ESKOM: BACK FROM THE BRINK
While the Fitch ratings review of the sovereign credit profile could always go either way, it was the ratings agency’s review of Eskom’s debt profile that was pleasantly surprising last week. As we know, Eskom is the biggest drag on SA’S finances and credit profile, so any boost to the utility’s credit rating bodes well for the country.
When Fitch removed the “negative watch” on Eskom’s credit rating, it signalled its confidence in the course which the utility’s leadership is pursuing. Fitch left Eskom’s rating at BB-, which could be the start of a long journey back to investment grade status for the utility, which once enjoyed a credit rating status better than that of the country’s sovereign.
Of course, the road back to investment grade is littered with numerous painful decisions that must be made. The start was the government appointing the current board, which is the best Eskom has had in a decade. It is by no means the strongest the utility has had in its life, but it’s better than anything we saw in the nightmare of the Jacob Zuma years.
To strengthen the board further, public enterprises minister Pravin Gordhan should return to the tradition of adding two or three engineers who lead similar companies in Europe, Asia and North America. Such people were always a strategic part of the board, and provided valuable input about the electricity-generation industry. In the years of state capture, they made way for Gupta deployees as the political focus moved from producing the cheapest electricity for the people, to producing the juiciest tenders for the corrupt.
The second major initiative to shift Eskom away from the road to self-destruction was the mandate given to the board by the new leadership of the ANC under Ramaphosa: get rid of the Gupta stooges and other forces of darkness. Former finance director Anoj Singh and generation head Matshela Koko, who had been key lieutenants in the Gupta army, fell by the wayside. The cleanup was under way.
The third initiative was the appointment of Phakamani Hadebe as CEO. His immediate task was to plug the holes through which Eskom’s money was being stolen, and he has notched up many successes. And yet, some remain in the executive suite, and while they do, the cleanup remains incomplete.
The management team must also be strengthened. Since Singh resigned in January, his finance director position has been held on an interim basis by Caleb Cassim, who has done a sterling job. Investors in Eskom’s bonds have faith in him, so there is no reason he cannot be confirmed in the position.
Attend to the coal supply
What also needs to be tackled swiftly is to restore the security of power supply through proper procurement of coal. We are approaching the next winter with a shortage of coal in eight power stations. This has been the case for over a year, and must be remedied.
The board has also achieved a great deal in fixing corporate governance, but more needs to be done — like removing the board from operational decisions such as procurement. The chair, Jabu Mabuza, promised earlier this year to disband the board tender committee through which politicians controlled processes. This, to the best of my knowledge, has not yet been done. Clean governance is impossible when professionals are relegated to filling out forms while those who sit on the board, with no operational experience, make decisions about complex engineering.
The last thing needed to complete the turnaround is to fix the bloated workforce. The deadline to present a turnaround plan to the government was September. But there has been no word of what happened. Again, Eskom and SA deserve better.
The board has also achieved a great deal in fixing corporate governance, but more needs to be done