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Running head: ESKOM SOUTH AFRICA 1
ESKOM South Africa: A Case of Planning Failure
Simon Christian Makoso
Indiana Wesleyan University
Dr. Annette West
June 17, 2015
I have read and understand the plagiarism policy as outlined in the syllabus and the sections in
the Student Bulletin relating to the IWU Honesty/Cheating Policy. By affixing this statement to
the title page of my paper, I certify that I have not cheated or plagiarized in the process of
completing this assignment. If it is found that cheating and/or plagiarism did take place in the
writing of this paper, I understand the possible consequences of the act/s, which could include
expulsion from Indiana Wesleyan University.
ESKOM SOUTH AFRICA 2
Table of contents
Project description...……………………………………………………………………………....4
Introduction. ......…………………………………………………………………………………..4
Purpose of the study …...………………………………………………………………………….5
Significance of the study......…….………………………………………………………………...8
Significance of the topic to the writer…….....…………………………………………………….8
Significance of the case to Eskom and its major stakeholder……..………………………………9
Global significance of the research……………………………………………………………....10
Company Overview…..………………………………………………………………………….11
Identification and Discussion of Issues…...…………………………………………………….. 14
Root causes of the crisis………..……………………………………………………………….. 14
Training and skills shortage……………………………………………………………………...14
Political interference and ethics………………………………………………………………….16
Aging electricity infrastructures…………………………………………………………………16
Project solution…………………………………………………………………………………..18
Information and Literature Review……………………………………………………………....18
Analysis of Key Issues…………………………………………………………………………...26
Recommendations and Conclusion………………………………………………………………34
References………………………………………………………………………………………..41
Appendix A………………………………………………………………………………………48
Appendix B………………………………………………………………………………………49
Appendix C………………………………………………………………………………………49
Appendix D………………………………………………………………………………………50
ESKOM SOUTH AFRICA 3
Appendix E………………………………………………………………………………………51
Appendix F………………………………………………………………………………………52
Appendix G………………………………………………………………………………………53
ESKOM SOUTH AFRICA 4
PROJECT DESCRIPTION
Introduction
According to Robbins and Coulter (2007), “planning involves defining the organization’s
goals, establishing an overall strategy for achieving those goals, and developing plans for
organizational work activities” (p.184).With strategic leadership and a long period of systemic
planning, any organization perform at higher standards.
Eskom troubles are slowly but steadily becoming structural. Indeed, with more than a
decade of underinvestment in power generation, an important maintenance backlog of existing
electrical power grid, the country is about to be “unplugged”. Styan (2013) citing Eskom’s
former CEO, Brian Dames, states that several unforeseen problems with aging infrastructure
hampered Eskom's planned maintenance schedule in the summer months of 2012 and early 2013
(p.12). Moreover, the rapid growth of electricity’s demand, both residential and industrial, is a
complication to an already complex problem. Finally, because “Eskom relies on coal to generate
around 90%-95% of its power” (Styan, 2013, p.13), as the available coal reserve is going to be
depleted in the 2020s, if the coal roadmap is not implemented as early as 2018s, serious turmoil
is to be predicted for Eskom and the South Africa’s economy.
Consequently of operating with limited generation capacity, since 2008 Eskom has
adopted an emergency rolling blackout plan called load shedding and several other measures to
avoid the worse scenario of having the whole country disconnected at the same time.
In order to turnaround the situation, the South African government have produced a plan
which aims to rebalance the mix of power generation and propelled the country’s energy sector
to another level. The “Integrated Resources Plan”, called the IRP2010 is ambitious. “However, it
appears as if Government has already veered from this plan” (Styan, 2013, p.12).
ESKOM SOUTH AFRICA 5
The research reveals disturbing evidences that the South African government which the
owner of Eskom is the responsible of this “chaos.” Investment in electricity generation and
transmission infrastructure is a necessary precondition for sustained economic growth” (Eskom,
2015). Privatization is therefore a viable option; it is going to achieve two objectives:
- Ending political interference in Eskom’s affairs
- And ensuring a brighter future for the organization (and South Africa).
The methodology used by the researcher consists of collecting information from multiple
sources (OCLS, books, Newspapers …) and review interviews of key actors in the South African
power crisis. The period chosen for the literature review is comprised between 2007 (when the
crisis of electricity supply was becoming inevitable) and 2015 (the year of the second round of
rolling blackout).
Purpose of the study
“Eskom Holdings SOC Ltd., which supplies about 95 percent of the country’s electricity,
is rationing supply because it can’t meet demand from aging plants following years of
underinvestment”( Vollgraaff, 2015). The primary research leads to identify planning as the
central problem in the South Africa’s power supply crisis. Robbins and Coulter (2007) present
planning as a “management function that involves defining the organization’s goals, establishing
an overall strategy for achieving those goals, and developing plans to integrate and coordinate
activities” (p.9). That is to say, developing plans provide a framework for guiding the sacrifices
and efforts of an organization.
The case is chosen firstly because of the size of the company. In fact, Eskom is one of the
top 20 world largest utilities suppliers in generation capacity and sales; in order to better
ESKOM SOUTH AFRICA 6
apprehend the importance of this company, the following snapshot of its financials as of 2014
can speak for itself:
- Turnover of ZAR139.5 billion ($15bn) in 2014 versus ZAR128.8 billion ($14bn) in 2013
which means an increase of 8.3% ,
- Total Asset of ZAR 504,993m ($40,426m) in 2014 versus ZAR 500,302m ($40,050m) in
2013, which means an approximate increase of 1%.
- Total liabilities of ZAR 385,209 m ($30,837m) in 2014 versus ZAR 385,63m ($30,871m)
in 2013.
Secondly, the researcher peaked this case due to the policies implemented by the post-
apartheid government that helped grow significantly South Africa’s economy. Indeed, the
economic achievement of the South African government is respectable.
And finally, this case is interesting due to the position of the South African government
as an appreciable global player (member of the BRICS, the only African nation member of the
G20s, and a crisis solver in the African continent). South Africa is the first country to host the
most popular sport (world cup soccer game of 2010) on the African soil; similarly, it has host
successfully important world-class events such as the world economic forum, the conference on
sustainable development, climate change...
Based on these reasons, it is disconcerting that two high “profile” organizations can be in
trouble due to a breach of basic function of management. Factors that have led to a rolling
blackout, need to be uncovered.
Understandably, the legacy of apartheid is real and might be perceptible in few more
decades but after presiding successfully to the destiny of such a great country for almost 14 years
(2008 was the years of the first load-shedding), blaming the former regime for the electricity
ESKOM SOUTH AFRICA 7
supply crisis does not make sense. Thus, there is a need to identify what is really hidden from the
public by former president Thabo Mbeki, what really happened?
Hence, the objective of this paper is to identify the root causes of this miscalculation.
Actually, former President Thabo Mbeki recognizes that Eskom’s executives warned the
government about the looming supply crisis but it was decided to delay the implementation of a
strategic plan as the government was engaged in discussions about the privatization of Eskom.
Even though, the leader takes full responsibility of the mistake, the reason given is not
convincing and does not really satisfy analysts.
The researcher digs then into the history of Eskom and learns that at the advent of the
democratic South Africa, Eskom had an overcapacity of power generation. Effectively, in the
1960s, following the boom of the global economy (e.g. the glorious thirty in France), Eskom was
engaged in an ambitious capacity expansion program. Its strategy was centered on mining
companies which were then producing more and more to meet the appetite of both the local and
international manufacturing industry. “However, throughout the 1970s, projects began to suffer
from ‘diseconomies of scale’, where the logistics and associated delays (and consequent
financing costs) in fact increased the comparative price of provision” (Koen, 2012, p.5).
In consequence, by early 1980s, Eskom had too much power generation capacity.
Although it was evident that there had been an overestimation of economic growth, the new
power stations should be completed; a case of a negative return on investment. Adapting to the
situation, “Eskom responded in two ways, firstly by mothballing aging plants and thereby saving
on input costs, and secondly by seeking new markets” (Koen, 2012, p.7).
Unfortunately, to the slowing of global economy, international sanctions against the
regime of apartheid began to take place and “crippled” the South African economy for long.
ESKOM SOUTH AFRICA 8
Moreover, the political deadlock between ANC and the apartheid government, open ground to
more military confrontation. This situation and cloudy horizon resulted in hurting further the
economy, which finally collapsed.
Did this historical context influenced the Mbeki administration decisions? There is no
evidence of such thing in any minute or official document. Did the South African government
misread indicators received from the parastatal company? There is no evidence either.
What about the assertion that more power generation capacity might have been a wrong
investment? It is known that planning ahead involve benchmarking, which is referring to
standards within an industry. For example, the reserve margin of energy in advanced economies
swings around 15%; it means that the electric grid has excess capacity in the amount of 15% of
expected peak demand. Thus, that assumption of lacking professional judgment also does not
hold.
As a result, the case is going to examine components that enter into the elaboration of a
strategic plan. It is going to focus on elements that enhance decision-making.
“Strategies are the decisions and actions that determine the long-run performance of an
organization” (Robbins and Coulter, 2007, p. 208). The research will not cover technical aspects
of power generation. Similarly, the research is not going to perform financial statement analysis.
It will certainly consider new policies adopted by the ANC in the democratic South Africa;
policies that aim to correct injustice that the majority experienced under the rule of the minority.
Significance of the Study
This case is a “great” example of mismanagement; lessons to learn from such a study are
multiple:
Significance of the topic to the writer
ESKOM SOUTH AFRICA 9
Planning is one of the four functions of management along with organizing, leading and
controlling. Planning intervenes in almost every level of activities.
In marketing management for example, strategic planning is implemented at corporate
level, division level, business unit level, and product level. The approach helps companies
address efficiently customers’ needs. “The corporate headquarters is responsible for designing a
corporate strategic plan to guide the whole enterprise; it makes decisions on the amount of
resources to allocate to each division, as well as on which business to start or eliminate” (Kotler
& Keller, 2007, p.26).
Similarly, in business strategy, tax planning can minimize and alleviate the tax burden.
The following count among some of the business tax planning strategies:
- Retirement plans
- Credit for hiring new employees
- Research and development tax credit
- Health insurance tax credit
- Losses from pass-through entities
- Capital gains and losses
The researcher being a manager, it is of great advantage to study a case that provides
insightful knowledge of the consequences for not planning, not leading, not assessing the impact
of an incompetence on related industries and maybe the whole economy. The case enables to
understand why many countries became poor after their accession to political independence.
Significance of the case to Eskom and its major stakeholder
The research is an addition to Eskom and the South African government because it goes
to the root cause of the planning issue. It is a reminder that successful organizations combine "do
ESKOM SOUTH AFRICA 10
the right thing" (effectiveness) and "do things right" (efficiency). The discussion and analysis
enhance the understanding of how “interconnected” are industries. The research is an awareness
that Eskom and its major stakeholder must work together as one entity especially when it comes
to strategic planning,
For the South African government as the owner of Eskom and several other corporates,
the research highlights the fact that ethics, skills, experience, training and meritocracy are the
pillars of effective management.
The study finally reveals how devastating the Eskom crisis is to the image of South
Africa. Beyond political rhetoric blaming apartheid, it erodes the confidence of investors who
viewed that country as the gateway to Sub-Saharan Africa.
There is a need of defining a new strategy and planning approach because of persistent
concerns. For example South African coal roadmap is a remarkable work but not yet
implemented. Magnowski and Monnier (2015) state, “The problem is that a lot of projects are
generally more ideas than projects.”
It is evident that electricity from coal-fired power plants is cheaper than most
alternatives. There is a real competitive advantage to South African manufacturers and mining
companies. But, coal reserve is not that massive as previously thought. Nandy and Bhattacharya
(2009) state that “at the current extraction rate, this translates to about 40-50 years of
production.” And the “coal roadmap” confirms Nandy and Bhattacharya assertion. On that also
this paper is a wake-up call.
Global significance of the research
The research has relative global significance due to the regional leading position of both
Eskom and South Africa. Eskom is among the top 20 utilities in the world in terms of generation
ESKOM SOUTH AFRICA 11
capacity as well in terms of sales (MarketLine, 2015). It generates more than 40% of electricity
used in Africa. Moreover, South Africa is the only African nation, which is part of the G20 and
the BRICS. Of course, this membership is not due to the size of its GDP or its share of global
trade but mostly a matter of influence and perception. Alden and Schoeman (2013) assert “unlike
any of the other BRICS members, South Africa’s great power claims are almost completely
founded on its perceived ability to act as a regional manager and protector (p.114).
Company Overview
Eskom Holdings SOC Limited was established in 1923 as the Electricity Supply
Commission (ESCOM). Throughout decades, the company underwent structural reforms.
Ranked among the top largest world utilities companies, Eskom is divided into 3 divisions
(generation, transmission and distribution). “In July 2002, it was converted into a public, limited
liability company, wholly owned by government” (Eskom, 2015). The group possesses two
subsidiaries, Rotek Industries SOC Limited and Roshcon SOC Limited.
In a recent past, the parastatal company used to sell and buy energy in neighboring
countries (SADC), but presently, it is a net importer especially from Mozambique and Lesotho.
The company generates 95% of the South African electricity retailing market, which
represent approximately 45% of the African consumption of electricity. “Eskom directly
provides electricity to about 45% of all end-users in South Africa. The other 55% is resold by
redistributors (including municipalities)” (Eskom, 2015).
Eskom is a giant, employing 46,370 people as of September 30, 2014 in its primary
market, South Africa. Group turnover of ZAR139.5 billion ($15bn) in 2014 versus ZAR128.8
billion ($14bn) in 2013 which means an increase of 8.3%. Total Asset of ZAR 504,993m
($40,426m) in 2014 versus ZAR 500,302m ($40,050m) in 2013, which means an approximate
ESKOM SOUTH AFRICA 12
increase of 1%. Revenue growth has been offset by escalating primary energy and operating
costs (Eskom, 2015). Finally, with a net profit of ZAR 7,089 million ($702.5 million) in
FY2014 representing an increase of 36.8% over FY2013, the company is trying to reassure the
markets. However, the ongoing crisis of energy supply combined to the emergency plan which is
draining cash, Eskom is experiencing financial strain. “Eskom has not paid dividends to its
shareholder, the government of South Africa, since 2008 because of its capital expenditure
needs” (Koen, 2012, p.7).
As of 2011, Eskom disposed a net maximum capacity of 41,194 MW of what mining
alone used 14.3% (Koen, 2012, p.3). The company has 27 operational power stations (See
appendix A). Eskom operates the only nuclear station of the African continent, which generates
1,940 MW. But its dependency on coal (over 90%) to generate electricity is a concern to the
private sector (one of the drivers of sustainable economic growth).
Two year ago, major players in the energy supply chain implemented a plan called the
coal roadmap. This plan aims to prepare the country to the depletion of available coal reserve. As
an anticipation to avoid more difficulties for Eskom in particular and the whole country in
general; there is an imperative to rebalance the mix of power supply.
An additional issue linked to the use of coal is the emission of greenhouse gas, which
contributes significantly to global warming. Moreover, coal-fired power plants rely on obsolete
technology and expose Eskom to large mining corporates’ interests. According to Koen (2012),
“In 2011, mining and industry customers paid an average of 36.2c/KWh, while 4.5 million direct
residential customers paid on average 66.4c/KWh” (p.8).
Performing a review of Eskom’s SWOT analysis, the researcher concludes that the
extensive use of coal is a major weakness. “The company's dependence on coal for power
ESKOM SOUTH AFRICA 13
production could have a material impact on the company's margins and profitability”
(MarketLine, 2015). However this not the only weakness; the geographic concentration of
Eskom’s operations in South Africa and the Southern Africa region exposes the company to
contraction of market that emanates from economic down turn, labor strikes or natural disasters.
On the strength side, Eskom has the largest and most diversified customer base of the
electricity industry in South Africa. That is said, this is not the only strength; its power grid
infrastructure even though ageing, constitutes a pledge for future stability and growth. But such a
role is dependent on today’s choices and new policies. “During FY2014, the company generated
231,129 GWh of electricity including 209,483 GWh of coal-fired electricity, 14,106 GWh of
nuclear electricity, 3,621 GWh of gas turbine electricity, 2,881GWh of pumped storage
electricity, 1,036 GWh of hydroelectricity, and 2 GWh of wind energy. In the same period, the
company maintains more than 359,337 km of power lines and substations with a cumulative
capacity of 232,179 MVA” (MarketLine, 2015).
The increasing demand of electricity due to the rapid expansion of the economy under
president Mbeki and the potential of growing significantly the manufacturing industry in the
future constitute an important opportunity for Eskom. Yet, in order to seize the opportunity of a
rising demand of electricity, there are conditions; the increasing power generation capacity is one
of them.
Finally, the major threats are:
- The ageing power plants that may cause unscheduled outages and shutdown most of the
country. “Several unforeseen problems with ageing infrastructure hampered Eskom's
planned maintenance schedule in the summer months of 2012 and early 2013” (Styan,
2013, p12).
ESKOM SOUTH AFRICA 14
- Another threat is the organize crime. No country is insulated against this kind of threat
which is taking multiple forms: cybercrime, terrorism …
In conclusion, Eskom is a giant and a strategic entity operating in a vital industry. It is no
surprise that the parastatal company is the epicenter of political fights and interest. Koen (2012)
outlines Eskom’s role in South Africa, its evolution as a state-owned company, and its current
status as a key player in South African politics (p.3).
Identification and Discussion of Issues
“Ten years ago a white paper warned that electricity demand might exceed supply by
2007. But ministers underestimated the economy's potential for growth” (Russell, 2008).
President Thabo Mbeki acknowledged the mistake, however the ANC interests were somewhere
else (Mr. Mbeki was forced to resign in 2008, September 24).
The crisis root cause is definitely multiform. Despite the official explanation, the research
uncovered few pertinent reasons that have prevented the South African government to elaborate
timely a strategic plan for the expansion of the power generation capacity. According to Robbins
and Coulter (2007), Strategic plans are plans that apply to the entire organization, establish the
organization’s overall goals, and seek to position the organization in terms of its environment
(p.189).
The question now is “what are the root causes of defaulting to plan ahead?”
Why decision-makers at all level of government did not take action?
Root causes of the crisis
Training and skills shortage:
Forecasting is at all standpoints a great help to decision-making. When the South African
government disregarded the request from Eskom, it ministers’ decision was based on biased
ESKOM SOUTH AFRICA 15
information. “Forecasting accuracy enables planners and managers to make better decisions and
improves the effectiveness of the supply chain (increases service level and availability of
products), as well as its efficiency (reduces inventory levels)” (Zotteri, Kalchschmidt, and
Saccani, 2014, p.35).
The following factors influence sensibly the accuracy of the forecasting process:
- The amount and quality of information available in advance,
- How the historical data are collected and structured,
- The quality and expertise (skills) of the employees involved in the forecasting process
The voluntarist policy of affirmative action or black economic empowerment (BEE)
combined to the relatively significant exodus (emigration) of white skilled workers toward
countries like Australia, Canada and the USA have impacted negatively many businesses. “In
BEE deals, political connections often matter more than business skills. Posts are left vacant for
want of qualified black staff” (The economist, 2013).
This deficiency of skills is also perceptible among top managers at ministries and cabinet
level who are most of the time appointed on an acquaintance basis instead of meritocracy.
It is then evident that at the time former Eskom’s leadership (1990s) presented its project
management plan (implemented without involving its sole shareholder, the government), the
assessment of ministries in charge was different. Crosschecking information from diverse
sources is normal process, however, the issue arise when information is misrepresentative of the
reality. Inaccuracy and absence of professional judgment impairs decision-making process.
As the owner of Eskom, the level of engagement of the South African government during
project planning process must be the highest. Such participation enhances the likely outcome.
According to Amirhosseina, Vaughana and Bambang (2015), “Stakeholders ultimately have
ESKOM SOUTH AFRICA 16
strong impact on an organization’s survival, and therefore appropriate management and
involvement of key stakeholders should be an important part of any project management plan”.
Political interference and ethics
“Eskom's current directors and executives are not directly responsible for the power
supply crisis-which stems from years of underinvestment and neglect that is taking time to
correct-but dysfunctional management and political interference have unquestionably
exacerbated the problems and contributed to delays in the construction of new power stations”
(Economist Intelligence Unit, 2015).
It is difficult to mitigate the risk of political interference in a parastatal company.
Evidently, the collusion of interests within the ANC and its allies the union associations
complicate the situation; every single decision becomes a political calculation.
For example, “South Africa enjoyed low electricity prices, the lowest in the world up to
2004” (Mfundisi, 2013, p.3). Indeed, electricity price in South Africa is among the cheapest in
the world. However, Eskom cannot decide unilaterally an increase of the electricity price; the
regulator (a government body) and left wings of ANC would oppose such move.
Ageing electricity infrastructures
“Almost two thirds of Eskom's power stations are past the mid-point of their expected
operating life” (Styan, 2013, p.13). With ageing infrastructure, the company operating cost
increases putting in jeopardy the overall performance of the organization. They therefore require
higher levels of planned maintenance and the required work is more extensive (Styan, 2013,
p.13).
In Sum, this research is going to be axed around the planning issue, the root causes and
the consequences for the South African economy. Additionally, because 90% of the electricity
ESKOM SOUTH AFRICA 17
generated by Eskom comes from coal-fired power plant, this research paper analyzes coal
reserve level and its incidence on both the production of electricity and the South Africa’s
economy; how the South African government is envisaging the future based on current
coal-reserve issues?
The study methodology consists of reviewing academic journals, well-known and
credible newspapers, review of interviews of key players in the electricity supply crisis.
ESKOM SOUTH AFRICA 18
PROJECT SOLUTION
Information and Literature Review
Mbeki under pressure to tackle power shortages
The consequences of the power supply shortage on investment and economic growth in
South Africa are even worse than previously anticipated. Considering the fact that there is an
international standard with regard to reserve margins, it has been revealed that Eskom which
generates 95% of the country’s electricity is a way below the threshold. Indeed, Russell (2008)
says that with Eskom's reserve margins hovering at 4 per cent, against the international
benchmark of 15 per cent, power cuts are predicted for the next five years - jeopardizing
investment, many analysts fear.
Troubles deepen at South African energy supplier
In addition to the operational, financing and investment problem a leadership crisis broke
between Eskom and its sole shareholder the South African government, eroding further
confidence from business circles which view it as a serious distraction. Lapper (2009) states that
the embattled chief executive of Eskom is defying a board order to quit, extending the leadership
crisis at South Africa's giant state electricity company and underlining investor concerns about
the reliability of the country's power supply.
Eskom: the gloom deepens
Indeed, Eskom’s problems are so serious that they have resulted in several resignations,
including the CEO of National Energy Regulator of South Africa (NERSA), which fixes the
price of electricity in South Africa. The persistent power shortage adds up on Eskom’s financial,
obliging the utility company to seek an increase of approximately 25%. The research has
unfolded that “the utility paid ZAR 24.4m to its three senior executives just last year and since
ESKOM SOUTH AFRICA 19
2008 when load-shedding first rocked the country, top executives have walked away with ZAR
62.8m (Weavind, 2015, p.15). Following years of underinvestment, aging infrastructure,
significant maintenance backlog and lack of skills, the situation of the parastatal company is of
legitimate concern.
International positioning of South African electricity prices and commodity differentiated
pricing
In the wake of political change before 1994, the South African government working
toward further normalization, signed an agreement with Eskom for a decrease of approximately
15% in the price of electricity. However this political calculation prevented Eskom to sell at the
market price and collect more income. “With Eskom’s priority centering on providing basic
electricity to the masses and electrification being the primary focus, generational capacity
expansion was shelved”( Thopil & Pouris, 2013, p.1). Somehow, the strategy contributes to plant
the seeds of the current crisis.
However, in order to turnaround the situation Eskom is implementing a differentiated
pricing strategy. According to Kotler and Keller (2007), “Companies often adjust their price to
accommodate differences in customers, products, locations, and so on” (p.232). The idea behind
this strategy is to avoid having all sectors adversely affected by across-the-board increases
(Thopil & Pouris, 2013, p.1).
Power crisis knocks South Africa economy
As a matter of fact, the price of electricity in South Africa which is labelled as the
cheapest among developed economies requires significant increase. The increase of the tariff
should improve Eskom’s ability to finance the current contingency plan and underway projects.
“Eskom is also challenged financially as it faces a R225bn ($19bn) funding gap over the next
ESKOM SOUTH AFRICA 20
five years and struggles to source and pay for the huge quantities of diesel it needs to power gas
turbines that are providing essential support to the creaking system” (England, 2015).
Overview of the South African Coal Value Chain
However, Eskom’s difficulties are sliding into structural category. Approximately 90% of
the electricity produced in South Africa comes from coal-based power stations (See appendix C).
And, the known amount of coal-reserve appears to have been overestimated. Using new
technology, in 2003 a re-assessment have lowered available coal reserve for the entire Southern
African region to 15 billion tones or Giga tones (Gt). In consequence, there is a need to develop
new mines and build indispensable infrastructures for connecting efficiently supply to demand
(markets).
South Africa’s diminishing coal reserves
Certainly, the announced collapse of the local coal industry is going to hurt Eskom and
impede South African economic growth for many years (even decade). Hartnady (2010)
emphasizes “Given South Africa's heavy dependence on coal for power generation and
electricity supply, the economic situation appears to be heading rapidly towards a state of severe
permanent crisis, which will be exacerbated by the anticipated low level of coal production at
peak in 2020 (p.21).
The South African coal roadmap
Owing to that assessment, the major players in the energy supply chain industry in South
Africa (including the government) have implemented a plan named “coal roadmap”. According
to Hall (2013) “it is assumed that provision is made to supply higher grade coal to the older
Central Basin power stations from the Waterberg and thus rail infrastructure is available in the
early-2020s to facilitate transport of coal from the Waterberg to the Central Basin to overcome
ESKOM SOUTH AFRICA 21
some of the shortfalls in local utility supply - and at the same time to provide access to export
markets” (p.3). The coal roadmap is an acknowledgment that South Africa not only needs to
significantly increase the use of nuclear and renewable power plants (in its energy mix) but must
actively create conditions (plan ahead and build infrastructure) to stimulate new investments
from mining companies.
World Bank approves loan for coal-fired power plant in South Africa
Meanwhile, the World Bank has approved an emergency loan of $3bn for the
development of a coal-fired power station by Eskom. The loan has raised opposition of World
Bank shareholders who see the institution move as a setback in the fight against climate change.
But the World Bank defends the loan as a vital assistance to enable South Africa achieving
power security. As a matter of fact, “Eskom has defended the development of the 4,800-
megawatt Medupi plant in the northern Limpopo region, saying it is critical to ease the country's
chronic power shortages as well as to ensure electricity flows to neighboring states” (Reuters,
2010).
Competing discourses of energy development: The implications of the Medupi coal-fired
power plant in South Africa
In order to better apprehend the rationale behind World Bank’s decision it is important to
know that Medupi coal-fired power plant in South Africa when fully operational is going to be
the seventh largest of its kind in the world with investments totaling $17.8 billion (and an
installed generation capacity of 4800 MW). The imperatives of economic growth and energy
security being the let motive of the institution, Rafey and Sovacool (2011) referring to a report
from the World Bank assert that as the South African economy recovers from the global crisis,
ESKOM SOUTH AFRICA 22
without additional generation capacity, electricity supply will become a ‘‘binding constraint’’ to
growth and job creation (p.1144).
The Eskom factor: Power politics and the electricity sector in South Africa
But, it is also important to emphasis that the post-apartheid South Africa is undermined
by rampant corruption from top executives and managers. The government being the owner of
Eskom, tends not to control but limit the independence of Eskom’s executives. Members of
cabinet are even involve in several supplier contracts. “This leads to confusion over
accountabilities and the extent of strong directive influence and control by the state, introduces
the possibility for corruption, ad hoc interference, and most importantly, a lack of accountability
amongst all players” (Koen, 2012, p.13). The missing quality of these managers is integrity.
According to Mintz & Morris (2011), a person of integrity will act out of moral principle (p.2).
Zuma Scandal
Similarly, the recent scandal hurting the sitting president, Jacob Zuma who, is accused of
embezzlement with money from taxpayers, demonstrates the character of the actual leaders.
Indeed,” On August 24th South Africa’s ombudswomen gave President Jacob Zuma a fortnight to
explain why he should not repay some of the $24m of public money lavished on his farm”(Africa
Research Bulletin, 2014, p.20511). Even more scandalous is the attitude and reaction of the
parliament which, is dominated by ANC; Siding to support their leader, their reaction is an
untold threat directed to the public protector.
What Eskom doesn’t tell you?
It is factual that Eskom current rationing of power distribution have caused large mining
companies and other manufacturing to hold investing and hiring. In an attempt to mitigate the
risk of disinvestment, Eskom has entered in agreement (buy-backs) with more than 140
ESKOM SOUTH AFRICA 23
manufacturing to limit their electric consumption. “Simply put, power buy-backs are agreements
whereby Eskom pays certain companies not reduce production” (Styan, 2013, p.14). For
example, Eskom pays a mining company hundreds millions of dollar in order to reduce demand
by around 1, 000 MW. Other companies like BHP Billiton receive a preferential tariffs paying
below cost price for the electricity.
South Africa Power Crisis Paralyzes Investment, Risks Rating
Consequently, manufacturing contribution to the country’s GDP is declining as most
business owners are no longer investing in new projects. Even worse, the country’s sovereign
credit rating has been downgraded. Evidently, the South African economy’s growth could be
higher shouldn’t be this electricity crisis which, is a result of years of underinvestment and lack
of planning. Under these circumstances, a vacuum of leadership on top of the financing and
investment issues is only build on a catastrophic scenario (Vollgraaff 2015).
Megawatt Power Gap in March
For the first time since the birth of the rainbow nation in 1994 the government is rising
tax rate as a signal of some financial difficulties. In fact Eskom and South Africa have seen their
sovereign credit rating being downgraded. Which make it more costly to borrow and finance the
ambitious goal. Indeed, the parastatal company (and its sole shareholder) aims to double its
capacity to about 80,000 megawatts by 2026, requiring investment of more than 1 trillion rand
($80bn) (Lourens, 2011).
The truth behind Eskom's dark lies.
However, the CEO of Eskom, Mr. Matona and the president of South Africa, Jacob Zuma
keeps on playing politics with inaccurate and misleading explanations with regard to the ongoing
load-shedding. Recently the CEO of Eskom insisted that the utility company was "functional"
ESKOM SOUTH AFRICA 24
despite clear evidence that it does not have the skills to face a mounting tally of breakdowns at
power stations (Barron, Weavind & Mahlangu, 2014).
Eskom leaving us in the dark: The extent of its rot.
“One unexpected event could result in Eskom losing control and that it could take up to
two weeks to restart the grid” (Klein & Weavind, 2015, p.20). This citation from the suspended
CEO of Eskom shows the seriousness of the situation. Indeed, power stations are getting off line
successively. Unions are convinced that the whole problem is caused by poor corporate
governance; incompetent top managers who are unable to plan business activities, training and
skills development and organize the company. Furthermore, government interference and
corruption are exacerbating the crisis.
President Zuma on Eskom senior Executives’ suspension
Following the wave of contestation from unions who wishes the suspension and
resignation of all board members (including the immovable chairman), president Jacob Zuma
justifies government’s decision because of severe contradictions between reports from executives
and facts on the ground.
South Africa’s electricity crisis: Rolling power cuts are fraying tempers- Unplugged
The goal assigned (80,000MW) by 2026 is hard to attain. Unfortunately the call for
privatization of Eskom is met with resistance from labor unions. Therefore the South African
government has given the responsibility of fixing the issues encountered by Eskom and two
others parastatal companies to Cyril Ramaphosa the current vice president of South Africa. The
Economist (2015) has written that all three companies will be overseen by Cyril Ramaphosa, the
country’s vice-president, a former trade-union leader turned business mogul, who returned full-
time to politics ahead of the general election in April 2014.
ESKOM SOUTH AFRICA 25
South Africa economy: Quick View - Eskom begins first round of load-shedding
However, based on the progress with both site (Medupi and Kusile) the good news is the
more new units will come on stream in the new power plants, the more it will alleviate the load
on the grid. “Nonetheless, supplies will remain tight-and vulnerable to disruptions-until further
units at Medupi (and Kusile) start producing power in 2016” (Economist Intelligence Unit,
2015).
Can Eskom Fix South Africa's Power Problems?
Furthermore, Mr. Etzinger who is Eskom Spokesman explains that the rolling blackout is
planned and implemented to enable the company performs the indispensable maintenance of the
power grid. According to the executive, extreme rainfalls have disrupted the supply chain of coal
causing one of Eskom’s largest power plant go offline. However, the real problem is the use of
coal which requires specific skills for stocking. In general most of Eskom’s coal-fired power
stations in service are using obsolete technology.
Eskom Equity Injection
“Cabinet approved a package to support a strong and sustainable Eskom to ensure that the
energy security of the country is maintained, as well as supporting GDP growth.”(Africa
Research Bulletin, 2014, p.20513). Effectively, due to the various programs that have been
implemented (pay-back, use of diesel turbines …), the utility company is running out of cash.
South Africa Sticks to Eskom Plan
Thus, in an attempt to fix the financial difficulties of Eskom, the South African
government has decides to recapitalize the parastatal company. It has sold its shares in Vodacom.
The proceeds of ZAR 23bn ($2bn) of the transaction has been injected into the utility company.
The Grand Inga Dam
ESKOM SOUTH AFRICA 26
In the meantime, the construction of the Inga III dam in Democratic Republic of the
Congo (DRC), for which $20bn have been provisioned already by the South African government
following a strategic agreement between South Africa and DRC, is going to increase Eskom
reserve margin. Indeed, South Africa is expected to receive 2,500MW of the 4,800MW to be
generated by Inga III. Definitely, Inga III being part of “the Grand Inga project” (see appendix
D), this partnership is one of the most important for Eskom. As described by Morgan (2013),
“twice the size of the biggest dam in the world, the planned DR Congo-based $80 billion Grand
Inga Dam has the potential to produce enough cheap power to supply 500 million Africans”
(p.74).
In pursuit of Vision 2030: Reforming South Africa’s electricity sector
Therefore, favoring the collaboration with the government of Democratic Republic of the
Congo to increase hydroelectric share into the South African production mix (Mfundisi, 2013,
p.8) might justify further effort from South Africa to stabilize the post war DRC.
South Africa to Turn to Private Investors as the Lights Flicker
Yet, many are convinced that it is too late and the damage is irreversible. For instance,
Laird (2015) asserts that even if the government accelerates legislation to allow private operators
a role in energy generation, analysts believe that rolling blackouts will remain a feature of the
South African landscape. But, such a legislation is a step in the right direction.
Analysis of Key Issues
Due to the history of South Africa, the first post-apartheid government’s program was
centered on reconciliation and social justice. Consequently, new problems surfaced and, the
composition of the South African government was one of them. The difficulty was to find a
ESKOM SOUTH AFRICA 27
balance between former enemies, political adversaries and divergent ideologies like those from
ANC’s left wing and allies (COSATU and the South African communist party).
Decision-makers’ executive experience
However, the accent being put on these two missions led to sacrifice the indispensable
higher level of competence required for cabinet’s members at the wake of very complex changes.
Let enumerate some of the challenges back in 1994: the economy was in recession, the country
depended on coal at 90% to produce energy, the mining industry was an important contributor of
the country’s GDP, the rate of unemployment exceeded 45%, the rate of AIDS infection was
among the highest in the world, and the country had ten enclaves called pejoratively
“Bantustans”.
In short, the task ahead was immense and necessitated professionals. Instead, activists
like the trade unionist Mr. Alexander Erwin (known as Alec Erwin) and the very controversial
Dr. Manto Tshabalala-Msimang (she was convinced that AIDS epidemic can be treated with
alcoholic beverages and vegetables rather than with antiretroviral medicines) have been
appointed ministers.
The crisis of the electricity supply finds its roots during that political transition period of
1994. Nonetheless, today’s load shedding could still be avoided if the second cabinet of former
president Thabo Mbeki made a difference by bringing more ministers like the very competent
Mr. Trevor Manuel (Minister of Finance from 1996 to 2009).
According to Hallerberg and Wehner (2013), a technocratic government is preferred
following important crisis as it is thought to have ministers with narrow technical skills who are
expected to produce better policy than their more political, and more generalist, predecessors
(p.2). Rather than having this approach, former President Mbeki kept Alec Erwin who have been
ESKOM SOUTH AFRICA 28
appointed successively as Deputy Minister of Finance (from 1994 to 1996), Minister of trade and
industries (from 1996 to 2004) then Minister of public enterprises (2004 – 2008).
It is during Mr. Alec Erwin’s tenure of the Minister of Public Enterprises that
recommendations contained in the “White Paper on the Energy Policy of the Republic of South
Africa” were dismissed. Effectively, in 1998, Dr. Penuell Mpapa Maduna who was the Minister
of Minerals and Energy (1996 -1999) published a document (the white paper) in which “the
ministry pointed out quite correctly as it turned out, that if no new capacity was built, the country
would run out of power in 2007” (Grootes, 2014). This “roadmap” enjoyed the participation of
Eskom, the United States of America’s Department of Energy and several other prestigious
institutions.
Indeed, the white paper stipulates: “The maximum demand in 1997 was about 28 330
MW; Eskom’s latest Integrated Electricity Plan forecasts for an assumed demand growth of 4,2%
that Eskom’s present generation capacity surplus will be fully utilized by about 2007”
(Department of Minerals and Energy, 1998, p53). Thus it is disconcerting to learn the attitude of
some ministers in the new cabinet who contested the above assessment on a base that they had
underestimated the economy’s potential for growth (Russell, 2008). Former President Thabo
Mbeki took full responsibility by saying that the government response to Eskom request was “we
said no, but all you will be doing is just to build excess capacity” (Grootes, 2014).
Interpreting technical indicators
In addition, the report submitted by Eskom to the government, like any other report of
this nature, contains sufficient technical details. Let focus for example on the Eskom’s reserve
margin indicator. Assuming the report contains data that can help generate a graph in which the
trend of the reserve margin is monitored for the period comprised between 1994 and 2004 (see
ESKOM SOUTH AFRICA 29
appendix E & F); for sure, the trend will be descendant, which means the demand of electricity is
becoming more important than the electricity supply capacity. Such tendency is confirmed by the
several reports. Indeed, according to Russel (2008), prior to the 2008 rolling blackout, Eskom's
reserve margins was hovering at 4 per cent, against the international benchmark of 15 per cent.
Knowing that in 1994, Eskom had an overcapacity of power generation; it means many decisions
including the one with regard to bring electricity to those who have been excluded from the
distribution system were made regardless of business principles.
The above example, raises more questions because it is evident that key technical and
management indicators have been ignored by top managers and the whole government
(executive and parliament). Legitimately, one may ask for instance, why Eskom and its
shareholder, the South African government has allowed the reserve margin to slide so low.
Ageing infrastructure and brain drain
Digging into several reports has unfolded the fact that ageing infrastructures always
require specific skills to perform the very sensitive maintenance. The South African power grid
is in the same condition. Unfortunately, unlike advance economies, South Africa lacks this
expertise. The main reason for this phenomenon is that there has been an important brain drain of
engineers, technicians, accountants, analysts, planners and other professionals. The shortage of
qualified personnel has, also, negatively impacted, even, the corporate governance.
A report from the South African National Energy Development Institute (2011)
stigmatized the fact that recruitment and retention of skilled labor needed for Eskom’s daily
operations, maintenance and capacity expansion have been identified as a strategic risk (p.103).
Indeed, the scarcity of skilled workers in South Africa makes it harder for the parastatal company
to fill critical positions and, in addition to this, the black economic empowerment requirements
ESKOM SOUTH AFRICA 30
complicate the labor market. Thus, maintenance and management of the ageing power
infrastructure becomes even more complicate.
Still, the inertness of the whole government is inexplicable. For example, why the
parliament of South Africa did not step in and request a change of policies. Such initiative might
have resulted in the implementation of a contingency plan necessary to launch the construction
of new power stations and even recruit internationally professionals capable of performing the
necessary maintenances. Is it a problem of competence or negligence?
Absence of controlling function by the parliament of South Africa
Eskom being one of the strategic company and 100% owned by the South African
government, the parliament has the authority of controlling both actions of Eskom and the
executive branch of the government. Such a role is not political interference. In the United States
of America for example, during the Toyota crisis, which was related to unintended acceleration
of certain model, the congress organized hearings through the House Oversight and Government
Reform Committee and the House Energy and Commerce Committee (February 2010). In the
same way, the Congolese parliament, which is not the best example of good governance have
organized hearings of parastatal’s executives and the Minister of Public Enterprises; the exercise
aimed to control the actions of both entities and avoid chaos.
Implementation of the affirmative Action
Instead of being gradual and adapted to the context of South Africa rather than being a
copy paste, the implementation of the BEE has somewhat exacerbated the problem of scarcity of
skilled workers. However, many, seizing the opportunity presented by the BEE, have benefited
from the law. For example board members and top managers in many large businesses (including
ESKOM SOUTH AFRICA 31
municipalities) lack tracking entrepreneurial record and experience; they are appointed not on a
meritocracy basis but because of their ethnicity or their acquaintance with ANC’s leadership.
Implementation of the coal roadmap
Planning is anticipation; the coal roadmap is an example of planning and the report signal
several potential problems that need to be addressed without delay. But the same lethargy within
the South African government is back again; there is a delay in implementing key provisions of
the coal roadmap that aim to save the local coal industry.
In order to demonstrate how critical the coal roadmap is, the researcher has chosen to
discuss the Medupi project. The over $17 billion (already exceeded the initial project’s cost) is
the seventh largest coal-fired power station in the world and requires a very efficient local coal
industry to secure cheap supply and deliver as expected. Thus, the attitude of the government
defies common sense. Normally, Medupi is going to be operational by 2016 and per the coal
roadmap, the necessary infrastructures to save the coal value chain are needed as early as 2018.
As a reminder, “more than 90% of the country’s electricity, approximately 30% of the liquid
fuel, and approximately 70% of its total energy needs are produced from coal” (Sanedi, 2011
p.III). However, like for Eskom, the coal mining industry is also facing shortage of skilled
workers, geological, engineers, accountants and other professionals.
The problem is becoming so general and within almost every sector of the South African
economy that the South African government can no longer use taxpayers’ money organizing
seminars like the one related to the coal roadmap; it is important to act, the issue of training and
skills development can turn into a structural problem.
Heavy dependence on coal to produce electricity and necessity to rebalance the mix of power
generation
ESKOM SOUTH AFRICA 32
In order to alleviate its heavy dependence on coal, the government has produced the
Integrated Resource Plan 2010 (IRP2010) which layouts that the first new nuclear power station
should come on stream by 2023. The goal is to rebalance the mix of power generation. However,
it takes on average 10 years to complete the construction of a nuclear power plant. And, it is only
in 2015 that the South African government has launched tenders with regard to the building of a
new nuclear power plant. That way, it has deviated from its own plan resulting in more pressure
on the power grid as the economy is recovering from recession.
The construction of the new nuclear power plant should have begun two years ago.
Reasons for the delay, officially, the government has been considering lessons from the
Fukushima disaster; but, South Africa is not in a seismic region. Thus the real problem must be
funds and experienced personnel. Indeed, the upfront cost for a nuclear power plant is so high
that raising money to generate 9,600MW from nuclear energy is a problem especially with
Eskom’s credit rating being downgraded.
Delay for the completion of Medupi power plant
Medupi should be operational three years ago and is now expected to come online by
2016. However, more and more money has been poured into this project. “In 2007, Medupi was
pegged at around ZAR70bn, but a conservative price tag is now around R105bn - excluding the
capitalized borrowing costs” (Weavind, 2015, p.38). On this front, clearly the issue reside in a
dysfunctional partnership between public and private sector undermined by unacceptable lack of
professionalism on the public side. However, labor strikes cannot be ignored as it has worsened
the mismanagement of this project. South African must undergo profound change, strikes are not
good for business.
Corruption in South Africa: possible embezzlement of taxpayers’ money
ESKOM SOUTH AFRICA 33
Corruption is another factor in the power generation crisis. Parastatal companies in
developing world (even China) have the particularity of being exposed to various malpractices.
For instance, in order to retain their positions, many executives tend to allow politics’
interference in daily operation of their companies. The CEO of Eskom, Mr. Matona for example
blamed politicians for the actual load-shedding asserting that Eskom was asked to keep the lights
on for the 2010 World Cup and the elections, when power cuts would have cost votes to the
ANC (Barron, Weavind & Mahlangu, 2014). For that reason, Eskom postponed critical
maintenance of power stations and the current load shedding is the immediate consequence of
this past decision. In retaliation for this declaration, few months later the powerful and
immovable chairman of Eskom’s board has suspended Eskom’s executives. Lein and Weavind
(2015) state, “on 12 March, Eskom chairman Zola Tsotsi iced four top executives, the reason
being that he wanted to independently examine the current status of the business and its
challenges”(p.20).
Despite President Jacob Zuma’s explanation, the decision not only raises more questions
because Eskom’s chairman should also be suspended but it is a confirmation of the human
deficiency being the root cause of the chaos; flagrant and unequivocal lack of competence
combined to probable corruption. Effectively, the “National Union of Mineworkers (NUM) has,
on more than one occasion, alleged corruption at Eskom and Mammburu said Tsotsi was aware
of the issues raised” (Klein & Weavind, 2015, p.20).
Grootes (2014) explains “We, in South Africa of today, simply have no idea how to leave
the politics and easy money making schemes behind and deal with this massive problem that
threatens to seriously weaken the economy and leave the population exposed to populist politics
to an even greater degree”.
ESKOM SOUTH AFRICA 34
Importing electricity from Democratic Republic of the Congo and risk of losing electricity
independence.
The analysis cannot be concluded without discussing the decision by the South African
government to import electricity from Democratic Republic of the Congo (DRC). Besides being
one of the most corrupted and dysfunctional nation on earth, The DRC has the particularity of
not abiding by the rule of law. Since 1960, the country is replacing its top leaders through crimes
or military coup. Like now, the president wants to amend the constitution and maintain himself
in power knowing that it is opening another cycle of political instability. Even in China, a
communist country with one party there is political changes which, is necessary for transparency
and reinforces confidence of investors. Trusting such partner on a so strategic sector like power
generation is dragging itself in trouble waters. Clearly, the risk is too high and too much is at
stake here. The only way for the South African government to ensure that the signed agreement
is to increase its influence within the SADC.
Recommendations and Conclusion
The vast array of issues uncovered and discussed above enable the researcher to better
assess the seriousness of the power supply crisis in South Africa. None of the problem can be
solved in the short term. There is a real need of policy change in order for the country to come-
out stronger from this crisis.
In substance, many reports, plans and interim plan exists. For example, the IRP 2010 is
a revolution by itself, however, lack of political will and indispensable expertise complicate its
implementation.
The research proves a need to build new power stations in order to for Eskom to fulfil its
obligations. However, the goal of doubling the actual power generation capacity by 2026 is
ESKOM SOUTH AFRICA 35
unrealistic and technically unattainable. Firstly, because stakeholders being investors expect
projects to have a certain level of return on investment (ROI). Raising funds is not easy; too
many parameters are to be considered. Secondly, the South African economy is not expected to
grow fast enough in years to come to justify such a level of investment. In fact, an already weak
economy recovering from the first post-apartheid recession, the ongoing power supply crisis
which has forced businesses to reduce their consumption of electricity, and a labor strikes in the
platinum that have paralyzed the whole industry for months, are sufficient reasons to view the
government’s announcement as a politic to appease its base. Lies are sins and unethical.
Elaborate realistic and attainable goals
Consequently, instead of “planning” to double Eskom’s generation capacity, the
government must build new power stations as needed. In other world, referring for instance to
the world’s benchmark of 15% reserve margin, Eskom and its shareholder can use this indicator
among others to avoid building overcapacity (like in the 1970s) or running out of reserve margin
like in the ongoing crisis.
On top of existing training and skills development programs, policy change is required at
government level
The scarcity of engineers, geologists, metallurgists and other professionals is penalizing
strategic sectors of the economy like the mining industry as a whole and the coal mining industry
in particular. “It has been suggested that the “scarce skills” shortage in coal mining was 879
individuals in 2009, representing 2.8% of employment” (Sanedi, 2011, p.103). However, due to
the heavy dependence of South Africa on coal to produce electricity, the problem must be fixed
at parliament level. Many policies have to be reviewed to enable recruiting in the global market.
ESKOM SOUTH AFRICA 36
The deficiency of experienced workforce is also noticeable at all levels of Eskom. As a
matter of fact, the recent unplanned outage of electricity is not only caused by lack of new power
plants but also an incredibly important maintenance backlog, which is the result of the
insufficiency of skilled personnel. Effectively, the power stations that went successively off line
caused a 15% shortage of electricity. There is a desperate need of experienced technicians and a
skilled workforce. Even though, South Africa has a world-class higher-education system, there is
a mismatch between the needs of industries and, the capabilities of graduates in certain fields.
Review of the Affirmative Action law
Therefore, it is evident that existing training and skills development programs are not
enough. The best call for South African government is to review the “black economic
empowerment” policy. It is necessary to close loopholes that exist within the law and freeze
provisions of significant incidence on brain drain phenomenon.
Although the idea of social justice behind the Affirmative Action law is admirable its
application has become hazardous. Politics use the law to take over direction of large businesses
(like Eskom) that have big potential of growth, strategic importance and provide significant
bonuses to executives. The practice aims also to appoint persons close to ANC circles, regardless
of whether or not the candidates are qualified for the job. Abandoning the culture of meritocracy
(even at municipalities’ level) put in jeopardy corporate governance and exacerbates the
emigration of experienced and well-educated workforce.
The culture of meritocracy is important not only, for a better managerial performance but
also, for an appeased climate inside the organization; it is the next step to virtue ethics.
According to Jaramillo, Bande and Varela (2015) “virtue ethics postulates that the virtuous
ESKOM SOUTH AFRICA 37
organization develops practices for excellence in the production of products and services while
holding a genuine concern for the common good of the community” (p.110).
Review the role of the National Energy Regulator of South Africa (NERSA)
Pertaining to the price of electricity in South Africa, deregulation is to be considered as it
should enable forces of market to help determine the real price of electricity. Considering the gap
between rich and poor, some intervention of government will still be justified, thus, instead of
having a rigid structure that authorizes or fixes the price, it can be replaced by a structure that
protect consumers from being abused.
Rebalancing the mix of power generation
Likewise, the research shows that rebalancing the mix of power generation is also about
country’s energy supply’s security. The more independent a nation is when it comes to energy,
the better insulated it is from international conflicts, manipulations and speculations. Thus,
building new nuclear stations like in France should be a priority. It takes at least 10 years for a
nuclear station to become fully operational, hence the need to initiate the project in a very near
future.
Many see nuclear station as being very dangerous. However, it is not the case. Opponents
to nuclear technology most of the time focuses on risk of radioactivity and treatment of waste.
The perception of the risk associated to this power generation means make it difficult to raise
funds necessary to construct new nuclear plants. Though it is true that the kWh of electricity
from nuclear power plants is more expensive than the one from coal-fired plants, the technology
in use at nuclear power stations is the cleanest of both. It helps mitigate the emission of
greenhouse gas. EDF for instance (Electricity of France), the world largest producer of
electricity, generates 85% of its electricity from nuclear (see appendix F). “EDF SA owns and
ESKOM SOUTH AFRICA 38
operates in France the largest nuclear fleet in the world, built by the Group as architect-engineer;
the nuclear fleet includes 58 reactors with three different power levels (900MWe, 1300MWe and
1450MWe)” (Maillart, 2014, p.6). Of course, EDF possesses an important number of highly
qualified engineers and other experienced personnel capable of operating, maintaining and
managing its technologically advanced facilities. Still, many lessons can be learnt from the
France experience. Notably, the strategy of recruiting, training and retaining its personnel, the
research and development unit and the management of its diversified portfolio of power plants
spread out not only in France but also around the world.
Restructuring of Eskom South Africa
Finally, restructuring of Eskom is a better option. Considering the strategic importance of
power generation, Eskom may retain only this “métier” and sell the distribution network to
private companies. The private companies are going to be then responsible for the administration
and maintenance of the transportation infrastructure. Technically two types of distribution
system exists, the high and very high voltage distribution system that might be sold to one
private entity and the low and medium distribution system that could be sold to a different
private organization. This dismantlement is for the great of good because it has the virtue of
opening the distribution system to more competition, less regulation and improve the quality of
service to end users (residential and various industries). That’s why allowing private owners to
sell into Eskom power grid is already a good start. Ultimately, municipalities should no longer
buy energy and resell it as they are bad payers and own important debt of Eskom.
Besides being an operation to improve the quality of services that are rendered to end
users, restructuring Eskom enable to raise the funds necessary to finance the plan of building
new power plants (renewable and nuclear) and train personnel. The virtue of this restructuring is
ESKOM SOUTH AFRICA 39
also to diminish sensibly government interference and risk of poor management. Ultimately the
South African government should no longer be the only shareholder of Eskom; the partnership
between Air France and KLM is inspiring.
In conclusion, root causes that have been uncovered and analyzed throughout this
research demonstrate the importance of having the right managers, right employees and well-
elaborated policies. The more the research went on, the more it has become clear that ethics
values, sense of abnegation, skills, leadership and corporate governance are the missing
components, which have led to planning failure and the current power supply crisis. Top
managers and executives should embody servant leadership philosophy. “While traditional
leadership generally involves the accumulation and exercise of power by one at the “top of the
pyramid,” servant leadership is different” (Greenleaf, n.d.). Servant-leaders empower others and
seek emergence of new leaders who are public servants. Indeed, “Servant leaders exemplify
virtue ethics management, which is deemed ‘absolutely essential to the long-term competitive
success of the firm’ (Jaramillo, Bande & Varela, 2015, p.110).
The South African government responsibility in this crisis is evident. Instead of blaming
others for their mistakes, the current cabinet should recognize its deficiency and implement
realistic corrective action. There are too many plans and interim plans, meaning, a waste of
taxpayers’ money and a waste of time. Being focus enable to resolve the key problem in an
efficient way. The incidence of the culture at the top on the whole organization is so important
that it is crucial to appoint ethical executives and thus, have servant leaders at both Eskom and
government level. Competent managers know how and when to plan, organize, lead and control.
The research and analysis has proven that from all the way to the top, servant leadership
philosophy can make a difference. “Servant leadership differentiates from other leadership styles
ESKOM SOUTH AFRICA 40
on two critical aspects: ‘the prioritization of subordinates’ and ‘ethical behavior’” (Jaramillo,
Bande & Varela, 2015, p.108).
In light of the above elements, failure to plan ahead back in the 2000s is then a logical
consequence of not only the apartheid legacy but more importantly a combination of wrong
assessment and inadequate policies. The truth hidden from the public is pretty much
embarrassing to say but put simply, some ministers were incompetent and the ANC was still
learning what it takes to be State men and State women. In other words, South Africa has a
deficiency of the most important factor for its ambition, a well-educated and skilled workforce.
The above recommendations can contribute the efforts that are deployed in order to turnaround
Eskom and solve the power supply crisis.
ESKOM SOUTH AFRICA 41
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ESKOM SOUTH AFRICA 48
APPENDICES
Appendix A
ESKOM SOUTH AFRICA 49
Appendix B
Appendix C
ESKOM SOUTH AFRICA 50
Appendix D
Southern Africa power grid interconnectivity
ESKOM SOUTH AFRICA 51
Appendix E
South African Reserve margins trends (1999-2015)
Comments: The collateral effect of the global economic downturn in 2008 led to the first South
African post-apartheid economic recession (2009) resulting in slowing electricity consumption
and consequently offering some relief to the electric network. Following the weak recovery of
the South African economy, the reserve margin is diminishing again. In 2015, the rolling black
out is back caused by several power stations being off line (due to maintenance backlog) and
delay in construction of new of new power plants.
ESKOM SOUTH AFRICA 52
Appendix F
ESKOM SOUTH AFRICA 53
Appendix G
Map of French nuclear power plants