The Combination of Governance Reforms That Improved Eskom’s Performance- by Anton Eberhard & 3 others in ‘Africa’s Power Infrastructure: Investment, Integration, Efficiency’ (IBRD/World Bank, 2011)

"...The experience of Eskom, South Africa’s national electricity utility, provides a model for the implementation of governance reforms. A clear distinction is now made between the shareholder ministry (Public Enterprises) and the sector policy ministry (Energy). In addition, an independent authority regulates market entry through licenses, sets tariffs, and establishes and monitors technical performance and customers’ service standards. Eskom was corporatized through the
Eskom Conversion Act and is subject to ordinary corporate law. It must pay dividends and taxes and publish annual financial statements according to international accounting standards. The board (appointed by the Minister of Public Enterprises) is responsible for day-to-day management subject to a performance contract that includes a range of key performance indicators.

Additional legislation (the Public Finance Management Act and the Promotion of Administrative Justice Act) defines in more detail how the utility should handle finance, information disclosure, reporting, and authorizations. A general corporate governance code also applies to all state-owned enterprises. The performance contract is monitored, albeit not very effectively, by the Ministry of
Public Enterprises. The utility benefits from separate subsidies for electrification connections and for consumption (poor households receive their first 50 kilowatthours each month free of charge).

After reforms in the 1980s and the appointment of an experienced private sector manager as Eskom’s chief executive officer, a commercial culture was embedded within the utility, separate business units were created with business plans and new budgeting and accounting systems, and outsourcing was used
more widely. Eskom is a mixed-capital enterprise. Although wholly owned by the state, it raises capital on private debt markets, locally and internationally, through issuing bonds. It is rated by all the major global credit agencies. Eskom managers are acutely aware that their financial performance is subject to thorough external scrutiny. Any possible downgrading of their debt can make capital scarce or more expensive when they embark on a major capital expansion program.

These reforms have caused Eskom to perform relatively well compared with other African utilities. Recently, however, Eskom has had to institute load shedding because it has had insufficient generation capacity to meet demand. Policy uncertainties and an earlier prohibition on Eskom’s investing in new capacity while private sector participation was being considered have led to capacity shortages.
What Eskom lacks most of all is direct competition. Eskom is dominant in the region; it generates 96 percent of South Africa’s electricity, transmits 100 percent, and distributes approximately 60 percent. Neither government nor the regulator has a good enough idea of Eskom’s actual efficiency or inefficiency. Indications suggest that planning and cost controls could improve. Only direct competitors
could provide an appropriate benchmark..."