Exxaro, the bull that gets the whip

It seems ironic that Eskom is taking it to task over BEE

THE spat between Eskom and Exxaro over the black ownership status of Exxaro after its 2006 empowerment deal matured has brought to the fore some of the key realities of the “once empowered, always empowered” principle.

Eskom released a statement saying its coal procurement policy requires all mines that supply its power stations to have a black ownership target of more than 50% throughout the life of the mine, and, as a result, it was concerned about Exxaro’s black shareholding dropping to 30%.

The utility went on to say, through its interim group CEO Matshela Koko, that its policy of sourcing coal from majority black-owned suppliers is “a thorn in the side of many of the company’s main coal suppliers”. I found this weird on two fronts. First, how could Exxaro complete and implement a BBBEE transaction that it knew would result in the breach of its biggest customer’s procurement policy without at least notifying its customer or, ideally, getting express approval from it?

Second, why was Eskom expressing its dissatisfaction with Exxaro’s reduction in black shareholding through a media statement?

The statement was basically telling us that Eskom was planning to ask Exxaro for a meeting so it could explain how it was going to resolve the issue. Why not just ask for the meeting with your supplier? Why tell the media?

According to Eskom spokesman Khulu Phasiwe, the aim of the media statement was not to reprimand Exxaro but to serve as a warning to all suppliers who continue to resist the black ownership policy. In young people’s language, Eskom was sub-tweeting the likes of Anglo and Glencore, but black-founded Exxaro was used as the example.

It’s important to consider the history of Exxaro, which listed in November 2006.

It was created in an empowerment transaction that involved the unbundling of Kumba Resources’ iron-ore assets and a merger with Sipho Nkosi’s Eyesizwe Coal.

The primary rationale behind the unbundling was to create a newgeneration South African company and to broaden the spread of shareholders in both companies to include people from previously disadvantaged backgrounds, employees, and communities close to the company’s operations.

Exxaro continued to be black-controlled until the BEE deal had to be restructured a few weeks ago. Exxaro remained Eskom’s largest black-owned coal supplier.

A further complication in this saga is that Exxaro claims Eskom never notified it of the “more than 50% policy”, and Eskom cannot prove that it did.

So one has to ask: what’s really at play here?

My suspicion: the “once empowered, always empowered” principle.

There is a Zulu idiom that says “Kushaywa edonsayo”, which, loosely translated, means the ox that pulls the hardest bears the brunt of the whip.

That is what has happened to Exxaro. It has by far been the most black-empowered major supplier to Eskom, and, precisely for this reason, may be the company that Eskom is making an example of in pushing for the abolishment of the “once empowered, always empowered” principle. Eskom is unequivocal. “These suppliers subscribe to a ‘once empowered, always empowered’ principle, and a black ownership target of 26% rather than a minimum of 50% black ownership,” its statement said.

“What is actually happening is that the ongoing legacy of the pre1994 economy is being confronted by the Eskom leadership. This is the legacy that we have not worked hard enough to dismantle, and at times have been frightened to confront. Eskom has resolved to do something radically different.”

The irony in all this is that it is a historically black-controlled company, which is still blackmanaged, that finds itself on the wrong side of the once empowered, always empowered debate.

Khumalo is the chief investment officer of MSG Afrika Group and presents “Power Business” on Power 98.7 at 5pm, Monday to Thursday

It has by far been the most black-empowered major supplier