Arduous rescue plans ahead for president

How quickly perceptions can change. If you mentioned Eskom six months ago, the talk would have been about alleged dodgy deals and impending bankruptcy. The possibility of the utility compromising the entire country’s fiscal credibility, with dire consequences for the ability to fund key services and support economic growth, would also have been a key theme.

Futuregrowth, which caused a stir in 2016 when it stopped lending to Eskom and other state-owned enterprises, citing poor governance, was as recently as January still warning the utility over its failure to release financial results on time.

So to hear from the new CEO, Phakamani Hadebe, that the company had managed to raise about R13bn in the first two months of the 2019 financial year and was ahead of funding targets marked some turnaround in confidence. So it seems that President Cyril Ramaphosa isn’t the only one enjoying a honeymoon. It looks as though the transition from the Brian Molefe era to the start of the Hadebe era has had an impact on Eskom similar to what the country has experienced with the change from Jacob Zuma to Ramaphosa.

But how long will it last? That depends as much on Ramaphosa as it does on Hadebe, and the extent to which the former backs the latter. With an election on the horizon, it will be a key test of Ramaphosa’s leadership.

Just to get a sense of the massive challenges that Hadebe needs to deal with, Eskom had net outstanding debt of R367bn in the six months to September. It looks big enough in absolute terms, but if you stop for a second and consider that this is equivalent to about 8% of the entire South African economy, it truly looks scary.

What’s even more worrying is that it can only get worse unless something drastic is done rather quickly. And that’s why Eskom is still far from being out of the woods, and it is a good reason for existing and potential lenders to remain cautious, despite the brighter outlook since Hadebe arrived, first on an acting basis in January and then permanently in May. The reality is that Eskom’s costs are increasing at a faster rate than what it is generating in revenue, and therefore it can’t be said to be on a sustainable path.

We’ve already got a sense of what’s to come when the National Union of Metalworkers of SA put out a statement in May condemning Eskom management’s proposal for freezing wages, arguing that recovering money that it said was stolen or looted during the previous regime’s reign would cover the shortfall. The union also blamed the roll-out of independent power producers, a project it said will cost more than R1-trillion.

The real struggles are probably going to be over the utility’s workforce and potential job cuts. Eskom chairman Jabu Mabuza, also installed in January, didn’t beat around the bush in May when he said the numbers were probably about a “third out of sync”.

Not much has impressed about Eskom in the past decade, but if its mandate had been merely to increase employment levels, the 50% jump that’s left it with about 48,000 employees would be something to celebrate. The problem, of course, is that there hasn’t been anything remotely in that region as far as productivity is concerned.

There does seem to be consensus that the old way of doing things, hitting the consumer with ridiculously high tariff hikes and having the government dipping in with handouts from the fiscus — money that could be better used funding education and health — isn’t the way to go. Even if we went that way, it wouldn’t go anywhere near safeguarding the utility’s future.

It will be interesting to see how Ramaphosa reacts when Eskom eventually presents him with a recovery plan containing some unpalatable proposals.

Elected to the ANC leadership with a tiny majority and set to fight his first national election next year, will he embrace a plan that involves the sort of culling that Mabuza has implied is required? He will be going into that election with SA still burdened by an unemployment rate near 30%.

And it’s probably safe to say there will be similar challenges at other cash-guzzling parastatals, most notably South African Airways.

Or will Ramaphosa choose the path of throwing good public money after bad, even if he knows in his heart that it will be a pointless, if devastatingly costly, exercise?

It has been suggested that his detractors have terribly misjudged him, seeing weakness and a lack of resolve where there is an admirable attention to detail and respect for process. Eskom may prove to be an early test that settles that question and sets the tone for the rest of his presidency.

WITH AN ELECTION ON THE HORIZON, ESKOM WILL BE A KEY TEST OF RAMAPHOSA’S LEADERSHIP