Contractors named in Kusile Power Station construction overpayment

◆ ABB SOUTH AFRICA:

The estimated overpayment to ABB SA is around R1 billion. ABB SA was appointed using a closed procurement tender strategy to conduct work on the Hitachi Boiler and Alstom Turbine combination. The other bidders included Siemens and Maul Bilfinger.

All three companies sent were visited by Eskom Engineering and a mini factory acceptance test (FAT) was done and witnessed on the product.

During this phase, Maul Bilfinger did not meet the FAT and withdrew.

During the tender between Siemens and ABB, the ABB price was higher than the price submitted by Siemens, “however, due to technical price adjustments made to the Siemens tender, ABB emerged as the cheaper option”.

Once the execution of the works began, ABB was issued with four major orders to be conducted at Kusile Power Station, which included acceleration at the cost of R251 million, a demobilisation claim for R179m, acceleration for R290m and cabling for R311m. The report found that these orders did not have all the required particulars to assess or verify the delays and costs claimed and were grossly inflated.

The Special Investigating Unit (SIU) first met representatives of ABB and its legal team in August 2018, at which time the SIU was informed that ABB was conducting an internal investigation following information that came to its attention through the media.

The SIU and ABB teams met again in January 2019 to discuss the findings at the time. While the SIU is in the process of finalising its own investigation, ABB have verbally offered to pay back approximately R240m.

Numerous employees, including the then project director, employer’s representative and contracts managers, are being investigated by the SIU and none of the main role-players are currently working for Eskom.

◆ TENOVA MINING AND MINERALS SA (PTY) LTD:

The estimated overpayment to Tenova is R735m. Tenova Mining and Minerals was contracted by Eskom for the complete design, procurement, delivery to site, erection, cold and hot commissioning of the terrace materials handling systems for the Kusile Power Station project in 2015.

Tenova had not been able to complete its tasks due to “delayed access to site and disruptions” and Eskom agreed to pay it R700m in 2016 for work it had done.

In August 2019, the SIU informed Eskom that it was investigating the Tenova contract for potential overpayment and confirmed two months later that evidence had been referred to the National Prosecuting Authority (NPA).

Tenova management said that they were not aware and indicated that they would start an independent investigation on the matter. Their feedback is due this month.

The officials involved include the project director, the projects employer representative and the project senior contracts manager at the time who were involved with the settlement and negotiations.

Two of the contract managers involved resigned in the face of disciplinary action by Eskom, based on the SIU’s findings. The other two Eskom officials involved resigned prior to the investigation. The SIU has since referred evidence supporting the institution of criminal charges against seven relevant role-players to the NPA.

The report stated that the SIU was considering instituting civil action against the role-players to recover the losses incurred by Eskom.

◆ TUBULAR CONSTRUCTION PROJECTS (PTY) LTD AND GENERAL ELECTRIC:

The estimated overpayment to Tubular Construction is around R450m and R163m, while General Electric (previously Alstom) is estimated to have been overpaid by around R400m.

Tubular had been contracted to work on Kusile’s air-cooled condenser.

The report stated that it remained “questionable” whether Tubular Construction provided Eskom with any value and if the contractor was really entitled to the additional payments.

Tubular Construction was also awarded a contract for the waste water treatment plant in December 2012 after a de-scoping exercise from the contract originally awarded to Mott MacDonald PDNA. According to the report, this contract and the circumstances around the de-scoping are also being investigated.

The officials involved include the project director and project employer’s representative who were involved with the negotiations and approval of the modification at that time.

The Eskom staff involved with this investigation have resigned. However, the SIU referred evidence to support charges against the relevant role-players to the NPA.

This resulted in the arrest of former Eskom group executive for Group Capital Division, Abram Masango; former Eskom senior manager: Group Capital Division France Hlakudi; chief executive of Tubular Construction Tony Trindade and Hudson Kgomoeswana in December. They were charged with fraud, corruption and money laundering and granted bail of R300 000 each.

◆ STEFANUTTI STOCKS BASIL READ JV (SSBR) AND STEFANUTTI STOCKS IZAZI JV (SSIJV):

The estimated overpayment is R1bn. SSBR was contracted for the construction of 81 buildings, including the unit auxiliary bays at Kusile power station project. The report stated that SSBR put in claims for additional preliminaries and general due to working in multiple areas at the same time.

These claims were not substantiated as required by the contract.

Between 2015 and 2018, Eskom made interim payments to the contractor without the requisite substantiation as this was done on the basis that they would conclude an overall “settlement agreement”.

The report found that there was no consistency or verification of the claims being paid on a monthly basis.

The monthly payments varied from R15m to R50m a month. The report said Eskom was currently in “mutually agreed” discussions with the contractor about the process to determine the actual claim entitlement. SSIJV was contracted for the construction of roads, paving and landscaping at the power station.

Regarding SSIJV, the report said during the execution of the contract, certain compensation events were agreed and paid without the final measurements being done.

The contractor has also submitted various other deemed accepted compensation events claiming that the work was done and these disputes were in adjudication.

The Eskom staff involved with this investigation have since resigned from the power utility. The contracts are currently under investigation by the SIU, which has to date referred evidence in support of criminal charges against 11 role-players.

“Progress on the investigations may conclude that additional Eskom staff were involved. Action will be taken as soon as the investigation results become available,” the report stated. It added that the SIU was considering instituting civil proceedings and has requested the appointment of experts to assist in the quantification of losses incurred by Eskom.

This information is from a briefing document on the Kusile Power Station contract investigations dated June 10, 2020. It was compiled by Eskom and was a response to a query raised by the Standing Committee on Appropriations in February this year.

This report was attached to a letter by Pravin Gordhan to ANC Chief Whip Pemmy Majodina dated July 6.