Strong new Eskom leadership faces daunting challenge
Eskom’s shiny new leadership is led by business luminaries Jabu Mabuza and Phakamani Hadebe. Their immediate task as chairman and interim CEO, respectively, will be persuading banks to reopen lending facilities to the cash-strapped power utility, with an immediate need of R20bn. Eskom is headed for a default and risks suspension of its bonds on the JSE.
While its weak board has been replaced with a strong one and former acting CEO Matshela Koko, who is facing allegations of corruption, was shown the door, its governance problems are not going to be dealt with overnight, and the state-owned company still has a reputation to repair.
Banking Association of SA MD Cas Coovadia welcomes Hadebe’s appointment.
“He has demonstrated his skills in turning an institution around and I have no doubt he will, with the support and guidance of a board that is now ethical and competent, make a significant positive impact on the critical weaknesses at Eskom,” Coovadia says.
Hadebe joins Eskom after a short break from his previous post as Barclays Africa’s SA corporate and investment bank CEO. He has faced pretty much the same issues at the Land Bank: a financial crisis coupled with reputational and governance problems, along with the appointment of a new board to deal with them.
The Treasury, where he was deputy director-general, seconded him to the Land Bank in 2008 after the bank’s capital position had deteriorated to R1.7bn from R3bn seven years before and led to its status as a going concern being flagged by the auditor-general.
The auditor-general also gave the Land Bank a qualified audit opinion, based on loans being granted outside its mandate and breakdowns in internal controls, resulting in unverifiable expenses.
Auditors were unable to grant a clean audit due to corruption allegations surrounding the AgriBEE fund administered by the Land Bank. It had recorded a net loss of R20m at the end of March 2008, with R190m in loans it did not expect to recover.
The bank was forced to obtain a R1.5bn guarantee and a R700m cash injection from the Treasury to bolster its cash position in October 2007 – before publishing its annual results — on condition that it present and implement a turnaround strategy.
Frustrated with mismanagement at the bank, the Cabinet removed it from the oversight of the Department of Agriculture, Forestry and Fisheries, placing it under the Treasury.
Hadebe’s first parliamentary briefing after being seconded to the Land Bank was not very pleasant, with MPs demanding answers on the AgriBEE investigation and the equity injection, which he said had disappeared quickly, given the state of the bank’s finances.
But by 2013, his last year at the bank, Hadebe had more than stabilised its finances. Net profit was R304.6m, an 88.7% increase on the previous year. Loans not expected to be recovered were just R75m.
Former finance minister Pravin Gordhan was thrilled with the bank’s performance amid a slowdown in the economy, an aftershock of the 2008 global recession.
“Despite these adverse conditions, the Land Bank is forging ahead,” he said at the time. “It is in a better financial position than it was a few years ago. A solid foundation has been laid for good corporate governance.”
Business Leadership SA welcomes the appointment of Hadebe. Its CEO Bonang Mohale says this is a clear display of commitment by the government to transform stateowned corporations.
“We thank all the many South Africans who have answered the call to serve their country through serving on the Eskom board,” he says.
“We also welcome the return to the public sector of Mr Hadebe, who has contributed handsomely in the public service over the years, after a stint in the private sector.”
At Eskom, Hadebe will be dealing with billions of rand instead of millions if the board, which hires the utility’s management, decides to retain him as CEO.