Fat Cats Take the Cream

A bit of competition when it comes down to anything is admittedly healthy. It gives children a chance to better themselves at a school sports day, makes reality TV show viewing a bit more entertaining (especially when there’s hair-pulling involved) and more importantly it helps to keep companies in check when it comes to benchmarking prices. In the absence of such competition, companies can effectively make the rules and charge whatever they like. Unfortunately, when your electricty provider is a nationalised mega-player, such as Eskom, this can be a little problematic.

To put South Africa’s power situation into more of a perspective, there are currently 18 power suppliers in the UK, a country whose land mass (area) can fit five times into that of South Africa’s. Eskom is currently the only major supplier of electrical power in the country and they have power consumers by the balls, figuratively speaking. This includes your everyday Joe such as me.

According to the company’s website, they are listed as a “public limited liability (plc), wholly owned by the government”. Whilst I do not claim to understand the finer details and the ins and outs of limited liability companies, this surely makes Eskom a nationalised entity? I stand to be corrected on this front.

Eskom was established in 1923 and the post-apartheid government attempted to unsuccessfully privatise the company in the late 1990s. In the process they denied the company its budget requests to build new power stations and infrastructure. Eskom had apparently warned the government at the time and also in subsequent years that without large-scale investment, South Africa’s electricity demand would outstrip supply by 2007 – a warning which went unheeded.

As a kid, I was used to the occasional power blackouts in the Middle East and even more so when visiting my mum’s family in South America. Nothing lodges in the memory quite like the act of trying to wipe your bum in the dark. When I visited South Africa in 2008 I first experienced my first bout of ‘load shedding’. This is not a complete release of one’s bowel contents, but Eskom’s fancy name for rolling (scheduled) blackouts. Many a night was spent in my Sandton hotel room rocking myself to sleep to the sounds of cars backfiring (or gunshots?) outside the window– I’m talking no lights, TV or microwave-meal cooking power. Shares in a generator company during the load shedding era would have made you multi-millions; generators are everywhere in South Africa and a necessity when attempting to present your ‘business-as-usual’ face.

Mining clients had slightly bigger problems on their hands, with many mines forced to close as a result of the power blackouts. South Africa is one of the single largest producers of both gold and platinum globally and as such world trade prices for these commodities skyrocketed as a result of reduced production output. Bravo Eskom!

According to the government, it was the country’s strong economic growth, rapid industrialisation and a mass electrification program (namely in the townships) which led to a supply shortfall – as well as some pretty nearsighted plebs. Eskom and the government (one and the same?) have previously acknowledged their blunders, however it still appears to be down to consumers to carry the financial burden of their mistakes. A national average annual electricity price increase of 25% (year-on-year for the next 3 years) was implemented in 2010 (to put it plainly, a 25% increase every year for 3 years). There is no doubt that these increases are to supplement government money for Eskom’s projected 345billion Rand spend over the next 5 years. “We’re sorry for our past mistakes but we’re going to financially rape you anyway”.

Where else on earth (communist dictatorships excluded) could a utility supplier be able to do this? To sling even more sand in the eye, this increase was approved by the SA National Energy Regulator (NERSA). If this regulator isn’t in bed with Eskom, it’s anybody’s guess as to what price increases Eskom were shooting for.

With consumers’ hard-earned cash, Eskom is working hard on new coal-fired power stations, has plans to reopen other stations which were previously mothballed and has a number of hydro and pumped storage schemes up their sleeves. They are also promoting co-generation projects between themselves and the private sector, whereby heat generated as a by-product of industrial processes is used to produce power for use by the same industry, or feed the national grid….nifty!

The new Medupi power station

In addition to an escalated spending budget on new power infrastructure, Eskom is also busy rewarding its management with annual multi-million Rand bonuses. Justified? I think not, considering their year-on-year price hikes and previous delivery failures. Bonuses should be ploughed back into the service infrastructure, until at least they deliver on a handful of the planned schemes. Eskom’s CEO and financial director, between them, earned more than R10 million for the 2010/11 financial year, with the CEO defending his salary by noting that this was considerably less than executives would get in the private sector. Unfortunately Brian Dames fails to realise that private sector industries have performance related payouts linked to a company’s profitability. Considering the statement which the sarcastic cretin came out with at a news press conference, who could blame him for failing to grasp this simple concept.

“We’re kinda like the largest company in the country; we kinda like make sure the lights stay on; we kinda like do quite a lot of things.”

I would be seriously embarrassed if I worked for Eskom and he was my CEO. Throw the words ‘bru’ or ‘boet’ into the above statement and one could actually picture this as a primary school kid’s response to the question, ‘who are Eskom?’ He goes on to add:

“I think between Paul and I – my finance director – I think we’re getting less than one person in the private sector maybe”

Paul’s Leadership photo on the Eskom website represents something which mere words cannot describe, however if I was forced to choose a single word to sum it up….Jislaaik! It’s definitely not Ayoba Paul. 

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