Eskom’s next chapter: ‘Our goal is to align tariff increases with CPI’

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JIMMY MOYAHA: On Friday Minister of Electricity and Energy Kgosientsho Ramokgopa confirmed the reappointment of the Eskom chair, Ntate Mteto Nyati, for another three years of leading the Eskom board. That three-year tenure would begin on the 1st of November 2026, ending in October 2029.

We’re going to look at this in a more detail with the board chair of Eskom. Ntate Mteto Nyati joins us on the line now to see what we make of this. Ntate Nyati, lovely having you on the show. Thanks so much for taking the time.

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Congratulations are in order, I suppose. You joined the business at a very difficult time in 2022, when we had Stage 6 load shedding. Fast forward – four years later the business looks vastly different from what it did back in September 2022. But I can imagine the work isn’t yet complete.

MTETO NYATI: Yes, the work is not complete. But when we look back it gives us a lot of satisfaction to see what we see.

The first thing is that in terms of financial health the business is strong. Looking at our balance sheet, our net-debt-to Ebitda has come down from 16x to around about 4x.

When we look at the profitability of the organisation, for two years in a row we have been profitable.

Look also at the morale of our staff; it is at an all-time high.

Those are all good inputs that set us up well for where we need to be going as a company.

JIMMY MOYAHA: Ntate Nyati, let’s take a look at some of the challenges that still persist within the state-owned entity that we know to be our power utility provider. We still have that problem with legacy municipal debt that doesn’t seem to be getting any better.

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From an Eskom perspective we know that a key part of being able to turn around the organisation was the National Treasury taking on that R254 billion worth of Eskom debt over the last couple of years.

From a business perspective, from an operating perspective, how is it that the business is looking to continue with its strategy – or redefine its strategy – going into I suppose what would be considered your second tenure as chair?

DR MTETO NYATI: Yes. So, one of the reasons why a company would seek a bailout is because it’s unable to stand on its own two feet.

For a long, long time this company was making losses. For two years we have been making profits, but for seven years before that we were making huge losses. That’s why Eskom was unable to take care of itself.

What we always have to do is to make sure that we are profitable; that’s the first thing to do.

The second thing is that, when we are owed money by anybody, we should be paid that money. We’ve seen the City of Johannesburg paying us the R4.5 billion. This is a good start. We need to be seeing many other municipalities doing something similar.

To get to that point, we would need the support of a number of departments – National Treasury being one of them, and Cogta [Department of Cooperative Governance and Traditional Affairs] being another department.

The Department of Electricity and Energy is another department that is going to be required for us to come up with permanent solutions to the municipal debt problem.

The good thing is that we all now are aligned that this is something that needs to be sorted out – and we are already implementing some of the solutions.

JIMMY MOYAHA: Ntate Nyati, I want to take a look at other areas of alignment for Eskom as a business. The parastatal at one stage was the cheapest producer of bulk electricity in the world.

Today retail consumers of electricity are paying over R3.70 per kilowatt hour, which makes the market relatively expensive.

I want to get your thoughts around how Eskom continues to balance that aim to be profitable and sustainable as a business with the need to provide affordable electricity.

The minister did allude to the fact that we want to increase the number of households that have access to free electricity, and I can imagine this puts your business in a particular pickle – having to balance profitability with the social needs.

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DR MTETO NYATI: Not really. It doesn’t because it’s called ‘free basic electricity’, but that does not mean that it’s free.

There is no such thing as a free lunch – someone has to pay for it. So government was paying and continues to pay for that, but that amount of money used to go to the municipalities; it never found its way into Eskom.

The minister is on record as saying that, going forward, he would like that money to go directly to Eskom. To the consumer it’s free; but the amount itself, that free amount, someone pays Eskom for it.

So how do we drive down electricity prices going forward?

We have set ourselves a very big target to reduce the costs of running Eskom, and we have given our management a target of about R112 billion that they need to take out of the cost base of Eskom.

We have gone a year with that, and management has been able to deliver and in fact exceed the target that we’d given them for that year. This is a five-year programme that will take us to a point where we have significantly reduced the cost of Eskom.

We have made a commitment to the public of South Africa that, going forward, our prices, our tariffs – the intention is that the tariffs should have a single-digit increase, not what we’ve seen in the past where we’ve seen double-digit increases.

And the goal that we would really like to achieve – although this is not what we are committing to here – is that we need to align the increases to CPI.

But that will all depend on the work that is being done by management to reduce the cost of running Eskom, and our job as the board is to hold management accountable to that.

So that is the commitment that we are giving to South Africa.

JIMMY MOYAHA: Ntate Nyati, before I let you go, can we take a look at the commitments made back in 2019 by the President of the Republic, at his State of the Nation Address, that we would be unbundling Eskom into three separate entities?

This has been quite a contentious topic over the years, drawing many conversations around whether or not it is sustainable.

From a board perspective, with you as the board chair, I want to get your thoughts around where it is that we stand on this plan. Obviously you’ve mentioned in the past that you want to make sure that, if we are to pursue this avenue, it would be pursued in the most beneficial manner.

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Where do we stand on the unbundling of Eskom – at least going into the next couple of years?

DR MTETO NYATI: The unbundling of Eskom is a policy that was taken by our government I think in 2019 – and it has been slow coming.

But when this board came in, we were able to start to accelerate it. In fact, just over two years ago we were able to unbundle the National Transmission Company of South Africa.

It is a separate entity that has its own board, and is very independent.

So what the current discussion has been about is taking that company completely outside Eskom holdings.

Again, it’s not something that we are [not] in support of – we are in support of that 100% as the board, and we were just being cautious in saying that in doing it we need to make sure that we do not increase some of the risks that may make Eskom unsustainable.

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The good thing is that all of the players now are in agreement on how to manage these risks, and you may have heard National Treasury, together with DBSA [Development Bank of SA], announcing that they are looking for advisors that can help us navigate all of these risks that have been identified by Eskom.

As the board we see that as a positive step that will first help us to all be on the same page, and secondly, help us manage the risk so that we do not put Eskom in a position that is worse off than it was before we started the unbundling.

So we are in a good space. The key players, all of the players that matter, are in in alignment. The process now is really about implementing that.

JIMMY MOYAHA: Managing risk and finding an alignment that benefits the people of South Africa – the Eskom board have their mandate, and they plan on continuing to execute that mandate as delivered to them.

We’ll leave the conversation on that note. Congratulations once again on the reappointment of the chair of the Eskom board, Ntate Mteto Nyati, who joined us to take a look at his reappointment and the focus of Eskom going into his second tenure.

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