Staff shedding on way for Eskom

Power utility will have to face unions over job cuts to reduce costs

It would not be fair to raise restructuring while we are talking salary increases

● While the $2.5-billion (about R33-billion) loan that electricity producer Eskom secured from the China Development Bank this week will go a long way towards helping the utility complete its programme of building power stations and other infrastructure, it has also added to its bulging debt bundle.

The power stations will add 9 600MW to take Eskom’s total installed capacity to more than 50 000MW when the plants are completed in 2023. When the build programme started in 2007, Eskom had installed capacity of 40 000MW. Two generating units are already contributing to the system at Kusile, which is just outside Emalahleni in Mpumalanga, while five units at Medupi near Lephalale in Limpopo have also been connected to Eskom’s network.

The amount of debt poses a serious and real risk, not only to the financial sustainability of Eskom but also to the whole South African banking system, as the utility is the single largest borrower behind the sovereign.

This week Eskom said its profit before interest, tax, depreciation and amortisation (ebitda) stood at R45.4-billion. But the interest swallowed up R44.5-billion, leaving the utility with a R2.3-billion loss. Eskom only generated R37.6-billion of cash from sales of electricity. This means it had to borrow money in order to repay the money it already owes funders.

This is unsustainable, said chairman Jabu Mabuza, adding that the utility was working on a plan to restructure itself. This plan will be made public in September.

Pressed on what the utility can do to put itself in a self-sustaining position, Mabuza said Eskom had no choice but to cut its debt load. It also had to cut its other costs, the biggest of which were coal procurement and staff expenses.

Eskom has a bloated staff complement, which Mabuza said the utility would address when it releases the restructuring plan in September.

Pressed on whether there would be any job losses, Mabuza said studies the utility had conducted revealed it had 33% more people than was necessary.

“But we are dealing with the issue of wage increases right now. We have agreed that it would not be fair for management to raise the matter of restructuring while we are talking salary increases,” said Mabuza.

Whether it is tackled now or later, trade unions have made it clear they will fight any job losses with everything they have.

The National Union of Metalworkers of SA (Numsa), the largest trade union at Eskom, has even gone as far as accusing the current management of preparing Eskom for privatisation.

Conspiracy theories notwithstanding, the task of fixing it so that it can be self-sustainable is increasingly becoming urgent.

Zwelinzima Vavi, leader of the South African Federation of Trade Unions, to which Numsa belongs, said Eskom employees could not be made to pay with their jobs for the corruption of the previous management regime.

Eskom has said it will employ fewer than 37 000 people by April 2023. It currently employs 48 628, who operate the 48 000MW of installed capacity. In addition, there are those employed by independent builders in the construction of the two power stations and the transmission lines.

Staff numbers rose steadily from 2008, with a significant increase in 2012. By 2010 Eskom still employed 36 547 people, but this jumped to 46 624 by September 2013.

The number of employees has jumped 54.5% from 31 458 people it employed in the year ended March 2006. Those people produced 33 461MW of electricity from a plethora of coal-fired power stations and one nuclear station.

In 2006 electricity provision generated R36.05-billion in revenue. Then Eskom was ranked among the best 10 producers of electricity worldwide, with a credit rating much higher than that of the sovereign. Its electricity was among the cheapest and available all the time to those connected to the grid.

Jabu Mabuza Eskom chairman

This year the utility paid R32.6-billion in benefits to employees compared to R14-billion in 2006. As is clear from these numbers, the whole group revenue of 12 years ago is only sufficient for the salary bill today.

Various management teams have made attempts to correct the situation. The last came in 2013, when its former CEO, Brian Dames, offered voluntary severance packages to employees.

This was abandoned when it became clear that only skilled people Eskom wanted to keep were availing themselves for retrenchment. Only 20 people left under the programme, which was shut down by the government before it could move to the forced retrenchment stages.

But the problem has only grown. Eskom has no option but to cut its bloated staff complement. It cannot continue to borrow to pay unnecessary salaries.

Raising debt to pay debt is never a clever way of doing business.

Simultaneously with the job cuts, Eskom’s management needs to aggressively tackle the massive corruption in its procurement systems.