Gordhan warns of ‘state capture 2’
Minister says attempts to reform SOEs threatened by resistance from within
Appointing capable and honest leaders to South Africa’s troubled state-owned entities (SOEs) is a critical step to reforming them, but there remain individuals who hope to repeat the state capture project, says public enterprises minister Pravin Gordhan.
“Reforms generate resistance from those who benefit from malfeasance of one kind or another, from what we would call state capture 2. The narrative ... is that maleficence has become a lot more organised around various cliques and syndicates, which will in time be uncovered.”
Gordhan was speaking to the Sunday Times after announcing on Friday that Dan Marokane would be appointed Eskom Group CEO and Tsepo Monaheng CEO of the Denel Group.
Marokane, a chemical engineer and former acting CEO at Tongaat Hulett, was a vocal opponent of state capture led by the Gupta family during the Zuma administration. He was among the executives suspended from Eskom in 2015 for opposing state capture.
“The reform process requires that you have a clear vision of where you want to take these entities,” Gordhan said. “Getting there is not a cakewalk. It won’t be a path of roses. In fact, there will be thorns on the way. The effort to remove the thorns is massive in an organisational sense and an emotional sense, for those in institutions and those accountable for them. There is no quick fix, so to speak, in this regard.”
He said Eskom and Transnet went from being globally revered, award-winning entities to the brink of financial, operational and governance ruin. This was achieved by driving out capable and honest people and replacing them with politically embedded people who would facilitate state capture.
“This reform process, in many people’s minds, involves just replacing a board or a CEO. In fact, if you look at the damage caused by state capture, it’s far more pervasive. The operational deficiencies impact the finances, the people, and skills factor ... It also meant that the performance of these entities in the markets where they operate began to decline,” he said.
There would be an announcement on Transnet by January or the beginning of February to fill critical positions there, Gordhan said.
He said one manifestation of resistance was fake news of a unique variety, which says the government is allowing SOEs to fail so as to fabricate a case for selling the state assets. He said private partnerships to generate more capital were interpreted by opponents of reform as “selling out to the private sector”.
“All of that is a cover for a trend that is worldwide amongst elites and aspirational elites, which is the fact that they are driven by greed. It is well-documented that greed has become a major driver of inequality in society, for example. That is why people write books like How Much Is Enough? and so on.”
Gordhan said Marokane’s appointment presented an opportunity for Eskom’s reform process to gain traction as it is unbundled into three entities — generation, transmission, and distribution — and the energy market evolves to bring the private sector into the fold.
“The team that he builds around him with the support of the board must get going, because South Africans want stable power supply and Eskom will continue to play a role, notwithstanding the private sector’s role.”
He said SOEs such as Eskom and Transnet faced energy, rail and logistics policy adjustments seeking to modernise the economy and transform SOEs into businesses that contribute to the fiscus instead of draining it.
“They [Transnet] will also see structural changes, one being the infrastructure manager, the Ports Authority, being at arm’s length to other entities operating at the port, creating opportunities for private participation. But in the immediate term, the board has worked very hard to develop a recovery plan to put Transnet on a better footing,” he said.
Stabilising Eskom’s leadership has proven especially challenging since the resignation of former CEO André de Ruyter earlier this year. De Ruyter released a book called Truth To Power, in which he said the support he received from the government in his efforts to reform Eskom was inadequate.
Asked whether the government would give Marokane the support he needs, Gordhan said: “If you focus on yourself and your ego, then you don’t give enough attention to what you should be doing, what you are paid well to do.
“Government as a whole has made a massive contribution to reducing Eskom’s debt burden, for example, and has provided financial space in the short term as we go through these transitions. On the Transnet side, there are guarantee facilities to hasten the process of acquiring equipment. Those sorts of support interventions will continue.”
He said Monaheng must bring energy and direction to Denel, focusing on concrete changes to support South Africa’s sovereign needs and rebuild the capability lost during state capture.
“Denel has been able to overcome its debt to employees, which was a challenge. Secondly, it’s begun to take care of many of its creditors, although not all. Third, the board has determined structural changes to be made, which I agree with. Fourth, the key, again, is operations.”
Asked about how much progress had been made in appointing board members for the National Transmission Company of South Africa (NTCSA), Gordhan said: “It’s virtually completed. Virtually, but it just needs a touch here and there.”
Eskom chair Mteto Nyati told the Sunday Times in a recent interview that the government was prepared to take its search for inaugural members of the NTCSA board global in a bid to find vital energy transmission skills.
“There are supposed to be 15 members of the board. I think we are probably going to go, initially, with about eight, because we would like to look beyond South Africa because it’s very important to get skills that are transmission-related and we would like to possibly look overseas for those skills,” he said.
Nyati told Business Times this week that Eskom’s board provided support to the department of public enterprises (DPE) in fielding candidates to fill the board seats for the NTCSA, which is expected to be operational next year.
“All of the interviews of the board members were done by us on behalf of DPE and what we have then done, now that we have completed it, is we have given all of those names to DPE for them to approve and also make a call around who should be the chair,” he said.
Gordhan referenced chief justice Raymond Zondo, who said: “State capture thrived ... because these institutions were eventually being run not in the interest of the people of South Africa for whom they were established, but in the interest of a select few who wielded power inside and outside of these entities.”
Gordhan’s management of the DPE has come under intense criticism from political structures, including the EFF and parts of the ANC. Asked what he wanted for Christmas at the end of an eventful year for his portfolio, he said: “A good rest.”