How do we as the ANC justify using public funds to build and sustain a private energy sector and private sector controlled by banks and foreign companies that maximize their profits which ultimately go outside of the country?
From: Phapano Phasha, ANC Member in Good Standing
To: The Office of the Secretary General of the African National Congress
Date: 17 January 2020
THE CORPORATE GOVERNANCE CASE FOR THE ANC NEC TO SET IN MOTION THE REMOVAL OF COMRADE PRAVIN GORDHAN FROM CABINET
What will it take for the ANC NEC to accede to the fact that comrade Pravin Gordhan has failed the ANC and Eskom and has become a liability to the political, technical and operational sustainability of the power utility?
Eskom is faced with a catastrophic operational and financial crisis due to overall dysfunction and incompetence of comrade Pravin Gordhan and the Eskom board which has been complicit in the crisis and negative balance sheet of the power utility. In the past two years, Eskom has accumulated successive debts of over R20 billion as a result of poor corporate governance and greed.
It is a well-documented fact that Eskom deteriorating Balance Sheet is in financial distress and all turnaround strategies deployed by comrade Pravin Gordhan to rebuild the utility’s balance sheet have not worked.
The bulk of Eskom’s debt is historical and is publicly known to be as a result of three main contracts that Eskom has had to fund throughout the years at the expense of its mandate of providing reliable power to the country. These three contracts are:
a. Introduction of Renewable Energy Independent Power Producers (RE IPPs) in South Africa
b. Eskom New Build Medupi Coal Fired Power Station and
c. Eskom New Build Kusile Coal Fired Power Station.
What is at the crux of the debt and demise of Eskom has been political interference in the procurement processes which has led to the creation of monopolies and exorbitant costs of primary energy (IPPs, Diesel, Coal Suppliers). For example Eskom is forced to buy coal and energy from IPPs at prices that are already determined by the market. What is bizarre is that it is under comrade Pravin Gordhan that foreign companies, such as the embattled Glencore, are paid R950.00 per ton for our coal when they were previously paid R150.00 per ton by the previous board which Comrade Gordhan had claimed to be corrupt.
Since Eskom has a meticulous plan for maintenance of its power stations and the schedule for implementation of its maintenance programme, the money eaten by exorbitant coal contracts and IPPs which are more costly than nuclear and coal combined, is estimated to cost South Africans more than R1.4 trillion over a 20 year period cycle. Note “A 20 years period cycle” because after 20 years the assets by these IPPS on the ground will become obsolete and have to be replaced by brand new equipment which will lock South Africa to other contracts that will likely cost our children and unborn grandchildren Trillions of Rands that are currently unknown.
Such irrational contracts have made it difficult for Eskom to stay afloat and save money for maintenance of its coal fleet which has led to unprecedented load-shedding and abuse of usage of diesel which has turned the load-shedding crisis into a goldmine for a few diesel suppliers. This crisis is exacerbated by the conflicted and incompetent board which has failed to apply its fiduciary duties and protect South Africans as unbearable costs from primary energies are then passed through to the consumer when Eskom asks for the increase of tariffs from NERSA.
This points to an overall dysfunction and incompetence in the Ministry of Public Enterprise and the board as it’s apparent that nobody seems to understand Eskom business yet they want to see the Power Utility unbundled
Eskom has therefore been deliberately placed in the hands of Medical Doctors, Chemists, Law lecturers, business lobbyists from BLSA to facilitate its demise all under the watch of the ANC NEC.
THE RATIONAL CALL FOR THE URGENT REMOVAL OF COMRADE PRAVIN GORHAN FROM CABINET
The recent 70 page affidavit by Eskom in its impending court battle with energy regulator NERSA clearly demonstrates that the narrative of State Capture, that has been used by comrade Pravin Gordhan, “Elders”, Tito Mboweni, pundits and some within the ANC NEC, can no longer be used as an excuse to hide incompetence and maladministration at the Power Utility. (https://www.fin24.com/Economy/Eskom/blame-tariffs-not-state-capture-says-eskom-as-court-battle-with-regulator-looms-20200108 )
Eskom in its own application to the Gauteng North High Court refused to fall in the trap of false narrative and misinformation that has been peddled by comrade Pravin Gordhan, by solely attributing Eskom liquidity crisis to tariffs. An argument however which NERSA has rejected with contempt in its answering affidavit by putting the blame squarely on the ineptitude of the board of Eskom which was deployed by comrade Gordhan
Total Collapse of Corporate Governance at Eskom
1. A general rule of Corporate Governance is transparency, accountability and Separation of duties but not at Eskom.
1.1 Transparency
Senior executives at Eskom who are engineers by Profession with at least 19 -25 years experience who were able to reduce loadshedding, increase profitability and receive clean audits such as Willy Majola, Mongezi Ntsokolo and Freddy Ndou were retrenched by comrade Pravin Gordhan and the Eskom board. These are former Eskom board members who had refused to sign new and expensive IPP contracts that have been part of the demise of Eskom.
What then happened two months after their removal was that Eskom which was already Producing Power was forced to buy power from these IPPs with predetermine prices as per the Power Purchase Agreement imposed by comrade Pravin Gordhan on Eskom. Eskom then had to sell the electricity back to consumers at a loss of either R21 Billion per year or R 34 Billion per year. The money eaten away by the IPPs has made it difficult for Eskom to save money for maintenance of its coal fleet which requires roughly R 200 million per month per power station.
Which begs the question of whether the previously disbanded Eskom board was removed in order to slip in the very expensive IPPs without complying with PFMA and whether Eskom was deliberately and systematically placed in the hands of Jabu Mabuza and now Dr Makgoba to collapse it in order to sell some of its section to private hands by hiding behind operational and technical inefficiencies?
1.2 Accountability
South Africans have been kept in the dark on the impact of primary cost drivers such as Diesel, Coal and IPPs. Instead of regulating primary energy costs to enable Eskom to save money for maintenance of its coal fleet, Eskom is currently bleeding out money that is meant for its own power maintenance that would have been sufficient to maintain the high efficiency of the coal fleet and avert loadshedding. The Eskom board also deferred maintenance of ageing equipment due to “financial constraints” leading to Stage 4 -6 loadshedding in 2018 and 2019.
How do we as the ANC justify using public funds to build and sustain a private energy sector and private sector controlled by banks and foreign companies that maximize their profits which ultimately go outside of the country?
We are literally relying on telecoms expert from Zimbabwe, Sifiso Dabengwa, whose own country’s energy supply is on the verge of collapse and the ex-Director General at the Department of Energy Nelisiwe
Magubane who is also a service provider at Eskom. Now, one would assume that given Eskom’s place in the economy with a highly specialised function there would be some consideration on expertise in the appointment of the board including the CEO to ensure accountability? At the extreme end the are only two people who would have any practical experience of what an Eskom plant even looks like, let alone hands on experience with generation, transmission and distribution except for interest in procurement.
1.3 Separation of duties
Eskom under the stewardship of comrade Pravin Gordhan has re-written the book on Corporate Governance when it made Jabu Mabuza the CEO and the Chairman while he was a service provider. What is more startling is that the Mail & Guardian has also reported that Mr Jabu Mabuza’s cousin was appointed as a Service Provider at Eskom during his tenure and is in line to receive another tender worth Millions with the ailing Power utility. (https://mg.co.za/article/2020-01-17-mabuzas-distant-relative-scored-big/). Which makes one wonder if Mr Jabu Mabuza was not pushed to resign before the article was published.
The former chairperson, acting CEO and Service Provider is not the only member of the Eskom board who is conflicted.
2
The King Code also emphasis the importance of responsibility and defines Board Responsibility as taking ownership of a duty, responsibility or obligation. This does not apply to Eskom.
Under comrade Pravin Gordhan, Eskom has become a shaggy dog story. When comrade Pravin Gordhan appointee at Eskom, Jabu Mabuza, was asked what he planned to do with loadshedding and whether he was the right person for the job. Mr Jabu Mabuza, told the nation that he didn’t apply for any position at Eskom,didn’t want the job and that he was not even qualified thus absconding his responsibility. No one accounted, the ANC NEC went about as business usual
3
The King Code of Corporate Governance which is applicable to Eskom under the Companies Act defines a Board as the Governing Body that has primary accountability for the governance and performance of an organisation.
Since comrade Pravin Gordhan took over the Ministry of Public Enterprise, Eskom has escalated from better to worse; the country continues to face prolonged and unexplained load shedding and general poor performance. The Power utility has been hit with its worst biggest revenue loss in its history of R21 billion, with a second consecutive R20.7 billion loss for the 2019 financial year. Eskom has gone from a R2 billion loss entity to a R21 billion loss organization in a space of two years. Between the Pharmacist, the Doctor, the Chemist, the conflict in Business Leadership South Africa which seems to be calling the shots and the other board appointments; Minister Pravin Gordhan and Eskoms board are completely out of depth
4
The King Code also speaks of “Integrity” in the context of governance and ethics, as having the quality of being honest and having strong moral principles. It encompasses consistency between stated moral and ethical standards and actual conduct.
In the week leading towards the January 8th celebration when members of the African National Congress (ANC) were preparing and mobilizing society in recognition of one of the most sacred days in the calendar of our glorious movement, ANC members and South Africans at large were confronted with revelations that Minister Pravin Gordhan and the Eskom board had deliberately lied and misled the President of the ANC and the Republic, Cyril Ramaphosa, on the status of loadshedding.
This would not have been the first time that Minister Pravin Gordhan misleads South Africans on the dire situation facing Eskom as he has previously quoted trillions that have been lost at Eskom due to State Capture in an effort to hide his own malfeasance.
CONCLUSION
So there is a Board and a Minister who are completely out of their depth, zero understanding of corporate governance and Energy whilst ANC NEC members are onlookers calculating the balance of forces. Surely if this malfeasance was attributed to any other ANC NEC member heads would have rolled.
Whilst Trade Unions which are in alliance with the African National Congress have called for the removal of comrade Gordhan as Minister of Public Enterprise, one does not believe this will do justice to the damage that the comrade has done not only to Eskom but to other State Owned Entities such as South African Airways.
Therefore Eskom can be saved but not with the misplaced and incompetent board and comrade Pravin Gordhan at the helm. This will require the NEC to take bold decisions which include the following:
1. Remove Eskom from Public Enterprise to Energy and Mineral Resource where it rightfully belongs
2. Recall comrade Pravin Gordhan from Cabinet
3. Urgently remove the entire Eskom board and replace them with capable patriots
4. Instigate a moratorium and curb prices on all Primary cost drivers at the power utility in an effort to clamp down on monopolies which have no competition and have bullied Eskom for years by dictating predetermined prices.
5. Investigate all evergreen contracts and institute a commission to investigate unfair practices and possible price fixing at Eskom with prospects of arrests and prosecution of offenders.
6. Investigate whether genuine environmental concerns (Climate Change) are being exploited by some government officials, politicians, corporations, banks and conglomerates to make profits and abuse unsuspecting tax payers.
7. Urgently mobilise experienced and retired engineers to deal with maintenance crisis at Eskom
8. Cancel Power Purchase Agreements including guarantees from Treasury given to IPP companies and allow IPP companies to compete with Eskom on an equal footing. The recent court judgment in 2019 which allowed the bankrupt Pacafic Gas and Electric (equivalent of Eskom in California) to renegotiate or cancel Power Purchase Agreements represents an important milestone in energy sovereignty. If a highly developed State like California in the United States can be collapsed by expensive renewable energies what about a frail and ailing economy like ours. (https://www.greentechmedia.com/articles/read/pge-bankruptcy-judge-leaves-door-open-to-severing-renewable-energy-contract)
In an effort to do damage control, Corporate South Africa and the mainstream media have already called for the redeployment of comrade Pravin, citing that he will be better at Finance Ministry and not Public Enterprise which they claim is not his competency. Senior comrades who have organized themselves as “Elders”have already released letters in support of comrade Pravin Gordhan stating that he is being attacked by beneficiaries of State Capture not withstanding both the quantitative and qualitative evidence that it is rather mismanagement that has collapsed Eskom. Which clearly demonstrates that “The old is dying and the New Cannot Be Born”, reflective of a capital controlled liberation movement and the new colonial political elite who continue to use struggle credentials to enrich themselves whilst misleading the indebted, landless and poverty stricken populace that the crisis at Eskom and other SOEs is as a result of State Capture .
Ultimately it is the financially battling South Africans and small medium businesses which are adversely affected by the sheer incompetency of comrade Pravin Gordhan, the Eskom board and the silence of the ANC NEC including ordinary members of the African National Congress amidst the blatant abuse of their tax money.
Comradely Yours
Phapano Phasha