Key man quits at crucial moment
| Labour unrest, missed deadlines and cost overruns have made Medupi a mega headache for Eskom
ESKOM lost its financial director, Paul O’Flaherty, this week at a time when the beleaguered utility desperately needs to bridge a funding shortfall of R250-billion.
O’Flaherty told Eskom in November that he intended leaving after this week’s financial results. Chairman Zola Tsotsi tried in vain to lure him into extending his contract by offering incentives, but O’Flaherty reiterated his intention to leave this week.
“Eskom is in direct competition with the private sector to find capable, high-quality executives,” said Tsotsi.
The utility received a blow when the National Energy Regulator of South Africa (Nersa) denied it a 16% increase in February. Eskom said it needed it to fund its R373-billion new build programme and cover debt. Nersa approved only an 8% increase, leaving Eskom with a financial gap of R225-billion and having to raise at least R50billion more in debt than initially expected.
Complicating the matter is that ratings agencies have downgraded Eskom several times during the past financial year. It now holds a Baa3 rating from Moody’s and a BBB rating from Standard & Poor’s, as well as a negative outlook from both.
To weather the storms ahead, Eskom needs a strong financial director to deal with credit agencies, the government, Nersa and financial institutions.
“Paul brought a lot of good financial strengths to Eskom’s finance department,” said Shaun Nel, director of the Energy Intensive User Group. “There is concern that he is leaving.”
Nel said Nersa’s decision to grant Eskom lower annual tariff hikes over the next five years than it had requested meant that the utility would have to work much harder to improve internal efficiencies.
“With a new financial director, there is concern that there will be a lag to implement those programmes,” he added.
Along with CEO Brian Dames, O’Flaherty played a crucial role in improving Eskom’s finances and providing leadership.
He was instrumental in securing funding for Eskom’s new build programme, including a $3.75-billion (about R37.5-billion) loan from the World Bank in 2010, mainly to fund Medupi, and an additional $250-million from the World Bank and $365million from the African Development Bank in 2011 to finance Eskom’s renewable energy programme.
O’Flaherty joined as finance director in January 2010, at a difficult time for Eskom. In the last quarter of 2009, the then CEO, Jacob Maroga, and chairman Bobby Godsell resigned following an ugly boardroom spat over strategy. Maroga lost a court battle over his resignation, unsuccessfully arguing that his contract had been wrongfully terminated.
O’Flaherty was sent to Medupi power station in April to manage contractors after a fourmonth strike.
This week, he criticised the local construction industry, saying productivity on site was only 20%.
“The construction industry in this country is in trouble and desperately needs to start training, supervising and managing its labour properly,” he said.
In April, Public Enterprises Minister Malusi Gigaba said “heads would roll” if deadlines for Medupi were not met. This week, Eskom announced a R14-billion budget overrun — to R105-billion — before interest. It also moved the commissioning of Medupi’s first unit to the second half of 2014 from the December 2013 deadline.
But the minister said O’Flaherty’s resignation did not have anything to do with the budget and time line overruns at Medupi.
The government, which is Eskom’s sole shareholder, has appointed an independent consultant, Acon, to investigate and
Paul brought a lot of good financial strengths to Eskom. There is concern that he is leaving
assess Eskom’s engineering and management capabilities. “We expect the report in two months and this will guide us in what correctional action is needed,” said Gigaba.
Dames said he was still “fully committed” to his role at Eskom, but added that “none of us are indispensable”.
The role of the financial director at Eskom will be split in future, with an executive appointed to deal with the capital investment programme.
Tsotsi said Eskom had already concluded two interview rounds in search of candidates to replace O’Flaherty.
“We only receive a few applications at a time and need to build up a pool of interviewees — also considering that there aren’t many people skilled and qualified enough to do this job. Hopefully we can conclude the process soon.”