Eskom must shed staffing load
• Utility’s 47,658 workers are doing the same work as 31,458 in 2006
That Eskom has approached its wage negotiations season with an offer to not increase salaries in 2018 is absolutely the correct position for an organisation with its kind of problems. For many years it has not been generating enough cash to pay salaries and fund its operating needs.
Freezing wage increases is just the start of what the stateowned company needs to do, as it borrows money to pay debt and salaries.
Hard and more painful decisions have to be taken for Eskom to migrate from living hand-to-mouth to the thriving strategic national asset it can be. These decisions have to be made sooner rather than later.
The trade union leaders, their members, management and the government have to get together and agree on ways to save Eskom. The starting point is to agree to assault the inflated cost of running the utility.
Today, Eskom employs 47,658 people to generate less than 47,000MW of power. This number excludes the people building the Medupi and Kusile power stations who are employed by the companies executing the projects on Eskom’s behalf.
In the year ended March 2006, Eskom employed 31,458 people who produced 33,461MW of electricity from coal and nuclear power stations.
The electricity was sold to generate R36.05bn revenue, giving rise to what Eskom says is “value created per employee” of R679,000 per year.
This translated to electricity sales of 207,921GWh, according to Eskom’s audited financial statements for the years in question. Eskom’s workforce has increased by 51.5% since financial year 2006. In its March 2017 financial report the utility said it sold 214,141GWh, generating R177.14bn in revenue.
Yes, in 2017 Eskom sold only 3% more electricity than 12 years ago. Yet it employs so many more people. What are they doing there?
Another key statistic these numbers reveal is that, for the same amount of electricity it produced in 2006, Eskom now charges five times more.
The 2017 financials translate to “value added per employee” of R1.45m for the year, says Eskom in its annual report. In 2017 Eskom paid its employees an average annual salary of R696,168, totalling the “employee benefit expense” of R33.2bn.
As the audited accounts show, the cost of keeping Eskom’s workforce “working” amounts to just a shade of the revenue in one of its best years. Again: what are all those people doing there?
For years, nobody inside or outside Eskom has been able to convincingly and truthfully answer this question.
Which leaves one to guess: the government has used Eskom as an employment agency to deal with the abnormally high unemployment rate in SA. This is because it has failed dismally to produce an environment conducive to job creation by the private sector, which has for the latter part of the past decade effectively been treated as an enemy of the state. No surprises then that the private sector responded by hoarding cash.
By 2010 Eskom still employed “only” 36,547 people. This jumped to 46,624 by September 2013.
It is now common cause that turning Eskom into an employment agency, together with the rampant corruption with which the utility is now synonymous, has dealt it a near-fatal blow.
A decade ago Eskom was ranked among the best 10 producers of electricity worldwide, with a credit rating much higher than that of the sovereign. Its electricity was among the cheapest and available all the time to those connected to the grid. In 2007 all three major rating agencies awarded Eskom a credit rating averaging “A with a stable outlook”. This level denotes a strong capacity to independently meet the utility’s financial commitments.
By 2010 the credit ratings had declined to the lower levels of investment grade, reflecting the risk to the utility’s ability to meet its obligations.
In 2013 Eskom’s credit rating was still investment grade and ranking higher than that of the government. This enabled it to obtain cheaper funding from the capital markets. After that year a race to the bottom ensued. What has not been stolen by its executives has been used to pay salaries with no benefit to the utility. This amounts to wasteful and fruitless expenditure.
Today Eskom has been reduced to being among the worst of electricity producers: for years it subjected its customers to the degrading rationing of power, euphemistically termed “load shedding”. Eskom’s electricity is now among the most expensive, its borrowing capacity has been eroded by corruption. The staff complement is bloated. The prospect of load shedding is never far off.
For Eskom to survive it has to make tough and painful decisions. These are obvious. They have already been attempted by some of its most recent management teams, only for populist politicians in government to veto them.
On the one hand, instead of cutting its cloth to suit its situation, Eskom regularly ran to the government and the National Energy Regulator of SA (Nersa) to beg for funds to cope with its bloated cost structure. The ultimate source of the funding from both was the paying customers.
On the other hand, Eskom pandered to the government’s populist fears and allowed municipalities and various other customers to accumulate billions in unpaid debts. Today the utility is owed about R15bn by municipal customers — money it desperately needs and has little hope of collecting.
These debts have long ago caught up with the utility and the government: Nersa has on many occasions declined to allow Eskom the kind of extortionate price increases it has been requesting — after allowing prices to run to five times those of 12 years ago — while the government has run out of money to dish out.
This leaves Eskom with no option but to cut its bloated staff complement. The statistics show the 47,568 people it employs today are doing the same amount of work as the people employed in 2006.
Merely holding wages at today’s levels is only a good start. Eskom chairman Jabu Mabuza has already committed to Parliament that there will be no bonuses for management. Again, that is not nearly enough. There should be no salary increases for all.
Everybody should take the pain electricity consumers have been forced to endure for years.
For Eskom to survive it needs to immediately retrench all the 16,000 people it unnecessarily employed a few years ago — about 33% of the workforce.
The trade unions that represent them — the National Union of Metalworkers of SA, Solidarity and the National Union of Mineworkers — also need to realise that killing Eskom with unaffordable wage demands will impoverish all their members sooner than they think.
The time to cut staff costs is now, during this financial year. Eskom cannot continue to borrow to pay unnecessary salaries. Raising debt to pay debt is never a clever way of doing business.
After the job cuts, Eskom’s management needs to aggressively tackle the massive corruption in its procurement systems, which has inflated operating costs.
A good start will be to see some arrests of those who played key roles in the massive looting that happened over the past 10 years.