CAPE TOWN, South Africa, May 24, 2017 – The Portfolio Committee on Public Enterprises held an extraordinary meeting on Tuesday to discuss the issue of the reappointment of Eskom’s Chief Executive Officer, Mr Brian Molefe.
Acting Chairperson Ms Zukiswa Rantho said last week the Committee agreed unanimously to call a meeting where the Board and the Minister are to appear before the Committee and explain what is happening at the power utility. Ms Rantho said: “The meeting today wants to know why is Mr Molefe back at Eskom, has Mr Molefe retired, was he retrenched, did he take early retirement or the new one that has been reported was that he was on unpaid leave, these are some of the answers that we need today.”
The Committee was of the view that legal advice that has been received will not be used to shield Eskom from being accountable before the Committee. The comments from the Committee came after Eskom’s Board Chairperson, Dr Ben Ngubane, said he had received legal advice from his counsel after he had filed an affidavit on Monday, 22 May 2017. Dr Ngubane said he was advised that the matter cannot be debated other than in a court of law. “I have to listen to counsel as they are representing us in a court of law,” said Dr Ngubane.
Members indicated that the Committee had also received legal advice regarding today’s meeting and the Committee had been advised that it should not get into the merits and demerits of the case. Members of the Committee stated that Eskom and the Executive are accountable to Parliament.
According to the legal advice from Parliament’s Legal Office, it states that “there is a constitutional duty to perform oversight and the intention of calling the Minister and Board is not to influence the court. Whilst the matter is sub judice (meaning it is before the court), this does not mean that Parliament cannot perform its oversight function, as long as the deliberations are not on “the merits of the case”.
In response to the presentation by Eskom and the Minister of Public Enterprises, the Committee questioned what pressurised such a strategic institution to hire someone where a question mark has not been cleared based on the Public Protector’s State of Capture Report. The Committee indicated that Eskom needs to state the basis of employment of Mr Molefe as the issue is still in the public domain.
The Committee said Mr Molefe, in his resignation letter, said he was stepping down from the power utility based on good governance following the release of the State of Capture report by the former Public Protector.
The Committee wanted to know if the papers filed in court by the Minister that Mr Molefe was on unpaid leave whilst being a Member of Parliament are true. Furthermore, the Committee queried why the post of the chief executive would be advertised and interviews conducted if Mr Molefe was on unpaid leave. The Committee said it will not accept the explanation provided before the Committee that he (Mr Molefe) was on unpaid leave as Section 47 of the Constitution would not allow this.
A response from a Board member indicated that Mr Molefe had resigned last year. Regarding the reappointment of Mr Molefe as CEO, the Board supported his reappointment based on the legal advice that the power utility received and on Mr Molefe’s performance whilst in the employ of Eskom.
The Committee made a recommendation that the Eskom Board and the Minister should be subjected to an inquiry to check if they (the Board) exercised its fiduciary responsibilities and duties. A parliamentary inquiry needs to be instituted against the Board and forensic investigation needs to be conducted to reach a determination of what must happen. The Committee agreed that further engagements need to be conducted amongst the members to discuss a way forward on the possible inquiry.
Following its deliberation, the Committee supported the decision for a parliamentary inquiry in line with National Assembly rules to look into the Board of Eskom.
On Eskom’s legal argument that Mr Molefe was appointed under the terms of the 2014 Memorandum of Incorporation (MoI), the Minister stated that the early retirement agreement didn’t have to be shown to her. The 2014 MoI does not enlist the Minister as party to the contract of employment of a Group CEO, whist the 2016 MoI explicitly enlists the Minister as a party to the contract of employment of Group CEO.
The Committee is of the view that the Minister failed to exercise her oversight duties as the 2016 MoI gave the Minister powers to appoint and dismiss the Group CEO of Eskom.
Ms Rantho said: “The Committee is concerned with the state of governance at Eskom. There seems to a breakdown in communication between the shareholder and the state-owned company.”
“The Committee is concerned with the breakdown of corporate governance principles at Eskom. In this regard, the Committee views the reappointment of Mr Molefe with serious concern,” said Ms Rantho.
She added that “we will further seek advice on how to deal with the decision of the reappointment of the Chief Executive”.
In its deliberation the Committee requested the power utility to provide the Committee with documents such as minutes correspondence and decisions taken on the reappointment of Mr Molefe.
A long-time delayed report have been released this week, as the South African ruling party African National Congress (ANC) and their ministers has tried to subdue the private analysis of the government energy company ESKOM. However, this report will assess needed information that should have been delivered before the other leaks of questionable transactions and contracts that Eskom has done in the recent years under President Jacob Zuma. President Zuma has used his presidency to earn monies for his family members and even some of his family work in corporations that have gotten state contracts through Eskom. Therefore this report is telling of how the sufficient business-model and energy production has been handled by Eskom. This will be about the years before 2015 and to that date. What Eskom has done since has either been revealed through the contracts or through the scrutiny of Public Protector or Finance Minister who has questioned the company themselves. Just take a look at what I find as key things from this report!
“Prior to 1997, Eskom plant operated at relatively low energy utilisation factors (EUF). However, from the onset of Eskom 90:7:3 operational strategy in the mid-90s, the Eskom plant operated at higher EUFs. After 2012, the plant operational at very high EUFs with the median being in excess of 90%” (Dentons, P: 19, 2015).
About the lacking investment in older plants:
“The Generation Sustainability Strategy document cited information that Eskom has reduced planned maintenance (reflected in the Planned Capability Loss Factor (PCLF)) in order to maintain “Keeping Lights On (KLO)” strategy. It could be noted that the historical 90:7:3 strategy applied by Eskom should also be factored in the assessment of the fleet performance as international practice typically targets values in the order of 85:10:5” (…) “The historically low PCLF coupled with the KLO strategy and factors such as coal quality and high utilisation factors have led to a sharp increase in Unplanned Capabilities Loss Factors (UCLF)” (Dentons, P: 19, 2015). “The Generation Sustainability Strategy document indicates that the Eskom generation fleet has experienced 15 years of under-investment in capital expenditure (capex) which is largely the result of cost cutting due to financial and capacity constraints” (Dentons, P: 20, 2015). “The analysis of this information indicates that there was significant under-investment refurbishment capex versus best practice for an extended period of time (from the mid 1990s). The under-investment at plant mid-life age is also critical and significantly contributes to the current poor plant performance” (Dentons, P: 22, 2015).
2010 Football World Cup:
“To uphold the KLO Strategy, short term decisions were made by Eskom that negatively impacted on the long-term sustainability of the generation plant. Historically, this would include the impacts of maximising plant availability during the critical period in 2010 prior to and including the FIFA 2010 World Cup. The knock-on effects of deferring maintenance may not be immediately materialised and often manifest themselves later in the generation planning/production cycle. As an example, the available documentation indicates that in January 2013, five previous maintenance outages were not executed as scheduled as sufficient generation capacity was not available on the grid. The lack of generation reserves has also resulted in units operating outside limits of good practice. As an example, in June 2014, 46 out of the 79 coal units were operating outside of good practice” (Dentons, P:27, 2015).
“Load Shedding is the reduction of demand to achieve a balance between available generation and demand. If demand significantly exceeds available generation and reduction in demand is not achieved, the system will frequently drop, which may ultimately result in a system black-out” (…) “The problem Eskom faces is a steady decline in the performance and availability of its coal fleet. The further leads to a lack of ‘space’ to execute the maintenance required to restore the condition of the coal-fired power stations so as to achieve acceptable operating performance. This has been compounded by the delays in bringing on new capacity such as Mepudi, Kusile and Ingula” (Dentos, P: 30, 2015).
Skills to execute new build projects:
“When the decision to proceed with the new build projects was made, Eskom had limited skills to conduct such a project. Eskom has not developed coal power plants for decades. Experienced power plant staff (mostly operational staff) were moved to new build programme which left substantial skills gaps at the operating power stations” (Dentons, P: 38, 2015).
“One of the measures taken by Eskom to bolster knowledge and experience was to recruit experienced resources internationally to increase the skills base. Eskom recently announced revised timelines for the Medupi and Kusile indicating that these projects will be further delayed and are now only planned completion by 2020 for Medupi and 2022 for Kusile. These appear to be more realistic time frames given the current status, but there remains general scepticism as to whether Eskom will be able to achieve this given its past track record on contract management for these projects” (Dentons, P: 42, 2015).
Debt made by Eskom:
“New debt of R49.5bn was taken on in the year to fund the continued capex programme. However, Eskom was downgraded to sub-investment grade status by both Moody’s and S&P and thus the funding was provided at much higher finance cost. Liquidity concerns were heightened as the net cash flow from operating activities of R23.3bn was not sufficient to cover the total of debt due for repayment of R17.1bn as well as the net financing interest payable of R15.3bn resulting in a shortfall of R11bn. In essence borrowings were starting to be used for ongoing operations” (Dentons, P: 89, 2015). “Eskom Treasury recently highlighted the key risks that Eskom faces to execute the borrowing programme, and in turn therefore complete the new builds: realisation of BPP cost savings; cost overturns on Medpudi and Kusile; RCA cost recovery in MYPD3 future years; Declining future ratios; threat of future ratios; threat of further credit rating downgrades; inadequate liquidity buffer; Lack of market appetite for Eskom debt; and inability to execute borrowing programme. In FY2015, all of these risk materialised” (Dentons, P: 94, 2015). “Recent history does not place these risks in a good light. Eskom is currently sacrificing its future to survive. If sales and arrears continue to plague Eskom, there is a shortfall in lending, a failure to meet meaningful cost savings, and a continued EAF below 80% prevail (in other words a continuation of the trend of the past 2 years), Eskom’s bail-out funds will evaporate” (Dentons, P: 95, 2015).
That this report is damaging to the reputation of Eskom. This shows the malpractice and lacking of guidance that the company has had. The monopoly and grand control over the market as the state corporation has given it kickbacks and security of funds, even as they haven’t done things properly or planned. Therefore the enlightenment and the clear indication of lose planning and less of experts on the field of building new power-plants is proof of the misguided and maladministration that’s been inside the Eskom company.
The African National Congress that has been the ruling regime and the ruling party, that has been in-charge of the resources and the selection of hiring and changing leaders of the company. Can be put to blame for lenient and lacking acts of putting in place enough expertise and enough clear procedures on how the changing leadership should go about. So the Eskom could be sure of having men and woman who we’re qualified and had experience to handle an organization and business like this.
The report highlights major facts and breaches in also ordinary buying procedures and lacking of that and other issues that I couldn’t fit. There are many lose ends that Eskom has and needs to address, that ANC has to take responsibility for and also answer for. Because the Company has dwindled and lost its edge during the reign of ANC and President Zuma, who rather spoils the company instead of investing in it! Peace.
Dentons – ‘Report on Eskom’ (02.07.2015)