The other side of ANC vs Khoza and the convenience of institutional amnesia

In his annual report to the company’s shareholders, Nedbank chairman Reuel Khoza slammed the political leadership of the ANC. He characterised the leaders of the ANC as a danger to South Africa’s democracy.
Khoza wrote: “Our political leadership's moral quotient is degenerating and we are fast losing the checks and balances that are necessary to prevent a recurrence of the past. We have a duty to build and develop this nation and to call to book the putative leaders who, due to sheer incapacity to deal with the complexity of 21st century governance and leadership, cannot lead.”

"South Africa is widely recognised for its liberal and enlightened Constitution, yet we observe the emergence of a strange breed of leaders who are determined to undermine the rule of law and override the Constitution," Khoza said.

The Nedbank chairman was apparently responding to reports that the ANC was seeking to conduct a review of Constitutional Court decisions. The news was greeted with a great deal of alarm from the media and opposition parties. It later turned out that the formulation of the judicial review and its terms of reference were relatively innocuous.

At the end of the press conference held by the ANC’s national officials on 3 March, ANC secretary-general Gwede Mantashe was asked to respond to the comments made by Khoza. He retorted by making it clear that he thought the Nedbank chairman was a bad businessman, and more. Much more.

“I would be very worried if the business community begins to think that it has a monopoly of understanding political leadership,” Mantashe said. “Reuel Khoza is the chairperson of Nedbank. He was given a task by Old Mutual a few years ago to find a buyer for it. He has not found that buyer. That is the challenge of business leadership who can't do what they are told to do.” Old Mutual is a major shareholder of Nedbank.

But now, according to Mantashe, Khoza was talking about political leadership to deflect attention from his own failings. Mantashe mocked Khoza’s record at Nedbank, strongly suggesting that he had failed his shareholders by failing to find a buyer for the bank. On Monday, cabinet spokesman Jimmy Manyi also climbed into the chairman, insinuating that his comments weren’t supported by the bank or Old Mutual.

Mantashe was referring in part to a failed takeover of Nedbank by HSBC. In 2010, the British bank suddenly announced  it was pulling out of a 70% buyout deal. Nedbank’s executives were rather annoyed and clearly caught off-guard by the move.

Even though Mantashe’s put-down was quite strong, he held his tongue about Khoza’s other big blight. Khoza was the chairman of Eskom Holdings Limited from 1997 to 2005, at the time when it underwent a major corporate and power-generation restructure, which was done clumsily, to say the least, and eventually culminated in the load-shedding period in 2008. Eskom’s tardiness in building new power stations in keeping with South Africa’s economic growth in the 1990s and 2000s has also resulted in its continued power supply problems.

In the restructure, Eskom was changed from being a statutory body to a private company, of which South Africans remained a majority shareholder. The company, at the time considered one of the more lucrative in the world, traded shares in New York and Johannesburg.

Khoza was appointed to the Eskom board by the ruling party in the first place. He left Eskom in 2005. A lot of problems suddenly surfaced after he had left, but the root causes began in the 90s when the utility supplier was warned that it would run into serious trouble if it didn’t immediately scale up its supply capabilities. The focus of Eskom’s leadership at the time, and its main shareholder, was on transformation. Unfortunately, it happened at the expense of Eskom’s main reason to exist: keeping South Africa supplied with electricity.

The effects of this shift in focus were devastating and massively expensive. Over the last decade, Eskom has suffered a number of explosions at power stations. In 2005, the Duvha power station in Mpumalanga was taken off the grid for a few months after an explosion rocked the station. The same thing happened again in 2011.

In May 2010, a sulphur gas leak and explosion at the Lethabo power station in Vereeniging led to the deaths of one person and the injury of a further 18 people.

Large sections of the Western Cape were put on a load-shedding schedule in 2005 after a series of mishaps rocked the Koeberg nuclear power station in the Western Cape, leading it to be taken off the grid for the repairs. The incidents at Koeberg were so numerous that the erstwhile public enterprises minister, Alec Erwin, simply dispensed with sensible explanations altogether, choosing rather to blame a loose bolt in the 1 Reactor at Koeberg which had caused large damage on unspecified saboteurs.

“It is sabotage... Sabotage is everywhere... We need to be very clear that the bolt in the generator was not an accident,” Erwin said. He was roundly derided for his comment. This is the same company that Khoza was chairman of from March 1997 until August 2005.

Still, in the interest of fairness, we should not underestimate the amount of pressure that Eskom was under from the government of the day to implement a price reduction in electricity, said Chris Yelland, the managing director of EE Publishers (the company publishes various energy sector journals).

According to Yelland, Eskom underwent a significant change of heart under the leadership of CEO Ian McRae, whom Khoza inherited from his predecessor John Maree. Under the apartheid government, Eskom operated on the assumption that the government should be kept out of the power stations. However, McRae began a programme called Electricity for All which would eventually translate into one of the central tenets of the Reconstruction and Development Programme, which Khoza would pursue aggressively.

“Under Reuel Khoza, Eskom understood that it needed to take directives from the main shareholder, and implement Africanisation and training,” Yelland said. “In my view, Khoza was an Africanist of the Thabo Mbeki era. He believed that Eskom was an agent of government policy. But you must remember that these changes started long before Khoza came to Eskom.”

During the apartheid era, the power utility company built up a great deal of capacity on the assumption that the country would grow at a certain rate. It didn’t, thanks to apartheid sanctions. Maree was brought on board to trim the fat, so to speak. So when Khoza took over, he had on his hands a company with more capacity than it knew what to do with. The company was given a strong mandate by the government – it had to reduce the electricity price every year in real terms in what was dubbed a “social dividend”.

“At the time there was very effective PR spin from Eskom, which said that the price reduction was because it was so well run and had such great management, but in truth it was achieved by cutting jobs and slashing capital reserves and all future investments,” Yelland said.

“At that time they built zero new power stations. In a way, this [agreement between the government and Eskom] set up a situation in future in which the surplus would inevitably come to an end and the electricity price would rise and we would experience shortages in power supply.”

Yelland believes that, though Eskom was under tremendous pressure from the government to implement certain policies, the leaders of Eskom should have seen the crisis coming and done something about it. Instead, they chose to make it someone else’s problem.

“A good leader who could understand the danger of not investing in capital and capacity would have seen that the benefits then would be paid for in the future. That is exactly what is happening now,” Yelland said.
Khoza’s moralising is being taken at face value in the media simply because it isn’t wrong (and he’s got an impressive job title). The problem is the Nedbank chairman was once a part of the problem of which he now condemns. He may not have contributed directly to the Eskom malaise, and in a sense some of the policies that the utility company implemented may not have been his fault (the transformation-at-all-costs idea belongs to the Nelson Mandela and Mbeki administrations), but he certainly cannot act as if he was outside the system that created a “strange breed of leaders”. DM

Read more:

• Hey Eskom, remember 2008 in Daily Maverick.


• Power failures a “national emergency” in Mail & Guardian.

Photo: Khoza was the chairman of Eskom Holdings Limited from 1997 to 2005, at the time when it underwent a major corporate and power-generation restructure, and eventually culminated in the load-shedding period in 2008. REUTERS.