The CEO of Eskom Tshediso Matona and three other executives of Eskom have been ‘suspended’ to allow for an external investigation of the parastatal. This news comes at a most difficult time for an important company in crisis and will not in our view highlight any information that the government does not know already. Loadshedding continues intermittently with its impact evident in mining and manufacturing data out today.
This news adds further negativity to the Eskom bond story and sovereign credit, though local rates and the currency are unlikely to be affected.
(READ MORE: Eskom pulls the plug on CEO & top brass)
The board of Eskom has set up an independent, external inquiry to assess: 1) the poor performance of the generation plant, 2) delays in bringing the new generation plant onstream, 3) high costs of primary energy and 4) cash flow challenges. The inquiry is set to last around three months. The chairman of the board of Eskom has said there is no suspected wrongdoing, but the executives have been suspended to allow ‘transparency’ and full access for the inquiry. The inquiry has government backing.
We do not believe an inquiry is necessary. We think it does not indicate that a crisis is being sorted out or dealt with, but the exact opposite – it is an unnecessary distraction at a time when Eskom needs decisive, stable and strong leadership. The cabinet ‘war room’ on Eskom, the National Treasury, Department for Public Enterprises and unions are aware of all the technical details of the four issues above and the policy options to correct them. The problems at Eskom have been building with policy choices made since 1994 or more specifically since underinvestment started from around 2001. While there have been technical questions on some of the choices made with delivering Medupi in the last six months, since ‘new’ CEO Matona has arrived these pale into insignificance vs the backlog of issues.
Even if an inquiry is needed it is unclear why senior leadership has to be removed. We think it suggests they would obstruct something if they were to remain in place.
Instead, we believe there are complex political currents at work involving COSATU (tripartite) aligned unions that have been increasingly unhappy at the leadership of Mr Matona and also his criticisms of previous government action with respect to the parastatal. Indeed, we think it was odd that the unions were made aware of the announcement this morning before the media or any internal announcement was made.
In addition, there are a whole host of parastatals and government agencies that do not have permanent CEOs in place. Eskom is now basically taking a three-month gap of leadership in which time difficult decisions are unlikely to be made.
We think it is highly unlikely that the inquiry will throw up any policy suggestions about the entity restructuring of Eskom (splitting out generation, setting up an independent electricity buyer). After the ANC’s recent lekgotla ruling out any such move we think those policies are firmly off the table.
Overall, we still do not believe the government fully understands the crisis that is occurring on energy security – as evidenced by the delays in providing an equity injection and this morning’s announcement. Indeed, the recent synchronisation of Medupi to the energy grid, while only providing a tiny amount of electricity – and not averting loadshedding incidents since – is still what we think the government is clinging to, to prevent more difficult decisions being taken.
*Peter Attard Montalto is an economist at Nomura International