About a year before the huge power cuts that crippled much of the economy in January and February 2008, Eskom invited editors and broadcasters to an off-the-record breakfast briefing at its Megawatt Park headquarters.
The 2007 meeting was hosted by outgoing CEO Thulani Gcabashe, supported by several senior executives, including the man appointed to succeed him, Jacob Maroga. Gcabashe confirmed that the country was facing a power generation crisis, and that Eskom expected that supply would not meet demand at some point in the coming winter.
Gcabashe warned that Eskom would manage the shortage by resorting to staggered power cuts, which he called "rolling blackouts". When asked whether major customers had been consulted, and if communication plans for all consumers had been drawn up, Gcabashe gave assurance this would be done.
Bobby Godsell
The 2007 winter was unexpectedly mild and a power shortage was avoided. As time passed and summer approached, Gcabashe's briefing was largely discounted or forgotten by the media.
That was understandable - but the trouble was that the Eskom board and executives also apparently suffered amnesia regarding their own briefing.
In late January 2008, unseasonable cold weather, heavy rains and managerial incompetence combined to produce the crisis that Eskom had warned of - but precisely when it was least expected. Electricity demand rose sharply at a time when planned maintenance was being done on some power stations.
Jacob Maroga
And the rains hindered many coal deliveries, which forced the revelation that stockpiles at some power stations had been deliberately run down.
Executives had apparently been given financial rather than operational bonus incentives, and - surprise, surprise - they treated the stockpiles as mere inventory rather than a vital reserve. This alone hinted strongly at a board whose collective eye was off the ball.
The economy almost ground to a halt, and the mining industry actually had to shut down for a few days. Eskom's response - from its confusing and unreliable schedules for power cuts ("load-shedding" was the euphemism that replaced "rolling blackouts") to the absence of a full-time spokesman - indicated that it had not, after all, planned for the crisis.
And it later emerged that its customers in the mining industry had not - despite the passage of nearly a year - been consulted on how power cuts might be implemented. Apart from anything else, the careless disregard for safety and the logistics of underground mining was astonishing. Again, that the Eskom board allowed this suggested a colossal dereliction of duty.
Victory has a thousand fathers and defeat is an orphan, according to the Chinese saying, and everybody found someone else to blame. The body that was legally accountable, the board (chaired at the time by former cabinet minister Valli Moosa), was conspicuous by its invisibility during the emergency.
Thulani Gcabashe
This supine role was a symptom of something deeper. It is no exaggeration to say that SA's electricity crisis is essentially the product of a profound failure of governance (without discounting the role of individual incompetence).
The main virtue of state ownership of a utility is that strategy can be pursued without deferring to the profit motive. Yet government not only failed to ensure that Eskom's capacity was maintained and expanded, it ignored its own specific policy initiatives. Either the ministers responsible did not read the 1998 white paper that predicted Eskom's electricity generation would be inadequate by 2007; or they did not promote it with sufficient vigour in cabinet; or cabinet could not be bothered to apply its collective mind.
And the excuse that Eskom's expansion was put on hold while privatisation was being considered was always a red herring. Once it became clear, in the late 1990s, that the private sector was not biting (because tariffs would be capped), there was no reason to stop Eskom going ahead with new power stations.
As far back as 1997 Eskom realised it would need heavy investment in new power plants - many of them with a 10-15-year lead time - to meet future needs. Instead, during Jeff Radebe's term as public enterprises minister (1999-2004), we got five wasted years. President Thabo Mbeki acknowledged this when he apologised to the nation. Only after the 2004 election, with Alec Erwin as minister, did Eskom finally get the green light for investment.
The relationship between government and the boards of its major enterprises - Eskom, Transnet, SAA, the SABC, Armscor - has in every case turned out to be destructively ambiguous. Though the boards are expected to be accountable for operations and execution of mandate, they inevitably defer when their single powerful "shareholder" flexes its muscles.
In Eskom's case, executives did advance cogent warnings to government about generation capacity. But they were let down by their nonexecutive directors, who were evidently nervous of pushing the point too hard. Instead of going to the media and big stakeholders in business to raise the alarm - or, when all else failed, resigning - they sat tight and continued to collect their handsome fees. They failed the country.
The Public Finance Management Act doesn't help, because it provides that government can directly appoint both the board and the CEO - a perfect recipe for blurring responsibility. Such a law constitutes an escape clause when either government or the board wants to evade responsibility.
It is in government's hands to sort out the mess. Either it must change the law, giving up its power to appoint CEOs, or it must abolish the boards and have the executives report directly to the director-general of the relevant departments of state. As things stand, government wields power without responsibility; the boards have responsibility without power.
The boardroom struggle at Eskom had a bizarre ending. The chairman, Bobby Godsell, felt compelled to resign because he did not get government's support for his board's decision to let Maroga go - yet government ended up endorsing that decision. Perhaps the most telling statement came when Maroga referred to an assurance of support from "the shareholder at the highest level", which can only have referred to a bypassing of the board by the CEO.
In a listed company, the directors' main fiduciary duty is to protect the interests of shareholders, who own the company. Yet in the case of a state-owned enterprise, the directors' duty is in effect to the citizens of the country. A listed company's purpose is to maximise profit, whereas Eskom's purpose is to keep the lights on. Ironically, it performed this role admirably when it was unambiguously a department of government.
That clarity needs to be restored. The Eskom board needs to be held accountable, but that can happen only if it is fully empowered. It is to be hoped that this will be the legacy of the Godsell/Maroga episode.
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