New CEO must position Eskom for ‘evolving energy markets and technologies’

12th February 2018 By: Terence Creamer - Creamer Media Editor

New CEO must position Eskom for ‘evolving energy markets and technologies’

Eskom chairperson Jabu Mabuza
Photo by: Dylan Slater

The newspaper advertisement calling for applications for the positions of CEO and CFO at State-owned power utility Eskom includes definite signs of the reforms that the newly appointed board is aiming to implement at the beleaguered organisation.

The advertisement calls on appropriately qualified and experienced individuals for the two positions to submit detailed curricula vitae to executive search company Woodburn Mann by February 23.

The four ‘key areas of responsibility’ detailed for the new CEO exemplify the change in culture the new board, appointed on January 20, has indicated it plans to inculcate.

These reforms were outlined in chairperson Jabu Mabuza’s first public statement, which he made at the group’s delayed interim results on January 30.

At the event, Mabuza stressed that the key principles for stabilising and reforming Eskom were having “right governance structures” at board and executive-management levels, and “entrenching financial and business discipline as a foundation to restoring the credibility and integrity of the utility with financial markets”.

As with any large and complex organisation – Eskom has 47 000 employees and yearly revenues of R190-billion – the new CEO will be expected to proactively shape the future of the organisation to ensure its “financial and operational sustainability and results”.

In addition, the successful candidate is expected to develop and implement a vision and strategic direction. However, the advertisement goes on to stress that this vision and strategic direction should be developed “to meet evolving energy markets and technologies”.

This marks a significant departure from the corporate trajectory of the past two years, during which the utility emerged as most significant obstacle to the introduction of some of the technologies that are driving the evolution of energy markets globally.

Since early 2016, Eskom has refused to conclude power purchase agreements (PPAs) for 27 large-scale wind and solar projects, which were legally procured by the Department of Energy during the second half of 2015.

The utility’s action effectively brought South Africa’s globally lauded Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to a standstill. Under the programme some R200-billion-worth of renewables investments had been made between 2011 and 2017 and the country’s installed base of renewable generation rose form close to zero to over 4 000 MW.

Onshore wind costs fell from 151c/kWh in the first REIPPPP bid window to below 70c/kWh in the fourth bid window, while solar PV costs fell from 365c/kWh to below 90c/kWh. During a subsequent round the tariff bid for both onshore wind and solar PV projects fell to 62c/kWh. However, no projects were actually procured from the bid window, owing to the impasse with Eskom.

The utility recently received the go ahead to conclude the outstanding PPAs, but the future of the REIPPPP remains uncertain, owing to Eskom’s financial difficulties and the fact that the current generation surplus is expected to endure beyond 2020.

Nevertheless, the fact that the new CEO is specifically mandated to take account of market and technology developments is noteworthy.

Equally significant is the advertisement’s emphasis on the new CEO’s areas of responsibility including “strong governance compliance”.

This point is also emphasised under the key areas of responsibility for the new CFO, who is also expected to adhere to the Public Finance Management Act, while ensuring sufficient liquidity and improving Eskom’s credit rating.

Without question, the breakdown in governance and ethics is the most important reason behind the utility’s immediate funding difficulties, which took it to the brink of default at the beginning of February.

Indeed, had it not been for the controversial intervention of the Public Investment Corporation to provide the utility with a R5-billion bridging loan, there is every likelihood that Eskom would have defaulted, with potentially devastating consequences for government’s finances and the economy as a whole.

The utility’s debt stands at above R330-billion and, in a letter justifying the 30-day loan to Eskom, PIC CEO Dan Matjila warned that Eskom’s failure posed a systemic risk to the economy, with a default carrying the risk of debtors calling on government to honour its guarantees on Eskom debt.

Business Day reports that the letter, which was written to the chairperson of Parliament’s standing committee on finance, Yunus Carrim, explains that, without the R5-billion loan, Eskom’s going-concern status would have been in jeopardy. The letter also reveals that the loan, which is itself government guaranteed, has been priced 75 basis points above the one-month Johannesburg interbank rate.

The fourth key responsibility for the new CEO is to “create an ethos of excellence and continued improvement in the provision of the highest levels of customer service within a dynamic market environment”.

This appears to be in line with statements made by acting CEO Phakamani Hadebe, who has indicated that efforts will be made to lower Eskom’s costs structure, which he describes as being “very high”.

The reference to the dynamic market environment again suggests that the new leadership is alive to the risks posed to Eskom’s sustainability by supply- and demand-side changes taking place in the electricity sector.

Both the CEO and CFO candidates are expected to have had at least 20 years of working experience, with CEO candidates requiring experience in leading a complex organisation of no fewer than 20 000 employees and a yearly turnover of R30-billion.

The CFO must be a Chartered Accountant and have had several years of experience as a financial director at an organisation with yearly revenues of no less than R10-billion.

CFO candidates must also have an extensive understanding of, and experience in, capital raising both locally and internationally. In addition, the individual should have experience of capital projects, hedging and dealing with ratings agencies.