Brown sidelined as Ramaphosa shakes up Eskom
Minister draws line in sand for embattled state power utility
● Public Enterprises Minister Lynne Brown’s control of Eskom has been drastically curtailed as a raft of changes were announced at the utility yesterday, including appointment of a new chairman.
Deputy President Cyril Ramaphosa last night put Eskom under the oversight of a team of ministers, that he will lead himself, comprising Brown, Energy Minister David Mahlobo and Finance Minister Malusi Gigaba.
The radical changes are further evidence of a loss of confidence in Brown, who has been accused in some quarters of assisting in the capture of Eskom for the benefit of the Gupta family and their associates.
Ramaphosa was chairman of the interministerial committee overseeing Eskom until the parastatal was moved to Zuma’s office in 2016.
Ramaphosa named Jabu Mabuza, now at Telkom, as the new chairman of the struggling power utility, and appointed a new interim CEO, Phakamani Hadebe.
The changes — regarded as essential in saving South Africa from embarrassment at the World Economic Forum in Davos — were thrashed out during talks attended by Brown, Ramaphosa, Gigaba and President Jacob Zuma on Friday night.
It was the first Brown had heard of the changes, which a government source said had been proposed by Gigaba.
“Gigaba has been having meetings with Ramaphosa from the start of the week because he is really worried about Eskom,” the source said. It is a very real risk to the economy . . . The minister feels that minister Brown does not appreciate how serious this is.”
The Sunday Times understands that Gigaba proposed Mabuza and former finance minister Nhlanhla Nene as candidates for the Eskom chairmanship. However, Brown raised reservations about Nene at Friday’s meeting.
Ramaphosa, elected president of the ANC last month, ordered Eskom’s board to get rid of executives who have been linked to the utility’s capture by allies of the Gupta family, who have cultivated close ties to Zuma.
“The board is directed to appoint a permanent group CEO and group chief financial officer within the next three months,” his statement said.
“The board is directed to immediately remove all Eskom executives who are facing allegations of serious corruption and other acts of impropriety, including Mr Matshela Koko [head of generation] and Mr Anoj Singh [chief financial officer].”
In July last year Gigaba intervened in the malaise at Eskom by forcing the suspension of Singh. Eskom had resisted taking action against Singh despite threats from the Development Bank of Southern Africa that failure to do so would force it to recall a R15-billion loan facility. “We are confident this intervention will restore the important contribution Eskom makes to our economy,” Ramaphosa said. “We are determined to address the damage that has been done to this institution and place it on a new path of efficiency and integrity.”
On Friday night Ramaphosa told the NEC that action was needed before the WEF meeting which opens on Tuesday.
“[Eskom] was raised by the DBSA head who said we should not go to Davos because what is going to happen with Eskom is going to plunge the country into a great calamity,” he said. “Lenders may not take up Eskom bonds. The World Bank wants to call their money and this will have a domino effect on its debt.”
This week Gigaba sounded a stern warning about Eskom’s precarious situation, saying it could collapse the economy.
Former Eskom chairman Zethembe Khoza confirmed yesterday that he had quit, hours before Ramaphosa’s statement.
Brown’s spokesman, Colin Cruywagen, could not be reached for comment.
You [Gigaba] have been there nine months doing nothing Iraj Abedian CEO of Pan African Advisory Services
● Unlike SAA, embattled Eskom can forget about counting on Finance Minister Malusi Gigaba to provide a shot in the arm as the power utility searches for funds to meet its commitments this month.
A frustrated Gigaba told Business Times this week he would not open state coffers.
“There is absolutely no way that government is going to have $1-billion (about R12.2billion) in the immediate term to capitalise Eskom. There is not a cent that is going to come out of government to capitalise Eskom,” he said.
The government has already provided guarantees for Eskom of R350-billion.
He said Eskom required $1-billion “just in January alone” and that problems at Eskom gave him “sleepless nights”.
“You have a sense of a company, a board, that is oblivious to the issues the country is raising, completely oblivious. It’s as if they live in a different world.
“They are unable to resolve the immediate funding challenges of the company and obviously what they are doing is to wreck the company with the expectation that government, as the shareholder, is going to come to the party,” he said on the sidelines of a preWorld Economic Forum briefing.
Deputy President Cyril Ramaphosa will lead a delegation to the WEF in Davos in Switzerland. Gigaba will accompany him.
Gigaba said: “We are far more optimistic about South Africa and the economy today than perhaps was the case last year because we’ve had two consecutive quarters of encouraging growth.
“We snapped out of the technical recession pretty quickly and we have gone through, I think, what was one of the major areas of uncertainty last year which was the ANC policy conference.
“If we unlock the policy decisions that we require in order to grow the economy I anticipate that the economy can grow faster and be able to address the challenges of unemployment.”
One of the most pressing issues is the risk Eskom poses to the economy.
Eskom is negotiating a payout to CEO Matshela Koko, according to Business Day.
The paper also reported on Friday that suspended chief financial officer Anoj Singh had bound Eskom to pay a R400-million fee to a company which had supposedly negotiated a loan from China for Eskom to build or refurbish power stations.
Singh signed the deal against the advice of Eskom’s legal advisers. According to the report it would pay the fee to Huarong Energy Africa for raising R2-billion from China. Eskom said it had not yet paid this fee.
Attempts to contact Eskom’s interim chairman, Zethembe Khoza, were unsuccessful. Sathie Gounden, chairman of Eskom’s audit and risk committee, referred inquiries to a spokesman who was unavailable.
Gigaba’s stance leaves questions about a backup plan if Eskom’s $1-billion bond issue later this month disappoints. The JSE threatened to suspend Eskom bonds if the parastatal failed to release its half-year financial results by the end of the month.
Gigaba said the government had to act urgently to avoid a falling out with Eskom’s lenders, which would trigger other lenders to call in their loans. A similar situation developed at SAA when the Treasury provided just more than R5-billion in a bailout. Gigaba did not elaborate on interventions the Treasury might make at Eskom.
Economist Iraj Abedian was sceptical of Gigaba’s concern about Eskom.
“He only comes after nine months [in office] to say Eskom’s situation is dire. Well, congratulations minister, you’ve been there nine months doing nothing.”
Investec economist Annabel Bishop highlighted Eskom as a risk to South Africa’s credit rating, which might be further downgraded.
Moody’s, which put South Africa on review for downgrade late last year, is expected to announce its decision in March.
This week Bloomberg reported that S&P Global Ratings had raised concern over the risk Eskom posed to the country. There was a “clear danger” that Eskom could default on its debt, S&P said.
“We are very concerned about liquidity issues,” said Konrad Reuss, the managing director of S&P for sub-Saharan Africa.
Part of Eskom’s problem is the decline in demand for electricity and that it has not secured the tariff increases it claims are essential for its financial stability. The energy regulator granted a tariff increase of less than the 20% Eskom was seeking for the 2018-19 financial year, meaning it will have heavy funding requirements.
“It will either need to sharply cut down on its expenditure, privatise or place additional burden on the public purse for funding. Likely some of each,” Bishop said.
“South Africa’s public finances cannot repay Eskom’s debt without issuing substantially more government debt, which would put further downwards pressure on South Africa’s credit ratings,” Bishop said.
● US President Donald Trump’s attendance at the World Economic Forum in Davos will no doubt dominate this week’s newspaper headlines, with the world waiting for yet another embarrassing or tactless remark from the leader of the world’s biggest economy. But for South Africa, the attendance of newly elected ANC president Cyril Ramaphosa and Finance Minister Malusi Gigaba will perhaps be as seminal a moment as Nelson Mandela’s first address at Davos in 1992.
When he returned from the gathering that marked the reintroduction of the South African economy into the global village, Mandela put paid to the nationalisation drive that some in his party had backed.
After nearly a decade of a narrative largely shaped by economic stagnation and ever-increasing corruption, Ramaphosa and his entourage have to sell a story of “recovery”.
The 14th president of the ANC said they would send a positive message “that as much as we are downgraded we have got green shoots beginning to emerge and that South Africa is ready and open for investment”.
The South African delegation of government, business and labour representatives will have to deliver a good-news narrative to the gathering of international business and political leaders in Davos that has been nearly impossible since the firing of Nhlanhla Nene as finance minister in late 2015.
The occasion will be a litmus test to gauge investor appetite and renewed confidence in South Africa now that the country has moved beyond the disabling political uncertainty which plagued it ahead of the ANC’s elective conference.
A Goldman Sachs report indicates a turn in investor sentiment this year. South Africa is at the top of the list of potential candidates for the next big emerging-markets story following the “market-friendly” outcome of the ANC conference three weeks ago.
Economic growth may surge to 3% this year and 5% over the next five years, Goldman Sachs South Africa MD Colin Coleman said after the election of the new ANC leadership.
“[Investors] will not ask so much about the problems and how you are going to fix it, they will look to the leadership that has been elected to fix it and to make it happen.”
For Gigaba this may be his last opportunity to impress Ramaphosa ahead of the 2018 national budget presentation to parliament next month as rumours swirl that former ANC treasurer-general Zweli Mkhize may be appointed as the next finance minister should Ramaphosa assume the presidency this year or after next year’s national elections.
Gigaba’s challenge is to restore confidence in not only the National Treasury, but in his position as its political head after a difficult year.
His introduction last year following a cabinet reshuffle in March was a baptism of fire. In April, Fitch and S&P Global Ratings downgraded the government’s foreign currency rating, leading to an increase in the cost of borrowing.
Fitch also downgraded South Africa’s rand-denominated debt rating and S&P followed suit in November. The majority of government’s debt is rand-denominated.
Moody’s has put South Africa on review for a downgrade in the first quarter of this year, possibly after the 2018 budget.
Gigaba’s frank revelation at the mediumterm budget policy statement presentation in October that revenue shortfalls and the budget deficits would be wider than anticipated weakened the currency.
A surprise announcement soon afterwards by President Jacob Zuma of the introduction of free higher education, for which the Treasury had to find the funds, roiled the markets.
Gigaba failed to convince the president to hold off on the announcement, which was made just as the ANC’s conference began last month.
Susan Booysen, professor at the Wits School of Governance, said: “He [Gigaba] is possibly on fairly solid ground, at least for the time being.” But his appointment had inflicted “a huge amount of damage” on the Treasury. He had “played it relatively safe”, although he had “allowed much meddling. He has not been senior enough, expert enough in public finance and in Treasury matters.
“Now there are new considerations that the retention of some people, probably including Gigaba, is for political stability. For me, that means that the ANC and the socalled new ANC under Cyril Ramaphosa is not taking full advantage of the low-hanging fruit that Ramaphosa’s ascension in the ANC gave them. There is much credit being given for their crusade on corruption [but] so much more can be scored,” she said.
Of concern to the markets will be the governance weaknesses and financial challenges at state-owned enterprises which have required the Treasury to take a more active role in SOEs over the past few months.
Ramaphosa favours the arm’s-length approach of Singapore’s government to its SOEs. “Less interference and more oversight. I guess this is what we need to try and fashion. There needs to be parliamentary oversight and government oversight, but it should not be the interference of who you should appoint as the gardener,” he said.
The occasion will be a litmus test to gauge the temperature of investor appetite