Eskom CEO appointment met with surprise, scepticism

After months of speculation and delays, Andre de Ruyter was on Monday named as chief executive officer of debt-crippled state power utility Eskom, surprising investors with an unexpected choice and angering a key union.

De Ruyter, 51, has considerable corporate experience in the country, though not at state-owned companies. His appointment comes at a time when Eskom is undergoing a transformation that will require technical and financial knowledge as well as an ability to deal with the government and labour unions.

The appointee, currently CEO of packaging firm Nampak, will take up the post on January 15, the Department of Public Enterprises said in a statement Monday. The state-owned power company has been looking for a new CEO since Phakamani Hadebe in July became the 10th person to vacate the post in as many years.

“The market is going to have to know him better and understand what qualities he is to bring to the table,” said Jones Gondo, a credit research analyst at Nedbank in Johannesburg.

“The market had not anticipated him to be one of the slated candidates. At least now we can possibly move on to the substantive issues.”

Yields rise

Yields on Eskom’s 2028 dollar bonds, which are not guaranteed by the government, climbed 15 basis points after the announcement to 7.1%, the highest on a closing basis since September 13.

The loss-making utility has R450bn of debt and is struggling to fix aging power stations and correct defects at new ones. Saving the business is a key goal of the government, which is sustaining it with R138bn of bailouts over the next three years alone.

The government had shortlisted three candidates for the position of CEO, including former LNG Canada CEO Andy Calitz and Jacob Maroga, who was Eskom CEO from 2007 to 2009. Media speculation about who the third person was didn’t include De Ruyter, who may face push back from labour unions that would have preffered a black candidate.

Surprise

“It is a surprise to me, his name was never mentioned,” said David Shapiro, deputy chairman of Sasfin Securities in Johannesburg. “Let’s hope he has the courage to do what he has to at Eskom.”

De Ruyter has served as Nampak CEO since 2014. His role overlapped with Finance Minister Tito Mboweni’s chairmanship of the company, which began in 2010 and ended in 2018.

Prior to his role at Nampak, De Ruyter spent more than two decades at petrochemical giant Sasol in a number of senior management roles. He’s overseen work in the US, Germany, China and African nations including Nigeria and Angola, the department said.

“I would like to thank Mr. De Ruyter for not only accepting this position at a difficult time for Eskom, but, given Eskom’s current financial situation, also agreeing to a lower compensation package than the position currently pays,” the department said.

Bonuses

During De Ruyter’s time at Nampak, the company’s share price plunged from a high of R48.85 in November 2014 to as low as R6.85 last week. In that time, he pocketed R21.5m of bonuses, according to data compiled by Bloomberg. His compensation last year came to R16.5m, including a R8.8m bonus, even as the company’s share price sank 15%.

Given Eskom’s financial difficulties, De Ruyter has accepted a compensation package that is lower than “what the position currently pays,” the department said, without giving details.

De Ruyter has “significant” managerial experience in the industrial and energy sectors, as well as familiarity with managing labour unions, another challenge the head of the utility will face, according to Darias Jonker, a London-based director at the Eurasia Group.

“His lack of experience at Eskom itself puts him on a steep learning curve, while the absence of political allegiances means he is unlikely to be expected to fight any of the tough political battles the position also demands,” Jonker said in a reply to questions. “It is clear that the Ramaphosa administration wants AdR to focus on management, not politics.”

The utility’s biggest labour union said it wasn’t aware that De Ruyter was a candidate and didn’t approve of the appointment.

“His credentials are questionable,” said Paris Mashego, the energy coordinator at the National Union of Mineworkers. “He has destroyed Nampak and as such he will not receive our support.”