Rationalisation of Eskom Enterprises: briefing

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
18 June 2003
RATIONALISATION OF ESKOM ENTERPRISES: BRIEFING

Chairperson: Mr S Belot (ANC)

Documents handed out:
Transformation of Eskom Enterprises (PowerPoint Presentation)

SUMMARY
Mr J Mavhungu (Director: Energy & Telecommunications, Department) outlined the current position of Eskom Enterprises and their programme of transformation. The Committee expressed concern at the financial state of Eskom Enterprises, especially since the Department appeared not to have answers from Eskom themselves on many related issues. The Chair ruled that Eskom Enterprises and the Department would be invited to brief the Committee jointly on this matter as soon as possible.

MINUTES
Briefing by Department of Public Enterprises
Mr J Mavhungu (Director: Energy & Telecommunications) briefed the Committee on the current status of Eskom Enterprises and aspects of their transformation programme.

Gross profit had increased from R421 million in 2001 to R556 million in 2002. Net operating income had decreased from R130 million to R80 million. Net profit had decreased sharply from R108 million to R9 million. An IBM report on the company had concluded that it would require a cash injection within eighteen months. Eskom Enterprises was currently a disparate organisation comprising forty-eight joint ventures and businesses, most of which were not part of their core business. Analysis had shown that only a few Eskom Enterprises created value for the corporation, with head office and the telecommunications businesses alone destroying more value than was created overall.

Mr Mavhungu explained that the initial business vision and strategy had led to growth, but was reaching the end of its value-creating lifespan. Thus, a new vision and strategy had to be developed and was predicted to re-energise the growth of the corporation. This new strategy presented several key challenges. One was to streamline the corporation by consolidating joint ventures and businesses. Another entailed transformation, which could prove difficult if there was resistance from staff who did not understand the process. A third was to reposition the company as a tool for penetrating African markets. On the last challenge, questions had been raised about the use of taxpayer money for buisness expansion.

The new business vision would deal with a lack of coherence in Eskom Enterprises and ensure the alignment of corporate and business objectives. The aim was to become a one-stop energy provider. The Board appeared supportive of the plan. Gemini consulting had been engaged to conduct a twelve-week programme of business analysis and transformation design and this programme was currently in its sixth week.

Discussion
Mr L Nzimande (ANC) said that an Eskom representative should have been present for the briefing. He had found it difficult to follow and lacking in detail. Mr J Theron (DA) and Dr J Benjamin (ANC) also expressed concerns about the presentation.

The Chair replied that the briefing had not been meant to be detailed.

Mr Mavhungu added that there would be a further presentation, with an Eskom representative present, once a final report on the transformation process was available. This would allow for more detail. He agreed that it would have been ideal to have an Eskom representative present. However, the presentation had been prepared jointly with the CEO of Eskom Enterprises.

Mr Theron expressed concern about the declines in net operating income and net profit. He was also concerned that Eskom Enterprises was only developing a business vision and high-level strategy several years into its operating life. Was there an explanation for this?

Dr Benjamin agreed with Mr Theron. The picture presented was extremely worrying. She was not sure how to interpret the information except that there seemed to be a crisis.

Mr Mavhungu replied that the figures were worrying, which was why the CEO had decided that Eskom Enterprises needed a new business vision. The Department had expressed their concern about decreasing returns that appeared to indicated that Eskom Enterprises was growing without proper control.

Mr C Frolick (ANC) asked about the cash injection. Where would it come from?

Mr Mavhungu replied that this was a good question, and one the Department had been asking. He did not have an answer. Pressed on the issue, Eskom Enterprises had said that no taxpayer money would be used for the expansion into Africa. The Department had approved a recapitalisation strategy. As it sold non-core components and stakes in core components, Eskom Enterprises could recapitalise from the proceeds, taking into account the Constitutional requirements regarding such proceeds. He did not know how large a cash injection would be used, or where it would come from.

Ms H Mpaka (ANC) asked about the resistance to transformation. Was it the Department's intention to intervene to assist with this?

Mr Mavhungu replied that he had simply stated that resistance could be a problem if staff did not understand the process.

Ms Mpaka asked about the forty-eight joint ventures and businesses. Was Eskom selling these? If so, how far had this process gone?

Mr Mavhungu replied that Eskom would be disposing of non-core businesses. In the case of core businesses, they would seek to sell minority stakes. This had been attempted with the Rostek Engineering Consulting arm of Eskom, but no buyer had been found for a minority stake and Eskom was not prepared to sell a majority stake in the enterprise.

Mr Nzimande asked for the Department's view of the presentation they had received from Eskom on these issues.

Mr Mavhungu replied that the presentation had raised more questions that it had answered. The Department was concerned about the suspension of transactions during the finalisation of the transformation programme and thought that these should be allowed to proceed.

The Chair said that one of the Committee's responsibilities was oversight. He was not going to allow speculation. Eskom and the Department would be invited to address the Committee jointly as soon as possible. Mr Mavhungu had done his best, but the Committee needed to engage with Eskom directly.

The meeting was adjourned.