The CEO of South Africa’s power utility is back. Why the move can’t be justified

To be sure, Molefe still had to ensure that Eskom continued to get the basics right. Theres little evidence that he did more than that. Instead, it seems that his predecessor, Tshediso Matona, was excessively negative in his outlook. This set up Molefe to appear as though he had pulled-off a dramatic success.

Molefes bailouts

What of the improvements in Eskoms financial situation?

The view that Molefe was behind Eskoms short-term financial turnaround was used to award him a R2.5 million performance bonus for the year ended 31 March 2016. (Molefe appears to have secured a R30 million retirement package when he tendered his resignation. Under the terms of his return to the job this will now no longer be paid.)

But a closer look suggests that Eskoms financial improvement cant be attributed to Molefe. In many respects it was the result of extraordinary support afforded to the power utility by the government in 2015.

This support, facilitated by two special appropriation bills passed by Parliament, had two main components. The first was an equity injection through which the National Treasury under which Eskom received R23 billion in exchange for shares. Since government is the sole Eskom shareholder, this translated into a straight cash gift.

The second component was even more significant. This involved government writing-off a R60 billion loan which had been approved in 2008 and disbursed in multiple tranches between 2008 and 2010.

If we treat Eskom as a genuinely independent entity, the full cost to national government and therefore the taxpayer of writing off the loan had two parts:

the remaining principle amount (around R30 billion), and

an additional R86 billion, the estimated cost of the state foregoing interest payments on the loan. According to the loan conditions, Eskom would have been required to pay this interest in the event that its financial situation improved.

Whether this financial support was desirable depends on your view of Eskoms recent history. Many analysts agree that additional government support was overdue. But in relation to Molefe it raises a simpler question: if many of the improvements in Eskoms financial ratios were due to massive transfers of cash and assets from taxpayers, did it make sense to pay its CEO a bonus that effectively also came from taxpayers?

Either way, closer analysis of Molefes supposed successes reveal that they are not what they have been made out to be. Combined with the failures of corporate governance with which he has been associated, the case for reappointing him as Eskom CEO appears to be paper thin.