South Africa’s New President and Labor Unions at Loggerheads

Eskom is critical to South Africa. It supplies more than 90 percent of the country's power, has 220 billion rand ($17 billion) of state-guaranteed debt and is often cited as a threat to South Africa's credit ratings, which are near junk status.

South Africa’s New President and Labor Unions at Loggerheads
By Alexander Winning | Reuters | Thu Jul 12, 2018

JOHANNESBURG (Reuters) – A month after Cyril Ramaphosa took the helm of South Africa’s ruling African National Congress (ANC) in December, he called an urgent meeting with then-President Jacob Zuma and senior ministers to save state power firm Eskom.

Ramaphosa understood sweeping changes were needed at the struggling utility company. He persuaded Zuma to replace Eskom’s board and name a new chief executive to appease investors such as the World Bank, according to an official at the meeting.

It was Ramaphosa’s first major policy intervention since becoming ANC leader and signaled a determination to reform Eskom, a company nearing breaking point after a string of corruption scandals during Zuma’s nine years in office.

Eskom is critical to South Africa. It supplies more than 90 percent of the country’s power, has 220 billion rand ($17 billion) of state-guaranteed debt and is often cited as a threat to South Africa’s credit ratings, which are near junk status.

“If Eskom were to collapse, it would be a catastrophe for generations to come,” said the official, who declined to be named. “Ramaphosa explained to Zuma that it was time to act.”

Ramaphosa still faces a battle keeping Eskom afloat: new instances of fraud under the firm’s previous management are still being uncovered, a sluggish economy means demand for power is tepid and powerful labor unions are likely to resist change.

But what may help Ramaphosa is a realization in the upper echelons of the ANC that Eskom is no longer untouchable, sources in the ruling party said.

Since replacing Zuma as president in February, Ramaphosa has pressed on with reform, surprising many with the speed at which he is addressing problems at Eskom that have festered for years.

Ramaphosa appointed respected former finance minister Pravin Gordhan to guide turnaround efforts, directed new executives to produce a plan to stabilize the company’s finances and halted a nuclear deal supported by Zuma that could have saddled Eskom with billions of dollars of additional debt.

Asked for comment about Ramaphosa’s role in efforts to reform Eskom, his spokeswoman Khusela Diko said the president met regularly with Gordhan to discuss Eskom and that revamping the company was a priority.

A spokesman for Zuma was not available for comment.

‘NO OTHER OPTION’

Eskom also employs 47,000 people and has powerful labor unions, some allied with the ANC and others more militant, that have said they will resist attempts to cut the workforce and fight moves to privatize the company.

However, ANC sources say Ramaphosa has secured the backing of senior figures in the ruling party for a radical overhaul of Eskom, one which will involve attracting greater private investment into the electricity supply industry.

“From an ideological standpoint, Eskom presents a real challenge for the ANC,” said a source in the ANC executive close to Ramaphosa. “Greater private sector involvement does not sit well with some in the party, but there is no other option.”

The official involved in the meeting with Zuma, who holds a senior position in the ANC, said there had been a discussion about which assets should be considered “non-core” and sold.

The idea that outside investors may be needed to save the company is a dramatic shift for a political party that has rejected any form of privatization of Eskom for years.

The desire for change is partly driven by a realization that Eskom is more fragile than many believed. The situation came to a head in November when the World Bank held a flurry of meetings with senior government officials.

Eskom had less than 10 billion rand of cash, commercial banks had suspended lending and government officials feared the World Bank might do the same at a time when South Africa’s last investment-grade credit ratings were hanging by a thread.

Eskom spokesman Khulu Phasiwe said the World Bank expressed “concerns on progress made on a specific project” at a meeting with Eskom executives and also raised governance concerns but had not told the company it planned to withdraw funding.

A senior World Bank official said Eskom, which has borrowed $3 billion from the bank for projects including the Medupi coal-fired plant and renewables ventures, had not defaulted on World Bank loans and the lender did not threaten to suspend lending.

‘WAR ROOM’

Attempts to sell off parts of Eskom will be vehemently opposed by some labor unions and conservative sections of the ANC wary of relinquishing control over parts of the power grid.

The National Union of Metalworkers of South Africa (NUMSA), a militant group with several thousand Eskom workers, has called for a meeting with Gordhan, Finance Minister Nhlanhla Nene and other unions to discuss Eskom.

“We are vigilant about plans to restructure state firms because that usually leads to job losses,” NUMSA general secretary Irvin Jim said. “We reject privatizing Eskom with the contempt it deserves.”

Analysts say any cuts to Eskom’s bloated workforce are likely to be delayed until after next year’s national election, where high unemployment will be a hot-button issue.

But Ramaphosa, who played a key role in talks to end white minority rule more than two decades ago, has a reputation for making headway in difficult negotiations.

Ramaphosa could also reduce Eskom’s debt without incurring the wrath of opponents of privatization by converting debt held by the Public Investment Corporation (PIC), which invests government employees’ pension money, into equity, said analysts.

The state-run PIC held more than 80 billion rand of Eskom debt last year.

“Ramaphosa won’t make quick progress with the radical restructuring needed to shore up Eskom’s balance sheet as he balances divergent interests in the ANC before the election,” said Darias Jonker, director for Africa at Eurasia Group.

“But he will get there eventually.”

Source: Reuters

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