Business

Dames quits incomplete Medupi

Analysis Lynley Donnelly

Polite compliments and vagueness mask the rumblings of political disquiet at the power utility.

Power outage: Brian Dames insists he is not exiting the Eskom hot seat because of delays in building new power stations such as Medupi. (Herman Verwey and Deaan Vivier/Gallo)

Three short years at the helm. This is all it took for outgoing chief executive officer Brian Dames to bring his decades-long career at national power utility Eskom to a close.

Dames, who was appointed chief executive in 2010, and his erstwhile finance director Paul O'Flaherty, appointed in 2009, were the men brought in to rescue a company adrift.

Its former head, Jacob Maroga, was ousted after an ugly spat with the then board under chairperson Bobby Godsell.

Eskom was battling to fund its R300‑billion construction programme, the biggest in South Africa in decades.

Construction of its new mega power stations, Medupi, Kusile and Ingula, which would prove laboriously delayed, controversy-riddled and expensive, was in its early days.

The announcement last week that Dames was resigning, a year after the same bomb was dropped regarding O'Flaherty's decision to quit, left no one with the sense of a job complete.

Eskom battles maintenance on ageing plants
The country is a heartbeat away from lights out as Eskom battles to carry out regulatory maintenance on its ageing plants, cope with electricity demand and work desperately to bring Medupi's first unit online by the second half of next year.

The build programme is financed to the tune of R265‑billion or roughly 76% of the required money, if you consider that it needs to secure a further R50‑billion after it was not granted the 16% tariff increase it wanted from the regulator earlier this year.

Eskom has been battling contractors Alstom and Hitachi at Medupi — the former over nonperformance on the control and instrumentation contract and the latter over thousands of faulty welds at Medupi.

Hitachi has been working to rectify the welding work. Eskom, however, has brought in a contingency contractor, understood to be Siemens, to step in should Alstom fail to meet performance milestones.

The combined effect of these problems has raised major questions over whether Eskom will indeed deliver first power from Medupi by the end of 2014 and it bodes ill for Eskom.

Dames has been adamant that his resignation was simply for "personal reasons". But he said last week that he had indicated his intention to resign as far back as February.

A hard job
"That was the notice I gave and we have really just been talking through the process all along," he said.

"I was fully committed to whatever the board required to ensure stability."

He did say that the job was "hard on you as a person" and that the recent accident at Ingula, where six workers lost their lives, was particularly difficult for him.

The question is whether Eskom's determination to construct the two 4 000 megawatt monsters of Medupi and Kusile did not become the albatross around Dames's neck.

He was the head of generation at Eskom when the projects were given the green light and the utility, not having done work like this in decades, lacked the institutional capacity to undertake it with speed or confidence.

Critics suggest that Eskom chose the large, technically complex and bespoke option, ignoring off-the-shelf technologies on offer from a larger supplier base, which meant more competition, cheaper prices and shorter lead times.

Leaving a competent project management team
Problems with the Hitachi and Alstom contracts are emblematic of this, but Dames denies they were the reason for his resignation.

He said he leaves a very competent project management team in place to ensure construction work continues timeously.

Speculation persists that political pressure on the executive became too much. It stalked O'Flaherty's departure, much as it has Dames's. All parties deny it.

Dames praised his luck in having Public Enterprises Minister Malusi Gigaba as his shareholder, describing him as responsive and supportive.

Gigaba's spokesperson, Mayihlome Tshwete, in turn complimented Dames for leading the organisation at a very tough time, saying Eskom's current difficulties cannot be laid at Dames's feet.

Despite criticism, Dames did return some stability to the organisation. So far, the country's lights remain on and Eskom is a reasonably financially stable outfit.

A comfortable profit
Although some of its key ratios, such as debt to earnings, are not investment grade, its profit for the first half of the year was a comfortable R12.2‑billion.

It is not surprising, then, that some of Eskom's biggest stakeholders and interested parties are nonplussed about Dames's departure.

Mike Rossouw, chairperson of the Energy Intensive User Group, said he is "extremely disappointed" that Dames is leaving at such a critical time and hopes that Eskom will "speedily secure his replacement".

Similarly, Irvin Jim, general secretary of the National Union of Metal Workers of South Africa, said the departure of Dames is a "great loss", given his institutional background and the relationships he has built up with the company's stakeholders.

"To fill his shoes will not be an easy task," said Jim.

Whoever replaces Dames will have to start from scratch forging ties, noted Jim. The union's unresolved wage negotiations with Eskom remain a "burning marker for us", he said.

Jim wants greater transparency
Jim wants union representation at board level for greater transparency and to quell speculation about the government's role in the utility.

The week that Dames resigned, the energy department released the long-awaited draft of the revised integrated resource plan for public comment.

After much public backing for nuclear energy from the government, and after naming Eskom the owner and operator of any future nuclear power stations, the revised plan appears to veer towards considering more alternative sources of energy such as gas and hydro.

One industry analyst observed that, given what might be a "shift in policy direction", this could be the opportunity to address the "blockage" that Eskom has become to reforming the country's electricity sector.

Provided a new chief executive is given the mandate to do this work, an option would be to sell off Eskom's generation business and potentially hive off its nuclear operations to create a stand-alone nuclear energy business.

This would, however, require a different outlook from the state. It took Eskom a year to replace O'Flaherty with Tsholofelo Molefe.

It remains to be seen who will replace Dames in one of the most unenviable jobs in the country, but Eskom's board has until March 2014, when Dames will make his final exit, to announce a new chief executive.

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