Business leaders were caught on the back foot by the government’s sweeping changes to the Eskom board, which were announced last Thursday. They query the timing of the move and the impact it could have on the power utility, given the energy crisis facing South Africa.
At the same time, analysts also cautioned against further major changes at Eskom, particularly to top management.
Their unease was shared by organised labour, with Cosatu and the National Union of Mineworkers raising concerns about the government’s “unilateral appointments” to the boards of Eskom and state arms producer Denel. Cosatu called on Minister of Public Enterprises Malusi Gigaba to suspend the new appointments to allow “a proper process of consultation with all stakeholders”.
Last week the Cabinet announced that, apart from two members, all Eskom’s non-executive directors would be replaced, including Mpho Makwana, head of the board.
Many of the outgoing board members have served decade-long terms, which was one of the reasons cited by the government for the decision to bring in fresh blood.
Cornelis van der Waal, the energy programme manager at research and consulting firm Frost & Sullivan, said the situation at Eskom was “very delicate” and the utility was unlikely to benefit from further changes.
“We know that the reserve margin [of electricity] is very low — it’s very important that Eskom gets things right.”
Van der Waal said the outgoing board and the executive leadership, under chief executive Brian Dames and chief financial officer Paul O’Flaherty, had brought stability to Eskom, particularly after the resignations of former chief executive Jacob Maroga and former chairman Bobby Godsell.
Van der Waal said they had achieved some success in overcoming Eskom’s funding shortfall of R115-billion by 2013 and securing loans on international capital markets, including a World Bank loan of $3.75-billion.
“We’re walking on a wire at the moment. We don’t need a major overhaul of management structures — we need to finish the [Medupi and Kusile] power stations,” he said.
Besides possible power-generation shortfalls Eskom faced other significant challenges, including the introduction of competition from independent power producers and market operators, Van der Waal said.
The most important people holding the line on operational performance were Dames and O’Flaherty, he said. Several people in business interviewed by the Mail & Guardian did not want to be named, but expressed alarm at the suddenness of the changes.
“This shows a crude view of these institutions [state-owned enterprises] — Eskom, in particular, is in a very difficult position,” said one.
“Changing the top structures must be done with care. I don’t think there is an appreciation for the size and importance of this organisation, or the huge task it has ahead of it. It is not amenable to blunt political interventions.”
He said that although the government had indicated that the positions of Dames and O’Flaherty would not be affected, the new board appointments had sparked concerns about the future of the management team.
A well-placed industry observer who asked to remain anonymous added: “It’s hard to understand, given the circumstances, what the motivations might have been. We’re sitting with state enterprises whose leadership is in a serious state of flux.”
The outgoing board had done substantial work to bring stability to Eskom and facilitate the transfer of expertise, he said.
The source emphasised that there was support for the government’s plan to reform the parastatal sector but it caused concern when the reasons for change were unclear. “We need clarity because these institutions support South Africa’s ability to do business.”
It was critical that the incoming board members were able to replace the skills of those who were being removed, he said.
An executive whose company has numerous interests in the power sector said the announcements had come “out of the blue” at a time when relationships with Eskom and its stakeholders had started to improve. He expressed concern that there would be a “loss of institutional memory”, but reserved judgment until representatives of his organisation had met the new appointees.
The King III codes on corporate governance recommend that nonexecutive directors serve three terms of three years each, after which their positions should be reviewed. Four directors who were axed had served longer than this. They are Makwana, Wendy Lucas-Bull, Lars Josefsson and Jacob Modise.
Another reason for the cautious response to the purge of board members is the cloud of uncertainty that surrounds some of the new appointments.
The department of public enterprises could not provide their full CVs, except for Zola Tsotsi, who will head the new board. The department said the information would be released only once the annual general meetings of the parastatals had taken place and the new board members had officially joined the organisations.
Tsotsi is a chemical engineer who was a corporate consultant at Eskom from 2000 to 2004 and a corporate strategy manager at the utility between 1997 and 2000. He has also headed the boards of the Lesotho Highlands Development Authority and the Lesotho Electricity Corporation and is the head of the Lesotho Electricity Authority.
One source of concern is the massive difference in scale between the Lesotho utility and Eskom, which employs more than 30 000 people and plans to spend R380-billion to expand its capacity.
Other new Eskom appointees are:
- Ashok Sharma, about whom little is known other than that he is an Indian national with a degree in electrical engineering and experience in power infrastructure planning and design.
- Chwayita Mabude — the M&G was able to ascertain that she is an accountant with a background in financial management.
- Collin Matjila has a track record of overseeing both large organisations and the electricity industry. The chief executive of Cosatu’s investment arm, Kopano Ke Matla, Matjila is the former chairman of the National Energy Regulator of South Africa.
- Transnet chairman Mafika Mkwanazi was formerly chief executive of the state-owned transport giant. Mkwanazi has admitted to having a personal relationship with the Gupta brothers, who have close business ties to President Jacob Zuma’s family. At least one newly appointed Denel board member has links with the Gupta business empire.
- Neo Lesela, who has an industrial engineering degree from the University of Salford in the United Kingdom and formerly worked for South African Breweries and Tiger Brands. She then moved to Portnet (now the National Ports Authority) as a senior engineer, joined Cell C in 2002 as the head of project management and, in 2008, joined low-cost telecoms operator Smile Communications as general manager.
- Phenyane Sedibe, who is the owner of consultancy firm SPQ Consulting, has a master’s degree in social policy. The department lists small enterprise development, black empowerment and economic transformation as the skills he brings to the board.
- Yasmin Masithela, a corporate lawyer and consultant at Phukubje Pierce Masithela Attorneys, has worked for multinational Siemens, heading its project and export finance division. The department said she had done extensive work in corporate law, financial services and local government and procurement law.
Makhosini Nkosi, Gigaba’s spokesperson, said it was well known that many of the old board members had served for an extended period. “Global best practice requires that you rotate board members in a bid to strike a balance between fresh blood and experience,” Nkosi said.
He emphasised that the department had not opted to “recruit from the idols” when considering new board appointees.
“Just because people may not be instantly recognisable does not mean they are not exactly what the board needs in terms of skills and expertise.”
The department had carefully selected the new board, he said, but conceded that the communication of the changes “was not what it should have been”.
In future, such changes would be ratified by the Cabinet and thereafter stakeholders would be engaged in the process, said Nkosi. — Additional reporting by Lionel Faull