South Africa: Eskom’s slide from first-in-class to murderous dysfunction   

Only four years after apartheid’s white minority rule fell, South Africa in 1998 produced a new White Paper on Energy Policy that was set to endow its power industry with a state-of-the-art (for its time) commercial and governance structure. It would unbundle (split into specialised companies) the giant state utility Eskom, whose size and technical capacity, and ability to deliver infrastructure, meant the national champion was rated among the world’s top four power companies.

Fast-forward 25 years, during which Eskom has declined from continental powerhouse to floundering in an ever more severe crisis. South African consumers have been condemned to rolling blackouts and onerous debts; all of which have shaved percentage points off the gross domestic product (GDP).

So grave are Eskom’s financial problems that Finance Minister Enoch Godongwana – backed by key power-broker Minerals and Energy Minister Gwede Mantashe – has committed the cash-strapped government to take on up to two-thirds of the ailing utility’s debt, which the National Treasury last October put at around R400bn ($23.5bn).

Details of when and how this will be achieved are promised by Godongwana in the next few weeks.

The extent that Eskom has become prey to the worst aspects of South African factional politics and crony capitalism – governance advocates call it corruption – was underlined in enquiries into ‘state ‘capture’ during Jacob Zuma’s graft-ridden presidency. During this time,  Zuma’s allies the Guptas and others manipulated the coal supply and other Eskom contracts with hugely damaging consequences.

The abuses have continued into Cyril Ramaphosa’s presidency, underlined in January by chilling reports that Eskom chief executive officer (CEO) André de Ruyter had survived a 12 December attempt to kill him with cyanide-laced coffee. The reported attempt came shortly before it was formally announced that De Ruyter had resigned – as demanded by Mantashe among others, who favour strong state control of the economy and prefer to find scapegoats beyond the African National Congress (ANC) establishment.

Mantashe had complained that de Ruyter was too focused on anti-corruption campaigns at the expense of restoring the power supply. One of the ANC’s more internationally respected figures (and now responsible for Eskom), Public Enterprises Minister Pravin Gordhan, said the attempt on De Ruyter’s life would be thoroughly investigated and those responsible “must be charged.” Another day, another Eskom investigation.

Six steps to oblivion

Ramaphosa has mobilised a National Energy Crisis Committee, among other mechanisms, to turn about the sector’s fortunes.  Going forward, six steps are needed for South Africa to emerge from this electricity supply crisis.

1. Incomplete reforms

Unbundling and other sector reforms – which include rationalising the dizzying number of municipal and other stakeholders in the industry – have been envisaged since at least the 1998 White Paper, but the electricity supply industry (ESI) remains ‘vertically integrated’, with Eskom retaining the central role in generation, transmission and distribution. Some 25 years later another attempt at fully unbundling is under way.

Meanwhile, levels of service in the state-led industry have declined precipitously. ‘Load-shedding’ – scheduled and sometimes unscheduled power cuts – began as long ago as 2007; it is now at the level of indefinite Stage 6 rolling blackouts. (In what Eskom calls Stages 5 and 6 load-shedding, homes and businesses endure eight to ten hours a day without electricity.)

2. Persistent political interference

The ESI has moved from being a relatively benign backwater to becoming a political football, between those who argue that greater independence for commercial companies would allow the sector to overcome its problems to those on the left wing of the ANC coalition, Julius Malema’s Economic Freedom Fighters (EFF) and others who believe more state control is needed. Eskom will be a major issuer in the 2024 elections – potentially defining just how far below 50% of the national vote the ANC descends.

Critics say politicians like ANC chair and South African Communist Party politburo member Mantashe have undermined reforming executives like Ruyter. Moves are now afoot – apparently supported by Ramaphosa, who depends on Mantashe to deliver support among ANC factions – to move responsibility for Eskom to the energy minister from Gordhan.

3. Bad planning

Projects like the giant 4.8GW Kusile and 4.2GW Medupi coal-fired plants offered a big capacity increase as a key part of Eskom’s New Build Programme, but they have suffered huge cost overruns and delays. Developing critical areas like transmission (an Eskom monopoly) have been overlooked too often for the sector’s comfort.

Issues such as integrating municipal services with national infrastructure have proved too difficult in many parts of South Africa. The opposition Democratic Alliance has sought to use its proactive management of the metropolitan areas and provinces it controls, notably in Western Cape, to argue it has what DA party leader John Henry Steenhuisen calls “an alternative model of delivering and servicing for people”.

4. Financial and strategic miscalculations

Under construction for so many years that they were able to secure finance from the World Bank Group (WBG) and other donors before they came to generally shun big carbon projects, Kusile and Medupi have hugely added to South Africa’s external debt. The WBG’s Eskom Investment Support Project, which backed the coal giants, has had a torrid time; it became effective in May 2010, only to be restructured for a first time in July 2015 and then again in November 2018. Mega-projects have contributed massively to national debt, which was estimated at about $256bn as of October 2022 – of which about one-quarter is Eskom – compared to nominal GDP of around $99bn.

The South African energy scene has not been unremittingly bleak; strategic successes include the Renewable Energy Independent Power Producer Procurement Programme (REIPPP), which has installed large amounts of solar and wind capacity. But REIPPP – now in its sixth round of bidding – was driven by the National Treasury’s IPP Office in Pretoria, rather than by offtaker Eskom.

There are real concerns that the supposedly ground-breaking $8.5bn Just Energy Transition Partnership commitment to sustainable investment in South Africa will founder. The pact, made with major western donors at COP26 in November 2021, could fail amid concerns the funds would merely be used for yet another Eskom refinancing.

5. Management and governance failures

There has been a huge churn of Eskom chairs and CEOs. De Ruyter formally stands down on 31 March, but the appointment of Eskom’s latest CEO could take several months more as big political players promote ‘their’ own candidates. Mantashe was highly critical of de Ruyter, but the outgoing CEO was committed to turning around a failing giant. There has been much discussion of sacking the board – whose full complement of directors has not been in place for years. Gordhan believes filling “vacant positions at board level is an urgent matter”.

Down through the ranks, Eskom’s management has been hollowed out – many technicians and other specialists emigrating to work abroad. One recent government plan is to recruit or rehire experienced former Eskom staff.

6. A permissive culture

Chief Justice Raymond Zondo’s State Capture Commission showed how easily Zuma’s cronies had been able to generate fortunes – while collapsing output – in strategic industries. One calculation estimated R178bn had been lost to Eskom tender fraud during Zuma’s decade in power. The cases continue to ramp up: in October, former CEO Matshela Koko and 16 senior officials were arrested on charges relating to allegedly fraudulent contracts worth 2 billion rand. In December, Westminster Magistrates Court in London approved a National Prosecuting Authority request to extradite UK citizen Michael Lomas to stand trial in a R745 million Kusile power station fraud case.

Many believe De Ruyter was fighting such abuses. He “had sought to turn round Eskom by taking on alleged criminal syndicates that have been draining the state utility through corrupt coal and other contracts,” the London daily Financial Times said when reporting on his attempted poisoning. De Ruyter had previously called coal-producing Mpumalanga “a gangster province”.

This all speaks not only of poor management by plodding public sector officials, or of basic but accidental financial miscalculations made in government departments and Washington DC, but of a system rotten to the core. Bad managers (in all senses) have been protected by a political establishment that has played a vital historic role, but at a price that may now be too great.

Eskom was an apparently robust giant company that boasted a long history of bringing together talented people in a culture that promoted survival of the enterprise above all. But history shows that even the strongest of national and corporate cultures can implode.

Jon Marks is Founder and editorial director of Africa Energy