Now in its fourth year of operation, the company, which was established in 1999 to provide support services to Eskom Holdings and the local electricity supply industry, is in the process of undergoing an important transformation process.
Largely prompted by the need to prepare the company for the next stage of its evolution as a multibusiness corp-oration, the transformation process, otherwise known as Project Lamda, should, if all things go according to plan, be implemented before year-end.
Dr Enos Banda, who took over the role of CEO from Jan de Beer at the beginning of this year, is currently, with the assistance of Gemini Consulting, engaged in a business analysis and transformation design phase which will ultimately see the company adopt a new business strategy and vision to streamline its mushrooming growth.
A presentation on the transform-ation process as it stands now will be delivered to the Department of Public Enterprises’ (DPE’s) Oversight Committee on Restructuring on Tuesday, July 15, where all affected government departments will be briefed on the ongoing transformation process.
Following the approval of the Eskom board, Eskom Enterprises will then be invited to present its new and final business case to the DPE in August.
The performance-monitoring and benchmarking unit within the DPE will scrutinise the new business case, and a decision from the DPE on whether to accept or reject the new business case is expected in September.
Notwithstanding any alterations to the revised business case, Eskom Enterprises should be able to start implementing its new business strategy and vision immediately after, which means that the company could be operating under its new strategy from as early as January 2004.
But why the need for transformation in the first place? DPE Director (Energy Sector) Justice Mavhungu tells Engineering News that an analysis of Eskom Enterprises’ current structure has highlighted some significant challenges that are facing the company.
These challenges, he says, are clearly reflected in the company’s most recent financial results.
Despite an increase in total revenue from R2,3-billion to R2,9-billion in the 2001 to 2002 financial year and an increase in gross profit from R431-million to R556-million, the company’s net operating income fell from R130-million to R83-million and its net profit from R108-million to R9-million.
These financial results could largely be attributed to the fact that of the company’s 48 business operating units and joint ventures, only five posted significant earnings.
Of these five business units, which include Rotek, Roshcon, Manantali, EON and Enerweb, Rotek and Roshcon were the primary value creators while, on the other end of the spectrum, Eskom’s head office and telecoms businesses alone destroyed more value than was created.
“What is clear from this picture is that not all of Eskom Enterprises’ business divisions are making profits as they should.
“In fact, if the company is to continue in this vein, it would need a significant cash injection in the next 18 months in order to achieve any meaningful growth,” Mavhungu reveals.
“It is this scenario that has really forced the company to take a fresh look at its current structure,” he adds.
In developing a new structure, Banda will have to streamline the businesses to determine which units reflect the company’s core business and which do not.
Those that are considered to be part of the company’s core business will be retained, while all noncore businesses will be disposed of in one way or another.
However, it is not as simple as that.
Choosing which businesses to keep and which to sell could be difficult, as all of them serve a purpose.
Nonetheless, evaluations undertaken to date have suggested that Eskom Enterprises’ new corporate and business unit strategy needs to be more closely aligned to that of Eskom Holdings and Eskom Regulated Services.
Although Eskom Enterprises is an independent subsidiary of Eskom Holdings, in other words it is self- financing and receives no funds from Eskom, the company is a big component of the State-owned utility’s group strategy of preparing itself for the restructuring of South Africa’s electricity industry.
It is already widely known that government plans to place Eskom’s transmission business into a separate State-owned company and that it also plans to sell off 30% of its power generation business to private investors.
Eskom Enterprises’ future growth will thus have to compensate Eskom for the loss of a big part of its local business.
To determine which business units to retain and which to dispose of, Eskom Enterprises’ management is conducting a value analysis of each business unit, in other words, quantifying to what extent each business unit is contributing to the overall financial well-being of the company.
Moreover, each business unit is also being weighed up against the company’s revised business strategy to determine whether it is indeed in line with the company’s core business activity.
In the past, Eskom Enterprises tended to enter into joint ventures, especially in Africa, that were not always in line with its core business.
That is largely the reason why the company has, in the four years since its inception in 1999, acquired as many as 48 businesses and joint ventures.
“Unfortunately, many of these joint ventures, most of which required large initial capital investments, are yet to deliver a decent return on investment, which means that those business units of Eskom Enterprises that are making sizeable profits have to carry the burden of all the loss-making units as well,” Mavhungu explains.
At this stage it is not known which business units will definitely be retained and which will be disposed of.
Some of the less-profitable businesses include Airborne Laser Solutions (ALS), Sapphire Executive Air and Amazing Amanzi, all of which form part of the company’s commercial business unit.
Sapphire Executive Air, a division of Eskom Enterprises that flies both fixed-wing and rotary-wing aircraft, was originally established in Eskom to transport management and engineers to construction sites of new power stations.
ALS, meanwhile, focuses on various levels of surveying and geodesics in sub-Saharan Africa, West Africa, South America and Australia, while Amazing Amanzi explores alternative energy resources.
Engineering News understands that Eskom Enterprises has identified three strategic thrusts to define the overall direction of the company in future.
These are the provision of support services for the electricity supply industry; the development of a global-isation capability to drive the growth of Eskom Enterprises and Eskom as a whole; and new enterprise development and management.
With Rotek Industries, Roshcon and TSI Consulting all forming part of the company’s consulting servi-ces business unit that would provide support services for the electricity supply industry, it is expected that these businesses would likely be retained under the new structure, though in a restructured format Eskom Enterprises is already engaged in restructuring the Rotek/Roshcon group.
Consisting of four divisions, this group operates through two legal entities in the engineering, construction, transport and property sectors.
Rotek Industries owns the Rotek Engineering division and the group’s properties, while Roshcon owns the Roshcon and Rosherville Vehicle Services division.
The restructuring of this group entails the sale of Rosherville Vehicle Services division and the noncore properties owned by the group.
In addition, a black economic empowerment partner is being sought to take up equity in the Roshcon division.
Already active in more than 32 countries, Eskom Enterprises’ future forays into Africa and abroad will be driven by its new globalisation strategy that will not only serve its own interests, but also those of Eskom as a whole.
As for new business developments, new acquisitions will not only have to be in line with Eskom Enterprises’ revised business strategy but also complement Eskom’s main activities in the energy sector.
It goes without saying that the transformation of Eskom Enterprises will bear consequences for the company’s 3 000-strong labour force.
However, Banda has already publicly stated that workers’ representative unions will be consulted throughout the process.
Being in charge of the transform-ation process of a company, which under the leadership of its former CEO, has become a major force in Africa, can prove to be a daunting task.
It seems, however, that the 35-year-old Banda is ready for the challenge.
In an exclusive interview with Engineering News Banda reveals that, following the transformation pro-cess, his short-term goal for the com-pany is to achieve a 14% and an 18% return on equity by 2004 and 2006 respectively.
Ambitious goals indeed, but, drawing on his wealth of experience, Banda believes that these goals can and will be achieved.
Having served as chairperson of the National Electricity Regulator (NER) from January 1999 to September 2000 where he helped to transform the financially-struggling NER into a credible regulator, it seems that he will be more than capable of meeting the challenges of successfully taking the company forward.
Banda sees Eskom Enterprises as a vibrant and formidable competitor in its market sector.
“Our goal is to drive the company on a path towards sustainable business growth, achieving true black economic empowerment (BEE) and equity targets along the way,” Banda says.
Worth noting is that the company has contributed to BEE targets by procuring goods and services worth R279-million from black business in 2002 alone, while it also exceeded its gender equity targets of women in management, professional and super-visory level by achieving 15,7% against the target of 15% for 2002.
In addition, 36,4% of staff on all levels were women against 17% in 2001.
The group acknowledges the contribution it could make in assisting Africa to reach economic self-determination.
“Our principles are inherently embedded in African responsibility and accountability to break the cycle of appalling economic oppression.
“As such, we totally support President Thabo Mbeki’s New Partnership for Africa’s Development (Nepad) initiative,” Banda says.
As a group, Eskom Enterprises is involved in three Nepad projects – the $170-million Tanzania–Zambia Interconnector; the $40-million Malawi–Mozambique Interconnector; and the rehabilitation of the Inga hydro-power dam in the Democratic Republic of Congo (DRC). Although the value of the DRC project is still to be determined, it is believed that Inga has the potential to produce 40 000 MW; enough to light up all of Africa and export to Europe.
As is the case with any other company, Eskom Enterprises has experienced some disappointing setbacks in recent times.
One of the most difficult challen-ges has been in the telecommunications sector, where the company’s foray has been difficult and slower than anticipated.
The delay in establishing South Africa’s second national fixed-line telecommunications operator, in which Eskom Enterprises holds a 15% share, has had a negative effect on the company’s profitability.
Losses stemming from certain acquisitions, such as the company’s stake in Lesotho’s mobile telecommunications, have also been disappointing.
On a more positive note, the company was recently awarded a 20-year concession contract to operate and maintain the Nalubale and Kiiri hydroelectric stations at Owen Falls, in Uganda.
Despite stiff competition, the company was able to outbid competitors Union Fernosa, of Spain, and Tata, of India, to secure this important contract. Another large project includes the rehabilitation of a 100 kV transmission line to Beira, in Mozambique, by Roshcon at an estimated value of $1,3-billion.
In terms of future growth, Banda says organic growth can be expected in niche competences residing in Rotek and TSI.
However, the main growth area, he maintains, will be in the energy sector, with particular focus on electricity, telecommunications and gas infrastructure.
“Africa remains the biggest potential market, especially with regard to the development of interconnections between countries and the establishment of power pools along the lines of the Southern African Power Pool to realise the Pan African Power Grid,” he concludes.
For a more personal glimpse of the man who has been entrusted with the responsibility of leading Eskom Enterprises into the future, it is interesting to note that Banda, who is married with two children, was born in the Limpopo Province on September 24, 1965.
He studied in the US for a number of years, beginning his tertiary education at Franklin & Marshall College where he received his BA Honours in business administration. He further also studied at the Georgetown University School of Law, where he received his LLM with distinction.
He obtained his Doctor of Jurisprudence (JD) at the Case Western Reserve University School of Law and was admitted as an attorney and counselor-at-law in the State of New York.
He is also an Advocate of the Supreme Court of South Africa.