BOBBY GODSELL, ESKOM CHAIRMAN
NOTE FOR THE BOARD BREAKAWAY: OCTOBER 2009-lO-23
SOME THOUGFITS ON THE RESPECTIVE ROLES OF SHAREHOLDER, BOARD, MANAGEMENT IN ESKOM
The thoughts offered below are pursuant to the discussion we had at the July Breakaway. They are offered in the belief that these roles can and should only be defined relatively loosely. Also that effective relationship between Shareholder, Board and Management depend as much on trust and on going good communication as they do on role clarity.
SHAREHOLDER
Government as the sole owner of Eskom needs to be clear about the character and purpose of this State Owned Enterprise. Clarity with regard to the expected level of financial sustainability, profitability dividend returns etc will help the Board and Management to be effective.
Along with this "mission statement' (who should develop this draft?), the Shareholder compact provides the Shareholder with an opportunity on an annual basis to set a few key objectives for the organization. It might assist in regard to parliamentary oversight if both the mission statement and annual compact were also to be discussed with Parliament (through the Portfolio Committee) Both these documents should also be available to the public, be included in Eskom's annual report, and also be placed on Eskom's website.
BOARD
Key responsibilities of the Board include:
- determining the strategy of the organisation
- ensuring good governance
- monitoring the effective implementation of the strategy;
- maintaining good relationships with the Shareholder;
- ensuring that the Company (mainly throug1 the actions of its management) has effective relationships with other key stakeholders, such as the Regulator Customers, unions etc.
Except in periods of crisis the Board should not involve itself in operational decision making.
MANAGEMEN'T
Key roles of the management:
- designing a strategy for debate and determination by the Board;
- implementing the strategy;
- maintaining effective relationships with all key stakeholders.
THE RESPECTIVE ROLES OF THE CHAIRMAN AND THE CHIEF EXECUTIVE
It is neither possible, nor desirable, to define these roles in exclusive terms, as many responsibilities need to be shared. As an aid to our debate and discussion I suggest a matrix of primary, shared and Supportive roles, as a way of suggesting the emphasis that should exist in these two roles in regard to some actors and tasks.
PRESENT MANAGEMENT CAPACITY
As noted in a number of Board discussions over this last year. I am very concerned at the capacity of management to respond both effectively and quickly to the very many major challenges now facing Eskom. This concern does not arise in any way whatsoever from a sense that management are unwilling to do so. Nor that they are in some way simply not working hard enough. Indeed I have very real concerns on the time, responsibility and stress burden being carried by our CE and his executive team. The concern arises simply from a sense that we are failing to deal decisively with a number of important issues. To test this impression I recently re-read the minutes the 16 meetings of the Board (including some Board Committee Chair Meetings) since I joined the Board in August last year. In the attachment to this note, entitled "unfinished business" I have listed issues that seemed to me incomplete or "late". Again this list on my part carries no suggestion of any mal intent on the part of management. The failure to expeditiously resolve a number of these issues has however come back to bit us. I think Eskom would be in a much stronger position in the current MYPD 2 debate if greater progress could have been made.
In this context it is now my firm conviction that our CE needs a Chief Operating Officer to whom he can effectively delegate responsibility for seeing that issues such as these on this list are effectively and timeously dealt with.
I very much look forward to our debate.
Regards
Bobby Godsell
Unfinished business
Below I list extracts from Board minutes that reflect, at least in my judgement, issues identified for action that are incomplete, or late. I recognize that some of my judgements may be harsh. However it does provide a context for my now serious and urgent concerns about management capacity. This list of minutes itself indicates how active this Board has been!!
19th August 2008
1. Shareholder compact
"The Chairman pointed out that the current Shareholder Compact needed to be reviewed. There were too many key performance indicators (KPIs) and they were all not at the same level. It was therefore important that the Shareholder Compact be revised to align it better with the challenges being faced by Eskom. This document should also be made available publicly. It was agreed that this matter be discussed further at the next Board meeting."
2. National Energy Strategy
"RESOLVED that: A proposal regarding a National Energy Strategy be developed by Exco for discussion at the next Board meeting."
3. Long-term financial sustainability strategy
The long-term financial sustainability strategy would be referred to the Board during October 2008."
4. Long term coal contracts
"RESOLVED that: The issue of long term coal contracts be discussed by the Board."
5. Regular Board updates
"RESOLVED that: An update on primary energy, roads infrastructure, reserve margin and the demand profile (actual and projected) be reported to the Board at every meeting."
16th and 17th September 2008
No outstanding issues.
29th October 2008
6. Energy Savings
"The list of customers that Eskom has engaged with on energy savings be circulated to the Board."
7. Eskom Pension and Provident Fund (EPPF)
"The exposure to the EPPF be discussed at the next meeting. In particular, a timetable should be presented as to when the outstanding issues would be resolved."
8. Business model
"RESOLVED that: Management should develop the options for an appropriate business model and sustainability for Eskom, including the extent of committed capital expenditure projects and the steps necessary to ensure internal efficiency, both in the short and long-term, and the implications of the various options, for discussion with the relevant stakeholders."
9. Shareholder compact
"The Shareholder Compact should be reviewed for next year as it should be made simple and less operational."
10. Long term contracts
"Long-term contracts should be addressed from a regulatory perspective, which should include and analysis of the revenue loss (if any) inherent in the long-term Contracts."
11 .Prices for the poor
"Eskom needs to communicate effectively on the impact of prices on the poor, in relation to other customers, prior to implementation of the MYPD2."
4th December 2008
12. Free Basic Electricity
"Members requested that management revert with a comprehensive strategy and rationale regarding the approach to Free Basic Electricity."
13. Director General DPE
"DG raised a number of issues that needed to be considered:
- IPPs and how they would be dealt with in this process.
- Because the Distribution Division wuld be moving out of Eskom some time in the near future, there was a need to consider how Eskom would deal with the R41b capital expenditure in the Distribution Division so that there was clear accountability as to how this would be funded going forward.
- There was a need to move away from special contracts."
14. Eskom Pension and Provident Fund
"RESOLVED that: Management should explicitly cap the liability (if any) in respect of new employees. Management should revert with an explanation as to why the liability with regard to new employees had not been explicitly capped."
15. PBMR
"RESOLVED that: Management review Eskom's support to the PBMR Project and revert to the Board in this regard."
26th January 2008
16. Economic impact of price increases
"Further work be carried out to understand the impact of the requested price increase on the economy."
17. Cost cutting
"There was a need for certain symbolic actions to be considered in order to convey a message regarding Eskom's current situation."
18. Demand scenarios
"Various sales growth scenarios should be considered and the worst case scenario on demand growth should be modelled and a response strategy developed for this scenario."
27th February 2009
19. Embedded derivatives
"A member also requested that the issue of embedded derivatives be addressed before the end of March 2009 because of the impact on the financial statements. The CE acknowledged this was an issue that needed to be dealt with but also explained that in the light of the focus on the MYPD submission, it would not be feasible to address the issue within a month."
20. Contingency plans
"RESOLVED that:
1) Scenarios based on a price increase of 88%,50% and 34% effective I July 2009 be modelled and three budgets (one for each of these scenarios) be developed on a three year basis.
2) Executable contingency plans, which included trigger points for decision-making be developed to address the shortfall in each scenario.
3) The scenarios and contingency plans referred to be reviewed by the Chairpersons of the Audit and Investment and Finance Committees prior to the next Board.
4) The matter be discussed at the next Board meeting
3rd March 2009
No outstanding issues.
10th March 2009
No outstanding issues.
31st March 2009
21. Free Basic Electricity "It was noted that management still needed to revert regarding a comprehensive strategy on Free Basic Electricity (FBE), including a rationale of the approach."
22. Long Term supply contracts
"A member requested that the option of a one year renewable contract for long-term supply contract, as referred to by the auditors, be explored in order to avoid the impact of embedded derivatives on the annual financial statements. The CE indicated that he would discuss this matter with the auditors."
23. Power Conservation Programme (PCP)
"Members requested that the Power Conservation Programme (PCP) be discussed at the Board from a strategic perspective, given the changed environment."
24. Municipalities and bad debt
"RESOLVED that: Information on the technical performance of the municipalities and performance of the municipalities regarding bad debts be obtained."
25. Reputation Analysis
"The reputation analysis be circulated to members once finalised."
26. Fatalities
"The Board should be provided with a report on the fatalities and the lessons learnt once an investigation had been concluded."
27. Bad debts
"The CE would revert to the Board regarding the strategy to address the issue of the control environment and bad debts."
18th June 2009
28. Pricing for the Poor
"It was suggested that Eskom at a high level engages with all the relevant stakeholders to discuss the way forward to protect the poor in South Africa."
29. Long-term contracts
"The Chairman advised that the sentiment of the Board was that discussion with regard to the onerous contracts should be opened with the customers so that a suitable solution may be found."
30. Municipalities and Bad debt
"The Chairman requested that a comparison be made between Eskom's statistics and that of Cit Power."
31. Reputation analysis
"The Chairman requested that the report be circulated by the time of the Board breakaway to enable the Board to consider it."
32. Independent Power Producers
"RESOLVED that: Eskom engages with appropriate stakeholders about resolving the enabling environment and funding model."
9th and 10th July 2009
33. Retrenchment analysis
"in considering an increase in operational expenditure, a Board member requested that a retrenchment analysis be done with a view to consider the impact of financial in the unlikely event that such a decision had to be made. Such analysis should indicate to what sustainable level the staff compliment could be reduced and what financial saving it would yield"
16th July 2009
34. Funding Model
"The Board noted that a multi-disciplinary team was in the process of developing the funding model and that the model included a variety of funding options and mitigating strategies. The process to finalise the funding model allowed for all stakeholders to thoroughly scrutinise the model to ensure that it was appropriate to yield sufficient funding. The Board noted that the funding model would be ready by September 2009."
1st September 2009
35. Single Buyer
"The Chairman recommended that the debate on Eskom being a single buyer be considered at a future meeting. He further requested that a document be provided to the Board for discussion."
36. The funding gap
"The Chairman recommended that the management should advise the Board on the type of government guarantee that would satisfy the going concern and sustainability of Eskom as required by the auditors in terms of the undertalcing that was made by the Board of the going concern statement."
37. Delaying Kusile
"The final delay decision on Kusile would be made on 30 September 2009."
38. Non-core assets
"A report be submitted to the Board on the sale of non-core assets of Eskom for consideration."
39. Bad debt
"A policy dealing with Eskom's position in dealing with customers that are under liquidation be submitted to the Board for consideration. The Chairman be mandated to elevate the SOWETO non-payment matter to government for resolution."
40. Long term contracts
"The CE is mandated to make a high level contact with the CE of BHP Billiton with a view to addressing the future of these contracts."
41. Sustainability
"The Board would be invited to the sustainability committee workshop to discuss climate change in preparation for Copenhagen."
Source:www.mg.co.za (transcribed from PDF)
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