Business

Politics killed our SOE bosses: ‘Too much interference’ as SAA, Eskom CEOs quit

2019-06-11 05:51

The common threads that unite the departure of the chief executives of Eskom and SAA are political interference, excessive bureaucracy and a lack of support from the government for these state company bosses.

The announcements of the resignation of Eskom CEO Phakamani Hadebe, followed by SAA head Vuyani Jarana, came just days apart.

In apparent recognition of the need to expedite the turnaround of state-owned enterprises (SOEs), President Cyril Ramaphosa held a meeting with the chief executives of more than 20 of the country’s SOEs last week, in which they discussed the challenges inherent in implementing their respective mandates.

One of the SOEs represented at the meeting was the Trans-Caledon Tunnel Authority (TCTA), which finances and implements bulk raw water infrastructure projects.

TCTA spokesperson Wanda Mkutshulwa said that Ramaphosa was looking at ways to change the fortunes of government. Key to this was improving the performance of SOEs.

“The president promised that he would delve deep into the issues presented to him in order to understand the real picture on the ground,” said Mkutshulwa. “He also expressed an interest to visit each SOE.”

But despite Ramaphosa’s attempts to understand the plight of the SOEs, government continues to undermine them.

Jarana said as much in his resignation letter.

He wrote that the government’s lack of commitment to fund SAA had undermined the airline’s implementation of the turnaround strategy, “making it increasingly difficult to succeed”.

In addition, Jarana wrote: “Lines of accountability are becoming increasingly blurred, creating uncertainty about what operational decisions are my domain, which are the board’s domain and which are the minister’s [Public Enterprises Minister Pravin Gordhan’s] domain. Trust levels are very low, thus impacting ways of working.”

This flies in the face of good corporate practice as decision-making processes are confounded, explains Parmi Natesan, CEO of the Institute of Directors in Southern Africa.

“Because of their overwhelming power, ministers should be careful not to undercut the boards they appoint, thus rendering them ineffective,” she said.

“A board that cannot set its own course cannot, in the end, be held truly accountable.

“Another common governance challenge is that the minister often appoints senior executives directly, thus creating a lack of clarity in terms of reporting lines, and making it difficult for boards and management to work constructively together.

“This relationship between an all-powerful shareholder and an independent board is a delicate one, and ministers should try to get it right. Only then can they truly hold a board accountable for its decisions and the performance of the organisation –without encroaching on its role.”

In concluding his letter of resignation, Jarana said: “Given all these matters, the strategy is being systematically undermined … I am no longer able to assure the board and the public that the long-term turnaround strategy is achievable.”

On Friday, SAA announced that its general manager for operations, Zuks Ramasia, would be its latest acting CEO.

Dirk de Vos, the director of corporate finance and advisory firm QED Solutions, said Eskom and SAA chief executives had impossible tasks as both SOEs had failed and were in dire straits financially.

An Eskom insider said Gordhan had undermined Hadebe and the Eskom board by interfering in the the technical aspects of the power utility, including its power stations and the way they functioned.

“If someone like Gordhan is unhappy with the board, he should fire or change the board and not get involved in the direct management of Eskom,” said the source.

“Once the board is appointed, it should be independent and free to appoint the Eskom CEO. That principle of independence of the board has been breached.

“There is too much political interference in SOEs. This is particularly true when it comes to appointing the right people to head these entities.

“Political appointees are imposed, rather than the right people being appointed for the job.”

Chris Yelland, the managing director and investigative editor at EE Publishers, said that, while he agreed that there had been political interference at Eskom, he understood how Gordhan needed to get involved at the power utility when the company was clearly failing, especially when load shedding had hit stage four.

Eskom has officially said that Hadebe resigned because of job pressures, which had taken their toll on his health.

Phakamani Hadebe. Picture: Felix Dlangamandla

However, Yelland suggested three key reasons for why Hadebe resigned.

Firstly, said Yelland, the dire financial position in which Eskom currently finds itself would require further bailouts – far beyond the R23 billion a year that the government had undertaken to provide the power utility with for the next 10 years.

In addition, Eskom was set to report the largest loss in its history – amounting to about R25 billion for the year ending March, Yelland said.

Secondly, he cited the fact that Hadebe was largely a “numbers” person rather than people oriented, and having failed to win the confidence of Eskom staff and his fellow executives would have put him under pressure.

“Hadebe was a money man rather than a people’s person, and it looks like he failed to inspire people at Eskom.”

Hadebe previously worked at National Treasury, turned around the Land Bank and was a top executive at Absa.

It would appear that, ultimately, Hadebe became quite isolated within Eskom and that his management style was met with hostility by the Eskom workforce.

Thirdly, Hadebe could have also thrown in the towel over uncertainty about his position, given the planned inclusion of a chief restructuring officer at Eskom, as well as other oversight bodies.

“Once the board is appointed it should be independent and free to appoint the Eskom CEO. That principle of independence of the board has been breached,” the source said

“There is too much political interference in state owned enterprises.”

“This is particularly true when it comes to appointing the right people to head SOEs. Political appointees are imposed rather than the right people for the job.

The culture of interference happens right across all the SOES. This happens via the ANC deployment committee, which chooses which people, largely for political reasons, head up SOEs, rather than choosing people on the basis of their skills and experience.

SOEs need the right people at the top for them to be managed properly.”

“President Cyril Ramaphosa’s move to appoint a new Eskom board in February 2018 including a new CEO and chairman – provided some short term benefit as a number of corrupt people were kicked out of Eskom but that short term benefit hasn’t lasted,” the source said.

Chris Yelland, managing director and investigative editor at EE Publishers, said that while there had been political interference at Eskom, he understood how Gorhan needed to get involved at the power utility when the company was clearly failing.

This was particularly the case when Gordhan would have been under pressure, especially given the devasting effects of the power cuts on the economy, which have been laid bear by the 3.2% contraction in the economy in the first quarter.

Eskom has officially said that Hadebe resigned due to pressure of the job and its impact on his health.

However, Yelland said he thought there were three key reasons why Hadebe would have resigned.

Firstly, the dire financial position that Eskom finds itself in that required further bailouts even beyond the R23 billion a year that the government had undertaken to provide the power utility for the next 10 years.

In additional, Eskom is set to report the largest loss in its history of about R25 billion for the year ending March, Yelland said.

The latest Eskom financial results were likely to show that the power utility was at a very critical point and that it was no longer a going concern.

Usually, Eskom issued its annual results in June but given the state of the state company – the releasing the results were likely to be delayed until the issues related to Eskom’s financial position were resolved, Yelland said.

Secondly, Yelland said that fact that Hadebe was largely a ‘numbers’ person and had failed to win the confidence of Eskom staff and his fellow executives would have put him under a lot of pressure.

“Hadebe was a money man rather than a people’s person and it looks like he failed to inspire people at Eskom”. He previously worked at National Treasury, turned around the Land Bank and then was a top executive at Absa.

It would appear that ultimately Hadebe became quite isolated within Eskom and his style of management was met with hostility by the Eskom workforce.

Thirdly, Hadebe could have also thrown in the towel due to uncertainty about his position given the planned inclusion a chief restructuring officer at Eskom as well as other oversight bodies including the Eskom presidential task team and the Eskom technical review team.

These factors in particular would have placed a lot of stress on Hadebe and would have ultimately led to his resignation.

At the same time, Eskom is a high politicised entity where major decisions at the power utility often become political decisions made by ministers or even the president, Yelland said.

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December 15 2019