South Africa Set to Recruit ‘Bad Cop’ to Oversee Eskom Rescue

(Bloomberg) -- Of all the executives, government officials and consultants being recruited to tackle the mammoth task of rescuing South Africa’s state power utility, the toughest task could fall to the person who has to take it apart.

President Cyril Ramaphosa last month said a soon-to-be appointed chief restructuring officer will be “expected to re-position Eskom financially with careful attention to the mix between revenue, debt and cost structure of the company.” That euphemistic job description skirts around what the person will inevitably have to do: fire thousands of workers, split it into three units and help reorganize a 440 billion-rand ($31 billion) debt mountain.

“They’ve got to have a guy who’s going to be the figurehead, the bad cop” to deal with over-staffing and take the other difficult decisions, and that’s likely to be the CRO, said Andrew Levy, managing partner of Andrew Levy Employment, which advises companies on labor relations. “The politicians -- whether it’s Cyril or cabinet or anyone else -- can’t be seen to be in this arena, it’s too dangerous politically.”

While Eskom says about a third of its 48,600 workers are superfluous, powerful labor unions that are allied to the ruling party and played a key role in helping Ramaphosa win power oppose job cuts. About 5,000 workers may take severance packages, according to a person familiar with recommendations presented to the presidency. That would leave around 11,000 who’ll have to be forced out. Those recommendations haven’t been made public.

The unions also opposed plans Ramaphosa announced in February to split Eskom into generation, transmission and distribution units under a state holding company, fearing it will be the precursor to job losses and privatization. The government says the breakup will make it easier to manage the utility, which isn’t selling enough power to cover its costs and is contending with massive construction cost overruns on its new plants. Eskom is expected this month to report a loss for the financial year ending March 31.

“It’s difficult to restructure without retrenchments,” said Livhuwani Mammburu, a spokesman for the National Union of Mineworkers, which represents about 15,000 Eskom employees. “If they retrench our members there’s going to be a war.”

Eskom came off second best in a showdown with workers last year. It sought to freeze salaries but was forced to backtrack in the face of illegal protests that shut down several of its plants and resulted in rolling blackouts, after Public Enterprises Minister Pravin Gordhan intervened.

Blank Checks

Eskom and the Public Enterprises Ministry, which oversees state companies, referred queries on the CRO to Finance Minister Tito Mboweni, who declined to answer questions on the appointment. Mboweni previously warned state-owned enterprises that the government can’t keep writing them blank checks and said they have to implement plans to become self-sustaining.

The utility will be the biggest of the state companies to call in a restructuring specialist. South African Airways appointed a chief restructuring officer in 2017, but the carrier remains in dire financial straits and continues to seek government bailouts. There are also plans to appoint a CRO at the South African Broadcasting Corporation, which is also at risk of going insolvent.

The work done by CRO at Eskom could be a harbinger of things to come at other troubled state companies, according to Levy.

“They’re going to take on the unions,” he said. “That’s the curtain raiser” to the wider process of reducing the government’s bloated wage bill, which has left the country deeply in debt, he said.

Read more

• These Charts Show How Much Trouble Eskom Is In
• Eskom’s Quickest Fix Is Giving It Cash Now, Swapping Debt Later
• Eskom Gets Rescue Option as PIC Proposes Debt-Equity Swap

--With assistance from Paul Vecchiatto.

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, ;Paul Richardson at pmrichardson@bloomberg.net, Mike Cohen, Antony Sguazzin

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