Eskom's restructuring might prove detrimental to its future prospects

14 February 2019

In response to protracted financial troubles at the state-owned entity, South African President Cyril Ramaphosa has announced plans to restructure operations at Eskom. Frost & Sullivan is ambivalent about the effectiveness of the measures for Eskom itself, but has faith in their benefit for South Africa’s larger energy market.

The restructuring involves the division of the entity’s operations into three distinct verticals, namely generation, transmission and distribution, with the objective of distributing the burden, costs and the responsibility across all three. The move comes after a period of prolonged financial struggle at the power distribution entity.

Eskom’s financial trouble has stemmed primarily from a high level of debt, which currently stands just short of R420 billion when last reported in September last year. Not only have the financial woes led to a stagnation of operations at the entity, but they have also prevented it from exploring more renewable forms of energy generation.

The split comes despite considerable opposition from trade unions in South Africa, primarily due to the fact that restructuring on such a large scale usually translates into substantial job cuts. The President has assured the unions that he will consult trade unions at every stage of the restructuring process.

Eskom's restructuring might prove detrimental to its future prospects

As the entity has struggled, a number of consulting firms have offered their perspectives on what the best course of action would be going forward. Senior analysts at FTI Consulting last year indicated that expanding the state-owned entity’s market to neighbouring regions in Southern Africa would be the best way to regenerate revenues.

According to Frost & Sullivan, the President’s restructuring plan might benefit Eskom, but might not have the capacity to rescue its operations altogether. Nevertheless, the incentives for renewable energy will encourage other firms across the country to increase their investment in more renewable forms of energy.

“Opening the market through power being procured from various power sources would also invite companies to South Africa to look at distributed generation and electric mobility, which is already being looked at in many other countries,” said Neeraj Sanjay Mense, Analyst at Frost & Sullivan.

“South Africa could also see companies moving into the country to manufacture batteries, as we have the needed natural resources and energy storage is an essential element in the wind and solar grid,” he added.

Mense also explained how the policy could be detrimental to Eskom, stating that, “ With all the different sources of power which are coming into play, such as wind and solar, and the cost of alternate energy generation reduced below that of coal, buying from private players such as the IPPs [independent power producers] within the Renewable Energy Independent Power Producer Procurement program could potentially result in a shutdown of some of Eskom’s existing plants.”

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The new profile and practices of KPMG South Africa after restructuring

18 March 2019

Following its involvement in a number of major infamous scandals over the course of last year, global professional services firm KPMG now published a report detailing the comprehensive structural and practical changes that it has made in order to improve its practices and operations. 

Big Four accounting and advisory firm KPMG has had a turbulent couple of years, to say the least, in South Africa. The firm was embroiled in the Gupta scandal that caused public outrage in 2017, and subsequently lost contracts with a number of major clients in the country.

The firm was also linked to poor reporting practices for the South African Revenue Services (SARS) and was the auditor of VBS, which has since been accused of fraudulent practices. To cut its losses, the firm has been making a number of major changes to its South African outfit over the last two years.

Shortly after the Gupta scandal, KPMG restructured its entire South African team with a new CEO Nhlamu Dlomu. Towards the end of last year, however, the firm made the decision to change CEO again, with hopes to completely rebrand its profile. Now the firm has released a report detailing all the changes it has implemented.

The new profile and practices of KPMG South Africa after restructuring

Changes have been made to a number of aspects of its operations. For starters, the firm has made significant changes to its board, introducing a number of independent members to act in a non-executive capacity, with the objective of maintaining neutrality.

These changes are accompanied by a higher degree of board supervision in certain quality and assurance domains. To avoid a scenario like the Gupta scandal, the firm has also become substantially more stringent in its selection of clients, and has removed those clients that appear to have a risky profile.

The firm is also rebuilding its social profile, which not only includes the establishment of a public interest and ethics committee, but also includes the donation of the fees that it obtained from deals with the Guptas and others for social causes. These funds amount to nearly R50 million.

Lastly, the firm has introduced a new remuneration model to pay its employees, which better aligns with its priorities. “The remuneration model rewards performance that reflects an individual’s contribution to medium and long-term value creation, as well as short-term or current year performance against his or her goals.”