State-owned power utility Eskom needs to be operated more like a private-sector business by people who have knowledge of the energy sector, experience in bureaucratic processes, business acumen and political influence, says global growth consulting firm Frost & Sullivan.

“Bringing politics into business is unfortunate, but it is the current landscape . . . in South Africa,” says Frost & Sullivan energy and environment programme manager Johan Muller.

He points out that, with Eskom regularly being in the news in the past two to three years, the company was forced to do introspection regarding the operational and strategic aspects of the business.

“There are multiple incremental advances that should and could be made within Eskom and externally . . . to advance the business,” comments Muller.

He highlights that such advances could include improved management of the way in which Eskom informs the public of the reasons for tariff hikes and load-shedding, as well as better project management by Eskom to ensure that large-scale projects – such as the coal-fired Medupi and Kusile power stations – are built within budget and according to schedule.

“Other advances include the enforcement of penalties, which will lead to the creation of an environment of excellence where mediocrity is not tolerated.”

Muller suggests this attitude is needed to protect South Africa against further price hikes and load-shedding, should these projects not be brought on line in time and within budget.

He further notes that South Africa is being challenged as an investment location of choice by other developing nations such as Mexico, Indonesia, Turkey, Brazil, India and China; thus, the need to remain vigilantly competitive while remaining sustainable as a collective is necessary.

“South Africa cannot at this stage afford businesses to close their doors or move their operations to other global locations, owing to cheaper electricity input costs, when this could be avoided through implementing sound business principles,” Muller comments.

Private-Sector Involvement

Muller says there will always be a degree of resistance when a monopoly is being demonopolised, but adds that the introduction of the private sector into certain areas of power generation should be seen as positive because Eskom has been the largest State-owned power utility in Africa for decades, owing to many power generation, transmission and distribution functions residing within the utility.

He notes that this will allow Eskom to have more flexibility to focus on other areas of the power value chain, highlighting that, with the massive cost overruns of the new coal-fired power stations, various budgets, such as research and development within Eskom, have been cut to accommodate the new builds.

“The increased levels of private-sector involvement in the South African energy landscape should be embraced and should be seen, especially by Eskom, as an opportunity to learn and transfer skills to the company from global best practice.”

Muller points out that several of these private- sector companies are from the US, Germany and Japan, among others, which contribute experience in strategic energy planning, best practice in grid integration, supply and demand grid management, and energy efficiency initiatives. He adds that, even if only anecdotal, the lessons and experiences from developed countries should be embraced and integrated into the Eskom business, where relevant.

He further suggests that greater transparency will also lead to greater responsibility and increased accountability of Eskom staff members and this will also assist external service providers in mitigating challenges.

“I believe in the idea of collective thinking and there are several private-sector players – whether . . . service providers, consultants or academics – that have excellent ideas to help solve Eskom’s current crisis,” Muller says.

Moreover, he points out that, currently, the large number of independent power producers (IPPs) getting involved in providing energy solutions is most beneficial for Eskom, as the private sector is funding new generation capacity. He asserts that this enables Eskom to focus on attaining its core business functions, coal-fired power, aligning its cable business and using available funds for the refurbishment and maintenance of current power stations or other assets like transformers and substations.

Focus Areas
Muller asserts that Eskom is evolving from a traditionally centralised model to a decentralised model.

“With power increasingly being generated closer to the source of the end-user, whether by large industrial users or residential end-users, it is vital for Eskom to adapt to this new landscape,” he says.

He further states that this does not mean a total independence in the power generating space, but rather an increased focus by Eskom on its cables business. It will also enforce the notion that Eskom should be one of the key facilitators of interregional trade among South Africa, Mozambique and Namibia, as well as other neighbouring countries, he adds.

Muller suggests that the only way to do so is by working closely with neighbouring countries’ utilities and IPP offices.

Additionally, he says that, as a secondary focus, Eskom and South Africa’s other parastatals should be scrutinised from an operating model perspective. The departments and individuals of the parastatals and Eskom should be streamlined, as this would benefit the energy sector internally and externally in the long term.

“[T]o ensure sustainability and efficiency, there is a need for Eskom to move towards cost-reflective tariffs, manage the company like a private-sector business, focus on individual performance while balancing service delivery, adapt the Eskom business model to the changing energy landscape and create an environment of excellence,” he concludes.