If Telkom could ring the changes, Eskom can emerge from darkness

The installation of a new Eskom board and highly capable CEO is a watershed for the power utility and for general confidence. The state-owned enterprises (SOEs) are top instruments for service delivery, and because they are within the control of the state and not subject to global market uncertainties, there can be no excuse for poor performance.

Faith needs to be restored in the SOEs, especially those with significant service delivery roles and/or the largest component of government guarantees. This refers to Eskom, the South African National Roads Agency, South African Airways, the Trans-Caledon Tunnel Authority, the Road Accident Fund, Transnet, the Passenger Rail Agency of SA and PetroSA.

Eskom is by far the most urgent, posing concerns not just for energy services but also for economic stability.

In 2013, I joined Telkom as head of strategy to support Sipho Maseko and Jabu Mabuza in charting the turnaround. What can we learn from Telkom’s experience? We now have proof that it is possible to turn around a large failing entity in a short space of time. At Telkom, we progressed through stages of a soft landing, to stabilisation to growth in three short years. Our strategy focused on achieving concrete early improvements that laid the ground for longer-term growth. This resulted in successive annual improvement over the course of more than five years.

Effective governance is the most important starting point. It is simply impossible to maintain, turn around or sustainably drive growth without it. Leadership instability is the top challenge faced by many SOEs, and this was certainly the case at Telkom. After Sizwe Nxasana’s departure from Telkom in 2005, the average CEO tenure was 1.8 years, until Maseko took the reins in April 2013. After Dikgang Moseneke’s seven-year tenure as board chairman ended in 2001, the position was held for an average of two years until Mabuza joined in 2012.

Now let’s look at Eskom. After Thulani Gcabashe left in 2007, Eskom had six CEOs, plus a further two acting CEOs, making the average tenure 1.5 years if we stop counting at Brian Molefe. And Molefe is counted as one CEO, although he was appointed twice.

Reuel Khoza was board chairman for eight years until 2005. Since then, the average tenure has been two years. Continuity is at least one simple reason for the success in Telkom’s turnaround; Mabuza and Maseko have now been in place for about five years.

Installing nonconflicted leadership with proven capability is a second SOE challenge. In 2013, my decision to join a troubled Telkom was based on the quality of the new board and CEO. I see the same qualities in the new Eskom team.

King III principles and the Public Finance Management Act can be well understood but not necessarily implemented, even when serious gaps are identified. In the case of Eskom, at least four red flags were raised since 2015. The most formal alerts are found in the board-appointed forensic investigation into Eskom’s operations prepared by Dentons in 2015, the public protector’s report on state capture in 2016, Eskom’s auditor notes to its annual financial statements released in 2017 and an alert to the auditor-general of accounting irregularities, which in turn were reflected in the auditor-general’s report in 2017.

At a minimum, these show significant increases in irregular expenditure amounting to about R4bn in 2016-17, irregularities in relation to the retirement payment for Molefe, allegations against the then interim CEO, Matshela Koko, allegations in respect of Tegeta, plus myriad findings in the Dentons report. And yet the board audit and risk committee found controls to be adequate in all respects for its 2016-17 annual financial statements.

Telkom had strained relationships with all its stakeholders including the board, the staff, the government, the regulator and customers. Where credibility is lost, it is crucial to be brutally honest about why and deliver noticeable concrete results

In response to the State of Capture report, the annual report asserts that good value was created by the Tegeta transaction. There are no formal dissenting voices in the annual report, although there were eight resignations in 2016-17, from a board that previously included 11 independent members. All the appropriate rules and processes were in place but not were applied in spirit.

At Telkom, Maseko prioritised procurement by elevating it to an executive committee function and hiring Ian Russell, who had top corporate procurement experience. Russell then reformed procurement processes to make them more transparent. The approach taken by Telkom’s new procurement chief was already long in place at Eskom, at least back to Brian Dames’s tenure as CEO between 2010 and 2013. This speaks volumes about the character of leadership — whether conflicted, lacking sufficient capability to know differently or simply too weak to speak.

Telkom had strained relationships with all its stakeholders including the board, the staff, the government, the regulator and customers. Where credibility is lost, it is crucial to be brutally honest about why and deliver noticeable concrete results. At Telkom, some of the first results were the settling of a Competition Commission case and significant inroads into stabilising the finances initially, which involved an impairment and a 3% reduction in nonlabour operating expenditure within eight months.

A regular change of guard affects staff behaviour and performance. Staff were probably going to say one thing, do another and wait for Maseko to pass through. As new management, you will never know the ins and outs as well as the staff do, and so they can be your greatest friend or foe. Our starting point is a belief in human nature and in leadership: that most people would rather do a good job, have positive feedback and be proud of their employer

than not. When there is poor delivery across the board, it is probably the fault of leadership in making clear what is expected, acting as an enabler and instilling this into meaningful performance incentives. The executive suite must appreciate that staff at the coal face deliver the results.

The relationship between Telkom and the government evolved to become enabling and Telkom leadership was able to run the company without interference. Yet public policy indecision still has to be resolved. Had there not been significant government shareholding in 2013, it is likely Telkom would have been asset-stripped when the market capitalisation sat at a fraction of its underlying value.

Eskom is not the only culprit, and nor are the allegedly greedy fingers. They played into years of indecision and uncertainty. Eskom could not build up sufficient reserves to cover the costs of maintenance, replacement or new capacity. The real electricity price fell from 1983 to 2002 and the price in 2008 matched that of 1995. Limited reserves were partly caused by indecision in respect of who would build new capacity — whether it would be Eskom or private investors. This was the context for the new build programme. The price subsequently doubled in real terms between 2008 and 2017. The electricity price is not out of step globally, but the price path has created understandable consternation for users.

To stabilise, Eskom will have to convince creditors there is commitment to good governance and a pathway to sustainability. Eskom’s new board is the most important first milestone. Next steps will be to urgently appoint a permanent CEO and round out the executive committee in a way that demonstrates a new beginning. Eskom’s communication needs to be open and humble and to give stakeholders a true reflection of the state of affairs.

Transparency in procurement, along the lines of Gauteng’s open model, would give confidence that investment is not being drained out illicitly. A pathway to building reserves is also needed. As the shareholder, the government needs to set a mandate that will achieve National Development Plan goals and give space to the board and management to deliver.

The good news is that it is possible to achieve rapid and sustainable turnarounds in large SOEs.

• Altman is a former Telkom head of strategy and National Planning Commission commissioner. She writes in her personal capacity.