Insufficient oversight gives Eskom a free ride

By Time of article published Nov 23, 2012

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There is little doubt that state-owned enterprises can be successful. Theoretically they can provide services at a reasonable price and spread those services.

If Parliament – as defender of the interests of the shareholder, the state – is of sufficient standard as an oversight mechanism, the interests of the voter and taxpayer can also be part of the mix.

Eskom, interrogated by the trade and industry committee this week after releasing its interim results, is reasonably sound on paper. It turned a hefty profit of R12.6 billion in the six months to September.

Yet there are many clues that all is not right at Megawatt Park. Less electricity was sold, but revenue rose from R64bn to R73bn in the six months compared with last year. Warnings by various parties that driving up the cost of electricity will bleed the nation, cut jobs and de-industrialise the country have fallen on deaf ears.

Even ANC MPs on the trade and industry committee have pointed out that this is already happening. The drop in sales to the industrial sector is also evidence of this. Eskom chief executive Brian Dames reported that Eskom’s electricity sales for the period, 110 766 gigawatt-hours (GWh), were down from 114 043GWh. But electricity revenue was R72bn (2011: R63bn). Industrial consumers used 23 percent, or 26 220GWh, of the total. This is nearly 26 percent less than the same period last year.

Coal prices have risen 18 percent a year for the past three years and in the first six months of this financial year – although the commodity’s global prices fell. Now chief financial officer Paul O’Flaherty, an exceptionally skilled accountant, will bow out next July. One suspects that even if he did have a “high road” vision for the group, he sure didn’t show it publicly. He may have tried to do so behind closed doors – such as proposing increased privatisation of significant slices of the generation and distribution elements to promote competition – but one just doesn’t know.

The mechanisms to keep parastatal managements accountable are extremely weak, but the ruling party is hellbent on expanding the role of the state in the economy. The party’s argument that much of the work of the parastatals would simply not be feasible – and profitable – for the private sector has a certain validity.

However, South Africa has a deepening problem with the quality of oversight. Whereas private sector firms have boards that can be held accountable by their private shareholders and shareholder activists, public firms such as Eskom, Denel and Transnet are answerable to their principals and Parliament’s portfolio committees. So Eskom finds itself defending its financials at these committees.

Public Enterprises Minister Malusi Gigaba has already backed Eskom’s proposed 16 percent year-on-year increase for the next five years, so there is little chance that any ruling party MP serving on a portfolio committee will challenge this figure. Opposition MP Geordin Hill-Lewis described this hike as “dangerous” – potentially stripping jobs while at once sabotaging the chances of economic growth.

Parliament just doesn’t have a sufficient pool of talent to hold the parastatals – and their principals, the ministers – to account. For example, one ANC MP on the trade and industry committee, Gaolaolwe Selau, says the way to sort out the problem of a multitude of tariffs charged is simply to apply the highest rate. Most ruling party MPs appear to neither read the documents nor understand the financial statements.

It can make one laugh, but it is evidence of a serious governance fault line.

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