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- Andre de Ruyter is 13 years old from Eskomth CEO in the last decade and knew the task would be challenging.
- De Ruyter has been on the job for nine months, and so far the government has given him the space to make tough decisions.
- Since taking office, he has faced managers over poor maintenance practices.
Andre de Ruyter was well aware of the adversity he faced in South Africa’s monopoly of power: a state-owned disaster hollowed out by corruption struggling to keep the lights on, pay its bills and play ball with a unionized workforce.
“I don’t think I was under any illusions that this was not going to be a very challenging job,” De Ruyter said in an interview nine months after his tenure as CEO of Eskom Holdings.
So when De Ruyter went to work as Eskom’s thirteenth CEO in the last decade, it was after unfailing success. He ordered a new paint job for the main boardroom at Megawatt Park, the brutalist-style headquarters of the public utility company in the Johannesburg suburbs. “It was dirty and it looked shoddy,” he says. “I’m meticulous. I want to do things right.”
The 52-year-old private sector veteran is confident that his corporate approach, such as a merit-based system for managers and an intolerance to theft, is advancing. The goal is to turn the coal-burning giant into a green energy company with a manageable debt burden that supports Africa’s most advanced economy.
“De Ruyter has surprised critics because of his tenacity,” said Darias Jonker, director of the Eurasia Group in London. “He has stayed on track despite frustrations and stalemate that many observers thought would cause him to leave Eskom at this time.”
Even before Covid exacerbated South Africa’s recession, De Ruyter made waves by taking on key groups, including his board of directors. He sued the regulator to raise energy prices, cut cities with overdue bills and took steps to cancel bulky supply contracts. It has even started holding managers accountable at the 44,000-employee company.
De Ruyter’s tactics have yet to visibly alter Eskom’s downward trajectory. The company, which analysts at Goldman Sachs Group once called South Africa’s biggest economic risk, needs handouts from taxpayers to pay interest on its mounting R488 billion debt that is largely guaranteed by the government. It will report a third consecutive loss this year.
Operations are a disaster too. Blackouts are rampant, and Eskom limits supply to prevent a decaying network from collapsing. Loadshedding, as it is called locally, cost South Africa as much as $ 7 billion (about R117 billion) in 2019 and the utility this year has already cut off the largest amount of power on record.
President Cyril Ramaphosa’s solution is to split Eskom into generation, transmission and distribution businesses, without cutting jobs. De Ruyter’s task is to carry it out.
“We can’t keep doing things the way we always have,” he said. “It would have to be oblivious to what is happening in the economy and the negative impact that reducing burdens on the economy has.”
The traditional path to CEO at Eskom is to move up the ranks of the utility company or change from a government position. De Ruyter was an outlier for the job, having made a name for himself as a manager at Sasol, the chemicals and fuels producer, heading up businesses in China and Germany. Past as CEO of Sasol, De Ruyter moved on and accepted the lead position at Nampak Packaging Company.
After five years there, the government named him in a surprise date that angered unions calling for a black CEO. The leading candidates refused to accept the challenge and withdrew from consideration.
Eskom’s troubles mirror South Africa’s decline over the past decade. Ambitious plans to build next-generation capacity also failed, resulting in massive cost overruns and equipment malfunctioning.
Ramaphosa has invited private energy producers to meet demand and reverse an economic recession with unemployment at 30% and rising.
Eskom became synonymous with bribery and corruption during the nine-year presidency of Jacob Zuma that preceded that of Ramaphosa. The company was at the center of a scam by the famous Guptas, an Indian family who have now fled to Dubai to avoid prosecution. They took advantage of political ties in a variety of Eskom contracts, from supplying coal to consulting. They have denied wrongdoing.
Among others tagged were Deloitte, which admitted wrongdoing in the acquisition process, and McKinsey & Co., which agreed to return money to the utility after a dispute over its contract.
That helps explain why De Ruyter is getting into the weeds. Respond to customer complaints in person by email. “People are frustrated,” he said.
While touring a coal station warehouse, he noticed three levels of shelving filled with actuators, a component for his plants, and asked how many are actually used in a year. “It turns out that we have been buying these things without considering the real need,” he said.
However, with a fleet of power plants prone to failure, Eskom lacks what is needed for repairs and maintenance. There are up to $ 100 million in parts at each of more than a dozen sites, “but when you’re looking for critical replacement parts, we don’t have them,” De Ruyter said.
“Then you start to change all the stones,” he said, describing how he also learned that the average age of transformers is at least a decade older than what would have already been replaced in the private sector.
In another, he found that the number of purchases made without a contract increased to more than 90%. “If you want to steal, the absence of controls is favorable, that helps you. And it’s interesting to see that the cataloging goes up to a certain number and then it just stops.” Eskom now has an initiative to catalog all purchases.
“Since his personal vision for Eskom must be in direct conflict with a very complex group of stakeholders, he appears to have made decent progress,” said Bronwyn Blood, portfolio manager at Garnet Asset Management in Cape Town. “The fact that he is still in the position, which is undoubtedly the hardest job in South Africa, and that he bravely faces the challenges facing Eskom, is very positive from an investor’s point of view.”
The team and the software don’t defend themselves, unlike the people De Ruyter needs with his program.
“Eskom employees are completely disconnected from the current leadership,” said Irvin Jim, general secretary of the National Union of Metalworkers of South Africa, the second-largest union in the utility. “You see that in Eskom’s performance.”
The risk of not getting the cooperation of unions emerged in 2018 during salary negotiations. The utility’s largest labor group, the National Union of Miners, called the cancellation of the expected bonuses an “act of war.” Protesters blocked access to stations, conveyor belts carrying coal were cut, power was cut off and the rand was weakened. Eskom capitulated to the demands.
Confronting the managers
De Ruyter says he has a good relationship and prefers to collaborate with the unions, but he is setting an unfamiliar tone from above.
Managers of more than a dozen power plants were summoned to an auditorium at Eskom headquarters last month to be confronted by De Ruyter with photos showing “very poor maintenance practices.”
“I said, ‘this is it, please understand that some of you will no longer be here if this continues.’ After severe power outages followed, De Ruyter personally delivered suspension letters to some of the managers.
The stakeholders who ultimately control Eskom’s fate are giving it room to put restructuring plans in place.
Eskom’s government manager, the Department of Public Enterprises, supports De Ruyter’s recent actions. “The CEO has reviewed the team in generations to try to strengthen it and better meet the challenges,” DPE CEO Kgathatso Tlhakudi said in an interview on a power outage day last month.
But the government will not provide a blank check indefinitely. Eskom should show improvement in several areas, including its cost base, revenue and municipal debt collection, it said. “What we cannot hope is that the amount of support they have been receiving thus far will continue.”
Ramaphosa, who has promised urgent action to increase the capacity of private producers, holds the key, says De Ruyter, who offers a story about the construction of a Russian railway as officials argued over the route. “Legend has it that the tsar came in, struck a ruler on the map, said ‘there is the route’ and that was it.”
Green dream
De Ruyter says it’s not enough to keep Eskom going. In addition to reducing the debt burden and moving away from coal, he aims to create a clean energy industry in South Africa.
In Mpumalanga province, the heart of coal country, black rocks travel on conveyor belts that stretch for miles to power plants. Some Eskom plants are a short enough distance from Mozambique’s only natural gas pipeline that they could be reused to use the fuel. De Ruyter has had regular talks with the World Bank, as well as with French and German development banks on how such a transition could allow for better financing conditions.
The proposal requires a great leap of faith on the part of the workers, which must be approved. “We need, as a country, to understand the legitimate fears of people who have jobs who fear losing those jobs,” he said.
There are encouraging signs. Moody’s Investors Service says green bonds, the proceeds of which finance social and environmental projects, could exceed $ 200 billion in 2020.
After nine months, De Ruyter is approaching the median of Eskom’s CEOs over the past decade. “Personally, I find it very gratifying to see things improve and maybe that improvement is not visible outside, but gradually it can be felt.” he said. “It’s a big elephant. One bite at a time.”
