Make or break to regenerate Eskom
CEO to cut jobs, seek new revenue to escape tariff increase trap
● Eskom needs to move away from its reliance on tariff increases and look to more creative ways of maximising revenue, says new group CEO Phakamani Hadebe.
Otherwise, he warns, it will be sucked into a fatal utility death spiral.
“We are not yet fully in that death spiral, but the signs are there that we will be going there.”
This is when utilities rely on higher tariffs for survival, which means fewer customers and fewer sales, requiring even higher tariffs.
“It is created by utilities that do not adjust to changing times,” Hadebe says. “That, unfortunately, includes us. We need to avoid a situation where the whole business relies on tariff increases.”
Eskom’s latest request was for a 19.9% tariff increase.
The National Energy Regulator of South Africa gave it 5.2% and told it to reduce its costs.
Hadebe and his team have been working on a recovery plan which addresses how to maximise revenue and reduce costs.
“These are the critical things,” he says. “It’s no good hoping for the best tariffs — which is out of our hands — if you’re not maximising revenue and cutting costs.”
His plan is for Eskom to maximise revenue by increasing its customers and embracing the future.
“We’re talking to clients who since 2010 have being looking at other options,” he says.
He’s confident of getting them back.
“We are aware of businesses that have shelved business opportunities because of a lack of electricity. The story we’re getting from our engagements with them is that they still have an appetite for Eskom to the extent that we can commit to provide what they need.
“They’re saying if Eskom is willing to work with them, they will jump immediately. They want to know, if they come back, will they get a reliable supply of electricity from us when they need it?”
Can he give them that guarantee?
“Unless something drastic happens. I don’t see us load-shedding.”
Eskom is producing 48 000MW, which meets present needs.
In two years Medupi power station will be at full stream, he says, and, by 2023 Kusile will be in full production.
Hadebe says embracing the future means more focus on renewables.
“If you change with the times you do not only rely on your normal, traditional powerproducing sector, which for us is coal, but you look at the future, at renewables.
“Relying on the traditional source will be more expensive than the new power sources that are coming in. Currently, when you look at renewables, we are the buyer of last resort. We need to play a bigger role there.”
Eskom recently signed 27 renewable energy agreements with independent power producers — against fierce union resistance.
“When you’re facing the challenges we are, you don’t have an option,” he says.
Maximising revenue is also about reducing costs. Eskom employs some 48 000 people on an average salary of around R700 000, which it is refusing to hike by a cent.
But if you need to reduce costs as quickly as Eskom does — it has outstanding debt of R367-billion and a R58-billion funding gap to fill by the end of March — then staff must be cut.
With elections looming and unions vowing fierce resistance, this is the most politically sensitive issue for Hadebe, and he resists giving a straight answer to the question: how many job cuts and when?
“We need to ensure we enhance productivity efficiencies. They’re not where they should be.”
Benchmarking Eskom against global utilities of similar size and structure “indicates that . . . we might need to review those numbers because we are not as competitive as our competitors in this space”.
Is a staff count of 48 000 sustainable? “Let me try and put this in a palatable way. The current productivity levels indicate that the situation is not sustainable.”
Eskom chairman Jabu Mabuza says they’re overstaffed by a third?
“That is one side of the story. It’s not just about reducing labour costs.”
Is he expecting resistance from the government?
“All I can say is that productivity levels are not where they should be. When you are looking at productivity, you have to look at the number of employees.”
Can staff reductions wait until after the elections?
“No one has told us to take certain decisions and not others because of elections.”
On the issue of restructuring and whether Eskom’s monopoly model is sustainable, he says this is for the politicians to decide.
“But what I can say is that the world is changing and it is changing very fast. And it demands that Eskom changes the way it operates to adjust to a changing world.
“We are lagging behind and we need to move as quickly as possible.”
Hadebe, 50, arrived at Eskom in January, faced with having to raise R20-billion in two weeks for an institution that had not been able to raise R1-billion in the preceding six months.
“Investors told me: ‘Deal with corruption or you’re not getting any money.’ ”
And he has. Casualties are thick on the ground and mounting, many of them politically connected.
Is he watching his back?
“No, I’m not watching my back. I’ve been here before, and I know how to deal with these issues.”
Ten years ago he was parachuted from the National Treasury into the Land Bank, which was in terminal decline because of rampant corruption. Within a month, he’d fired most of the executive committee and begun criminal proceedings.
His recovery plan for Eskom has received board approval, and investors like what they’ve heard. It still needs to be run by the minister and the cabinet.
What happens if the government rejects the more politically sensitive parts?
“This is about telling government exactly what is going to happen if we don’t deal with these issues,” he says. “And the truth is that if we don’t deal with these issues, then Eskom will have to close shop.
“So we must make a choice — whether we want Eskom to survive, or whether we don’t need Eskom.”
The truth is that if we don’t deal with these issues, then Eskom will have to close shop
Phakamani Hadebe
Eskom’s new group CEO