Eskom’s descent into chaos

Former Eskom chairman Reuel Khoza said a skills deficiency, a lack of new generation capacity, poor corporate governance, and a lack of commitment to excellence caused the power utility’s decline.

Khoza is widely credited for his exceptional leadership, which helped Eskom win numerous local and international accolades.

Unbeknownst to many people, Khoza was picked ahead of Cyril Ramaphosa to be Eskom chairman in 1997.

Then Deputy-President, Thabo Mbeki, decided to adopt a scientific approach to select the candidate.

Mbeki drafted 14 criteria against which the candidates were assessed for the position. Khoza ticked 9 of the boxes – Ramaphosa fewer.

“They took this to the old man [President Nelson Mandela] and he said, ‘I can’t argue against facts’, and then agreed that I should be chairman,” said Khoza.

It is no surprise that Mbeki picked Khoza. 20 years before becoming chairman, Khoza started work at Eskom as a managing consultant “with a difference”.

Within two months of working as a consultant, he was appointed to an executive group within Eskom known as ‘the top 30’. This meant he understood the inner workings of Eskom when he became chairman.

“I inherited a company that was essentially well-run – there’s no question about that,” said Khoza.

That opinion was widely shared.

Eskom won an award for having the best corporate governance in South Africa in Khoza’s first year as chairman, ahead of prominent businesses in the private sector.

Then, in 2001, Eskom won the Financial Times award for the best global power utility. That was a “mountain-top moment”, according to Khoza.

Eskom also won technical awards for the quality of its fleet, he said.

Even more uplifting than that was when Moody’s gave Eskom a better credit rating than the country’s sovereign rating.

Eskom was essentially debt-free by 2001, said Khoza, which was a dramatic turn-around from 1997 when Eskom had three times as much debt as equity.

“There was so much going for us at the time of my departure,” he said.

This would change, he acknowledged.

The descent into chaos

Fast forward 20 years and Eskom is unrecognisable from the world-leading power utility that used to produce more than half the electricity in Africa.

Eskom can no longer keep the lights on and is riddled with mismanagement, corruption, and poor corporate governance.

Khoza identified six mistakes made in South Africa that have caused the decline of Eskom from the highs under his tenure.

1. Skills deficiency

Khoza said he was replaced as chairman by someone who thought like a politician rather than someone business-minded.

The position requires a “business approach to solving problems, rather than the shouting of slogans”, said Khoza.

“I pleaded with the shareholder that someone with a business background should succeed me,” he said. His plea was ignored.

2. No new generation capacity

The second mistake was the government’s decision to ignore a White Paper submitted by Eskom that explained the need to expand the generation fleet.

Eskom had a surplus of generation capacity at the time, but the company’s leaders realised it would come to an end by around 2006 to 2007. Load-shedding was implemented for the first time in 2008.

The government decided not to heed the call to expand generation capacity, which cost the country dearly.

The generation fleet was eventually expanded when construction began on Kusile in 2007 and Medupi in 2008. However, they were delivered over budget and late, with numerous design defects.

3. Player and referee

Khoza believed that the government’s decision to award a tender to Hitachi Power Africa despite the fact that they were in a joint venture with the ANC’s investment wing, Chancellor House, “rendered them conflicted”.

“They found themselves in a situation where they had to play referee and player,” he said.

The awarding of this tender “emasculated them totally from objectivity”, he said.

4. Abandoning good corporate governance

Eskom deviated from the basic leadership principles required to run a business, said Khosa.

A company rests on two pillars – competence and ethical behaviour. “Flowing from those two basics, you have the business values that drive successful organizations.”

These values include integrity, fairness, responsibility, transparency, and accountability.

All of these values got progressively jettisoned by the organisation after Khoza left.

5. Basics as an emergent economy

Khoza said you must apply yourself on three counts as an emerging economy:

  • Work hard.
  • Work smart.
  • Put in the hours.

“Unless those three are in place and are pursued relentlessly, you are not going to be able to deliver.”

6. No commitment to excellence

Khoza said that, early on in his chairmanship, he gathered his colleagues to decide on a vision for the utility.

They settled on roughly the following: “Eskom shall be the pre-eminent energy and related services organisation – of global stature.”

“That actually guided everything we did,” he said.

During his tenure, Eskom had individuals of sufficient stature to execute that vision. He referred to the then finance and treasury head, Willem Kok, who had a doctorate.

“Down the line, the person who ran finance and treasury had no similar qualifications.” The person responsible for procurement at Eskom had a questionable matric qualification.

“So you can see, those are some of the things that led to the turn from excellence, or outstanding performance, to where we are today.”

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