Ostrich behaviour at Eskom
In July Eskom released its much-delayed financial results which revealed, among others, a net loss of R2.3bn and an amount of R19.6bn attributed to irregular expenditure.
The utility claims that 60% of incidents related to administrative non-compliance‚ and noted that irregular spending was not necessarily fruitless and wasteful expenditure.
With an amassed debt of R399bn by the end of March 2018, according to data compiled by Bloomberg, it will take a mountain of concerted effort to move the utility into a sustainable, profit-making organisation.
As rescue strategies are fleshed out in the coming months and as parliamentary hearings unravel the extent of the wrongdoing and mismanagement, a critical question in practical terms is how Eskom came to be so mismanaged.
There are clear indications that inadequate monitoring as a result of unsatisfactory internal processes and a poorly applied organisational structure allowed flawed decisions and critical actions to go unchecked.
A decade ago Eskom embarked on one of the world’s biggest projects. A mega-structure, R80bn power station, named Medupi, was to be developed in Limpopo Province.
A total of six boilers would each power an 800MW turbine, producing 4,800MW of power for South Africa’s national grid, making it the largest drycooled, coal-fired power station in the world.
Medupi only now nears completion. According to the station’s director, all units will be fully operational by 2020.
The Medupi project has endured numerous delays, with an overspend of R52bn.
Complex projects like Medupi require large-scale outsourcing to multiple stakeholders with the incorporation of varied timelines and deliverables, and the development of different risk profiles. Projectbased organisations (PBOs) are able to handle this complexity due to their governance frameworks and structure that gathers human resources and supporting processes around development, implementation and completion of the project.
PBOs are substantially different from routine organisations. But Eskom appears to have been structured as a routine organisation, which is a fundamental shortcoming.
Power stations are – or should be – discrete projects, each with its own life cycle, cost centres and risk profile.
Eskom’s management of its power stations has resulted in sub-optimal development and management, and ultimately delivery. A lack of accountability has given rise to inefficiencies in administrative processes that have impacted negatively on the project.
Central to the PBO, the core team represents all the disciplines from departments or functional units that are necessary for successful project implementation. The core team remains visibly active throughout the duration of the project because the team carries with it the institutional memory. In terms of Medupi, it is doubtful whether Eskom has had one core team since project inception.
Risk management is an integral feature of a PBO. It speaks to the roadmap of the overall project and also interrogates the detail. Risk management requires rigorous consideration of what must be achieved in relation to resource availability. And this lack of adequate risk management is one of the most glaring inefficiencies in Eskom’s project management.
When conceptualising and later on scoping Medupi, Eskom failed to recognise a lack of mega-structure A-class welders and non-destructive testing specialists in South Africa, a critical aspect to the project’s implementation.
The resultant solution was a failed bid to upskill local welders. The local industry was unable to train local welders fast enough to do the job reliably and productively.
The utility then worked with Hitachi to bring Asian welders to the Medupi project.
It is imperative for Eskom to surrender an ongoing reliance on reactive solutionseeking.
To succeed in the longterm, the utility should ensure that its expertise dominates all plans. Plans should be projectbased and complemented by stringent evaluation processes. When specialist project teams are gathered, those specialists must have the supporting knowledge and experience to drive each project aspect.
Ongoing compliance must be supported by stringent checks and balances built into the project’s timeline.
Risk management must be both immediate and insightful, complemented by robust disaster management that enables quick turnaround times on decisions. Consultation with external parties in the private sector should be continually undertaken to harness practical solutions.
As the largest power utility on the African continent, Eskom authorities and the government as a major share holder simply cannot behave like ostriches. Eskom should be blazing the way as an institution that is capable of innovation and flexibility, and is committed to continuous knowledge-gathering.
- Professor PMD Rwelamila is a specialist in management systems at Unisa’s Graduate School of Business Leadership