ANC leaders expecting Eskom to be turned around overnight after years of state capture, infrastructure neglect, inflated contracts and staff padding show they still do not grasp how the effects of systemic corruption on state entities cannot be reversed quickly.
Just like the rand, after it crashed because of irresponsible government economic decisions, cannot be “picked up” to its real value overnight — as claimed by Nomvula Mokonyane — so too Eskom cannot be “picked up” to its former level of efficiency after the looting of the company by cadres.
It can only be done with the most extreme shock therapy: ending overpriced contracts, cutting salaries, reducing staff and overhauling the business model — all of which demand brutally slaying powerful vested political interests in the governing party, that will naturally oppose such measures.
Even if there is the political will, changes may take at least double the time they would if it was a private company, and are so financially costly that it may be cheaper to close the utility or give it to the private sector. Often, even with all the political will, these shock measures cannot be done at all because of the so-called “death spiral” phenomenon, whereby ever-rising fixed costs, alternative sources of energy and competition make these energy utilities redundant.
Turning around a state-owned enterprise (SOE) such as Eskom that was captured is more difficult than turning around a private sector company because of the entrenched interests so closely tied up with the political interests in the governing ANC.
The key cost metrics at Eskom that need to be reduced are all captured by interests linked to the ANC — which ANC leaders appear reluctant to take on because it would undermine the “unity” of the party and is contradictory to hardline ideological positions of key leaders.
Eskom CEO André de Ruyter’s hands are tied when it comes to tackling the essential issues at the utility, as almost all the essential reforms are politically unpalatable to the ANC leadership.
Eskom’s staff count is bloated. Its employee wages, benefits and bonus structures are over the top. It is almost impossible to hold individual employees accountable for performance.
De Ruyter cannot cut the employee count, cannot cut the wage bill and cannot hold individual employees accountable, because this will be opposed by powerful trade unions aligned to the ANC
De Ruyter cannot cut the employee count, cannot cut the wage bill and cannot hold individual employees accountable, because this will be opposed by powerful trade unions aligned to the ANC.
The National Union of Mineworkers’ support will be crucial again for President Cyril Ramaphosa to be re-elected as ANC leader at next year’s elective conference.
Within the ANC, any mass public sector job cuts to improve efficiency are seen as a vote-losing strategy by party leaders because of the already high unemployment figures.
De Ruyter is likely constrained in firing incompetent executives as many are politically connected and will appeal to ANC leaders or the president.
Many supplier contracts at Eskom are overpriced. Most of these contracts cannot be cancelled because they belong to powerful politically connected individuals in the ANC.
The ANC’s now closed investment company, Chancellor House, was gifted a 25% stake in the local subsidiary of Hitachi. Together, Hitachi and Chancellor House in 2005 secured a $5.6bn (about R88bn) Eskom contract to build boilers for new power plants. A decade after the deal, the construction of the plants was years late and overpriced.
To bring down costs, De Ruyter needs to cancel existing contracts based on poor performance, overpricing and corruption. However, if he does so, contractors will charge he is against “transformation”, opposed to “black economic empowerment” or that he wants to bring “white monopoly capital” to replace them.
Many decisions in Eskom, as in all other SOEs, must be approved by the ANC’s top leadership. This not only delays crucial work, but ANC leadership decisions are in many cases not in the interests of the entity or the public.
The ANC has strong ideological vested interests that undermine the turnaround of Eskom. Energy minister Gwede Mantashe, the ANC’s national chair, and others opposed renewable energy even though Eskom clearly did not have the capacity to deliver power. They have done this purely on the ideological grounds of not wanting the private sector to lead renewable energy, and because they want “businesses” linked to the ANC or its leaders to control that sector.
One powerful interest group in the ANC is what is called the “coal mafia”, ANC-linked groups that have been “empowered” to dominate coal mining — and its supply to Eskom. This interest group — in many cases also linked to ANC-aligned trade unions and big funders of the ANC — is particularly opposed to renewable energy.
Long-term lack of maintenance of infrastructure always reaches a critical point where the whole system collapses — this is what we can see now at Eskom. Alternative energy supplies from the private sector are crucial to fill this gap.
SOE boards need to defend their turnaround strategy against political meddling, opportunism and ignorance. The Eskom board has been silent amid the attacks on De Ruyter by ANC leaders and opposition populists. Many on the board appear not to want to alienate ANC politicians by defending the CEO and the company’s strategy; some no doubt fear being sidelined for other SOE board positions if they do.
It is crucial that the ANC muster the political will to give De Ruyter all the support to take on vested political interests. If not, Eskom will remain a “dead horse”.
• Gumede is associate professor at the School of Governance, Wits University, and author of 'Restless Nation: Making Sense of Troubled Times' (Tafelberg)
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