Will Eskom’s new board be the new light we’re looking for?

FIFI PETERS: Thirty members, check; technical expertise, check; union representation, check. These are just some of the boxes that the new Eskom board ticks right now. The board was announced last week, Friday, and the addition of the several board members with all this technical expertise is the latest move by President Cyril Ramaphosa’s administration to improve [Eskom’s] performance and improve the dark situation there. But will this new Eskom board be the light that we are looking for?

Let’s ask Cas Coovadia, the CEO of Busa, as well as Chris Yelland, independent energy analyst. Cas, beginning with you, sir, out of a score of one to five, how would you rate the new Eskom board in terms of their ability, in your view, to collectively, in your view, change the situation at Eskom around?

CAS COOVADIA: I think there’s been a significant improvement. I’d give them a four, simply because I don’t know all the individuals. But from the point of view of the CVs and the expertise, I think that they have the right mix. I think that, given that they would have – from an engineering point of view, from a nuclear point of view, from a finance point of view and others – far greater knowledge than the previous board had; they’d be able to actually ask the right questions of the executive. They’d be able to hold the executive to account as the board must do, and they’d be able to do the strategic guidance and direction that’s necessary, but  from an informed point of view, because these are people who in their own right have the knowledge that the Eskom exco operates on.

So I think that that’s very a good move in the right direction. We’ve been calling for it for two years or so, but at least it’s now done. And so from that point of view I think it’s good.

FIFI PETERS: We’ll come back to you in just a short while. Interesting. So a four – you are ranking them quite highly, noting their technical expertise, ranking their CVs quite highly, but with the four you are also leaving room for some improvement.

Chris, how about you? Out of five what would you give them?

CHRIS YELLAND: Look, I’m quite heartened by the appointments, like Cas is. But I must caution that we should not have over-expectations on the ability of 13 – or shall we say 11 – non-executive directors [seemingly meeting] once a week to change this ship in the short to medium term.

Of course, a board is very important to provide oversight and governance and accountability. But it doesn’t change the situation on the ground in any way, in any way. They are still confronted by a utility that is fundamentally, financially, operationally, and environmentally unsustainable and, quite frankly, broken. Really, the efforts are going to come from the CEO and the executives. The board performs a very necessary oversight role, but it doesn’t bring the solutions.

I think we’ve just got to keep that in mind – that what we are looking at here is an organisation that is fundamentally broken and we need to start preparing a soft landing for customers and the economy, and prepare Eskom to become a utility of the future. And we should not be backward looking in thinking that we can return Eskom to its full glory. That has passed.

FIFI PETERS: That sounds like a three, Chris?

CHRIS YELLAND: I would say a four for the quality of the board appointments. But I just caution that that is not the solution.

FIFI PETERS: I get you, and I know how you feel about the current CEO. You’ve made it clear that attacks on the current CEO to step down, as it were in some corners, is looking at the wrong problem, essentially. I know how you feel about the CEO.

But Cas, I like your sentiments here, and whether you think that the minister did make the right call in keeping the mainly current executive – the CEO, André de Ruyter, as well as the CFO, Calib Cassim. Was that the right call to make, to keep them in place?

CAS COOVADIA: Yes, Busa has consistently been saying that we don’t think it’s the right time to change the executive. I think that under very difficult circumstances the executive has been doing its best. Let’s understand that there is significant history and context here. As Mr Yelland says, this thing is broken and it’s broken because of state capture and corruption already in the early 2000s, I guess – not maintaining the infrastructure and so on. And then there’s a semblance of that whole administration still active with several targets. So it’s a massive ship to turn.

I agree that it’s not looking back. I believe that what is useful about this board is that it has the potential, far more than the previous board, to actually give the necessary guidance, to give the necessary oversight to the executive, to understand much more clearly what the operational issues are, and how the executive is performing. If the board works closely with the executive, giving that sort of oversight and insight, I think that they will begin to make an impact.

I agree with Chris that the impact has got to be on positioning Eskom in the medium to long term to be a player in a more diversified energy environment with more diversified energy infrastructure, not the player. This thing that they are now tasked towards, ending the blackouts – that’s not going to happen immediately. We all know that. We are working with President Cyril Ramaphosa to try and get his plan implemented as quickly as possible and, even if we move very quickly, the impact of that is only going to be in 18 to 24 months’ time. That’s when we might see an impact on the load shedding.

We are not going to handle load shedding in the short term, and we should not expect the board to do that. That’s not what the board is there for.

But I think that there’s good potential for the board and the executive to work closely together to try and ameliorate the current situation to the extent they can, and to position Eskom and do whatever restructuring is necessary to position Eskom as a player and not as the player. The Eskom executive seems to be on the same page as far that is concerned.

The final point I’d like to make is I think this board does have the capacity to – and should – actually robustly interact with the shareholder, and put to the shareholder exactly what it should be doing to enable the board to do its work and enable the executive to run the operations of this organisation.

FIFI PETERS: So you are making reference to the ministry of public enterprises, and specifically Minister Pravin Gordhan, which actually leads me to my next question.

Chris, you can answer. If you were sitting in the same room as the new board right now, with the new board by some coincidence actually listening to the Market Update, what would you advise them to do as the point of departure in helping to contribute to this ‘utility of the future’ that you make reference to in terms of Eskom, and how would you like to see it? What should the immediate starting point be to get us there?

CHRIS YELLAND: Look, there are certain things that have to be done that go without saying. It’s nothing new. It’s what any utility should be doing, things like looking at financial management, looking at operational management, maintenance, and finishing Medupi and Kusile. I don’t think we even have to say that. I just take that for granted, that that is being done and will continue to be done.

But that doesn’t solve the problem.  That has to continue, but it doesn’t actually solve the problem.

Fundamentally Eskom needs to encourage customers to become part of the solution. And that is exactly what the CEO is doing. Eskom is always going to be a big player in the electricity business, but its share of the market is going to change significantly over time.

The real solutions to generation capacity are going to come from what replaces the decommissioned coal-fired power stations, and in addition caters for economic growth and, thirdly, provides a so-called ‘generation-reserve margin’. Unless there is a generation-reserve margin, you cannot do maintenance at the level that should be done, and you’ll have more load shedding because you don’t have generation-reserve margin to do maintenance. If you want to do maintenance, you have to switch off operating plant in order to do so.

So we’ve got to encourage and facilitate and incentivise new generation which can only come in the short to medium term from the customers of electricity – and that is a fundamental change in the approach.

The other thing that I think Eskom should be doing is working extremely hard, as I know it is doing, to establish the so-called national good company of South Africa, the National Transmission Company of South Africa, to carve that out of Eskom, because that will facilitate this change that I’m talking about. So the continuation of the restructuring of Eskom and the creation of the National Transmission Grid Company of South Africa, will facilitate the entrance of new players in the market to help Eskom in meeting demand, which it currently is unable to do on its own.

FIFI PETERS: Chris, in terms of the role of the customer in this quagmire right now, are you saying essentially the role of customers should be to reduce their dependence on Eskom, their dependence on the grid, to help them do the maintenance and build up this reserve margin? Is that what you’re saying?

CHRIS YELLAND: Yes. Look, I’m suggesting that customers – small, medium and large in the domestic, commercial, business, industrial, mining, agriculture and transportation sectors – should all be supplementing their energy needs from self-generation, distributed generation and embedded generation.

FIFI PETERS: I’d love to do that.

CHRIS YELLAND: I’m not suggesting that they go off grid, not at all. They need to supplement their energy needs through solar, PV, wind and battery energy storage, which will then reduce demand for grid electricity, and thereby reduce load shedding for the entire country. Everybody will benefit.

FIFI PETERS: I hear you, and I agree. But I just want to talk from a household perspective. I’d love to do what you’re saying. I would. But have you seen the prices out there?

CHRIS YELLAND: The bank will help you do it.

FIFI PETERS: Have you seen the prices out there? R100 000 to R200 000, just to get started.

CHRIS YELLAND: Yes. The bank will give you the necessary finance added to your bond. The banks are falling over backwards [to do so] because the business case is so good. It doesn’t have to cost you anything.

FIFI PETERS: So adding debt?

CHRIS YELLAND: You’ll be saving.

FIFI PETERS: Adding debt in this environment?

CHRIS YELLAND: The banks are keen to finance this because it is an excellent business case.

FIFI PETERS: All right. Cas, just your take, and particularly your take on the prices out there? I don’t know if any of your members are involved in this space, and are helping a lot of households that can afford – which is probably not the majority right now – to supplement their energy needs away from the main grid. Just your take on the pricing to do so and whether we should be smiling that the banks are willing to give us a loan in this environment that actually comes to, perhaps some would say, an unfair cost to us, just given how expensive it is?

CAS COOVADIA: Well, you term it an unfair cost, but it is where we are. And I think those who can supplement the electricity and the power should do so, and it should feel [like] an investment because over the long term we would need to get different forms of energy [as soon] as possible – better energy and renewables than others. That’s what we need, a more diversified energy mix that does not put the sort of pressures on the grid at Eskom that it has been putting over many years, exacerbating the problem at Eskom.

So that’s the future and that’s what we should be investing in. Then  we should see that happen.

FIFI PETERS: Right gentlemen, thanks so much for your time. We’ll leave it there. Cas Coovadia is the CEO of Busa, and Chris Yelland is an independent energy analyst. Really interesting, particularly just looking at those prices out there. Yes, I know we all have a responsibility in this equation, but the irony [is] how many people have to bear a cost for a situation that they didn’t cause, not having been at the helm in terms of management of this entity called Eskom, but now having to potentially pay the cost in terms of a higher borrowing cost to help Eskom in its future of being able to supply energy constantly.

I think that [with regard to] those prices, particularly of the installations of solar and all of that, we need to have a conversation because personally I don’t understand the pricing. Maybe we need to invite the competition authorities on to tell us a little bit more about how that works.