Bloomberg News

Zuma Targets South African Power, Rail Boards to Spur Growth

June 10, 2011

(Updates with comment from public enterprises minister in ninth paragraph.)

June 10 (Bloomberg) -- South Africa replaced the chairman and most of the board of state-owned power utility Eskom Holdings Ltd. and plans a similar reorganization at its rail and ports operation as their capacity constraints hampered investment.

The government named Zola Tsotsi, the head of the power authority in neighboring Lesotho, as chairman of Eskom and replaced all but two of the company’s board members, Cabinet spokesman Jimmy Manyi said in Cape Town yesterday, without giving reasons. A new chairman was also appointed at defense company, Denel Ltd., and a reorganization can be expected at Transnet SOC Ltd., Manyi said.

State-owned companies have “not got any credibility, they’ve not inspired confidence in the business community” for the past six years, said Iraj Abedian, chief executive officer at Johannesburg-based Pan-African Investment and Research Services. “The undertone here is that President Jacob Zuma is saying, ‘If you don’t deliver, I sack you.’”

Eskom, which supplies about 95 percent of South Africa’s electricity, is spending 485 billion rand ($72 billion) to build power plants and prevent a repeat of shortages that shut the country’s biggest gold and platinum mines for about five days in January 2008. The government prohibited Eskom from expanding for four years until 2004 in a failed bid to attract private investment into the power industry.

Power Outages

A lack of generating capacity may have cost Africa’s largest economy investment. Rio Tinto Group scrapped an aluminum smelter project in 2009 and BHP Billiton Ltd., the world’s largest mining company, partially closed its Bayside aluminum smelter in 2008 because of power shortages.

Several residential neighborhoods in northern Johannesburg were without power today because of technical faults, Sol Mosolo, a spokesman for electricity distributor City Power, said in a phone interview.

“This is a decision that comes right from the top,” said Susan Booysen, a political analyst at the University of Witwatersrand in Johannesburg. “In Zuma, there is more of a willingness to reshuffle at the top if there’s under- performance. However, the proof is in the pudding.”

In October, Zuma fired seven ministers, including Barbara Hogan, who was in charge of public enterprises, naming Malusi Gigaba as her replacement.

The changes at Eskom are meant to “rejuvenate and strengthen” the utility and make it more focused on development, Gigaba said in an e-mailed statement today. This will require “a degree of active participation” from government in their policy, planning, strategic direction and oversight, he said.

‘Entirely Unexpected’

The Eskom action took the mining industry and labor unions by surprise, raising concern that it would be disruptive to the utility. South Africa’s Chamber of Mines said in a statement yesterday that it does “not understand the logic” of the action and will approach Gigaba for reasons.

“It’s entirely unexpected,” said Mike Rossouw, head of the Energy Intensive Users Group, which represents Eskom’s largest customers, such as Xstrata Plc and Anglo American Platinum Ltd. “Is this a hard-nosed attempt to sweep clean, or are there any other reasons? One wants to have stability.”

Zuma, whose ruling African National Congress lost support in last month’s municipal elections, has pledged to create 5 million jobs in the next decade to slash a 25 percent unemployment rate. To do that, the economy needs to expand 7 percent a year, according to government estimates. The economy grew 2.8 percent in 2010 and is forecast by the central bank to expand 3.6 percent this year.

Transnet

Transnet didn’t have a permanent chief executive officer for almost two years until Brian Molefe was appointed to the position in February. The utility is spending 110 billion rand over the next five years to expand rail and ports capacity and ease constraints on coal, manganese and iron ore exports.

Richards Bay Coal Terminal, Africa’s biggest coal export facility, said on May 30 it won’t expand further until South Africa’s rail network allows it to use all of its current capacity. While RBCT is capable of shipping 91 million metric tons of coal a year, it exported 63.4 million tons last year, Chief Executive Officer Raymond Chirwa said.

The performance of state-owned companies was among factors inhibiting growth and development in South Africa, the National Planning Commission said in a report to lawmakers in Cape Town yesterday. The companies need more investment and greater focus on efficiency, according to the commission, which is led by former finance minister Trevor Manuel.

“Levels of efficiency in delivery of these services have been lower than they should be,” commission member Anton Eberhard told reporters in Cape Town. “That led us to think about the governance of these bodies and whether there should be changes in those governance structures. That certainly will be part of our discussions in future.”

--With assistance from Robert Brand in Cape Town Nef. Editors: Gordon Bell, Nasreen Seria

To contact the reporters on this story: Franz Wild in Johannesburg at fwild@bloomberg.net; Carli Lourens in Johannesburg at clourens@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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