Andre de Ruyter, chief executive of state-owned power utility Eskom, speaks during a media briefing in Johannesburg, South Africa, Jan. 31, 2020. REUTERS/Sumaya Hisham

The best CEO in the world couldn’t save Eskom

Standard Bank CEO Sim Tshabalala recently suggested that Eskom should consider hiring an international candidate to succeed its outgoing CEO, André de Ruyter. Although Mr. Tshabalala is trying to be helpful, his suggestion misses the mark. A foreign appointee – no matter how capable or qualified – will not be able to fix the mess at Eskom. Another South African in the post won’t succeed either.

Even if they do manage to convince somebody to take the job, that person will need to be properly capacitated to execute their work. During a podcast interview in July last year, I asked Mr. De Ruyter why he accepted the CEO position. “I was probably motivated by a dangerous cocktail of patriotism and naïve optimism that I could make a contribution,” he joked.

Perhaps it was that same sense of patriotism (and a lot less naivety) that motivated Mr. De Ruyter to call it quits. The terms of reference for the job were impossible to begin with and his authority was continuously undermined by the very cabinet that appointed him.

Unlike Mr. Tshabalala, who is accountable to his customers, shareholders, and board members, Mr. De Ruyter is accountable to only one shareholder: government.
Unfortunately, the government he serves has a rigid view that state-owned entities must always play a central role in the economy and society. Consequently, Mr. De Ruyter was powerless to do what was necessary to save Eskom. When you have one ‘shareholder,’ who really calls the shots?

The problems at Eskom are not technical, but political. Chronic blackouts are a symptom of the policies that the government has imposed on Eskom – and the perverse incentives that these policies have created.

As documented by the Zondo Commission, the utility has been sucked dry by deployed ANC cadres who have used preferential procurement policy to extract resources from the utility. All of this happens under the guise of ‘transformation’, while millions of honest, tax-paying South Africans (black and white) are plunged into darkness.

When I asked Mr. De Ruyter during the podcast what he thought about race-based procurement policies, he was very polite, but also frank in his assessment:

“Interposing non-value-adding intermediaries in the process of procurement inflates cost, it introduces additional risk in terms of potential corrupt practices, and it also slows down our supply chains.”

The late Michael Spicer, a business leader and lobbyist, used to bemoan the abundance of ‘magical thinking’ in South African politics. Even Mr. Spicer would have been surprised by the levels of magical thinking demonstrated by Minister of Mineral Resources and Energy Gwede Mantashe last week. Mr. Mantashe, who wants ministerial control over Eskom, optimistically stated that loadshedding could be ended in 6 to 12 months.

Mr. Mantashe’s cabinet colleague, Minister of Finance Enoch Godongwana, was slightly more cautious – but no less magical – in his thinking. Addressing what must have been a tough crowd at the annual gathering of the World Economic Forum in Davos, Mr. Godongwana said he expected the electricity crisis to be resolved within 12 to 18 months.

Political problems require political solutions. Unfortunately, the same politicians who got us into this disaster are not the ones who will get us out of it. The solution is to get these politicians as far away from the energy sector as possible.

The Democratic Alliance is planning to march to Luthuli House on the 25th of January. Some commentators have glibly dismissed this as a political stunt. It is indeed a political stunt – but that’s how politics works.

The DA has correctly identified the source of the crisis, but as it and other opposition parties face the prospect of forming a multi-party coalition government in 2024, it must also do more to present a coherent policy alternative to the state-centric model. If a coalition does come to power, energy insecurity won’t be their fault, but it will certainly be their problem.

One strategy will be to unbundle Eskom’s generation, transmission and distribution functions and vastly increase private sector involvement in each domain. This will be difficult and complicated, but far from impossible. After all, South Africa has been generating electricity since the late 19th Century. This is not as hard as landing a man on Mars, as Elon Musk hopes to do.

Mr. Musk will probably succeed in getting humanity to the Red Planet one day. However, he would almost certainly fail to turn Eskom around under the current ideological and policy configuration – his engineering and business acumen notwithstanding.

Eskom can hire the best CEO in the world, but without a fundamental overhaul of energy policy in South Africa this will not make much of a difference. Whoever is appointed next will face the same unfortunate fate as their predecessor.