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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 SOC Ltd.
So when De Ruyter went to work as Eskom’s 13th CEO in the last decade, it was after unerring 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 am meticulous. I want to do things right. “
The 52-year private sector veteran is confident that his corporate approach, such as a merit-based system for managers and an intolerance to theft, is making headway. 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 long-overdue bills, and took steps to cancel bulky supply contracts. He’s even started holding managers at the 44,000-employee company accountable.
De Ruyter’s tactics have yet to visibly alter Eskom’s downward trajectory. The company, once rated South Africa’s biggest economic risk by analysts at Goldman Sachs Group Inc., needs handouts from taxpayers to pay interest on its mounting debt of 488 billion rand ($ 29 billion) in much of it 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 decomposing network from collapsing. Loadshedding, as it is called locally, cost South Africa up to $ 7 billion in 2019 and this year’s utility company has already cut off the most 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 of 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 Ltd, the chemicals and fuels producer, leading businesses in China and Germany. Deceased as CEO of Sasol, De Ruyter moved on and accepted the top position at the packaging company Nampak Ltd.
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 reflect 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.
Graft magnet
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 LLP, 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 shelves 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.
Yet with a fleet of power plants prone to failure, Eskom lacks what it takes for repairs and maintenance. There are up to $ 100 million worth of parts at each of more than a dozen sites, “but when you’re looking for critical 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 the cataloging go up to a certain number and then it just stops. “Eskom now has an initiative to catalog all purchases.
“Since his personal view of 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 Ltd. in Cape Town.
“The fact that he is still at work, which is undoubtedly the most difficult job in South Africa, and that he is bravely facing the challenges facing Eskom, is very positive from an investor’s point of view.
The equipment and the software do not 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 cooperation from unions emerged in 2018 during wage negotiations. The utility’s largest labor group, the National Union of Mining Workers, 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 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 in place restructuring plans.
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, when officials were arguing 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 held 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 calls for 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 fund social and environmental projects, could exceed $ 200 billion in 2020.
After nine months, De Ruyter is approaching the average term for Eskom 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 is a great elephant. One bite at a time. “
Read: Document shows pact to fix Eskom
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