Andrew Kenny
The surprise announcement of Andre de Ruyter as the new CEO of Eskom was soon followed by Eskom’s dismal half-year report. De Ruyter must be a brave man to step into the most difficult and most crucial job in South Africa.
By far the biggest reaction to De Ruyter from our commentators was over his white skin. This tells you much about South African politics and race relations. It is widely assumed that only blacks are entitled to high office in the public sector. The EFF said his appointment was anti-transformation and part of a “racist project” by Public Enterprises Minister Pravin Gordhan to undermine Africans. However, Busisiwe Mavuso of Business Unity SA approved of him. De Ruyter is the eleventh Eskom CEO in the last ten years, and only the second white one.
The other complaint about him is that he is not an engineer and Eskom is an engineering company. I don’t think this criticism is justified. By far the main requirement of the Eskom CEO is that he or she should be a good manager. I speak with some authority here since I am a qualified engineer and a very bad manager. I’d make a hopeless CEO. In fact De Ruyter performed well as a senior manager in Sasol and Nampak, both companies with a large engineering component and both in difficulty during his management. This is good experience for him at Eskom. The fact that Nampak’s share price sank during his time there seems to have been caused by regulatory problems in African countries rather than any fault of his. De Ruyter has enough technical experience to know how to consult and use the skilled engineers at Eskom to improve its engineering, especially in its maintenance programmes.
Eskom’s problems are deep but they are quite simple and their solutions are known. The main requirement is to have the authority and the will to implement them. Eskom has at least twice as many employees as it needs, all earning fat salaries. There must be massive retrenchment. Eskom’s coal bill has soared out of control and the quality of coal it receives has plummeted. This is because it moved its coal procurement from the big white-owned mining majors to small BEE suppliers. This must be reversed. Eskom must return to the old system of big cost-plus mines next to the power stations. Affirmative Action at Eskom has been disastrous, getting rid of experienced white engineers and replacing them with inexperienced black ones. This must be reversed too.
All of these actions require great political will since all of them will be furiously resisted. Because De Ruyter is white he will be better able than a black man to detach himself from the black political establishment. According to the Sunday Times, 27 black executives were offered and declined appointment as Eskom’s CEO. They seemed to regard such appointment as the kiss of death. This is probably because they knew they would get dragged into ANC politics and faction fighting and so would be unable to take the actions Eskom really needs. De Ruyter has a much better chance.
Eskom’s results for the six months ending 30 September 2019 make grim reading – although they are nicely set out, giving all the relevant information clearly. And, grim though they are, there seems to be a slight improvement on a year ago. The key statement is this candid admission: “Net cash from operating activities” was R19.7 billion while “cash required for debt servicing” was R31.0 billion. In other words Eskom is in a debt trap, which it can only escape by increasing revenue, decreasing costs or receiving money from the government, in other words the taxpayer, in other words you and me. Since Eskom has trouble meeting even the present sluggish demand, it can only increase revenue by higher tariffs, which seem inevitable.
The results showed that, while Eskom’s average sales price is about 90 cents/kWh (kilowatt-hour), it is forced to pay 215 cents/kWh for “renewable” electricity (wind and solar). Renewable electricity is a terrible burden on Eskom and will greatly increase electricity costs in future if it increases as the dreadful IRP (Integrated Resource Plan) demands. De Ruyter would help Eskom greatly if he could somehow reduce or cancel solar and wind generation. But here he faces huge political pressure of a different kind.
Above all, Eskom must be made to realise what its purpose is. Its purpose is to supply sufficient affordable electricity for South Africa and cover its costs. Nothing else. This is what it did very successfully before 1994. Its purpose is not to be an instrument of racial ideology or an agent of sheltered employment for friends and family of the ruling class, or a social welfare organisation. It is an engineering company not an ideological faction. If De Ruyter can restore the original purpose, he will be doing this country a power of good.
First published on the Daily Friend. The views of the writer are not necessarily the views of the IRR.
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https://www.biznews.com/sa-investing/2019/12/02/strange-case-eskom-ceo-andre-de-ruyter
