Eskom: The Kingdom of Chaos

You’d think Rand Rescue has covered pretty much all there is to cover when it comes to Eskom, and yet – as usual – you’d be gravely mistaken.

It seems confounding that things can unravel even more than they already have, but that’s exactly what’s happening. Let’s take a look at the latest developments (or perhaps devolvements is a better term) over at the power degenerator.

THE MADNESS OF KING GEORGE

It’s a common issue with leaders: they tend to become so far removed from the people they serve that their views morph into caricature.

While most people remember King George’s madness from a play by Alan Benett which was later adapted for film, the reality (as proven by the University of London), was that George III was really quite mad.

Two professors at the institution studied George III’s handwriting to analyse the tone, style and word usage as well as accounts of the leader’s behaviour by other parties, and concluded that the king most probably suffered from a psychiatric illness akin to bipolar disorder. While we won’t delve into the actual details such as the suspected sources of his madness, it’s quite clear that George III’s madness was evident in his words.

THE DARK KNIGHT RISES

Those who knew King George spoke of his neverending ‘loquacity’ – his talkativeness which was so incessant that it didn’t allow anyone else to interject, be heard or conduct a reasonable two-way conversation with the man.

As the chief in charge of South Africa’s electricity we wouldn’t go so far as to dub De Ruyter ‘king’: but if anyone were there to bear the flag for the mad Kingdom it would undoubtedly be his primary ‘ruiter’. Given the darkness which plagues South Africa, such a ‘ruiter’ would probably be dubbed the ‘dark knight’. The last film in Christopher Nolan’s ‘The Dark Knight Rises’ trilogy stems from the comic book storyline ‘Knightfall’ – also titled ‘No Man’s Land’.

Now, if anyone were to blame for turning SA into ‘no man’s land’, it would most certainly be the entity responsible for switching off the lights.

We will stop with the wordplay here before building allegories which touch on the horsemen of the apocalypse. Our intent is not to represent Andre de Ruyter as an actual force of evil or metaphysical fiend – we won’t devolve (like Eskom) to the point of defaming a person through inferences or assumptions – we will simply discuss the facts. The wordplay is merely for our own entertainment and sanity at this point.

JUDGING A MAN BY HIS WORDS

Leaders who enter new roles often argue that they cannot be held accountable for the messes they’d been left with and should rather be held accountable for that which they aim to deliver. They want us to judge them by the intent and actions which transpire during their tenure. After nearly 3 years at the helm of Eskom, De Ruyter is hardly a new leader though, and yet as cited by the Sunday Times earlier in October, De Ruyter noted, “I would have had peace with the pressure I am under if I deserved it,”

It seems our rulers have diluted their own power by pandering to powerlessness; they want us to believe they have no power over their own mandates, and in the case of Eskom – this literally rids the entire country of its power.

If a professional with a proper track record and purported skill at managing the task they’ve been handed continues to shrug off their own accountability, then you have a problem. If the leaders themselves can’t take accountability, can we really expect that those under their command wouldn’t pass the buck as well?

ENFORCING OUR DEMOCRATIC RIGHTS

Our entire democracy is informed by the fact that our legislature not merely accepts bills (unless they’re dollars stowed in couches) nor enforces regulations blindly – the legislature is there to both interpret law correctly, and hold everyone accountable across the board without question.

That is the premise of it. But our leaders seemed to be covered in the same oily lubricant used at Eskom’s failing and unmaintained power plants. Their slippery veneer prevents South Africans from getting a proper hold on them. What are we to do then – if our only recourse is criticism?

JUMPING THE GUN TO AVOID JUMPING HURDLES

Earlier last week Andre de Ruyter expressed his view that South African electricity is too cheap. In his own words, “The rate increase is a mechanical exercise. We don’t sit and suck up this very daunting number of a 32% increase,” he said, “This is the extent to which we’ve pushed this can down the road, and we are now at a point that, when you plug in the numbers, that’s what you get.”

We’re not entirely sure what ‘can’ he’s referring to, but let’s push on.

De Ruyter would probably want us all to contextualise matters within his own frame of mind – which begs the question whether he wants to contextualise his own actions in the shoes of ordinary South Africans. In fact, his view seems to be more aligned with those of luxury brand owners. In his own words, “Something that is cheap gets wasted; something that is expensive gets treasured.” If you know anything about branding, you’d know that this is the rationale touted by those who wish for their products to be coveted. Apple’s former CEO Steve Jobs was one of the posterchildren for this type of branding. What De Ruyter seems to be missing is that electricity is not an exclusive product – it is quite contrarily a human right which should be available to all South Africans at an affordable rate.

And unlike luxury brands which have competition, South Africans cannot choose a different service provider – we are stuck with one brand and one product with no choice in the matter.

Additionally, for a CEO of a company to proclaim any financial information before any financial matters are disclosed to the public is not merely callous (and hovering on legal infraction), but indicates a clear discard for the state of their own business and the public perception of their brand.

If you’re wondering what we’re referring to – on 29 September 2022 Eskom released a press statement titled, “Notice of Eskom’s audited Annual Financial Statements publication date” which declared that Eskom cannot publish their financial audit statements. Claiming that electricity is too cheap and that South Africans should fork out more while you can’t even publish your own financial scrutiny is bizarre, to say the least.

Added to this are the persistent contradictions.

‘CUTTING’ OPERATIONAL COSTS

De Ruyter is the first to pat himself on the back and patch himself in – first as ‘veteran’ of Eskom CEOs (Oct 2020) and later as ‘martyr’ to the cause (Oct 2022).

In the same breath where he noted his ‘outlasting’ power in Oct 2020, he also stated how Eskom would reduce its debt, would restructure, undertake more maintenance, rely on less coal and, as a matter of principle, ‘go after those who sought to enrich themselves at the expense of Eskom and of South Africa.’

STAFF AND SALARIES

In October 2020, De Ruyter declared that they’d managed to reduce the staff complement by 2 000 through voluntary severance, natural attrition and a recruitment freeze. He further stated that they avoided mandatory retrenchment to maintain labour peace.

The way in which the headcount was reduced clearly points towards a nonsensical narrative (in the very least a complete lack of insight into rectifying failure): those who want to leave can leave, those who are old or employable elsewhere can leave, new talent won’t be nurtured (contradictory to government mandates)…but those who are incompetent can stay and enjoy continued salary increases and perks.

Director of the Free Market Foundation, Mr Temba Nolutshungu, has been one of the most vocal critics of this ridiculous tactic of fund haemorrhaging. This view is echoed by Cofesa’s Dr Lawrence McCrystal and Advocate Hein van der Walt.

Salaries have increased each year (more than the baseline for other SOEs OR private sector entities), with only the two Executive director salaries receiving no increase (at R7 040 010 and R4 900 020 respectively) while allowing incompetent staff to continue bullying their leaders into submission.

What’s more, the company went on a hiring spree earlier in 2022 to obtain the skills which were necessary to run the company in the first place (those which were prohibited by their own ‘labour peace’ placation). It has hired back certain individuals felled under the voluntary severance and natural attrition categories – leaving one to ask what the point of the exercise was in the first place. If the company only reduced its staff complement through losing individuals who served a purpose at the company – what did they achieve other than a compound loss?

Despite reducing its staff complement, 16,35% of Eskom’s revenue goes towards employee salaries. The average Eskom employee salary stands at R735 000 – this is down from R775 000, but that ‘reduction’ is mostly due to a loss of 2 000+ workers, as mentioned previously.

The utility had also managed to decrease their operational costs by R14.4bn while increasing energy costs by 2,4% and increasing ‘normalised operating costs’ by 1.5%. A World Bank’s estimate states that Eskom is 66% overstaffed – and yet it continues paying increases, refuses to impose retrenchments for redundant staff, and yet claims to be incredibly underskilled.

REDUCING DEBT (OR NOT)

Any private sector entity will have been canned long long ago had they maintained Eskom’s budget – whether by axing their heads or simply by losing their contract. In De Ruyter’s own words (Oct 2020), the company was generating interest costs of R28bn to R30bn per annum and would only be sustainable once debt could be reduced to less than R200bn.

While he has been cheered on by some for reducing the SOE’ss debt, the question is how this was achieved in the first place.

The answer is simple: through rolling blackouts, electricity rate increases, government bailouts and passing the buck. Under De Ruyter’s rule, Eskom announced in October 2020 that it needed to be relieved of R250 bn of its debt (more than half of the debt it had incurred at that stage).

The government provided the following bailouts to Eskom:

– R56 bn – 2020/21
– R31,7 bn – 2021/22
– R21,9 bn – 2023/24

At the same time, the National Treasury allowed Eskom to generate additional government guaranteed debt of:

– R42 bn – 2020/21
– R25 bn – 2022/23

The government guaranteed debt ‘facility’, for interest’s sake, is R350bn. As ofJuly 2022, Eskom had already used R281,6 bn of that facility.

Moreover, while Eskom was quick to tout their debt savings from Sept 2021 to 2022 – the same period the entity had received a R56 bn government bailout and increased its earnings before interest to R44,8 bn for the period (nearly 60% that of the previous year). The latter was achieved primarily through tax depreciation and amortisation as well as rate hikes – not due to better service delivery. In a nutshell – the value of their physical assets has decreased to the extent that they’re simply no longer taxable at prior rates. Not a big surprise given they have made it pretty clear that they have not maintained according to the standards they’d been set.

Also not surprising that Eskom announced they would delay switching off Koeberg for critical maintenance and upgrades which were to start in December. This is now the umpteenth delay in critical upgrades which were set to be completed in 2018 – a highly worrisome ‘downturn’ of events since the plant is set for decommission in 2024 unless it is upgraded. So what rationale, if any, would allow Eskom to move the new target for Koeberg’s upgrade to August 2024?

As stated by Khaya Magaxa, Chairperson of the Public Enterprises Committee: “South Africa was forced to launch IPP purchase for about 100 megawatts due to load shedding whereas Eskom has decided to suspend maintenance of Koeberg to August 2024 and now we are told the licence ends in 2024. Now there is a lot in the public allegations that there is an agenda of moving away from nuclear,”

The other question is why South Africa would want to move away from nuclear energy at all. This would make sense if we had any other sources of green energy available. And yes, nuclear is considered a green energy: while it is not renewable, 96% of spent nuclear fuel is recyclable and it is considered a zero-emission energy source. But nuclear plants are only viable if they’re maintained and upgraded. If we read between the lines, is this a hint that Eskom plans to move SA back to the dark ages indefinitely?

INDEFINITE SHEDDING

The energy availability factor stood at a mere 65,7% on 30 September 2021, and increased cost utilisation of open-cycle gas turbines (OCGTs) by R3,9 bn year on year.

De Ruyter himself patted the utility on the back, stating that these financial indicators showed a significant improvement at Eskom – but is that true?

According to PowerOptimal, Eskom’s tariff has increased by 753% compared to an inflation of 134% increase between 2007 and 2021. Eskom’s price hikes compared to actual inflation is quite absurd, and continued price hikes are simply untenable.

IMG SOURCE: POWEROPTIMAL – 2021 UPDATE: ESKOM TARIFF INCREASES VS INFLATION SINCE 1988 (WITH PROJECTIONS TO 2023)

The Global Petrol Prices monitor notes that South Africa’s electricity per household is comparatively cheaper than the USA, Israel, New Zealand, France, Greece, Singapore, Rwanda, the UK and Germany (among many others).

And these statistics don’t even take into account that loadshedding exists in the first place. The numbers don’t consider losses of any kind whatsoever.

Additionally, Cofesa indicates that the cost of electricity is a direct result of a ‘66% bloated and overpaid staff complement who should have been retrenched’ (as indicated by World Bank data).

AND WHAT ARE OUR LOSSES?

According to a study by the Gordon Institute of Business Science at the University of Pretoria, South Africa’s PDRLPH (percentage daily revenue lost per hour) South was as high as 38% per day in 2015.

These findings were published long before daily load shedding was a thing – long before Stage 6 was imposed, and long before Covid and other economic catastrophes.

A more recent costing exercise by Alexander Forbes chief economist Isaah Mhlanga noted that stage 6 load shedding (which we’ve been seeing more of lately) sheds R4 bn per day from SA’s economy. Mhlanga notes that we shouldn’t consider daily losses in isolation as they have a cumulative effect – with each subsequent loss having a greater impact as it cannonballs and affects other parts of the economy.

If De Ruyter’s assertion that the board was ‘set up for failure’ holds true, perhaps the board should accept this failure and move on. South Africans are certainly not hopeful that any new board would manage better than those at the current steer, but listening to the same broken record year after year is wearing our nerves down to shreds. At least give us a new broken record to criticise.