With reports that Eskom CEO André de Ruyter is considering bringing back some of the grey beards to provide mentorship and address the skills deficit that has accumulated like coal dust on Eskom’s boiler room windows, one must question whether this will be possible given how powerful the unions resisting change have become.
Recent evidence suggests De Ruyter still doesn’t have the full political backing required to tackle labour reform decisively. The roots of Eskom’s problems run far deeper than corruption. It runs to the heart of the ANC government’s focus on using state-owned companies as levers for speeding up transformation at the expense of an experience-based meritocracy.
A wandering albatross landed on my balcony this week with a soot-encrusted folder detailing work done last year auditing the Kriel and Matla power stations at the request of Eskom COO Jan Oberholzer and former group executive for generation Phillip Dukashe, to make recommendations of actions Eskom could take to improve plant performance. My albatross tells me they brought in a team of retired Eskom power station managers (who knew the utility when it was world class, a lifetime ago when Eskom was still rated better than the sovereign).
Completed in 1979, Kriel was the largest coal-fired power station in the southern hemisphere at the time, the first of the new giants. Generating 3,000MW, it was the forerunner of the new generation of giant coal-fired power stations. Its primacy since surpassed by Eskom’s newer plants, generating 3,600MW and more, Kriel was instrumental in breaking ground for these stations. Many of the technological and operational problems encountered in the 3,600MW giants were first solved at Kriel.
Matla power station was the first of the giant 3,600MW coal-fired power stations to be commissioned during the 1980s and was awarded a gold award by the National Productivity Institute (NPI) in 1998.
The grey beards found a lot wrong. Housekeeping was non-existent and they found roughly 1cm of accumulated coal dust on the boiler room windowsills. The stations were understaffed in the technical and operations departments, but overstaffed in areas such as PR, management and HR.
There was a weekly power station production meeting every Monday. And the one my albatross participated in was three hours long and had 56 Eskom attendees. My albatross believes such meetings should typically last around an hour and have no more than 10 attendees, with only the heads of each department providing inputs. The quality of the conversations at those meetings was quite breathtaking. “At one point they spent four minutes complementing a presenter that his slides looked so much better than last week’s.”
Another serious issue — confirmed to me this week by Vally Padyachee, now a strategic adviser to the Association of Municipal Electricity Utilities of SA and former COO of City Power Johannesburg and Eskom generation executive manager during the period when both of these power utilities were performing at their best — is how dysfunctional procurement is because everything has to go through Megawatt Park. Often spares were not available so maintenance job-orders could not be completed as scheduled or on time.
The telling comment for me came from one of the retired power station managers, who said “it’s close to a miracle that this plant is still running”. The report was handed to Eskom, but it’s understood that the unions are resisting.
Acceding to the outrageous wage demands made by unions despite Eskom basically being bankrupt, relying on multibillion rand taxpayer bailouts over and above taxpayer subsidised free electricity to the indigent, and their treasonous tactics of holding the economy to ransom, is not to be applauded. Yet that’s exactly what government did. And while an energy supply deficit exists one should expect more of the same from the unions in future.
Maybe the Black Business Council and other Eskom critics should be interrogating why Eskom’s senior leadership isn’t receiving the political support required to tackle the powerful unions, rather than calling for De Ruyter’s head.
Nampak’s announcement that its lenders have agreed to give the packaging group breathing room to reduce debt by R1bn is an excellent example of the value dynamics of companies in financial distress.
As David Holland of Fractal Value Advisors pointed out to me last week, the closer a firm’s value is to the book value of its debt the higher the probability of default. “Equity is a call option, most especially in distressed situations (you walk away with nothing or a juicy leveraged return),” says Holland.
The value of a call option is based on three factors: its strike price (value of debt in this instance), its length and its volatility. By understanding how these factors combine you can better predict whether a call option is worth buying.
“Nampak succeeded in extending its debt pay down by six months, which translates into an increase of the value of the call option, in other words its equity increases in value. You can see it in the pop in Nampak’s share price on the news. They’ve delayed the possibility of dilution,” says Holland.
But, as Holland reminded me, management need to confront the tough decision of asset disposals rather than relying on hope, which we know is not a strategy.
• Avery, a financial journalist and broadcaster, produces BDTV's Business Watch. Contact him at badger@businesslive.co.za.
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