Why Eskom CEO Phakamani Hadebe resigned

Late on Friday 24 May 2019, Phakamani Hadebe resigned as chief executive of Eskom, effective 31 July 2019. Hadebe is a well-respected, hardworking and likeable South Africa executive who successfully turned around the Land Bank and did a sterling job running the National Treasury’s Asset and Liabilities division from 2003 to 2008. His appointment to Eskom in January 2018 was very positively received by most relevant stakeholders, including the financial markets.

Yet the intervening 17 months revealed that Hadebe was not the right man for the job. I would divide the reasons for this into two broad categories.

The first is well beyond his control. The dysfunctionality of South African politics meant that Hadebe was not able to implement the changes needed to stabilise the utility’s finances. The first test was wage negotiations in May 2018. Hadebe had tabled a plan to control expenses without cutting jobs by keeping wages flat in 2018. He was prepared to stand by this proposal, even when he was physically threatened by employees.

When the unions revolted, both President Ramaphosa and Minister of Public Enterprises Pravin Gordhan quickly blinked. The result was an unaffordable 7.5% wage increase. A similar story played out when the utility attempted to prosecute union members who had sabotaged plants during the strike.

The second reason is that Hadebe’s skills set was not sufficient for the problem. A year ago, the diagnosis of Eskom’s problems boiled down to “Eskom has two major problems. Its operating costs are too high and it can’t pay its debt.”

If Eskom’s problems had been mainly financial, Hadebe had an excellent and suitable track record. He was part of the team that stabilised South Africa’s finances through the late 1990s. Though many forget, the country was facing the real risk of a debt trap (when you need to borrow to make interest payments) in 1994. He turned around the ailing Land Bank. Unfortunately, a few dire bouts of load shedding later, we realised that there were deep operational problems at Eskom as well.

Aside from a few Band-Aids, the previous CEO, Brian Molefe, did not resolve the maintenance backlog. Eskom has been under-investing in its ageing power generation fleet for years. Theoretically, it has 42GW of generating capacity. In March, it was able to produce only about 28GW for much of the month.

Money that should have been earmarked to perform mid-life refurbishments of plants and capital expenditure into tied coal mines was diverted to other causes – such as the Guptas’ now bankrupt Tegeta. Historically, Eskom has enjoyed the benefits of cheap coal due to long-term cost-plus contracts from the miners. These contracts require the utility to pay for capital expenditure. This has not happened.

In addition, the new, vastly expensive Medupi power station is not able to produce more than 60% of the 4.7GW it was designed to produce. The estimates for Kusile’s actual production capacity are below 20% of its nameplate capacity.

Spare a thought for Hadebe. He did not cause the problems at Eskom. By all accounts, he did not even want the job, but was pressured to take it because a respected CEO was needed.

In the 17 months he has been there, he has made a valiant attempt to solve the problems – putting his life at risk, first from unhappy workers and suppliers, and secondly from the stress that resulted in ambulances being called to Eskom on two occasions. There are not many leaders who would put their duty before health and life. Whoever takes over from him at Eskom needs operational experience at an electricity utility, and preferably at Eskom. However, they also need the unequivocal support of the ANC and the president. If that is not possible, there is no reason for any good person to take that job. DM