Executive finance business partner for group capital
and properties: Eskom
Ismail Lambat manages group capital at Eskom, and that puts him over R350 billion worth of assets. For all the bad news coming out of Eskom, Lambat has some good news to share about the state of financial management at Eskom.
CIARAN RYAN: This is CFO talks and today we are talking to Ismail Lambat, he’s the executive finance business partner for group capital and properties at Eskom. Now, we’re accustomed to hearing a little bit of bad news coming out of Eskom, including its huge and unsustainable debt, so it’s great to have Ismail here to share some, hopefully, good news about Eskom. Ismail has 200 staff reporting to him and he and his team are responsible for reporting, financial and management accounting cash management, process control and assurance. That’s a huge portfolio. He’s also responsible for optimising the group capital portfolio, which is valued in excess of R350 billion and he led the capital stream of Eskom’s turnaround strategy and realised efficiencies and savings in excess of R100 billion. These are big numbers, so we’re delighted to welcome Ismail Lambat to the studio. Welcome, Ismail.
ISMAIL LAMBAT: Thank you, Ciaran, and really happy to be here this morning.
CIARAN RYAN: Great to have you, can we kick off with a discussion about Eskom itself, I’d like to know about the complexities of being a finance executive in a state-owned company and what challenges you have to face. Also, talk to us about the task of optimising Eskom’s R350 billion capital portfolio and what does that mean.
ISMAIL LAMBAT: I think, as you correctly state, being in a state-owned enterprise is definitely quite a complicated environment, more so because we have to deal with the macroeconomic demands, as well as the internal challenges of the organization, which definitely makes it an extremely interesting place to be. We’ve got a myriad of stakeholders and interdependencies that we need to look after in our decision-making, so that brings with it the associated complexity. However, as a finance executive in the state-owned entity space, it’s definitely a space where one could thrive in terms of intellectual stimulation, ability to lead people effectively and really help with trying to make a difference in the South African economy.
CIARAN RYAN: Talk to us about the portfolio itself because the portfolio that you look after is the power stations, is that correct? I don’t know how many power stations we have, I think it’s more than 20 and there are a huge amount of properties involved with Eskom as well, so how do you go about managing that, how do you even go about valuing something like that?
ISMAIL LAMBAT: The Eskom capital portfolio is a combination of new projects, as well as refurbishments and maintenance of the existing fleet, as well as primary energy, which is investment in mines, group IT, the distribution business, transmission and generation. So each of them are characterised by capital projects, which would ultimately make up the capital portfolio in excess of R300 billion. The role that we play as capital efficiency is really to align each of these projects to Eskom’s strategic vision and direction to make sure that the company is investing in the correct projects at the desired return and obviously in response to the life of plant plans and any other risk management strategies that are underway. So optimisation in the true sense or in the simplest sense is making sure that the right projects are done at the right cost at the right time and in the right or correct methodology.
CIARAN RYAN: Right, so if we look at Medupi and Kusile, the new plants that have recently been constructed or completed or in the process of being completed, they’ve been in the news quite a bit for cost overruns and that sort of thing, what is the position there, how do you optimise those particular assets?
ISMAIL LAMBAT: That’s a great question, Ciaran, more so because I think at times the public is not always aware of the success stories associated with Medupi and Kusile, we’ve recently seen a few units being transferred to commercial operation and sending output to the grid. So in as much as there have been cost overruns and so on, the fact that we have created a supercritical baseload power stations in the South African context is definitely a success that we need to acknowledge and the cost overruns have largely been as a result of cost price escalations, the impact of commodities being used and so on, and these are generally expected in the construction of mega projects. So definitely there’s a governance process that deals with any cost overruns or applications for additional funds to complete these projects. Eskom actually prides itself with having quite a mature investment management process.
Eskom’s plans to mitigate any loss of capacity
CIARAN RYAN: We’ve had a couple of energy experts come onto the podcast and one of them mentioned to us that Eskom is about to retire a lot of its coal-fired power stations over the next ten years and there doesn’t really seem to be a plan in place at the moment to replace that capacity. Do you have any information that you can share with us on that?
ISMAIL LAMBAT: Ciaran, I’ll try to answer in the best way possible on this because the technical part is out of my sphere of control. But, really, Eskom does acknowledge that a certain portion of the fleet is aging and the required decommissioning and so on would need to happen at the appropriate lifespan of these power stations, so I can assure you, though, that there are a lot of internal discussions, strategies and planning process that are underway to really mitigate any possible loss of capacity in the future and to make sure that the South African economy is adequately capacitated from an energy perspective.
CIARAN RYAN: This may be a little bit outside of your brief but the kind of power that we would be looking at to replace the old coal-fired power stations, are we talking about coal, are we talking about nuclear or is that undecided at the moment?
ISMAIL LAMBAT: That largely gets derived from the integrated resource plan, which is generated from the Department of Energy, and I think the energy mix is really stipulated in the IRP. So the technology mix around nuclear, renewables, coal, all of those specific technologies would be determined in the IRP.
CIARAN RYAN: Okay, so Eskom is in the news a lot and often for all the wrong reasons, as you are probably aware, we’ve had blackouts, we’ve had stories of corruption and claims that it is poorly run and overstaffed. Where did it start to go wrong for Eskom and how should it be fixed?
ISMAIL LAMBAT: My honest view on this, Ciaran, is that Eskom is in the process of recovery, both from a technical perspective, as well as a financial perspective, and in terms of how do we fix this, I think just instilling the right fundamentals of corporate governance, of financial management, as well as operational efficiencies and so on, all of which is Eskom is currently underway with. Those are definitely the levers that one would apply for a recovery process. We’ve got quite an interesting strategic turnaround programme that’s underway and maybe as a natural optimist I’m very excited to be part of this solution and to be a financial steward contributing to the South African economy.
CIARAN RYAN: You seem quite confident that this is definitely on the right track but what about the R450 billion debt that we’ve read about in the press and I know this is something that’s really being decided at the governmental level but it is a huge amount of money. Is Eskom destined to be a ward of the taxpayer forever or is it actually eventually going to stand on its own two feet, what do you say about that?
ISMAIL LAMBAT: I think my information sources are largely what we see in the media on this aspect and I think we’ve seen a lot of debate around the impact of fiscal involvement, of government intervention and so on, and all these potential solutions are being mooted quite actively. We’ve also seen in the recent State of the Nation Address, as well as the reports coming through, that there are plans underway to acknowledge the fact that Eskom is highly indebted and there needs to be almost a collaboration to deal with this debt burden.
Challenges faced by finance leaders
CIARAN RYAN: I’d like to talk to you now for a minute about some of the challenges being faced by finance leaders in this modern era, what do you see as the big challenges and changes in the finance field over the last decade and, I must say, being a finance executive in Eskom, which is a very challenging environment from a purely financial point of view, must be quite bracing. In other words, there’s no point in being an executive if everything is comfortable, you want to be put into the deep end to really test your mettle, is that a fair comment?
ISMAIL LAMBAT: Definitely and it’s a challenge that I personally respond to on a daily basis, which really brings with it the statement earlier that the role of finance has effectively evolved, and continues to do so, from the traditional record keeping and accounting, to taking on a completely different role, one of influencing business decisions, being part of governance solutions, as well as really trying to be a more strategic partner rather than a record keeper. With the advent of the Fourth Industrial Revolution, as well as AI and all these imminent activities that we hear about so passionately, finance has by default taken on a very different format, one which focuses more on analysis rather than simply reporting and focusing on historic information and there’s quite a lot of pressure on the finance fraternity to react appropriately and be responsive. So really being involved in critical business decisions, acting out of our traditional comfort zone, being more adept to dealing with IT and other technological advancements and we see all of those pressures really creeping into the traditional finance space.
CIARAN RYAN: Eskom is the, I think I’m correct in saying it is the largest borrower on the bond market in South Africa, probably by a longshot, so you have to interact quite a lot with the investment community and, of course, Eskom or most of Eskom’s bond debt is government guaranteed, which provides a cushion for investors. Is there much of your time spent with the investment community and talking to them and satisfying them that they are not making a huge mistake investing in you?
ISMAIL LAMBAT: Fortunately, Ciaran, we’ve got a dedicated Eskom treasury function, quite a competent function and that’s supported by our chief financial officer, who spends a considerable amount of time interacting with investors, both locally and abroad, and really giving them honest feedback around Eskom’s state of affairs, financially, technically and so on. I think if you look at just the sentiment from investors, they seem to be quite confident in the way that the CFO has been engaging with them, the story being told is an honest one, the complexities are shared, as well as plans are put on the table. So this has been quite satisfying to investors and as a result we have seen positive interest from the investment community.
CIARAN RYAN: I get a sense that you maybe feel that the press gives Eskom a bad rap, am I correct in saying that?
ISMAIL LAMBAT: That’s a slightly controversial one and I’m just thinking about the cliché, where they say scandal generally sells or scandalous headlines generally up the viewership numbers but I think the role of the press is really to be a watchdog on entities as important as Eskom is. So I’d say that there could be instances where at times some of these statements could be exaggerated and so on but generally I think in South Africa we enjoy good media interaction and also the media has an important role to play as they do in enforcing the right behaviours on corporate South Africa. I think Eskom generally has a quite an amicable relationship with the media.
CIARAN RYAN: I’ve interviewed the former chief executive of Eskom, Matshela Koko, and, as you know, his name has come up with the Zondo commission and has been associated with corruption but he, of course, has an entirely different story to tell there and the story that he tells is that there’s quite some layers of separation between where the procurement happens and the chief executive’s office. Understanding how business works, I think he has a point there. However, there does seem to be a little bit of a game of finger-pointing that has gone on at Eskom. In other words, the new management comes in and points the finger for all the mistakes of the previous management and I think this is what Matshela Koko has been alleging. I’m not saying one way or the other whether it’s correct or not. Is there a bit of a culture of blame going on there?
ISMAIL LAMBAT: I think that in any corporate when a new management entity takes over it goes through a bit of a life cycle in terms of analysing the status quo and then trying to diagnose it and create action plans and so on. So hopefully that doesn’t get interpreted as finger-pointing or blaming. What I can assure you, though, is that Eskom has a very defined delegation of authority, document or process, which governs the way investments and procurement is made. I’ve been involved more on the investment side of things and I can… it’s quite an impressive way in which investments are appraised, there are committees supported by ExCo and so on, who preside over decision-making. I think members are aware of the responsibility of these committees and act diligently in these roles.
Finance executives are the engine of power in organisations
CIARAN RYAN: Good answer. What about the role of the chief financial officer, let’s just focus on that from a generic point of view. I think it’s something that a lot of chief financial officers are confronting is what are the skills required of the financial officer or finance executives in this new era. Is it more people-based, do you have to be a good leader, do you have to demonstrate leadership because the image of the finance executive is a number cruncher and he operates in the shadows of the chief executive. The chief executive is the guy who’s out in front of the press and in the limelight but oftentimes we know that it’s the finance people who really are the engine of power in any organisation. How do you respond to that?
ISMAIL LAMBAT: In terms of the skills required by successful finance executives and up-and-coming finance leaders, there’s a demand towards the role of finance business partnering, where it’s almost a mini CFO role, where you support the head of a particular business unit, a direction, and you see this model replicated in lot of multinational corporates. The role is really one of being the go-to person, to be a sounding board on all business decisions ranging from investment, procurement and even in some cases technical decisions because finance executives are privileged to have been trained on quite a good sounding basis that can be applied in any sort of environment. Coupled with that there’s the role of finance leaders being mentors and coaches to the teams that they lead and also trying to be that person who inspires confidence in others, bringing out the best in people who they lead and really being as innovative as possible within the ambit of correct accounting processes and the like.
CIARAN RYAN: You’re a chartered accountant, just tell us a little bit about your academic background.
ISMAIL LAMBAT: Sure, Ciaran, I am a little bit of a sucker for books, I’m a chartered accountant by profession and I’ve also got an MBA. I’ve done some courses overseas in the executive development space, I’ve also focused on Islamic finance through the Institute of Management Accountants and quite recently I’ve been dabbling in the executive coaching and leadership space, which I thought was a good career progression from an academic perspective. Using the CA as the pillar of academics in my case, I find that it gives me the opportunity to interact quite widely on complex financial issues and also to really emulate the values and behaviours required in the code of professional conduct that we subscribe to to the South African Institute of Chartered Accountants.
CIARAN RYAN: Good, you’re also a member I see on the SAICA committee for members in business, can you tell us what that involves and, more importantly, what role do chartered accountants play in society?
ISMAIL LAMBAT: The South African Institute of Chartered Accountants has an ExCo sub-committee, the members in business committee, which is really trying to interpret the varying needs of members in corporate SA and beyond. Chartered accountants tend to take quite different roles and the complexities built into those roles need to be understood by the institute. So that’s really the role of the members in business, trying to respond to the evolving needs of members and making sure that the profession is agile enough to deliver on these different needs.
CIARAN RYAN: Chartered accountants have come in for a lot of flak in the world today because so many of the scandals that we see written about in the press involved somewhere a chartered accountant sitting there in the CFO post or somehow attached to the procurement budget. Now, the traditional role of a chartered accountant was to provide assurance right, this is really what the audit is all about, has the chartered accountancy profession slipped in delivering on that role of providing assurance and if so, how do we correct that?
ISMAIL LAMBAT: Given the fact, Ciaran, that the majority of the JSE listed companies are either headed by a CA or equivalent, the role has evolved from them simply providing assurance, to them being really the custodian off these businesses. So by default I think when these scandals tend to ventilate it generally tends to drag the profession into it somewhat. You are correct in saying that the traditional role of chartered accountants has been providing assurance, specifically at the audit firms and so on. The Institute of Chartered Accountants are extremely responsive to the fact that the profession has been chastised quite recently with the scandals that you mentioned and there is definitely a need for us to reinvent ourselves as CA’s and assure the people that we interact with on a daily basis around the role that CA’s play as business leaders and as corporate stewards.
CIARAN RYAN: How do you do that, how do you reinvent yourself?
ISMAIL LAMBAT: My view is that you do it simply by demonstrating the behaviours that people expect from chartered accountants, to be thorough in your decision-making, in your analysis and really to live up to the brand that which CA’s aspire to. So having an unquestionable level of integrity, ethics, not shying away from confrontation, being assertive, being able to really drive a business or any entity to its desired level in the correct method without being compromised on any legislation and so on. I think that’s really what sets CA’s apart, their adherence to legislation, being at the forefront of changes in the finance environment, tax and so on, and that’s really why employers and members of the public tend to look at CA’s in quite a respectful… most of the time.
Saying no should be in the DNA of every finance executive
CIARAN RYAN: I think one of the soundest bits of advice I ever got from a finance executive, one of the greatest qualities for a finance executive is the ability to say no because everybody is coming to you looking for money and you just have to say no. In fact, the church to which I belong, I see you’re Islamic but the church to which I belong that’s the role of the finance executive, no, they just say no. Would you agree with that?
ISMAIL LAMBAT: I think in as much as saying no should be in the DNA of every finance executive, as you correctly say, I think it’s also more important to take on the role of being an active listener to what the request is because you don’t ever want to come across as a CA who is impulsive and just sort of shooting from the hip to say no, Ciaran, no budget, without understanding or appreciating where your counterpart is coming from. There could be legitimate reasons for why funds are being…and it would be negligent on the part of a CA to simply paint every scenario with the same brush. With regard to tithing and charity and all those good things, there I say yes all the time [laughing] because our Biblical and Quranic scriptures advocate giving and the rewards that follow. So yes, yes, yes to those aspects.
CIARAN RYAN: Right, okay, yes I know it is a bit of a blanket thing but it’s quite a useful default position to say no whenever people ask you for money. Right, moving on, how do you build your personal brand as a finance executive and is there such a thing as a personal brand?
ISMAIL LAMBAT: I think it is quite a challenging thing to have a personal brand as a finance executive, given the fact that we all generally go through quite similar training, you graduate, you do your articles and your career generally progresses in a very similar fashion. However, employers are looking for people who really set themselves apart from their peers, they’ve done innovative things in their career and what I do to try and build my personal brand is to try and get involved as much as I potentially can. I’ve seen a huge amount of learning that tends to flow in these things, get involved in NGO projects, don’t be shy to put up your hand, Eskom is a great place, which affords people awesome opportunities to get involved with leadership development, interacting with difficult stakeholders like unions, being involved in labour disputes and so on. I think all of those things really assist one in building their personal brand, coupled with that, Ciaran, I think the concept of authentic leadership fits quite well in developing one’s personal brand, where you need to be confident about what you stand for, so taking a very generic academic background and then adding onto it your personal elements of how you lead people, how you interact with them, how you make others feel, incorporating your elements of emotional intelligence, EQ, all of those aspects all create this product, which eventually becomes your personal brand.
Alright, one or two more questions, what about the brain drain, a lot of skilled South Africans who are losing hope in the country’s governance are heading off overseas. We see these articles now coming out quite a lot, the number of applications for second passports has just spiked, the number of people who are financially emigrating because of changes to the tax law, where expatriate South Africans are going to get taxed in South Africa on amounts over R1 million. I guess you are probably dealing with this to some extent in Eskom, as we are across the economy, how does one address this?
Ciaran, this is a sad reality that we need to respond to. I’ve been personally… my wife and I have been grappling with this idea about considering emmigration and what would be the best option to leave the country and those happen purely as a result of sometimes seeing your peers leave and you sit back and you introspect and you think what are you doing wrong or what are you missing, are you not seeing the imminent threats that everyone else seems to be responding to. But when you really sit back and you appreciate all you have in South Africa, the type of lifestyle, the sound economic regime that we have. I think it is also important not to respond to the challenges we have in a knee-jerk reaction. So definitely it is a huge loss that our trained finance professionals and other professionals are taking a slightly, if I could say, cowardice option by hopping offshore because I’m honestly believe, Ciaran, that there is so much work that needs to be done and we are compelled as finance leaders and as leaders generally to leave that legacy for the generations that follow. There’s definitely a lot of talk around dual citizenship, acquiring that second passport, buying into residency in Portugal and Granada and the like, and I think the way I internalise that is it’s a lot of peer pressure in that space and it’s just about being confident in saying if you do ever have to emigrate it needs to be for legitimate reasons and if it’s probably for family or for whatever compelling reason, then it’s fine. But really responding to false panic that’s often self-created, it may be slightly short-sighted.
CIARAN RYAN: I’ve seen a few episodes like this going back over the years, it’s almost a cyclical thing where people get very despondent and then all of a sudden you see the number of people emigrating. You’re exactly right, it will be some people close to you, the peer pressure and you think I am going to get left behind and I’m going to be the only person left in this boat. But, of course, that cycle passes and the economy recovers. That’s the one thing I have noticed about South Africa is that it does tend to recover at some point, it tends to right itself. We’re pretty much out of time on that. As a final question, have you got any good books that you would recommend, something that’s fairly inspiring or kind of impinged on you, gave you some intellectual food for thought?
ISMAIL LAMBAT: I think I do enjoy quite controversial titles and the two that I’ve been enjoying quite recently is The Subtle Art by Mark Manson, as well as Switchwords by Liz Dean. These books really advocate being in control of one’s life, embodying positive thinking as much as possible, deep visualisation, focusing on what you want and how to achieve it, and it generally has quite a feel-good aspect to it and I have been enjoying those two reads.
CIARAN RYAN: Okay, so it’s The Subtle Art and Switchwords.
ISMAIL LAMBAT: So essentially Switchwords talks to how does one programme their subconscious or neurolinguistic space by saying certain words that drive the right behaviours. It sounded a little bit freaky at first but once you get your teeth into it it’s quite a pleasurable read.
CIARAN RYAN: Okay, Ismail, thank you very much for coming in, we really appreciate you taking the time to come and talk to us and I found that fascinating. Thank you once again.
ISMAIL LAMBAT: Thank you, Ciaran, it’s been an absolute pleasure spending the last few minutes with you.
CIARAN RYAN: That was Ismail Lambat, who is the executive finance business partner for group capital properties at Eskom.