Simon-Christian ESKOM South Africa

Running head: ESKOM SOUTH AFRICA 1

ESKOM South Africa: A Case of Planning Failure

Simon Christian Makoso

Indiana Wesleyan University

Dr. Annette West

June 17, 2015

I have read and understand the plagiarism policy as outlined in the syllabus and the sections in

the Student Bulletin relating to the IWU Honesty/Cheating Policy. By affixing this statement to

the title page of my paper, I certify that I have not cheated or plagiarized in the process of

completing this assignment. If it is found that cheating and/or plagiarism did take place in the

writing of this paper, I understand the possible consequences of the act/s, which could include

expulsion from Indiana Wesleyan University.

ESKOM SOUTH AFRICA 2

Table of contents

Project description...……………………………………………………………………………....4

Introduction. ......…………………………………………………………………………………..4

Purpose of the study …...………………………………………………………………………….5

Significance of the study......…….………………………………………………………………...8

Significance of the topic to the writer…….....…………………………………………………….8

Significance of the case to Eskom and its major stakeholder……..………………………………9

Global significance of the research……………………………………………………………....10

Company Overview…..………………………………………………………………………….11

Identification and Discussion of Issues…...…………………………………………………….. 14

Root causes of the crisis………..……………………………………………………………….. 14

Training and skills shortage……………………………………………………………………...14

Political interference and ethics………………………………………………………………….16

Aging electricity infrastructures…………………………………………………………………16

Project solution…………………………………………………………………………………..18

Information and Literature Review……………………………………………………………....18

Analysis of Key Issues…………………………………………………………………………...26

Recommendations and Conclusion………………………………………………………………34

References………………………………………………………………………………………..41

Appendix A………………………………………………………………………………………48

Appendix B………………………………………………………………………………………49

Appendix C………………………………………………………………………………………49

Appendix D………………………………………………………………………………………50


Appendix E………………………………………………………………………………………51

Appendix F………………………………………………………………………………………52

Appendix G………………………………………………………………………………………53


PROJECT DESCRIPTION

Introduction

According to Robbins and Coulter (2007), “planning involves defining the organization’s

goals, establishing an overall strategy for achieving those goals, and developing plans for

organizational work activities” (p.184).With strategic leadership and a long period of systemic

planning, any organization perform at higher standards.

Eskom troubles are slowly but steadily becoming structural. Indeed, with more than a

decade of underinvestment in power generation, an important maintenance backlog of existing

electrical power grid, the country is about to be “unplugged”. Styan (2013) citing Eskom’s

former CEO, Brian Dames, states that several unforeseen problems with aging infrastructure

hampered Eskom's planned maintenance schedule in the summer months of 2012 and early 2013

(p.12). Moreover, the rapid growth of electricity’s demand, both residential and industrial, is a

complication to an already complex problem. Finally, because “Eskom relies on coal to generate

around 90%-95% of its power” (Styan, 2013, p.13), as the available coal reserve is going to be

depleted in the 2020s, if the coal roadmap is not implemented as early as 2018s, serious turmoil

is to be predicted for Eskom and the South Africa’s economy.

Consequently of operating with limited generation capacity, since 2008 Eskom has

adopted an emergency rolling blackout plan called load shedding and several other measures to

avoid the worse scenario of having the whole country disconnected at the same time.

In order to turnaround the situation, the South African government have produced a plan

which aims to rebalance the mix of power generation and propelled the country’s energy sector

to another level. The “Integrated Resources Plan”, called the IRP2010 is ambitious. “However, it

appears as if Government has already veered from this plan” (Styan, 2013, p.12).


The research reveals disturbing evidences that the South African government which the

owner of Eskom is the responsible of this “chaos.” Investment in electricity generation and

transmission infrastructure is a necessary precondition for sustained economic growth” (Eskom,

2015). Privatization is therefore a viable option; it is going to achieve two objectives:

- Ending political interference in Eskom’s affairs

- And ensuring a brighter future for the organization (and South Africa).

The methodology used by the researcher consists of collecting information from multiple

sources (OCLS, books, Newspapers …) and review interviews of key actors in the South African

power crisis. The period chosen for the literature review is comprised between 2007 (when the

crisis of electricity supply was becoming inevitable) and 2015 (the year of the second round of

rolling blackout).

Purpose of the study

“Eskom Holdings SOC Ltd., which supplies about 95 percent of the country’s electricity,

is rationing supply because it can’t meet demand from aging plants following years of

underinvestment”( Vollgraaff, 2015). The primary research leads to identify planning as the

central problem in the South Africa’s power supply crisis. Robbins and Coulter (2007) present

planning as a “management function that involves defining the organization’s goals, establishing

an overall strategy for achieving those goals, and developing plans to integrate and coordinate

activities” (p.9). That is to say, developing plans provide a framework for guiding the sacrifices

and efforts of an organization.

The case is chosen firstly because of the size of the company. In fact, Eskom is one of the

top 20 world largest utilities suppliers in generation capacity and sales; in order to better


apprehend the importance of this company, the following snapshot of its financials as of 2014

can speak for itself:

- Turnover of ZAR139.5 billion ($15bn) in 2014 versus ZAR128.8 billion ($14bn) in 2013

which means an increase of 8.3% ,

- Total Asset of ZAR 504,993m ($40,426m) in 2014 versus ZAR 500,302m ($40,050m) in

2013, which means an approximate increase of 1%.

- Total liabilities of ZAR 385,209 m ($30,837m) in 2014 versus ZAR 385,63m ($30,871m)

in 2013.

Secondly, the researcher peaked this case due to the policies implemented by the post-

apartheid government that helped grow significantly South Africa’s economy. Indeed, the

economic achievement of the South African government is respectable.

And finally, this case is interesting due to the position of the South African government

as an appreciable global player (member of the BRICS, the only African nation member of the

G20s, and a crisis solver in the African continent). South Africa is the first country to host the

most popular sport (world cup soccer game of 2010) on the African soil; similarly, it has host

successfully important world-class events such as the world economic forum, the conference on

sustainable development, climate change...

Based on these reasons, it is disconcerting that two high “profile” organizations can be in

trouble due to a breach of basic function of management. Factors that have led to a rolling

blackout, need to be uncovered.

Understandably, the legacy of apartheid is real and might be perceptible in few more

decades but after presiding successfully to the destiny of such a great country for almost 14 years

(2008 was the years of the first load-shedding), blaming the former regime for the electricity


supply crisis does not make sense. Thus, there is a need to identify what is really hidden from the

public by former president Thabo Mbeki, what really happened?

Hence, the objective of this paper is to identify the root causes of this miscalculation.

Actually, former President Thabo Mbeki recognizes that Eskom’s executives warned the

government about the looming supply crisis but it was decided to delay the implementation of a

strategic plan as the government was engaged in discussions about the privatization of Eskom.

Even though, the leader takes full responsibility of the mistake, the reason given is not

convincing and does not really satisfy analysts.

The researcher digs then into the history of Eskom and learns that at the advent of the

democratic South Africa, Eskom had an overcapacity of power generation. Effectively, in the

1960s, following the boom of the global economy (e.g. the glorious thirty in France), Eskom was

engaged in an ambitious capacity expansion program. Its strategy was centered on mining

companies which were then producing more and more to meet the appetite of both the local and

international manufacturing industry. “However, throughout the 1970s, projects began to suffer

from ‘diseconomies of scale’, where the logistics and associated delays (and consequent

financing costs) in fact increased the comparative price of provision” (Koen, 2012, p.5).

In consequence, by early 1980s, Eskom had too much power generation capacity.

Although it was evident that there had been an overestimation of economic growth, the new

power stations should be completed; a case of a negative return on investment. Adapting to the

situation, “Eskom responded in two ways, firstly by mothballing aging plants and thereby saving

on input costs, and secondly by seeking new markets” (Koen, 2012, p.7).

Unfortunately, to the slowing of global economy, international sanctions against the

regime of apartheid began to take place and “crippled” the South African economy for long.


Moreover, the political deadlock between ANC and the apartheid government, open ground to

more military confrontation. This situation and cloudy horizon resulted in hurting further the

economy, which finally collapsed.

Did this historical context influenced the Mbeki administration decisions? There is no

evidence of such thing in any minute or official document. Did the South African government

misread indicators received from the parastatal company? There is no evidence either.

What about the assertion that more power generation capacity might have been a wrong

investment? It is known that planning ahead involve benchmarking, which is referring to

standards within an industry. For example, the reserve margin of energy in advanced economies

swings around 15%; it means that the electric grid has excess capacity in the amount of 15% of

expected peak demand. Thus, that assumption of lacking professional judgment also does not

hold.

As a result, the case is going to examine components that enter into the elaboration of a

strategic plan. It is going to focus on elements that enhance decision-making.

“Strategies are the decisions and actions that determine the long-run performance of an

organization” (Robbins and Coulter, 2007, p. 208). The research will not cover technical aspects

of power generation. Similarly, the research is not going to perform financial statement analysis.

It will certainly consider new policies adopted by the ANC in the democratic South Africa;

policies that aim to correct injustice that the majority experienced under the rule of the minority.

Significance of the Study

This case is a “great” example of mismanagement; lessons to learn from such a study are

multiple:

Significance of the topic to the writer


Planning is one of the four functions of management along with organizing, leading and

controlling. Planning intervenes in almost every level of activities.

In marketing management for example, strategic planning is implemented at corporate

level, division level, business unit level, and product level. The approach helps companies

address efficiently customers’ needs. “The corporate headquarters is responsible for designing a

corporate strategic plan to guide the whole enterprise; it makes decisions on the amount of

resources to allocate to each division, as well as on which business to start or eliminate” (Kotler

& Keller, 2007, p.26).

Similarly, in business strategy, tax planning can minimize and alleviate the tax burden.

The following count among some of the business tax planning strategies:

- Retirement plans

- Credit for hiring new employees

- Research and development tax credit

- Health insurance tax credit

- Losses from pass-through entities

- Capital gains and losses

The researcher being a manager, it is of great advantage to study a case that provides

insightful knowledge of the consequences for not planning, not leading, not assessing the impact

of an incompetence on related industries and maybe the whole economy. The case enables to

understand why many countries became poor after their accession to political independence.

Significance of the case to Eskom and its major stakeholder

The research is an addition to Eskom and the South African government because it goes

to the root cause of the planning issue. It is a reminder that successful organizations combine "do


the right thing" (effectiveness) and "do things right" (efficiency). The discussion and analysis

enhance the understanding of how “interconnected” are industries. The research is an awareness

that Eskom and its major stakeholder must work together as one entity especially when it comes

to strategic planning,

For the South African government as the owner of Eskom and several other corporates,

the research highlights the fact that ethics, skills, experience, training and meritocracy are the

pillars of effective management.

The study finally reveals how devastating the Eskom crisis is to the image of South

Africa. Beyond political rhetoric blaming apartheid, it erodes the confidence of investors who

viewed that country as the gateway to Sub-Saharan Africa.

There is a need of defining a new strategy and planning approach because of persistent

concerns. For example South African coal roadmap is a remarkable work but not yet

implemented. Magnowski and Monnier (2015) state, “The problem is that a lot of projects are

generally more ideas than projects.”

It is evident that electricity from coal-fired power plants is cheaper than most

alternatives. There is a real competitive advantage to South African manufacturers and mining

companies. But, coal reserve is not that massive as previously thought. Nandy and Bhattacharya

(2009) state that “at the current extraction rate, this translates to about 40-50 years of

production.” And the “coal roadmap” confirms Nandy and Bhattacharya assertion. On that also

this paper is a wake-up call.

Global significance of the research

The research has relative global significance due to the regional leading position of both

Eskom and South Africa. Eskom is among the top 20 utilities in the world in terms of generation


capacity as well in terms of sales (MarketLine, 2015). It generates more than 40% of electricity

used in Africa. Moreover, South Africa is the only African nation, which is part of the G20 and

the BRICS. Of course, this membership is not due to the size of its GDP or its share of global

trade but mostly a matter of influence and perception. Alden and Schoeman (2013) assert “unlike

any of the other BRICS members, South Africa’s great power claims are almost completely

founded on its perceived ability to act as a regional manager and protector (p.114).

Company Overview

Eskom Holdings SOC Limited was established in 1923 as the Electricity Supply

Commission (ESCOM). Throughout decades, the company underwent structural reforms.

Ranked among the top largest world utilities companies, Eskom is divided into 3 divisions

(generation, transmission and distribution). “In July 2002, it was converted into a public, limited

liability company, wholly owned by government” (Eskom, 2015). The group possesses two

subsidiaries, Rotek Industries SOC Limited and Roshcon SOC Limited.

In a recent past, the parastatal company used to sell and buy energy in neighboring

countries (SADC), but presently, it is a net importer especially from Mozambique and Lesotho.

The company generates 95% of the South African electricity retailing market, which

represent approximately 45% of the African consumption of electricity. “Eskom directly

provides electricity to about 45% of all end-users in South Africa. The other 55% is resold by

redistributors (including municipalities)” (Eskom, 2015).

Eskom is a giant, employing 46,370 people as of September 30, 2014 in its primary

market, South Africa. Group turnover of ZAR139.5 billion ($15bn) in 2014 versus ZAR128.8

billion ($14bn) in 2013 which means an increase of 8.3%. Total Asset of ZAR 504,993m

($40,426m) in 2014 versus ZAR 500,302m ($40,050m) in 2013, which means an approximate


increase of 1%. Revenue growth has been offset by escalating primary energy and operating

costs (Eskom, 2015). Finally, with a net profit of ZAR 7,089 million ($702.5 million) in

FY2014 representing an increase of 36.8% over FY2013, the company is trying to reassure the

markets. However, the ongoing crisis of energy supply combined to the emergency plan which is

draining cash, Eskom is experiencing financial strain. “Eskom has not paid dividends to its

shareholder, the government of South Africa, since 2008 because of its capital expenditure

needs” (Koen, 2012, p.7).

As of 2011, Eskom disposed a net maximum capacity of 41,194 MW of what mining

alone used 14.3% (Koen, 2012, p.3). The company has 27 operational power stations (See

appendix A). Eskom operates the only nuclear station of the African continent, which generates

1,940 MW. But its dependency on coal (over 90%) to generate electricity is a concern to the

private sector (one of the drivers of sustainable economic growth).

Two year ago, major players in the energy supply chain implemented a plan called the

coal roadmap. This plan aims to prepare the country to the depletion of available coal reserve. As

an anticipation to avoid more difficulties for Eskom in particular and the whole country in

general; there is an imperative to rebalance the mix of power supply.

An additional issue linked to the use of coal is the emission of greenhouse gas, which

contributes significantly to global warming. Moreover, coal-fired power plants rely on obsolete

technology and expose Eskom to large mining corporates’ interests. According to Koen (2012),

“In 2011, mining and industry customers paid an average of 36.2c/KWh, while 4.5 million direct

residential customers paid on average 66.4c/KWh” (p.8).

Performing a review of Eskom’s SWOT analysis, the researcher concludes that the

extensive use of coal is a major weakness. “The company's dependence on coal for power


production could have a material impact on the company's margins and profitability”

(MarketLine, 2015). However this not the only weakness; the geographic concentration of

Eskom’s operations in South Africa and the Southern Africa region exposes the company to

contraction of market that emanates from economic down turn, labor strikes or natural disasters.

On the strength side, Eskom has the largest and most diversified customer base of the

electricity industry in South Africa. That is said, this is not the only strength; its power grid

infrastructure even though ageing, constitutes a pledge for future stability and growth. But such a

role is dependent on today’s choices and new policies. “During FY2014, the company generated

231,129 GWh of electricity including 209,483 GWh of coal-fired electricity, 14,106 GWh of

nuclear electricity, 3,621 GWh of gas turbine electricity, 2,881GWh of pumped storage

electricity, 1,036 GWh of hydroelectricity, and 2 GWh of wind energy. In the same period, the

company maintains more than 359,337 km of power lines and substations with a cumulative

capacity of 232,179 MVA” (MarketLine, 2015).

The increasing demand of electricity due to the rapid expansion of the economy under

president Mbeki and the potential of growing significantly the manufacturing industry in the

future constitute an important opportunity for Eskom. Yet, in order to seize the opportunity of a

rising demand of electricity, there are conditions; the increasing power generation capacity is one

of them.

Finally, the major threats are:

- The ageing power plants that may cause unscheduled outages and shutdown most of the

country. “Several unforeseen problems with ageing infrastructure hampered Eskom's

planned maintenance schedule in the summer months of 2012 and early 2013” (Styan,

2013, p12).


- Another threat is the organize crime. No country is insulated against this kind of threat

which is taking multiple forms: cybercrime, terrorism …

In conclusion, Eskom is a giant and a strategic entity operating in a vital industry. It is no

surprise that the parastatal company is the epicenter of political fights and interest. Koen (2012)

outlines Eskom’s role in South Africa, its evolution as a state-owned company, and its current

status as a key player in South African politics (p.3).

Identification and Discussion of Issues

“Ten years ago a white paper warned that electricity demand might exceed supply by

2007. But ministers underestimated the economy's potential for growth” (Russell, 2008).

President Thabo Mbeki acknowledged the mistake, however the ANC interests were somewhere

else (Mr. Mbeki was forced to resign in 2008, September 24).

The crisis root cause is definitely multiform. Despite the official explanation, the research

uncovered few pertinent reasons that have prevented the South African government to elaborate

timely a strategic plan for the expansion of the power generation capacity. According to Robbins

and Coulter (2007), Strategic plans are plans that apply to the entire organization, establish the

organization’s overall goals, and seek to position the organization in terms of its environment

(p.189).

The question now is “what are the root causes of defaulting to plan ahead?”

Why decision-makers at all level of government did not take action?

Root causes of the crisis

Training and skills shortage:

Forecasting is at all standpoints a great help to decision-making. When the South African

government disregarded the request from Eskom, it ministers’ decision was based on biased


information. “Forecasting accuracy enables planners and managers to make better decisions and

improves the effectiveness of the supply chain (increases service level and availability of

products), as well as its efficiency (reduces inventory levels)” (Zotteri, Kalchschmidt, and

Saccani, 2014, p.35).

The following factors influence sensibly the accuracy of the forecasting process:

- The amount and quality of information available in advance,

- How the historical data are collected and structured,

- The quality and expertise (skills) of the employees involved in the forecasting process

The voluntarist policy of affirmative action or black economic empowerment (BEE)

combined to the relatively significant exodus (emigration) of white skilled workers toward

countries like Australia, Canada and the USA have impacted negatively many businesses. “In

BEE deals, political connections often matter more than business skills. Posts are left vacant for

want of qualified black staff” (The economist, 2013).

This deficiency of skills is also perceptible among top managers at ministries and cabinet

level who are most of the time appointed on an acquaintance basis instead of meritocracy.

It is then evident that at the time former Eskom’s leadership (1990s) presented its project

management plan (implemented without involving its sole shareholder, the government), the

assessment of ministries in charge was different. Crosschecking information from diverse

sources is normal process, however, the issue arise when information is misrepresentative of the

reality. Inaccuracy and absence of professional judgment impairs decision-making process.

As the owner of Eskom, the level of engagement of the South African government during

project planning process must be the highest. Such participation enhances the likely outcome.

According to Amirhosseina, Vaughana and Bambang (2015), “Stakeholders ultimately have


strong impact on an organization’s survival, and therefore appropriate management and

involvement of key stakeholders should be an important part of any project management plan”.

Political interference and ethics

“Eskom's current directors and executives are not directly responsible for the power

supply crisis-which stems from years of underinvestment and neglect that is taking time to

correct-but dysfunctional management and political interference have unquestionably

exacerbated the problems and contributed to delays in the construction of new power stations”

(Economist Intelligence Unit, 2015).

It is difficult to mitigate the risk of political interference in a parastatal company.

Evidently, the collusion of interests within the ANC and its allies the union associations

complicate the situation; every single decision becomes a political calculation.

For example, “South Africa enjoyed low electricity prices, the lowest in the world up to

2004” (Mfundisi, 2013, p.3). Indeed, electricity price in South Africa is among the cheapest in

the world. However, Eskom cannot decide unilaterally an increase of the electricity price; the

regulator (a government body) and left wings of ANC would oppose such move.

Ageing electricity infrastructures

“Almost two thirds of Eskom's power stations are past the mid-point of their expected

operating life” (Styan, 2013, p.13). With ageing infrastructure, the company operating cost

increases putting in jeopardy the overall performance of the organization. They therefore require

higher levels of planned maintenance and the required work is more extensive (Styan, 2013,

p.13).

In Sum, this research is going to be axed around the planning issue, the root causes and

the consequences for the South African economy. Additionally, because 90% of the electricity


generated by Eskom comes from coal-fired power plant, this research paper analyzes coal

reserve level and its incidence on both the production of electricity and the South Africa’s

economy; how the South African government is envisaging the future based on current

coal-reserve issues?

The study methodology consists of reviewing academic journals, well-known and

credible newspapers, review of interviews of key players in the electricity supply crisis.


PROJECT SOLUTION

Information and Literature Review

Mbeki under pressure to tackle power shortages

The consequences of the power supply shortage on investment and economic growth in

South Africa are even worse than previously anticipated. Considering the fact that there is an

international standard with regard to reserve margins, it has been revealed that Eskom which

generates 95% of the country’s electricity is a way below the threshold. Indeed, Russell (2008)

says that with Eskom's reserve margins hovering at 4 per cent, against the international

benchmark of 15 per cent, power cuts are predicted for the next five years - jeopardizing

investment, many analysts fear.

Troubles deepen at South African energy supplier

In addition to the operational, financing and investment problem a leadership crisis broke

between Eskom and its sole shareholder the South African government, eroding further

confidence from business circles which view it as a serious distraction. Lapper (2009) states that

the embattled chief executive of Eskom is defying a board order to quit, extending the leadership

crisis at South Africa's giant state electricity company and underlining investor concerns about

the reliability of the country's power supply.

Eskom: the gloom deepens

Indeed, Eskom’s problems are so serious that they have resulted in several resignations,

including the CEO of National Energy Regulator of South Africa (NERSA), which fixes the

price of electricity in South Africa. The persistent power shortage adds up on Eskom’s financial,

obliging the utility company to seek an increase of approximately 25%. The research has

unfolded that “the utility paid ZAR 24.4m to its three senior executives just last year and since


2008 when load-shedding first rocked the country, top executives have walked away with ZAR

62.8m (Weavind, 2015, p.15). Following years of underinvestment, aging infrastructure,

significant maintenance backlog and lack of skills, the situation of the parastatal company is of

legitimate concern.

International positioning of South African electricity prices and commodity differentiated

pricing

In the wake of political change before 1994, the South African government working

toward further normalization, signed an agreement with Eskom for a decrease of approximately

15% in the price of electricity. However this political calculation prevented Eskom to sell at the

market price and collect more income. “With Eskom’s priority centering on providing basic

electricity to the masses and electrification being the primary focus, generational capacity

expansion was shelved”( Thopil & Pouris, 2013, p.1). Somehow, the strategy contributes to plant

the seeds of the current crisis.

However, in order to turnaround the situation Eskom is implementing a differentiated

pricing strategy. According to Kotler and Keller (2007), “Companies often adjust their price to

accommodate differences in customers, products, locations, and so on” (p.232). The idea behind

this strategy is to avoid having all sectors adversely affected by across-the-board increases

(Thopil & Pouris, 2013, p.1).

Power crisis knocks South Africa economy

As a matter of fact, the price of electricity in South Africa which is labelled as the

cheapest among developed economies requires significant increase. The increase of the tariff

should improve Eskom’s ability to finance the current contingency plan and underway projects.

“Eskom is also challenged financially as it faces a R225bn ($19bn) funding gap over the next


five years and struggles to source and pay for the huge quantities of diesel it needs to power gas

turbines that are providing essential support to the creaking system” (England, 2015).

Overview of the South African Coal Value Chain

However, Eskom’s difficulties are sliding into structural category. Approximately 90% of

the electricity produced in South Africa comes from coal-based power stations (See appendix C).

And, the known amount of coal-reserve appears to have been overestimated. Using new

technology, in 2003 a re-assessment have lowered available coal reserve for the entire Southern

African region to 15 billion tones or Giga tones (Gt). In consequence, there is a need to develop

new mines and build indispensable infrastructures for connecting efficiently supply to demand

(markets).

South Africa’s diminishing coal reserves

Certainly, the announced collapse of the local coal industry is going to hurt Eskom and

impede South African economic growth for many years (even decade). Hartnady (2010)

emphasizes “Given South Africa's heavy dependence on coal for power generation and

electricity supply, the economic situation appears to be heading rapidly towards a state of severe

permanent crisis, which will be exacerbated by the anticipated low level of coal production at

peak in 2020 (p.21).

The South African coal roadmap

Owing to that assessment, the major players in the energy supply chain industry in South

Africa (including the government) have implemented a plan named “coal roadmap”. According

to Hall (2013) “it is assumed that provision is made to supply higher grade coal to the older

Central Basin power stations from the Waterberg and thus rail infrastructure is available in the

early-2020s to facilitate transport of coal from the Waterberg to the Central Basin to overcome


some of the shortfalls in local utility supply - and at the same time to provide access to export

markets” (p.3). The coal roadmap is an acknowledgment that South Africa not only needs to

significantly increase the use of nuclear and renewable power plants (in its energy mix) but must

actively create conditions (plan ahead and build infrastructure) to stimulate new investments

from mining companies.

World Bank approves loan for coal-fired power plant in South Africa

Meanwhile, the World Bank has approved an emergency loan of $3bn for the

development of a coal-fired power station by Eskom. The loan has raised opposition of World

Bank shareholders who see the institution move as a setback in the fight against climate change.

But the World Bank defends the loan as a vital assistance to enable South Africa achieving

power security. As a matter of fact, “Eskom has defended the development of the 4,800-

megawatt Medupi plant in the northern Limpopo region, saying it is critical to ease the country's

chronic power shortages as well as to ensure electricity flows to neighboring states” (Reuters,

2010).

Competing discourses of energy development: The implications of the Medupi coal-fired

power plant in South Africa

In order to better apprehend the rationale behind World Bank’s decision it is important to

know that Medupi coal-fired power plant in South Africa when fully operational is going to be

the seventh largest of its kind in the world with investments totaling $17.8 billion (and an

installed generation capacity of 4800 MW). The imperatives of economic growth and energy

security being the let motive of the institution, Rafey and Sovacool (2011) referring to a report

from the World Bank assert that as the South African economy recovers from the global crisis,


without additional generation capacity, electricity supply will become a ‘‘binding constraint’’ to

growth and job creation (p.1144).

The Eskom factor: Power politics and the electricity sector in South Africa

But, it is also important to emphasis that the post-apartheid South Africa is undermined

by rampant corruption from top executives and managers. The government being the owner of

Eskom, tends not to control but limit the independence of Eskom’s executives. Members of

cabinet are even involve in several supplier contracts. “This leads to confusion over

accountabilities and the extent of strong directive influence and control by the state, introduces

the possibility for corruption, ad hoc interference, and most importantly, a lack of accountability

amongst all players” (Koen, 2012, p.13). The missing quality of these managers is integrity.

According to Mintz & Morris (2011), a person of integrity will act out of moral principle (p.2).

Zuma Scandal

Similarly, the recent scandal hurting the sitting president, Jacob Zuma who, is accused of

embezzlement with money from taxpayers, demonstrates the character of the actual leaders.

Indeed,” On August 24th South Africa’s ombudswomen gave President Jacob Zuma a fortnight to

explain why he should not repay some of the $24m of public money lavished on his farm”(Africa

Research Bulletin, 2014, p.20511). Even more scandalous is the attitude and reaction of the

parliament which, is dominated by ANC; Siding to support their leader, their reaction is an

untold threat directed to the public protector.

What Eskom doesn’t tell you?

It is factual that Eskom current rationing of power distribution have caused large mining

companies and other manufacturing to hold investing and hiring. In an attempt to mitigate the

risk of disinvestment, Eskom has entered in agreement (buy-backs) with more than 140


manufacturing to limit their electric consumption. “Simply put, power buy-backs are agreements

whereby Eskom pays certain companies not reduce production” (Styan, 2013, p.14). For

example, Eskom pays a mining company hundreds millions of dollar in order to reduce demand

by around 1, 000 MW. Other companies like BHP Billiton receive a preferential tariffs paying

below cost price for the electricity.

South Africa Power Crisis Paralyzes Investment, Risks Rating

Consequently, manufacturing contribution to the country’s GDP is declining as most

business owners are no longer investing in new projects. Even worse, the country’s sovereign

credit rating has been downgraded. Evidently, the South African economy’s growth could be

higher shouldn’t be this electricity crisis which, is a result of years of underinvestment and lack

of planning. Under these circumstances, a vacuum of leadership on top of the financing and

investment issues is only build on a catastrophic scenario (Vollgraaff 2015).

Megawatt Power Gap in March

For the first time since the birth of the rainbow nation in 1994 the government is rising

tax rate as a signal of some financial difficulties. In fact Eskom and South Africa have seen their

sovereign credit rating being downgraded. Which make it more costly to borrow and finance the

ambitious goal. Indeed, the parastatal company (and its sole shareholder) aims to double its

capacity to about 80,000 megawatts by 2026, requiring investment of more than 1 trillion rand

($80bn) (Lourens, 2011).

The truth behind Eskom's dark lies.

However, the CEO of Eskom, Mr. Matona and the president of South Africa, Jacob Zuma

keeps on playing politics with inaccurate and misleading explanations with regard to the ongoing

load-shedding. Recently the CEO of Eskom insisted that the utility company was "functional"


despite clear evidence that it does not have the skills to face a mounting tally of breakdowns at

power stations (Barron, Weavind & Mahlangu, 2014).

Eskom leaving us in the dark: The extent of its rot.

“One unexpected event could result in Eskom losing control and that it could take up to

two weeks to restart the grid” (Klein & Weavind, 2015, p.20). This citation from the suspended

CEO of Eskom shows the seriousness of the situation. Indeed, power stations are getting off line

successively. Unions are convinced that the whole problem is caused by poor corporate

governance; incompetent top managers who are unable to plan business activities, training and

skills development and organize the company. Furthermore, government interference and

corruption are exacerbating the crisis.

President Zuma on Eskom senior Executives’ suspension

Following the wave of contestation from unions who wishes the suspension and

resignation of all board members (including the immovable chairman), president Jacob Zuma

justifies government’s decision because of severe contradictions between reports from executives

and facts on the ground.

South Africa’s electricity crisis: Rolling power cuts are fraying tempers- Unplugged

The goal assigned (80,000MW) by 2026 is hard to attain. Unfortunately the call for

privatization of Eskom is met with resistance from labor unions. Therefore the South African

government has given the responsibility of fixing the issues encountered by Eskom and two

others parastatal companies to Cyril Ramaphosa the current vice president of South Africa. The

Economist (2015) has written that all three companies will be overseen by Cyril Ramaphosa, the

country’s vice-president, a former trade-union leader turned business mogul, who returned full-

time to politics ahead of the general election in April 2014.


South Africa economy: Quick View - Eskom begins first round of load-shedding

However, based on the progress with both site (Medupi and Kusile) the good news is the

more new units will come on stream in the new power plants, the more it will alleviate the load

on the grid. “Nonetheless, supplies will remain tight-and vulnerable to disruptions-until further

units at Medupi (and Kusile) start producing power in 2016” (Economist Intelligence Unit,

2015).

Can Eskom Fix South Africa's Power Problems?

Furthermore, Mr. Etzinger who is Eskom Spokesman explains that the rolling blackout is

planned and implemented to enable the company performs the indispensable maintenance of the

power grid. According to the executive, extreme rainfalls have disrupted the supply chain of coal

causing one of Eskom’s largest power plant go offline. However, the real problem is the use of

coal which requires specific skills for stocking. In general most of Eskom’s coal-fired power

stations in service are using obsolete technology.

Eskom Equity Injection

“Cabinet approved a package to support a strong and sustainable Eskom to ensure that the

energy security of the country is maintained, as well as supporting GDP growth.”(Africa

Research Bulletin, 2014, p.20513). Effectively, due to the various programs that have been

implemented (pay-back, use of diesel turbines …), the utility company is running out of cash.

South Africa Sticks to Eskom Plan

Thus, in an attempt to fix the financial difficulties of Eskom, the South African

government has decides to recapitalize the parastatal company. It has sold its shares in Vodacom.

The proceeds of ZAR 23bn ($2bn) of the transaction has been injected into the utility company.

The Grand Inga Dam


In the meantime, the construction of the Inga III dam in Democratic Republic of the

Congo (DRC), for which $20bn have been provisioned already by the South African government

following a strategic agreement between South Africa and DRC, is going to increase Eskom

reserve margin. Indeed, South Africa is expected to receive 2,500MW of the 4,800MW to be

generated by Inga III. Definitely, Inga III being part of “the Grand Inga project” (see appendix

D), this partnership is one of the most important for Eskom. As described by Morgan (2013),

“twice the size of the biggest dam in the world, the planned DR Congo-based $80 billion Grand

Inga Dam has the potential to produce enough cheap power to supply 500 million Africans”

(p.74).

In pursuit of Vision 2030: Reforming South Africa’s electricity sector

Therefore, favoring the collaboration with the government of Democratic Republic of the

Congo to increase hydroelectric share into the South African production mix (Mfundisi, 2013,

p.8) might justify further effort from South Africa to stabilize the post war DRC.

South Africa to Turn to Private Investors as the Lights Flicker

Yet, many are convinced that it is too late and the damage is irreversible. For instance,

Laird (2015) asserts that even if the government accelerates legislation to allow private operators

a role in energy generation, analysts believe that rolling blackouts will remain a feature of the

South African landscape. But, such a legislation is a step in the right direction.

Analysis of Key Issues

Due to the history of South Africa, the first post-apartheid government’s program was

centered on reconciliation and social justice. Consequently, new problems surfaced and, the

composition of the South African government was one of them. The difficulty was to find a


balance between former enemies, political adversaries and divergent ideologies like those from

ANC’s left wing and allies (COSATU and the South African communist party).

Decision-makers’ executive experience

However, the accent being put on these two missions led to sacrifice the indispensable

higher level of competence required for cabinet’s members at the wake of very complex changes.

Let enumerate some of the challenges back in 1994: the economy was in recession, the country

depended on coal at 90% to produce energy, the mining industry was an important contributor of

the country’s GDP, the rate of unemployment exceeded 45%, the rate of AIDS infection was

among the highest in the world, and the country had ten enclaves called pejoratively

“Bantustans”.

In short, the task ahead was immense and necessitated professionals. Instead, activists

like the trade unionist Mr. Alexander Erwin (known as Alec Erwin) and the very controversial

Dr. Manto Tshabalala-Msimang (she was convinced that AIDS epidemic can be treated with

alcoholic beverages and vegetables rather than with antiretroviral medicines) have been

appointed ministers.

The crisis of the electricity supply finds its roots during that political transition period of

1994. Nonetheless, today’s load shedding could still be avoided if the second cabinet of former

president Thabo Mbeki made a difference by bringing more ministers like the very competent

Mr. Trevor Manuel (Minister of Finance from 1996 to 2009).

According to Hallerberg and Wehner (2013), a technocratic government is preferred

following important crisis as it is thought to have ministers with narrow technical skills who are

expected to produce better policy than their more political, and more generalist, predecessors

(p.2). Rather than having this approach, former President Mbeki kept Alec Erwin who have been


appointed successively as Deputy Minister of Finance (from 1994 to 1996), Minister of trade and

industries (from 1996 to 2004) then Minister of public enterprises (2004 – 2008).

It is during Mr. Alec Erwin’s tenure of the Minister of Public Enterprises that

recommendations contained in the “White Paper on the Energy Policy of the Republic of South

Africa” were dismissed. Effectively, in 1998, Dr. Penuell Mpapa Maduna who was the Minister

of Minerals and Energy (1996 -1999) published a document (the white paper) in which “the

ministry pointed out quite correctly as it turned out, that if no new capacity was built, the country

would run out of power in 2007” (Grootes, 2014). This “roadmap” enjoyed the participation of

Eskom, the United States of America’s Department of Energy and several other prestigious

institutions.

Indeed, the white paper stipulates: “The maximum demand in 1997 was about 28 330

MW; Eskom’s latest Integrated Electricity Plan forecasts for an assumed demand growth of 4,2%

that Eskom’s present generation capacity surplus will be fully utilized by about 2007”

(Department of Minerals and Energy, 1998, p53). Thus it is disconcerting to learn the attitude of

some ministers in the new cabinet who contested the above assessment on a base that they had

underestimated the economy’s potential for growth (Russell, 2008). Former President Thabo

Mbeki took full responsibility by saying that the government response to Eskom request was “we

said no, but all you will be doing is just to build excess capacity” (Grootes, 2014).

Interpreting technical indicators

In addition, the report submitted by Eskom to the government, like any other report of

this nature, contains sufficient technical details. Let focus for example on the Eskom’s reserve

margin indicator. Assuming the report contains data that can help generate a graph in which the

trend of the reserve margin is monitored for the period comprised between 1994 and 2004 (see


appendix E & F); for sure, the trend will be descendant, which means the demand of electricity is

becoming more important than the electricity supply capacity. Such tendency is confirmed by the

several reports. Indeed, according to Russel (2008), prior to the 2008 rolling blackout, Eskom's

reserve margins was hovering at 4 per cent, against the international benchmark of 15 per cent.

Knowing that in 1994, Eskom had an overcapacity of power generation; it means many decisions

including the one with regard to bring electricity to those who have been excluded from the

distribution system were made regardless of business principles.

The above example, raises more questions because it is evident that key technical and

management indicators have been ignored by top managers and the whole government

(executive and parliament). Legitimately, one may ask for instance, why Eskom and its

shareholder, the South African government has allowed the reserve margin to slide so low.

Ageing infrastructure and brain drain

Digging into several reports has unfolded the fact that ageing infrastructures always

require specific skills to perform the very sensitive maintenance. The South African power grid

is in the same condition. Unfortunately, unlike advance economies, South Africa lacks this

expertise. The main reason for this phenomenon is that there has been an important brain drain of

engineers, technicians, accountants, analysts, planners and other professionals. The shortage of

qualified personnel has, also, negatively impacted, even, the corporate governance.

A report from the South African National Energy Development Institute (2011)

stigmatized the fact that recruitment and retention of skilled labor needed for Eskom’s daily

operations, maintenance and capacity expansion have been identified as a strategic risk (p.103).

Indeed, the scarcity of skilled workers in South Africa makes it harder for the parastatal company

to fill critical positions and, in addition to this, the black economic empowerment requirements


complicate the labor market. Thus, maintenance and management of the ageing power

infrastructure becomes even more complicate.

Still, the inertness of the whole government is inexplicable. For example, why the

parliament of South Africa did not step in and request a change of policies. Such initiative might

have resulted in the implementation of a contingency plan necessary to launch the construction

of new power stations and even recruit internationally professionals capable of performing the

necessary maintenances. Is it a problem of competence or negligence?

Absence of controlling function by the parliament of South Africa

Eskom being one of the strategic company and 100% owned by the South African

government, the parliament has the authority of controlling both actions of Eskom and the

executive branch of the government. Such a role is not political interference. In the United States

of America for example, during the Toyota crisis, which was related to unintended acceleration

of certain model, the congress organized hearings through the House Oversight and Government

Reform Committee and the House Energy and Commerce Committee (February 2010). In the

same way, the Congolese parliament, which is not the best example of good governance have

organized hearings of parastatal’s executives and the Minister of Public Enterprises; the exercise

aimed to control the actions of both entities and avoid chaos.

Implementation of the affirmative Action

Instead of being gradual and adapted to the context of South Africa rather than being a

copy paste, the implementation of the BEE has somewhat exacerbated the problem of scarcity of

skilled workers. However, many, seizing the opportunity presented by the BEE, have benefited

from the law. For example board members and top managers in many large businesses (including


municipalities) lack tracking entrepreneurial record and experience; they are appointed not on a

meritocracy basis but because of their ethnicity or their acquaintance with ANC’s leadership.

Implementation of the coal roadmap

Planning is anticipation; the coal roadmap is an example of planning and the report signal

several potential problems that need to be addressed without delay. But the same lethargy within

the South African government is back again; there is a delay in implementing key provisions of

the coal roadmap that aim to save the local coal industry.

In order to demonstrate how critical the coal roadmap is, the researcher has chosen to

discuss the Medupi project. The over $17 billion (already exceeded the initial project’s cost) is

the seventh largest coal-fired power station in the world and requires a very efficient local coal

industry to secure cheap supply and deliver as expected. Thus, the attitude of the government

defies common sense. Normally, Medupi is going to be operational by 2016 and per the coal

roadmap, the necessary infrastructures to save the coal value chain are needed as early as 2018.

As a reminder, “more than 90% of the country’s electricity, approximately 30% of the liquid

fuel, and approximately 70% of its total energy needs are produced from coal” (Sanedi, 2011

p.III). However, like for Eskom, the coal mining industry is also facing shortage of skilled

workers, geological, engineers, accountants and other professionals.

The problem is becoming so general and within almost every sector of the South African

economy that the South African government can no longer use taxpayers’ money organizing

seminars like the one related to the coal roadmap; it is important to act, the issue of training and

skills development can turn into a structural problem.

Heavy dependence on coal to produce electricity and necessity to rebalance the mix of power

generation


In order to alleviate its heavy dependence on coal, the government has produced the

Integrated Resource Plan 2010 (IRP2010) which layouts that the first new nuclear power station

should come on stream by 2023. The goal is to rebalance the mix of power generation. However,

it takes on average 10 years to complete the construction of a nuclear power plant. And, it is only

in 2015 that the South African government has launched tenders with regard to the building of a

new nuclear power plant. That way, it has deviated from its own plan resulting in more pressure

on the power grid as the economy is recovering from recession.

The construction of the new nuclear power plant should have begun two years ago.

Reasons for the delay, officially, the government has been considering lessons from the

Fukushima disaster; but, South Africa is not in a seismic region. Thus the real problem must be

funds and experienced personnel. Indeed, the upfront cost for a nuclear power plant is so high

that raising money to generate 9,600MW from nuclear energy is a problem especially with

Eskom’s credit rating being downgraded.

Delay for the completion of Medupi power plant

Medupi should be operational three years ago and is now expected to come online by

2016. However, more and more money has been poured into this project. “In 2007, Medupi was

pegged at around ZAR70bn, but a conservative price tag is now around R105bn - excluding the

capitalized borrowing costs” (Weavind, 2015, p.38). On this front, clearly the issue reside in a

dysfunctional partnership between public and private sector undermined by unacceptable lack of

professionalism on the public side. However, labor strikes cannot be ignored as it has worsened

the mismanagement of this project. South African must undergo profound change, strikes are not

good for business.

Corruption in South Africa: possible embezzlement of taxpayers’ money


Corruption is another factor in the power generation crisis. Parastatal companies in

developing world (even China) have the particularity of being exposed to various malpractices.

For instance, in order to retain their positions, many executives tend to allow politics’

interference in daily operation of their companies. The CEO of Eskom, Mr. Matona for example

blamed politicians for the actual load-shedding asserting that Eskom was asked to keep the lights

on for the 2010 World Cup and the elections, when power cuts would have cost votes to the

ANC (Barron, Weavind & Mahlangu, 2014). For that reason, Eskom postponed critical

maintenance of power stations and the current load shedding is the immediate consequence of

this past decision. In retaliation for this declaration, few months later the powerful and

immovable chairman of Eskom’s board has suspended Eskom’s executives. Lein and Weavind

(2015) state, “on 12 March, Eskom chairman Zola Tsotsi iced four top executives, the reason

being that he wanted to independently examine the current status of the business and its

challenges”(p.20).

Despite President Jacob Zuma’s explanation, the decision not only raises more questions

because Eskom’s chairman should also be suspended but it is a confirmation of the human

deficiency being the root cause of the chaos; flagrant and unequivocal lack of competence

combined to probable corruption. Effectively, the “National Union of Mineworkers (NUM) has,

on more than one occasion, alleged corruption at Eskom and Mammburu said Tsotsi was aware

of the issues raised” (Klein & Weavind, 2015, p.20).

Grootes (2014) explains “We, in South Africa of today, simply have no idea how to leave

the politics and easy money making schemes behind and deal with this massive problem that

threatens to seriously weaken the economy and leave the population exposed to populist politics

to an even greater degree”.


Importing electricity from Democratic Republic of the Congo and risk of losing electricity

independence.

The analysis cannot be concluded without discussing the decision by the South African

government to import electricity from Democratic Republic of the Congo (DRC). Besides being

one of the most corrupted and dysfunctional nation on earth, The DRC has the particularity of

not abiding by the rule of law. Since 1960, the country is replacing its top leaders through crimes

or military coup. Like now, the president wants to amend the constitution and maintain himself

in power knowing that it is opening another cycle of political instability. Even in China, a

communist country with one party there is political changes which, is necessary for transparency

and reinforces confidence of investors. Trusting such partner on a so strategic sector like power

generation is dragging itself in trouble waters. Clearly, the risk is too high and too much is at

stake here. The only way for the South African government to ensure that the signed agreement

is to increase its influence within the SADC.

Recommendations and Conclusion

The vast array of issues uncovered and discussed above enable the researcher to better

assess the seriousness of the power supply crisis in South Africa. None of the problem can be

solved in the short term. There is a real need of policy change in order for the country to come-

out stronger from this crisis.

In substance, many reports, plans and interim plan exists. For example, the IRP 2010 is

a revolution by itself, however, lack of political will and indispensable expertise complicate its

implementation.

The research proves a need to build new power stations in order to for Eskom to fulfil its

obligations. However, the goal of doubling the actual power generation capacity by 2026 is


unrealistic and technically unattainable. Firstly, because stakeholders being investors expect

projects to have a certain level of return on investment (ROI). Raising funds is not easy; too

many parameters are to be considered. Secondly, the South African economy is not expected to

grow fast enough in years to come to justify such a level of investment. In fact, an already weak

economy recovering from the first post-apartheid recession, the ongoing power supply crisis

which has forced businesses to reduce their consumption of electricity, and a labor strikes in the

platinum that have paralyzed the whole industry for months, are sufficient reasons to view the

government’s announcement as a politic to appease its base. Lies are sins and unethical.

Elaborate realistic and attainable goals

Consequently, instead of “planning” to double Eskom’s generation capacity, the

government must build new power stations as needed. In other world, referring for instance to

the world’s benchmark of 15% reserve margin, Eskom and its shareholder can use this indicator

among others to avoid building overcapacity (like in the 1970s) or running out of reserve margin

like in the ongoing crisis.

On top of existing training and skills development programs, policy change is required at

government level

The scarcity of engineers, geologists, metallurgists and other professionals is penalizing

strategic sectors of the economy like the mining industry as a whole and the coal mining industry

in particular. “It has been suggested that the “scarce skills” shortage in coal mining was 879

individuals in 2009, representing 2.8% of employment” (Sanedi, 2011, p.103). However, due to

the heavy dependence of South Africa on coal to produce electricity, the problem must be fixed

at parliament level. Many policies have to be reviewed to enable recruiting in the global market.


The deficiency of experienced workforce is also noticeable at all levels of Eskom. As a

matter of fact, the recent unplanned outage of electricity is not only caused by lack of new power

plants but also an incredibly important maintenance backlog, which is the result of the

insufficiency of skilled personnel. Effectively, the power stations that went successively off line

caused a 15% shortage of electricity. There is a desperate need of experienced technicians and a

skilled workforce. Even though, South Africa has a world-class higher-education system, there is

a mismatch between the needs of industries and, the capabilities of graduates in certain fields.

Review of the Affirmative Action law

Therefore, it is evident that existing training and skills development programs are not

enough. The best call for South African government is to review the “black economic

empowerment” policy. It is necessary to close loopholes that exist within the law and freeze

provisions of significant incidence on brain drain phenomenon.

Although the idea of social justice behind the Affirmative Action law is admirable its

application has become hazardous. Politics use the law to take over direction of large businesses

(like Eskom) that have big potential of growth, strategic importance and provide significant

bonuses to executives. The practice aims also to appoint persons close to ANC circles, regardless

of whether or not the candidates are qualified for the job. Abandoning the culture of meritocracy

(even at municipalities’ level) put in jeopardy corporate governance and exacerbates the

emigration of experienced and well-educated workforce.

The culture of meritocracy is important not only, for a better managerial performance but

also, for an appeased climate inside the organization; it is the next step to virtue ethics.

According to Jaramillo, Bande and Varela (2015) “virtue ethics postulates that the virtuous


organization develops practices for excellence in the production of products and services while

holding a genuine concern for the common good of the community” (p.110).

Review the role of the National Energy Regulator of South Africa (NERSA)

Pertaining to the price of electricity in South Africa, deregulation is to be considered as it

should enable forces of market to help determine the real price of electricity. Considering the gap

between rich and poor, some intervention of government will still be justified, thus, instead of

having a rigid structure that authorizes or fixes the price, it can be replaced by a structure that

protect consumers from being abused.

Rebalancing the mix of power generation

Likewise, the research shows that rebalancing the mix of power generation is also about

country’s energy supply’s security. The more independent a nation is when it comes to energy,

the better insulated it is from international conflicts, manipulations and speculations. Thus,

building new nuclear stations like in France should be a priority. It takes at least 10 years for a

nuclear station to become fully operational, hence the need to initiate the project in a very near

future.

Many see nuclear station as being very dangerous. However, it is not the case. Opponents

to nuclear technology most of the time focuses on risk of radioactivity and treatment of waste.

The perception of the risk associated to this power generation means make it difficult to raise

funds necessary to construct new nuclear plants. Though it is true that the kWh of electricity

from nuclear power plants is more expensive than the one from coal-fired plants, the technology

in use at nuclear power stations is the cleanest of both. It helps mitigate the emission of

greenhouse gas. EDF for instance (Electricity of France), the world largest producer of

electricity, generates 85% of its electricity from nuclear (see appendix F). “EDF SA owns and


operates in France the largest nuclear fleet in the world, built by the Group as architect-engineer;

the nuclear fleet includes 58 reactors with three different power levels (900MWe, 1300MWe and

1450MWe)” (Maillart, 2014, p.6). Of course, EDF possesses an important number of highly

qualified engineers and other experienced personnel capable of operating, maintaining and

managing its technologically advanced facilities. Still, many lessons can be learnt from the

France experience. Notably, the strategy of recruiting, training and retaining its personnel, the

research and development unit and the management of its diversified portfolio of power plants

spread out not only in France but also around the world.

Restructuring of Eskom South Africa

Finally, restructuring of Eskom is a better option. Considering the strategic importance of

power generation, Eskom may retain only this “métier” and sell the distribution network to

private companies. The private companies are going to be then responsible for the administration

and maintenance of the transportation infrastructure. Technically two types of distribution

system exists, the high and very high voltage distribution system that might be sold to one

private entity and the low and medium distribution system that could be sold to a different

private organization. This dismantlement is for the great of good because it has the virtue of

opening the distribution system to more competition, less regulation and improve the quality of

service to end users (residential and various industries). That’s why allowing private owners to

sell into Eskom power grid is already a good start. Ultimately, municipalities should no longer

buy energy and resell it as they are bad payers and own important debt of Eskom.

Besides being an operation to improve the quality of services that are rendered to end

users, restructuring Eskom enable to raise the funds necessary to finance the plan of building

new power plants (renewable and nuclear) and train personnel. The virtue of this restructuring is


also to diminish sensibly government interference and risk of poor management. Ultimately the

South African government should no longer be the only shareholder of Eskom; the partnership

between Air France and KLM is inspiring.

In conclusion, root causes that have been uncovered and analyzed throughout this

research demonstrate the importance of having the right managers, right employees and well-

elaborated policies. The more the research went on, the more it has become clear that ethics

values, sense of abnegation, skills, leadership and corporate governance are the missing

components, which have led to planning failure and the current power supply crisis. Top

managers and executives should embody servant leadership philosophy. “While traditional

leadership generally involves the accumulation and exercise of power by one at the “top of the

pyramid,” servant leadership is different” (Greenleaf, n.d.). Servant-leaders empower others and

seek emergence of new leaders who are public servants. Indeed, “Servant leaders exemplify

virtue ethics management, which is deemed ‘absolutely essential to the long-term competitive

success of the firm’ (Jaramillo, Bande & Varela, 2015, p.110).

The South African government responsibility in this crisis is evident. Instead of blaming

others for their mistakes, the current cabinet should recognize its deficiency and implement

realistic corrective action. There are too many plans and interim plans, meaning, a waste of

taxpayers’ money and a waste of time. Being focus enable to resolve the key problem in an

efficient way. The incidence of the culture at the top on the whole organization is so important

that it is crucial to appoint ethical executives and thus, have servant leaders at both Eskom and

government level. Competent managers know how and when to plan, organize, lead and control.

The research and analysis has proven that from all the way to the top, servant leadership

philosophy can make a difference. “Servant leadership differentiates from other leadership styles


on two critical aspects: ‘the prioritization of subordinates’ and ‘ethical behavior’” (Jaramillo,

Bande & Varela, 2015, p.108).

In light of the above elements, failure to plan ahead back in the 2000s is then a logical

consequence of not only the apartheid legacy but more importantly a combination of wrong

assessment and inadequate policies. The truth hidden from the public is pretty much

embarrassing to say but put simply, some ministers were incompetent and the ANC was still

learning what it takes to be State men and State women. In other words, South Africa has a

deficiency of the most important factor for its ambition, a well-educated and skilled workforce.

The above recommendations can contribute the efforts that are deployed in order to turnaround

Eskom and solve the power supply crisis.


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APPENDICES

Appendix A


Appendix B

Appendix C


Appendix D

Southern Africa power grid interconnectivity


Appendix E

South African Reserve margins trends (1999-2015)

Comments: The collateral effect of the global economic downturn in 2008 led to the first South

African post-apartheid economic recession (2009) resulting in slowing electricity consumption

and consequently offering some relief to the electric network. Following the weak recovery of

the South African economy, the reserve margin is diminishing again. In 2015, the rolling black

out is back caused by several power stations being off line (due to maintenance backlog) and

delay in construction of new of new power plants.


Appendix F


Appendix G

Map of French nuclear power plants

Documents

Simon-Christian ESKOM South Africa