Ramaphosa Faces Showdown With Allies as Protests Force Blackouts

(Bloomberg) -- A wage dispute between South African power utility Eskom Holdings SOC Ltd. and its more than 47,000 workers is painting President Cyril Ramaphosa into a corner as he struggles to revive a flagging economy.

Union backing helped Ramaphosa win control of the ruling African National Congress in December, a victory that enabled him to wrest the presidency from Jacob Zuma two months later. Now a fight by some of his labor allies against an Eskom wage freeze has resulted in rolling blackouts and is undermining his efforts to rescue the cash-strapped state company and to consolidate his control over a deeply divided party.

“Capitulating to the unions at Eskom would signal significant political weakness and embolden Ramaphosa’s adversaries, while drawing into question his capacity to deliver on any degree of real structural reform,” Frans Cronje, chief executive officer of the Johannesburg-based South African Institute of Race Relations, said by phone on Friday. “I expect he will have to give up some ground and try and meet the unions halfway.”

Eskom generates almost all South Africa’s electricity and its employees aren’t legally allowed to strike because it provides an “essential service.” That didn’t stop some workers, who are demanding wage increases of as much as 15 percent, from downing tools on Thursday. The utility has been forced to stage rolling blackouts to prevent the grid from collapsing completely.

Cut Costs

Eskom is drowning under 366 billion rand ($27 billion) of debt and is contending with weak demand, delinquent municipalities that don’t pay their bills and allegations that its coffers were looted during Zuma’s almost nine-year tenure. New Chief Executive Officer Phakamani Hadebe plans to reduce the size of its workforce, which has grown about 46 percent over the past decade, to cut costs -- a move that has exacerbated tensions with the unions.

Read more about Eskom’s plans to reduce its workforce.

The National Union of Mineworkers, which Ramaphosa helped found in 1982 and is affiliated to the 1.8-million-member Congress of South African Trade Unions, a member of the country’s ruling alliance, represents the biggest contingent of Eskom workers. The second-largest group belongs to the National Union of Metalworkers of South Africa, which is part of the 800,000-member South African Federation of Trade Unions.

Both unions have said workers shouldn’t be made to suffer because they say Eskom has a bloated management structure, is paying excessive prices for coal and has been forced by the government to buy renewable energy it doesn’t need from independent producers. Solar and wind power is expected to lead to job losses at power plants that use coal as they are phased out.

Zero Percent

“Eskom must give workers their deserved increases,” Irvin Jim, Numsa’s general secretary, said in an emailed statement. “We are united in rejecting Eskom’s provocative zero percent offer.”

Ramaphosa hasn’t commented on the wage dispute and his spokeswoman Khusela Diko didn’t answer calls or messages to her mobile phone seeking comment.

Public Enterprises Minister Pravin Gordhan, who oversees Eskom and other state companies, met with the Cosatu-affiliated unions on Thursday to hear their concerns and explain the fiscal constraints that Eskom and the government faced. He urged all parties to return to the negotiating table.

“It is the responsibility of the Eskom board to determine what kind of wage increase Eskom can offer its employees,” Gordhan’s office said by email. “The minister is in no position to instruct the board on this issue.”

With national elections due to take place around mid-2019, the wage dispute could backfire on the government unless it’s speedily and amicably resolved, said Ralph Mathekga, an independent political analyst based in Johannesburg.

“It’s not going to be easy for the workers at Eskom to believe that the company does not have money, more especially after all the money that was looted and wasted there,” Mathekga said by phone. “It’s not a good idea for Ramaphosa to pick a fight with the unions so close to an election.”

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