MGOLogo.jpg


The Teflon top brass



Kevin Davie, Mail & Guardian, 18 March 2008

When business schools look for case material in object lessons on how not to run an enterprise, Eskom has no peer and no precedent in South Africa. Its January wipeout where it shut down the mines and hobbled the country's growth prospects, is breathtaking in both its scale and impact.

The story, unfortunately, has been largely cast in the tones of government being warned in 1998 already that new capacity was needed and it did not do anything about it.

This misses the fact that up to 12 000MW of capacity wasn't available during January, due to the infamous "planned and unplanned outages".

Eskom has 39 000MW of power, yet a quarter or more of this was not available during the period because of what can only be described as ineptitude.

Internal leaked documents showed that at the height of the crisis not a single one of 18 Eskom power stations was working at capacity.

Its management had managed to run down its coal stockpile from 61 days' supply in 2000 to between one and three days' supply in January this year.

So bad have been the supply issues that this week, several months after the catastrophe, and after huge effort to source new supplies of coal, several power stations still only had five days supply of coal.

Case study #1: Take the bonus
When the business schools study this, they could look at the notion of management responsibility. We know that Eskom's executives are incentivised with all kinds of bonuses if the entity does well.

They suffer no penalties, though, when it appears that they have not been running the business at all in the normal sense of what shareholders or stakeholders expect from people who draw salaries for this purpose.

But noticeable with Eskom is that the buck does not stop anywhere. President Thabo Mbeki has agreed to a collective responsibility on the part of the Cabinet, presumably for not agreeing that more power stations should have been built sooner, but has insisted that no individual cabinet minister carries responsibility.

But if Eskom is so inept that it cannot operate its 18 stations, is there any reason to think that it would do a better job with, say, 30 power stations? If you can't order enough coal for 18, can you be trusted to bring in enough to fuel 30?

Case study #2: Ensure collective responsibility
The business schools may want to be able to explain to their students how such an unhappy situation could come about.

The first thing you have to do is ensure, just as Mbeki does, that the notion of collective responsibility applies. The same applies to Eskom. Key decisions are vetted by the board, as I suppose you'd expect them to be.

The decision in 2000 to reduce the coal stockpile by former chief executive Thulani Gcabashe was approved by the board. So was a new procurement policy adopted in 2002 to favour BEE companies. Known as the hierarchy of procurement, Eskom first procured from black, female-owned suppliers, then small black suppliers, then large black suppliers and, finally, other South African suppliers.

Thirty percent of supplies -- about 40-million tonnes a year -- were to be procured in this way and, crucially, management was incentivised to make sure that the hierarchy of procurement worked.

This country has empowerment as a constitutional imperative, but the hierarchy of procurement appears to have had the effect of trying to source vast amounts of coal through the eye of a needle. It is not as though there are no empowerment companies up to the job. Exxaro, for example, Eskom's largest supplier, is apparently one of the countries most empowered companies.

We phoned up some of the largest coal suppliers after the meltdown, to find out why they were apparently withholding coal from Eskom and were surprised to find them somewhat bemused at Eskom's empty coal yards.

One company even had a large stockpile and conveyor belts ready to ship what was needed.

The business schools could also think about the stockpile as a strategic weapon. If you have large stocks you can buy from a position of strength. If your yard is empty and you are hurrying about making emergency purchases, the seller sets the price.

Case study #3: Warn that you're not doing your job
A key element of this case study in how to earn money without taking responsibility, is that you should issue frequent warnings in the annual report about the coming crisis. So several of Eskom's annual reports after 2003 warn that the company was having difficulty both procuring coal and trucking it on deteriorating roads to the power stations.

Cabinet may or may not be responsible. But what about Eskom's executives? Thulani Gcabashe, having set Eskom on its new disastrous course, quit a year ago. He still works at Eskom, but has the much-reduced job of advising companies wishing to supply power to the utility.

His successor, Jacob Maroga, who stepped up from financial director, has been in the job for the past 10 months. As the new captain Maroga would have been a heroic figure if he had used the first period of his tenure to steer the ship on a new course before it hit the iceberg, but he did not.

His job has since been to launch the lifebelts and try and put together a rescue plan.

Case study #4: Never quit
Overseeing the company, since 2005, has been Valli Moosa, the non-executive chair. I wondered if he would take responsibility?

Moosa says it is not correct to attribute the outages earlier this year to a single cause. "It is not true that the levels of the coal stockpiles were the central cause of the outages. That would be a rather simplistic analysis."

Moosa says that Maroga has introduced far-reaching changes to the structure and composition of the management of Eskom since taking the top job. "The measures he has taken are already beginning to show results."

Moosa is on a three-year contract that ends in August this year. Asked if he had considered quitting, he said: "I would like to assure you that appropriate discussions have been held with government [as you say is expected of me by you]."

Moosa says that "in times of crisis, leadership requires that I stand with management and staff in order to face the challenge.

"The task at hand is to fix the problem. Throwing in the towel is the last thing a leader should do. No self-respecting leader jumps ship." Moosa earns R1-million a year as Eskom chair or about R100 000 a meeting.

My colleague Stefaans Brümmer has dealt in detail with Moosa's apparent conflict of interest as Eskom chairperson and an official of the ANC in getting major contracts awarded to Chancellor House, an ANC front company.

Moosa says that his Eskom job "takes priority over all my other commitments. My duties in Eskom have the first call on my time. A non-executive chairman should allow management to get on with the job and should be available as often as needed.

"During a crisis, much more time and attention is needed. During this year I have spent more time on Eskom matters than all of my other commitments put together."

From: http://www.mg.co.za/articlePage.aspx?articleid=334909&area=/insight/insighteconomybusiness/

1225 words