Eskom, the biggest threat to SA’s economy, gets an acting leader

Public Enterprises Minister Pravin Gordhan said on Monday 29 July that the crucial role of CEO at Eskom will be filled on an acting basis by Jabu Mabuza, the former CEO of Tsogo Sun Holdings. The Eskom board will now embark on a three-month search to find a permanent CEO. Mabuza has been chairman and will be executive chairman on an interim basis.

The CEO position is a job few people would relish. Eskom, as Business Maverick reported last week, is set to post a record R25-billion net loss, and its woes are the main reason why South Africa’s descent into junk status may soon be complete, with widespread expectations that Moody’s will in the near future pull the trigger.

Finance Minister Tito Mboweni – who also holds an unenviable job – said last week the state might have to boost borrowing to fund an extra R59-billion in support for Eskom over the next two years. This comes on top of a bailout of R230-billion over the next 10 years.

S&P and Fitch have already consigned South Africa’s credit rating to junk. And Fitch last week downgraded its outlook on the country to negative, citing, among other red flags, “increased spending, including state-owned enterprise (SOE) support”. Meanwhile, Moody’s last week said additional government support for Eskom was a “credit negative.”

Analysts are not impressed with the latest move.

“Eskom should not have a joint CEO and chairman, the governance challenges and required oversights are too great – especially if this drags on. This is not a sustainable solution even in the short run,” Peter Attard Montalto, the head of capital markets research at Intellidex, told Business Maverick.

“Eskom requires a doer who can take tough politically challenging decisions. Mabuza is too caught up in the maelstrom of ANC SOE politics – this will just reinforce the status quo and I think creditors have quickly realised this after the appointment.”

The stakes could hardly be higher. Wage increases well above inflation, which the utility could ill afford in the face of union militancy in 2018, have been cited as a key reason for its mounting losses.

Meanwhile, the utility is struggling to keep the lights burning. Load shedding was the main factor behind the sharp economic contraction in the first quarter, which feeds a vicious cycle, as slower growth constrains the government’s ability to raise revenue and service debt, making further ratings downgrades almost inevitable, which in turn raise the cost of borrowing.

Too many ailing SOEs have had rotating “acting” chief executives for far too long. Eskom needs a CEO who can actually deliver and act, not another acting one.BM