eskom ceo jacob maroga strategy document document 22 oct 2009

8/14/2019 Eskom CEO Jacob Maroga Strategy Document Document 22 Oct 2009

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CHIEF EXECUTIVE STRATEGY

DOCUMENT

Compiled by Jacob Maroga

22 October 2009

Draft 1


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TABLE OF CONTENTS

1 Purpose Of This Document

2 A Crisis Is A Terrible Thing To Waste

3 Solving Todays Problems With The Future In Mind

4 Four Pillars Of Strategic Conversation

5 The Policy Evolution And The History Of Eskom

6 Key Themes Emerging From The Policy Evolution

7 The Battle Of The Paradigms: A Reflection Of Our Society

8 Some Of Todays Problems Are Rooted In The Excellent Strategies

Of The Past

9 The Case For Fundamental Organisational Transformation

10 From Racial Accounting To Real Organisational Transformation

11 The Use Of Leadership And Organisational Effectiveness Advisors

12 The Role Of State-Owned Enterprises In This Phase Of The Democracy

13 The Specific Role Of Eskom In This Phase Of The

National Development

14 Developing Our Vision

15 Eskom 2015 Outcomes

16 Core Capabilities

17 Core Values

18 The Leadership Diamond Framework

19 The Role of the Board: The Nation Building Context

20 Principles Of The EXCO Role And Structure

21 Conclusions


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In light of the above, it is imperative that we solve todays problems with an integrated

and long term perspective. We should ensure that when we solve Eskoms challenges wedo not create problems in other parts of the economy and society. We should also ensure

that what we do today does not create future unintended negative consequences.

We should transform the solutions of todays problems into opportunities that must yield

positive spin-offs for the country and our society.

4. FOUR PILLARS OF STRATEGIC CONVERSATION

The following four areas form pillars of the ongoing strategic conversation that will

determine the development of our vision.

Shared Meaning around the Role of Eskom: I believe that spending time developing

shared meaning around the role of Eskom is the single most strategic issue for us. Weneed an ongoing dialogue with our shareholder to fully internalize their expectations and

ensure that our whole being is fully integrated into their aspirations.

Shared meaning of the role of Eskom should be followed by increased role clarity. For

Eskom to operate effectively, role clarity across the total governance structure is critical.

We need to invest time in understanding more clearly the various roles, i.e., the role ofthe shareholder, the Board, the Chairman of the Board, the Chief Executive and the

EXCO.

It is my belief that there is a major gap in shared meaning on this aspect and the

reframing of the role of Eskom is a key pillar for creating the environment for increasedrole clarity.

From Recovery to Vision: Since 2005, our organization has been dominated by

managing from crisis to crisis. Firstly it was the Western Cape power disruptions, then

the national load shedding. Now, we are managing a very tight cash situation. If we

continue to do the same things, it is extremely unreasonable to expect to achieve differentoutcomes.

Advancing the reframing work that we started in 2008 and setting the stage for the new

vision of Eskom requires the total transformation of our organization from one based on

survival and problem-solving to an Eskom that is setting the foundation for the next 25years of the development of our country.

Deepening our shared understanding of the total value stream of Eskom: The value

stream of Eskom is equivalent to mini economyin the country. From the coal mining,

financial sector, equipment suppliers, human capital development, environmental

stewardship and customers etc, Eskom has a major role in the economy.

It is my belief that, as an organization, we need to increase our full appreciation of howthe total value stream works so that we can play our role more effectively.


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Business Sustainability and the Funding Model: Since October 2008, we along withthe country leadership have recognised that the current regulatory framework is not

adequate for the size of capital expansion we are undertaking. Therefore, we have beenpart of a dialogue to examine the role of Eskom and ensure our business sustainability. A

critical outcome of the dialogue is an appropriate funding model that will set the industry

on a path of sustainability for the future.

5. THE POLICY EVOLUTION AND THE HISTORY OF ESKOM

Electricity Act No 42 of 1922: Eskom was established in 1 March 1923 in terms of the

Electricity Act No. 42 of 1922. Although the act was superseded in 1958, the followingprinciples remained intact until 2001:

Eskom was governed by the Commission comprising of membersappointed by the State President and entrusted with the task of ensuringthat Eskom plays its part in the South African economy to provide cheapand abundant supply of electricity

Eskom was expected to operate at neither a profit nor at a loss

Eskom was self funding with no financial support from the state

The Capital Development Fund: In 1972 the Franzsen Commission recommended thecreation of the Capital Development Fund. The purpose of the fund was to allow Eskom

to build up reserves to finance the capital required to expand the power system for the

country and at the same time to increase the proportion of equity in Eskom relative to itsborrowings. The impact of the Capital Development Fund on the tariffs was significant.

The Capital Development Fund reached a high of 32.5% of the tariffs in 1979.

The De Villiers Commission of Enquiry of 1983: Eskom went through a massive

capital expansion program during the early 70s to the mid 80s. As a result of the capital

requirements and to cater for the Capital Development Fund, massive tariff hikes whereinstituted between 1975 and 1982. The highest tariff increase recorded is 48.2% in 1977.

The massive tariff hikes prompted the Government to appoint a commission of inquiry

chaired by Dr Willem Johannes de Villiers. The enquiry was given a wide mandate to

look at all aspects of the supply of electricity in the Republic of South Africa. Of

particular relevance was the special reference to- the impact of capital formation, price

determination, methods of financing and existing tariff structure on financial policy of the country with special reference to inflation, economic growth, the creation ofinfrastructure and decentralisation

The De Villiers Commissions recommendations led to the changes in the Electricity Act

in 1987. The Capital Development Fund was abolished and the Eskom accounting

practices were revised to reflect the standard business accounting norms.


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The Energy White Paper of 1998: The White Papers key focus was the introduction of

competition and private sector participation in the power sector. The following are theobjectives articulated in the White Paper:

improved social equity by addressing the requirements of the low incomecustomers;

enhanced efficiency and competitiveness to provide low-cost and high qualityinputs to all sectors;

environmentally sustainable short and long-term usage of our naturalresources;

the right of choice of an electricity supplier;

competition in especially the generation sector;

open non-discriminatory access to the transmission system; and

private sector participation in the industry

The Eskom Conversion Act No.13 of 2001: The Conversion Act provided for the

conversion of Eskom into a public company incorporated in terms of the Companies Act.

It brought to an end the era where Eskom was operating under special legislation outsidethe auspices of the Companies Act. The Conversion Act also made the government

ownership of Eskom explicit.

The Electricity Pricing Policy (EPP) of 2008: The key aspects of the EPP are the

following:

A revenue based on full cost recovery that reflects the valuation of the

electricity assets based on the replacement cost and a market related returnon assets

Cost reflectivity of the electricity tariffs

Non-discriminatory and transparent pricing with minimal cross-subsidies

Fair and non-discriminatory access to network to all interested industryparticipants

The development and publishing of a multi-year pricing path

6. KEY THEMES EMERGING FROM THE POLICY EVOLUTION

A. THEME 1: PUBLIC BENEFIT PARADIGM

The Paradigm of the Electricity Act from 1922 to 1998: The central theme of the

Electricity Act was that electricity is primarily for public benefit and an instrument of

economic and industrial development and as such should not be used to make a profit but

to be supplied at the lowest cost. This theme persisted until the Energy White Paper of1998

Not withstanding the fact that electricity was used for economic development, thefinancial sustainability of Eskom and self- funding was hardwired in the pricing of

electricity


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B: THEME 2: COMMERCIAL AND COMPETITION PARADIGM

The Energy White Paper of 1998 and Competition: The central theme of the Energy

White Paper of 1998 was competition. The White Paper envisaged the restructuring of

Eskom into separate generation, transmission and distribution entities. Eskom generation

was to be split up into competing companies and Eskom distribution was to be absorbed

into Regional Electricity Distributors (REDS) in line with the EDI Restructuring

Blueprint.

This model of electricity reform expressed in the White Paper reflected the classical

competitive and privatised model followed internationally. This implied the vertical

unbundling in order to separate the potentially competitive components (generation andretail) from the natural monopolies (transmission and distribution wires).

The key assumption of the Energy White Paper was that the Independent Power

Producers will be attracted and provide the security of supply to South Africa. Essentially

this approach put the security of supply of the country at the mercy of the commercial

motive of potential private investors.

Judged against its desired outcomes, the Energy White Paper 1998 has not delivered the

desired results.

A Review of the initiatives emanating from the 1998 White Paper: As we set the basefor the future, a fundamental review is required of all the initiatives that flow from the

White Paper of 1998. The program and scope of Electricity Distribution Industry (EDI)restructuring should be reviewed to reflect todays policy priorities and thinking.

7. THE BATTLE OF THE PARADIGMS: A REFLECTION OF OUR SOCIETY

There are three paradigms that shape the strategic responses of stakeholders to the issues

and challenges of Eskom

Paradigm 1: No one is Home Paradigm: Essentially, this paradigm is based on a

belief that the challenges of Eskom stem from management incompetence due toaffirmative action. The strategic response in this paradigm is to bring in more

experienced, mostly white people at an executive and Board level to save the situation.

The no one is home paradigm has very deep racial undertones that are reflective of the

history of this country.

In this paradigm there are Homers and No Homers.


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If one holds this paradigm, the Eskom challenges stem from the fact that there are too

many No Homers in the system hence the crisis that the organization has gone through.The strategic response based on this paradigm is to bring in more Homers. The only

measure that will bring confidence is an increasing number of Homers participating in theleadership structures of Eskom and in the departments and institutions which are critical

to the success of Eskom

Paradigm 2: Role clarity paradigm: This paradigm is based on the belief that policy

choices by the government created role confusion for Eskom, particularly on

accountability for security of supply. In this paradigm, role clarity confusion led to load

shedding and the financial challenges that Eskom finds itself in.

Paradigm 3: Identity Crisis paradigm: From 1923 -2001, Eskom operated on the basis

of the Electricity Act. Its main objective was to provide power for public benefit andneither for profit nor loss. The Eskom Conversion Act of 2001 closed the chapter of this

era.

In this paradigm, Eskoms challenges stem from its schizophrenic identity of being a

fully commercial enterprise whilst responding to a developmental mandate. The

difference between the role clarity and identity crisis paradigms is that in the latter, it isabout how Eskom perceives itself rather than what its shareholder expects it to do.

8. SOME OF TODAYS PROBLEMS ARE ROOTED IN THE EXCELLENT

STRATEGIES OF THE PAST

An analysis of some of todays problems reflects the fact that they originate from what

seems to have been excellent strategies of the past. The following are the key examples:

The scrapping of the Capital Development Fund: In 1972 the Capital Development

Fund was established as part of the funding model for the build program of the 70s and

80s. The Capital Development Fund was blamed for the massive increases in tariffs inthe late 70s. The De Villiers Commission scrapped the Capital Development Fund in

1984 as a result of the national outcry stemming from the tariff increases.

The Capital Development Fund was aimed at ensuring that Eskom builds up sufficient

reserves to contribute to the funding of new capital expansion. In hindsight, scrapping theCapital Development Fund without articulating a convincing alternative funding model

for future growth was major blow to the industry. A coherent and integrated funding

model was never developed since the scraping of the Capital Development Fund.

The cheapest electricity in the world: The last build program undertaken in the 70s and

80s left Eskom with huge excess capacity. In the past twenty years the strategy for the

cheapest electricity in the world was based on excess capacity rather than business

efficiency and operational excellence. This strategy for the cheapest electricity in theworld did not factor in the cost and the provision for building new capacity for the future


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of the country. This has contributed significantly to the current funding challenges of

Eskom because the current electricity prices are not appropriate to fund new capacity.

Commodity linked aluminium contracts: To utilise excess capacity which resultedfrom the build programme of the 70s and 80s, Eskom embarked on a strategy to attract

energy intensive customers to South Africa. Aluminium smelters were attracted to invest

in South Africa as part of this initiative. As was normal practice at the time, the

aluminium contracts where based on commodity linked pricing structure with long term

agreements (20- 30 years). These contracts did not seem to envisage the end of excess

capacity nor the fact that with the end of excess capacity the cost of power will rise.

While these contracts where seen as a stroke of brilliance at the time, they are now very

painful to Eskom and the country.

The Energy White Paper of 1998, the introduction of IPPs and Competition: During

the development of the White Paper, competition and private sector participation in theenergy sector was seen as a panacea in some major economies of the world. This was

based on the paradigm that the private sector can bring more efficiencies than state-owned vertically integrated utilities. However the complexities and risks associated with

this policy were seriously underestimated. The Energy White Paper of 1998 has left the

electricity security of supply of South Africa very vulnerable.

9. THE CASE FOR FUNDAMENTAL ORGANISATIONAL

TRANSFORMATION

Over twenty years of excess capacity: Eskom has lived with excess capacity since the

mid 80s. Excess capacity mentality has impacted every facet of Eskom. The excesscapacity era gave Eskom a false sense of excellence and invincibility. The leadership

paradigms and the organisational culture formed in the era of excess capacity are nolonger appropriate during a time of constrained power system and massive build

program. The past three Chief Executive of Eskom all served during a period of excess

capacity, Ian McRae- 1987 1994, Allen Morgan -1994 -2000 and Thulani Gcabashe-

2000 2007.

Commencing with the build program without a clear funding model: In 2005, we

committed the organisation to a massive investment program without the full

appreciation of the funding sources for the capital. This is the best illustration of silo

thinking. The part of the organisation where the build decision was motivated had no clueabout the funding process for any of the capital requirements. The EXCO and the Board

at the time did not fully appreciate the integrated impact of such a decision. Today we are

solving the funding model retrospectively.

The past forward pricing curves were fundamentally flawed: In 2005, at the start of

the MYPD process, we put an application for CPI + 2%. This was based on our

understanding at the time of the forward pricing curve which was required to fully cover

the cash requirement (opex and capex) in the future. The current reality of cash flowclearly proves that our view of four year ago was grossly inaccurate. Without


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culture and leadership paradigm of the past. This leadership paradigm is characterised by

technocratic arrogance, apartheid style supervisory mentality, lack of transparency andsecrecy.

The initial phase of racial transformation in Eskom was based on promoting black

executives, but also appointing white senior managers as second in charge. Some of the

white executives were seen (and seeing themselves) as the ones really in charge with the

black faces at the top. This approach has promoted tokenism rather than encourage real

transformation.

The White Supervision Phenomenon: Issues that emanate from our past will not just

fade away unless we confront them frankly and openly. This section is aimed at raisingissues that will contribute to honest reflection so that we can transcend the entrenched

paradigms that emanate from the history of our country. One of these issues is the

phenomenon ofwhite supervision.

White Supervision is a phenomenon that derives from our past of racialsegregation and racial hierarchy. This phenomenon is based on the view that

without white supervision, blacks by themselves are not able to lead and achieve

anything of significance. This thinking was so entrenched that a few years ago

some adverts for simple services, such as gardening and painting, the mention ofwhite supervision in the adverts was felt necessary to attract business.

White Supervision and Corporate Leadership: There have been some key

appointments of black executives in some large corporations in South Africa

which has demonstrated the phenomenon of White Supervision. Some largecorporation have appointed new black senior executives and proceeded

immediately to restructure the reporting lines such that the major parts of theportfolio are under white supervision.

White Supervision and black people: White supervision mentality is not

exclusive to white people. There are a significant number of black people whoreflect this mentality. Some black people will attach more trust and confidence in

organisations led by white people than those dominated by blacks. There are also

a number of black leaders who derive their confidence from the validation and

endorsement by white consensus. All of us have been affected by this racial

segregation history of our country.

White Supervision and endorsement of black leaders: White supervision also

manifest itself in the practice where black leaders are assumed to be destined to

failure until their competence has been endorsed by white consensus. Those

blacks whose competence has been endorsed by white consensus are then

classified as the exception rather than a demonstration of inherent potential of all

human beings.


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White Supervision and Eskom: There are a number of examples that reflect the

white supervision phenomenon in Eskom.

White Supervision and the media: There are a number of people in thegovernance structures of Eskom who give more credibility to the reporting

of the white dominated media than the internal management reporting

processes. The internal management control processes, internal audit and

independent external auditors are perceived to be less credible that theviews of white journalists and the media.

White Supervision and leaked document: The leaking of internaldocuments to the white dominated organisations also reflects the whitesupervision phenomenon. The underlying logic is that some white people

in Eskom have more knowledge and competence than the largely black

executives. By selectively leaking documents to like minded individuals

and institutions, they can prove the need for more White Supervision and

scrutiny.

White Supervision and the Olsen Report: Susan Olsen, a consultant anda coal procurement expert wrote a letter to me in July 2007. The letter

triggered by my request of a meeting with Olsen, which was aimed at

giving inputs to a process of restructuring the Primary Energy function.The Olsen letter was leaked to the media and a specific opposition

political party. The manner in which the Olsen report was given status

and attention is one example of white supervision mentality. The Olsenreport was written by a white person and leaked by a white person to a

political party and the media. It did not matter that this report was in

response to already identified weaknesses that were already being

addressed.

White Supervision and the Sherpas: A group of former whiteexecutive directors approached me last year expressing a desire to advise

and support us during the difficult period that Eskom was going through.

They decided to call themselves the sherpas. Whilst I initially accepted

this good gesture at face value, it became clear that their motivation wasdriven by the mentality of White Supervision rather than a genuine desire

to support the leadership of Eskom. We have since parted ways and the

sherpas have now launched a campaign of criticism on the leadership ofEskom and the government.


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13. THE SPECIFIC ROLE OF ESKOMS IN THIS PHASE OF THE NATIONAL

DEVELOPEMENT:

Providing reliable and affordable power: Electricity is like oxygen to the economy.Reliable and affordable power is critical to the growth and economic development of the

country.

Supporting the development of other industries: Eskoms footprint in the economy is

extensive. From the supply of coal, diesel, water, financing, spares, transport fleet, labour

many others, Eskom is a significant anchor customer to many industries. This footprint of

Eskom can be strategically leveraged to support the specific national objectives which are

consistent with the overall developmental agenda

Providing an economic stimulus through the build programme: Eskom is embarking

on the largest capital expansion program in the history of South Africa. This growingexpansion program provides a very attractive opportunity to stimulate the growth of the

economy for the next few years.

Providing the power needs for the future: Confidence about the future provision of

power is necessary for investment to happen in the country. By rolling out the power

expansion program, Eskom is laying a foundation for new investment to happen to growthe economy.

Creating more jobs: The ongoing operations of Eskom as well as the construction of

new power infrastructure serves as key contributors to decent employment and

sustainable livelihoods. An integrated approach to maximise employment opportunitiesby SOEs is crucial.

Developing a platform for massive skill training: Historically, SOEs like Eskom,

Iscor and Sasol played a pivotal role in creating skills development opportunities for

white South Africans. An integrated and purposeful skill development plan by the SOEs

can make a huge contribution to providing opportunities to many young South Africans

Supporting the economic development of the region and the continent: The

development of energy and in particular electricity is also critical to the economic

development of SADC and the continent. South Africa, through Eskom is critical for the

successful development of additional capacity in the region. Without the support of SouthAfrica there are very few power projects that can be developed in the region.

Development of national infrastructure and social services: As Eskom expands its

power system and build more power projects it requires infrastructure like roads, rail,

water, housing, schools and other social services. Through a pro-active and integrated

approach, these can be leveraged to make an impact to service delivery beyond just

providing power


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Broad Based Black Economic Empowerment (BBEE): SOEs should be at the

forefront of BBBEE. The government has the best vehicle in SOEs to drive an integratedand impactful economic transformation programme.

Contributing to Industrial Strategy and Foreign Direct Investment: The provision of

power is central to the industrial strategy of South Africa. The success of projects like

Coega depends on the availability and the cost of power. The power sector can also be

important in attracting new foreign direct investment into the country

14. DEVELOPING OUR VISION

The development of our vision derives from a deep desire to see the role of Eskomvisibly and vividly embedded in the aspirations of the nation.

Eskom Vision Framework: Empowering the South African Dream

2015 Outcomes& value proposition

Leadership

Behaviors

Superior

Stewardship

SuperiorWhole System

Thinking

Superior

Relationships

SuperiorKnowledgeApplication

SuperiorLeadership

CoreCapabilities

Preamble &6 country principles

Core Values

The six universal country principles that guides our thoughts and actions.

From the Preamble of the Constitution and other sources, we developed the following sixuniversal principles which we believe represents the hopes and aspirations of the country

and will guide all our thoughts and actions.


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15. ESKOM 2O15 OUTCOMES

The 2015 outcomes are set in two phases.

A: Solving todays problems with 2015 in mind

B: Setting the 2015 outcomes

A: Solving todays problems with 2015 in mind

1 Continuity of electricity supply: Whilst we fully appreciate the tightness of thepower system, given the disruptive nature of load shedding, we resolve that, in

collaboration with the country, we will ensure that there is no load shedding in South

Africa. This resolve will be supported by a comprehensive and integrated plan that

will mobilise all of society towards this goal.

2 Financial Stability: Whilst we fully appreciate the current precarious financialposition of Eskom, we resolve that 2008/09 will be the last year to post operatingincome losses.

3 Embedded derivatives impacts eliminated by 1 April 2011: We aim that the2011/2012 annual report will not report any embedded derivatives impacts from

commodity linked contracts

4 Committed funding plan for all committed projects 1 April 2010: Based on theoutcomes of the NERSA determination and the ongoing funding model discussions,

1. A united, democratic and prosperous South Africa

2. Eradication of poverty and unemployment

3. A thriving economy, connected to the world and integrated with the broaderAfrican continent

4. A sustainable economy, not harmful to the environment and committed to climatechanges mitigation strategies.

5. Enhancing the potential of each citizen

6. Leveraging the role of SOEs for the economic development of the country


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we resolve that a clear and committed funding plan for all current committed projects

will be in place by 1 April 2010.

5 Stabilise the cost and logistics of primary energy by December 2010: Theprimary energy cost has been escalating significantly in the past 5 years due to

reserve margin constraints. By December 2010, we will have stabilised the primary

energy cost and the logistics for all our power stations.

6 Lock in the total cost and schedule of Medupi and Kusile by March 2010: Theconclusion of the funding model and Nersa determination will allow us to place all

contracts for Medupi and Kusile. This will allow us to lock-in the cost and give more

certainty to the construction schedule of these power stations.

B: The 2015 outcomes

Specific targets for the following objectives will still be developed:

1. Power adequacy outcomes2. Financial position outcomes3. Commitment on renewables4. Emission target achieved5. No. of trainees achieved6. Demand side management achieved7. Value of industrialisation achieved based on Eskom activities8. Cogen and IPPs achieved

9. Regional IPP projects supported10.Employee dispensation framework outcomes11. Jobs created12.Percentage electrification achieved

16. CORE CAPABILITIES

In order to reach our vision of a reframed Eskom, and to contribute to the aspirations of

this country, there are a set of core capabilities we will develop.

Superior Relationships: Our aspirations to embed the contribution of Eskom in the

dreams of the nation, are so ambitious, to be attained through an organisation that has afragmented and isolationist approach.

We cannot achieve the promise of our ideal future if we act as separate individuals with

separate goals nor can we attain it as an organisation working in isolation.

Superior relationships mean exemplary internal collaboration, close connection to key

constituents and powerful stakeholder alliances.


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Superior Stewardship: We are stewards of a vital national asset, Eskom. Also our

operations has an extensive and broad impact on many areas and national aspects, such asthe economy, the environment, investors confidence, interaction relations, national

resource, skills, etc.

Superior Stewardship means: We will in all times act in a manner that serves the best

interest of the country and its resources. We will always put the interest of the country

above our sectoral and narrow organisation interests. This will be done in cognisance to

all relevant corporate governance and statutory requirements.

Superior Leadership: Superior leadership is the key ingredient that translates an

ambitious vision to successful outcomes. We believe that leadership is not a position.But leadership is an attitude.

Superior leadership takes three forms:

As individuals, we take initiative within our circles of influence to educate and engageothers in ways to increase our effectiveness for the organisation,

Organisation-wide we maintain a pipeline that develops leaders, as an organisation we

lead coalitions and collaboration with stakeholders to achieve our vision, that advancesthe aspirations of our country.

Superior Whole Systems Thinking: Our product has a unique feature, that it is

consumed immediately as it is produced.

Therefore our superior capability to think about the system as a whole is critical to our

success.

Superior whole system thinking means, wherever we are on the value stream of the

organisation, we fully understand how the whole system works and we are conscious of

the impact our decisions to the total system. We take steps to ensure that our decisionsand actions maximises the effectiveness of the whole system.

Superior Knowledge Application: We take a view that, it is not what we know that

matters, but how we use our knowledge to advance the broader interest of the

organisation.

Superior knowledge application means we have superior capability to acquire new

information, new insights, simplify, educate and integrate and apply the insights to

improve our effectiveness and improve our results.


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Teamwork facilitates superior relationships across the organisation and all the

stakeholders that we are interdependent with.

Effective teamwork thrives on an environment of trust and transparency, collaborationand dialogue, respect and understanding.

Integrity

As stewards of the critical national asset, as well as the critical impact of our actions to

society, we have the responsibility to always act with absolute integrity.

Integrity means, at all times, we will be true to our values and principles at a personal

level and at an organisational level.

Empowerment

Empowerment means all individuals are authorised, competent and motivated to act

interdependently on behalf of the organisation.

Empowerment entails:

We understand not only the vision, but how the vision relates to our work.

We have the skills to act on our initiatives.

We have information as well as the power to act.

We know we are trusted and will not be punished when we take initiative that is

within the scope of discretion or in pursuits of our vision.

Sustainability

The core value of sustainability will reinforce our core capability of stewardship.Sustainability will permeate all aspecs of our activities and decisions. It will start at a

personal level, organisational level and national level. From personal safety,

environmental, environmental, financial, business, community and all other aspects.


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18 THE LEADERSHIP DIAMOND FRAMEWORK (LEADERSHIP QUOTIENT)

Superior leadership is a critical core capability for our success at Eskom. It is superiorleadership that will translate all our core capabilities into integrated and abundant

decisions and outcomes that will take us closer to our vision.

The Leadership Diamond Framework, brings together all the aspects of our core

capabilities in the form of the four aspects of an integrated decision making process.

This leadership model, forces us to continuously integrate all the interest of all impacted

parties in our decisions and actions.

JOH-BUP036-20070507-JvW-P1

1

The Leadership Diamond

Interest of own division,unit or portfolio(Technical Quotient) TQ

Interest of the wholeOrganisation (Team dynamicQuotient) TDQ

Interest of the Country

(Political Quotient) PQ

Interest of the customersand stakeholders(StakeholderQuotient)SQ

Integrated leadershipdecision (maximise interest

of all)

A. Technical Quotient (TQ)

The Technical Quotient narrowly describes our ability to make decisions that only

reflects our narrow technical and divisional interest. However, the TQ can be

associated with our core capability of Superior Knowledge application.


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Superior Knowledge Application reflects the transformation of our narrow technical

knowledge into relevant simplified and accessible knowledge that empowers the restof the organisation and our stakeholders to make integrated and abundant decisions.

Superior Knowledge application instils an attitude of sharing and teaching of our area

of expertise.

B. Team Dynamics Quotient (TDQ)

Team Dynamics Quotient, is closely associated with our core value of teamwork.

Our decisions and actions can be much more impactful if we build close working

relationships and collaborate with our peers across the broader business and industry.

C. Stakeholder Quotient (SQ)

As an organisation, our product and services are critical to the success of the country,

and our ability to work with stakeholders is critical.

SQ is strongly associated with the core value of service excellence.

Our SQ will be reflected by our intimate relationships and responsiveness to thosewho depend on our service.

D. Political Quotient (PQ)

PQ is understanding the value of positive politics. Positive politics takes the formof creating alliances and broad coalitions with people whom we have common

interests.

At a national level, our ability to continuously reflect our role in the context of the

broad national aspirations is positive politics.

At an organisational level, maintaining superior relationships within and outside the

organisation in the interest of the broader vision of the organisation is positive

politics.

19. THE ROLE OF THE BOARD: THE NATION BUILDING CONTEXT

Fiduciary responsibility and corporate governance: The board of a SOEs is entrusted

with the stewardship of a critical public asset and resource. Therefore, the level of

corporate governance in a SOEs like Eskom must be of the highest standard and this is

the fundamental role of the Board. Guidelines and principles of fiduciary responsibilities

and corporate governance are fully articulated in various codes and statutes like the

PFMA, the King Code of Governance as well as the Companies Act. This paper focuses


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on the broader role of the Board in responding to the demands for nation building in this

phase of our democracy.

The role of the Board of Eskom in this phase of the democracy: The role of Eskom iscentral to the success of South Africa in this phase of the democracy. Electricity

provision touches almost all facets of the economy and society. The Board of Eskom

should be actively engaged in the national dialogue on the key national initiatives that

impact on energy security in South Africa.

Redefine the Role of the Board to be more strategic with greater external

collaborative leadership: As the dialogue on energy security, climate change, the role

of SOEs, the role of Eskom, the funding model and various national strategic issuesunfolds, there is an ever-increasing need to lead and collaborate with the external

environment. There is an increasing opportunity and requirement to engage with

parliamentary committees, labour movements, business associations, ministers, politicalparties and many other stakeholders. The Chairman and the Board members are

appointed on the basis of their extensive networks in these environments and they shouldutilise them on behalf of Eskom. The EXCO structure will empower the non-executive

directors to play an increased role in the external environment.

Participating in the national dialogue on key strategic matters: The Green Paper onthe National Planning Commission has been issued recently. This Green Paper recognises

energy security as one of the key focus areas for the National Planning Commission. The

Board of Eskom must be ready and prepared to participate meaningfully in the national

dialogue on such matters as the Green Paper of the National Planning Commission

Maximising the benefit of the profile of Board members: Each of the Board

members of Eskom is appointed on the basis of a profile that has potential significantvalue to the organisation. Amongst the Board members reside a wealth of experience,

extensive networks and specialist knowledge that must be exploited to the maximum for

the benefit of Eskom and the country. The breadth of the expertise in the Board ranges

from senior organised labour leadership, business leadership at country and global level,financial and accounting management, global authority on climate change, local

government expertise, organisational transformation and international power industry

leadership. This expertise must be transformed through a concerted strategic discourse to

a national resource that can contribute to broader country aspirations.

Thought Leadership: There are a number of topics that Eskom is grappling with which

have national and global significance. Topics such as Climate Change, Renewable

Energy, Funding, Nuclear power, Poverty Eradication, Employment Creation etc. There

are members of the Board who are already thought leaders on these topics who must be

given more platforms to contribute to the national and international discourse on the

topics on to the benefit of Eskom and the country.

.


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20. PRINCIPLES OF THE EXCO ROLE AND STRUCTURE:

In the context of the review and the discussions in this document, it is now appropriate todiscuss an appropriate EXCO structure that will set the base for the future we desire. The

current EXCO structure was developed based on the need to recover the system during

the height of the energy crisis in February 2008. I have reviewed and developed a

structure for the current situation which also sets a base for the future.

Our vision, core capabilities, core values and leadership behaviours provides the

framework for people selection at all organisational levels.

Solving todays problems with the future in mind: As we reframe the role of Eskom,

we need to solve todays challenges with the future in mind. The EXCO structure will

integrate the capabilities to respond to the day to day challenges of the business whilstsetting the base for the next 25 years.

We need to solve the current challenges

Keeping the lights on

Cash management and funding

Primary energy availability and cost

Execution of the build program

Whilst we set a base for the next 25 years

Organisational Effectiveness and Reframing

Future Security of supply

Climate Change Strategy

Financial sustainability

Uplifting the poor

Introduction of IPPs

Regional IPP Projects

Renewables

DSM

Empower the Chief Executive and the EXCO team to be closer to the operations ofthe whole business: The EXCO structure will allow the CE and the team as a collective

to get closer to the operations of the entire business. Solving todays problems and setting

a base for the next 25 years requires that the EXCO team develop superior appreciation

of the entire value stream of the business. This will require a much flatter structure thanthe current arrangements.

Allow the Chief Executive to get closer to the critical business units: The Chief

Executive must get closer to the business units that require a step change to solve thecurrent business challenges. This means that the CE will have to get closer to all the


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eskom ceo jacob maroga strategy document document 22 oct 2009

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