‘Eskom is unduly obese’

Reuel Khoza has sat at the commanding heights of South African business. The former Eskom chairman spoke to Stephen Williams about what Eskom means for the country’s financial future.

As a former chair of South African state electricity utility Eskom from 1997 to 2002, a former chair of Nedbank, and a close associate of President Thabo Mbeki during his stint as head of South Africa’s NEPAD Business Group, Reuel Khoza has long enjoyed a reputation as a South African business luminary.

In recent years, when not growing macadamia nuts and avocados on his farmland, Khoza has concentrated on his private sector interests, leading investment vehicle Aka Capital – a private equity and investment holding company – and Dzana Investments, an investor in property, energy, education, health and the ICT sector.

He also as serves as a director of Tshwarisano Investments, a Black Economic Empowerment vehicle that has invested in Sasol’s liquid fuels division.

Yet to many he is best known for his time as chairman of Eskom, the now stricken state-owned enterprise that is the subject of a planned $4.9bn bailout from the South African government and faces a controversial split into three units covering generation, transmission and distribution in order to secure its financial future.

It is of significant concern to Khoza that his former charge – which supplies some 90% of South Africa’s electricity – is struggling with almost $29.7bn of debt, alongside huge operational constraints provoked by what critics say are years of rampant mismanagement and project overspending.

Nevertheless, Khoza believes that President Cyril Ramaphosa’s government has the ability to turn Eskom around.   

“It is a great pity that Eskom has been allowed to unravel to such a degree… the initial effort by President Ramaphosa to appoint a new board for Eskom is commendable even if, as I believe, we could have put together a stronger board in terms of expertise in power generation, transmission and distribution.

“But the board appears to be comprised of pretty knowledgeable people and I believe that this initiative will contribute a great deal to turning the organisation around.”

‘Unbundling’ is not enough

Perhaps the most controversial part of the government’s plan to save Eskom is the decision to split the firm into three entities.

Unions see this “unbundling” plan as a precursor to thousands of job losses, despite government claims to the contrary.

Khoza says that, while an important step for the utility, the unbundling should only be part of a much wider plan for the future of Eskom.

“In a sense I believe that unless unbundling is followed by concrete actions, it runs the risk of being simply cosmetic.

“Even as we speak, generation operates separately from transmission.

“They function as autonomous divisions, so to talk about unbundling as a significant stepping stone may be misleading. The question is ‘what do you do following the unbundling?’”

In this respect, Khoza is not short on suggestions. He argues that Eskom’s electricity generation was at one time divided into three geographical clusters, and he continues to see decentralisation as a viable option for the firm, arguing that setting up different profit centres will better facilitate much-needed public-private partnerships.

While transmission should remain a public monopoly, he argues, generation could be subjected to the competitive instincts of the private sector. 

Too big to fail

Under Khoza’s chairmanship, an ambitious Eskom invested in other African countries, including the wider SADC region.

But with the modern company saddled with debt and forced to impose rolling blackouts, known locally as load shedding, he now argues that it is crucial for Eskom to downsize in order to survive – including cutting back on a bloated workforce. 

“My sense is that Eskom is unduly obese. It employs – perhaps by a factor of 40% – too many people. It now employs 47-48,000 people, but when I left Eskom it was about 32-33,000.

“We were very efficient, and even returned a dividend to the state. If you are obese, and your doctor tells you to eat less, or take this type of medication, if you want to survive and prosper, that is what you must do.”

While the unbundling plan is likely to provoke widespread activism among the company’s heavily unionised workforce – South African Federation of Trade Unions general secretary Zwelinzima Vavi told local media the move was a “declaration of war” and Irvin Jim, general secretary of the powerful National Union of Mineworkers labelled it “privatisation through the back door” – Khoza says that all parties must avoid emotive dogma and concentrate solely on what is best for the future of the company and the country at large. 

“We must be pragmatic, not dogmatic, not fixated on capitalism or socialism or communism but rather on pragmatism.

“The organisation is in dire straits, it is fighting for its survival, so we cannot be terribly choosey.”

Such a dispassionate approach to Eskom means learning valuable lessons from foreign operators, says Khoza – particularly those who have emerged from similar difficulties. 

“I applaud the approach made to Enel SpA, a truly international company with its roots in Italy as the state electricity utility.

“Getting them to give input is to be commended because they have tackled similar problems as those Eskom currently faces, and they might be able to see with a fresh set of eyes what South Africa may have missed to effect a turnaround.”

Khoza’s interest in South Africa’s always eventful energy sector has long extended beyond Eskom.

After chairing the utility, Khoza later chaired Globeleq, an operator of multiple power facilities on the African continent. 

He is encouraged by the major offshore oil and gas discovery by French group Total, which has the potential to transform South Africa’s energy profile, create an upstream oil industry and utilise new sources of gas-to-power technology.

With Eskom’s inefficient plants long dependent on the country’s coal reserves, Khoza says that the opportunities should be grasped with both hands. 

“It should be welcomed enthusiastically,” Khoza says, “and should be developed as efficiently as possible.” n