Eskom is the best MBA case study to learn from. The energy utility has, over the years, defied all odds in the classical, general management plus executive leadership best practices case study.
When studying the history of Eskom as a company, it is fascinating to see the levels of achievement the organisation has undertaken. Eskom is a 101-year-old company that has had massive successes and challenges over the years.
The company was born on March 1, 1923, as the Electricity Supply Commission. It was then when the Transvaal government realised the strategic significance of electricity in growing the economy that the government decided to pass the Power Act.
The legislation defined electricity as a public service and gave the government the power to expropriate all private electricity companies in South Africa after 35 years.
All the private power companies were expropriated to achieve the goal and the objective of building a single state-owned power company.
Let’s put it into context. In around 1923, a South African government, which was a white government under the rule of white South Africans, decided to create a national power utility company and expropriated all privately owned power companies in the region.
This was not a black government as it is always made to seem that only a left-leaning socialist or communist government would push for nationalisation policies. The Transvaal government was not a communist government yet it decided to take the nationalisation route because it suited it national interest and the need to grow the economy through electricity.
This is why Eskom remains, to this day, such a fascinating company to study. It is full of incredible historical lessons and future insights on what it takes to build a successful utility company. That is guided and driven by the need to fulfil legislation.
However, up to recently, Eskom, as a public company, was thrown into unknown territory and suffered heavy losses due to management negligence and incompetence on the part of those who led the organisation.
Eskom has experienced huge successes and major setbacks and, at some point, nearly collapsed as a company because of bad leadership.
The current leadership, headed by Nyati Mteto, Dan Marokane and Bheki Nxumalo, have been remarkable and, together, have turned Eskom around. They are achieving this while working hard to correct the management mistakes of their predecessors’ leadership. Their core focus strategy, premised around the Generation Recovery Strategy, is yielding results.
Here we are in a harsh cold winter, enjoying 80 days of no load shedding because of the fact that Eskom power plants have been performing phenomenally well. Eskom is performing at 64% Energy Availability Factor (EAF) rate. Management is driving an aggressive generation-recovery strategy.
If you recall, only a few months ago, everyone said Eskom was broken and could never be fixed. That it must be broken down and sold off to the private sector. I guess they were all wrong in their assumptions.
Eskom has been fixed and is gradually recovering. The remarkable achievement came as a result of an actively involved board of directors and management who regularly engage in the company’s activities.
The turn-around started when Eskom brought in Mpho Makwana and his board. And when he left the company, the new board chairperson, last year around March 2023, pushed for the board to adopt a turnaround strategy called the Generation Recovery Plan. It is yielding amazing results.
On May 24, 2023, BBC News published an article by Andrew Harding, “South Africa load-shedding: The roots of Eskom’s power problem”.
“South Africa is heading into the southern hemisphere winter with the prospect of the country’s worst-ever power cuts – up to 16 hours a day. The roots of the problem lie in poor management, corruption and sabotage.
“The (load shedding) – as it is known, euphemistically, here – is set to get worse over the winter months. There are warnings that the entire grid might even collapse … It is the inevitable result of the chaos inside Eskom, as its fleet of mostly ageing power stations is hit by maintenance problems, sabotage, and corruption, ” the article said.
What is interesting is that nearly every analysis on Eskom’s problems kept pointing fingers at Eskom’s ageing power plants.
But today’s fleet performance dismisses all the allegations laid at Eskom’s door for ageing power stations. The notion that a power plant has reached an end of plant life and has aged has been proven wrong. Eskom is performing at 64% EAF and improving its plant availability and reducing its Unplanned Capacity Loss Factor to around 12 500MW on average. At the same time, it is curbing its use of diesel while returning more plants to operation.
The former Eskom CEO, André de Ruyter, said South Africa’s abundant wind and solar potential could “solve energy security in the shortest time”.
De Ruyter was proven wrong in many ways by the current leadership of Eskom’s Nyati and Marokane who simply focused on fixing broken power plants.
Renewable energy technology has limitations and does not have the equivalent capacity to match baseload coal fleet capacity. That is the reason why load shedding became worse during De Ruyter’s tenure. He could not have been able to solve the load shedding energy crisis by relying on renewable energy solutions. It was and is not possible today.
South Africa has procured seven bid windows of renewable energy independent power producers, with Bid Window 7 procuring 5 000MW of renewable energy projects.
Labour unions and civil society organisations have saved the government of the ANC when they openly opposed the rushed adoption of the Just Energy Transition (Jet) policy, which nearly crushed the economy of South Africa.
William Mabapa, the secretary general of the National Union of Mineworkers, said: “But there are many obstacles facing that transition. For a start, workers and unions here (SA) are concerned that there will be significant job losses. South Africa is going to lose jobs in the coal sector but not gain them in renewables. We are not going to be dictated to. You (in the West) are wasting your time. We are a country that must do things at our own pace.”
He condemned Western nations, calling them “hypocrites” for pushing South Africa to embrace Jet while Europe is importing vast amounts of South African coal.
The failed Komati transition projects have proved the point that Jet cannot be rushed and implemented willy-nilly while ignoring the important economic and structural issues facing communities undergoing transition.
De Ruyter did not stop at that. In an eNCA interview, soon after his poisoning, he accused the ANC of deliberately blocking the move towards renewables.
He said the ANC used Eskom like “a feeding trough” and that powerful politicians were blocking his attempts to tackle corruption.
Now that I have painted this picture of the energy crisis and challenges Eskom faced during the height of load shedding, you can clearly see that the problems of load shedding emanated from a collapse in board and executive management in the company.
Had the board, at the time led by Professor Malegapuru Makgoba, been actively involved in driving the generation recovery strategy at Eskom, many of the issues related to breakdowns and failure in plant performance could have been tackled and resolved properly.
But Eskom did not have a properly constituted board at the time and its executive leadership was unable to perform according to expectation, load shedding became worse and power cuts were a frequent feature, with power cuts during 2023 tipping the scale with 335 days of load shedding.
Eskom was unable to cope and function properly, given the fact that the CEO was doing as he wished while failing to focus on key fundamentals of running a utility company. He was not accountable to anyone; the board was almost non-existent at the end of the day. Eskom was in pilot mode.
* In a future opinion I will do a deep dive into the key strategy that turned-around Eskom. The Generation Recovery Plan.
Crown Prince Adil Nchabeleng is president of Transform RSA and an independent energy expert.
* The views in this column are independent of “Business Report” and Independent Media.
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