’t short-change us by exporting high-quality coal ... giving us the crumbs of the best of the coal. Most importantly, it should be supplied at a cost-competitive price per ton because if the cost per ton is high, it means our electricity cost inputs get inflated,” Makwana said.

He also called for caution on the future of embattled De Ruyter amid growing calls recently for his removal.

“The executives live or fall on their swords based on their performance,” Makwana said. “Performance management is what we are going to be driven by, fair and transparent performance. To jump the gun now and start making unsubstantiated pronouncements about whether anyone should stay in their job would not be responsible for us as a board.

“Where consequence management is needed, we will apply it, and where celebration of performance is required, we will do it accordingly. This includes any executive. There is a cliché: ‘don’t play the man, play the ball’. Similarly, let’s objectively assess the rules of the game and not nitpick on the man,” Makwana added.

LISTEN HERE:

“The key challenges, in line with the mandate the board has been given, is to set firmly a tone at the top — of clean, healthy governance and a winning culture. Part of the institutional memory I bring is that I remember that in 2001 Eskom was the global power utility of the year. We had a high energy availability factor, in line with global norms of about 86%; SA had high population access to electricity. In nuclear, Koeberg was rated among the top three in the world and Eskom was number 10 in the world.

“We need to dust off those indicators and see what it would take to claw back that legacy. The key thing is that we will achieve all this if we have winning teams. High-performance cultures come when your people are high-performance driven. It’s not numbers, spreadsheets or technology. We therefore have to rekindle the passion among Eskom’s 40,000-plus people, Makwana said.

“On the technical side we have to look at maintenance, all the discipline around regular plant maintenance that ensured that all those many years ago we had a high energy availability factor. All this requires a board and executive team that works well together.”

Makwana said Eskom’s approach to climate issues would consistently be guided by government policy.

“We need to be practical in looking at the makeup of SA. If we look at the Northern Cape, it is capable of producing incredibly high amounts of renewable energy. I think we should leverage that to its fullest potential,” he said.

“If you look at Koeberg in Cape Town, it gives a solid track record of SA being capable of safely managing nuclear power. We should be looking at whether the national energy plan can accommodate such a facility once more. And if you look at the southern Cape and Eastern Cape, there is a lot of wind,” he added.

“I would like to have the benefit of a proper briefing once we are onboarded. My intuition is that we will have to review things. Looking at Eskom’s numbers in terms of its income statement and balance sheet, I get the sense that the coal costs need to be engaged with.”

SA should also look at using technology, which is becoming more affordable, to promote a green coal economy and reduce its carbon emissions, Makwana said.

He said he had agreed to be chair of Eskom for the second time because “from time to time as citizens we get called upon to be of service to the country ... It made sense to me given that my commitments did not pose any kind of conflict, and it’s an entity that is well known to me. 

“We are going to have to balance the need to deliver in the here-and-now against the long-term sustainability of the utility. We will have a board strategy session soon and set our quarterly and annual indicators and we can be judged against those.” 

Asked whether Eskom should retain its monopoly status despite failing to meet its mandate, Makwana said: “We should have an objective discussion on this ... Our model in SA is fairly outdated and we need to look at it practically and balance what serves our country relative to where the world is at.

“We have to be constantly mindful that ... with more than 40,000MW of installed capacity, none of our neighbours come anywhere near that. This is a dilemma for the country. In our case if anything goes wrong with our baseload, there’s nobody to bail us out.

“So you do need to create a system that balances the need for Eskom generation to guarantee baseload while at the same time you complement that baseload with other forms of independent power producing capabilities.”

For more episodes, click here.

Subscribe for free episodes: iono.fm | Spotify | Apple Podcast | Pocket Casts | Player.fm