Counting the multiplying costs of the Medupi mess

THERE is not very much Minister of Public Enterprises Malusi Gigaba can do now to mitigate the effects of the Medupi power station debacle. But with more than a trillion rands in the pipeline for further energy infrastructure over the next decade, the government must learn the hard lessons this project teaches. Eskom acknowledged this week what industry analysts have known since last year — that Medupi’s 4 800MW of power will not start to flow in December, but probably only from the middle of next year.

Measured from the launch of the project, the first power will be two and a half years behind schedule. The latest estimate of the cost of the project has almost doubled to R105-billion.

Medupi is the biggest construction project currently under way in the southern hemisphere. Getting something on that scale right was always going to be a challenge, but it did not need to be impossible.

Now that it is clear that the schedules will not be met, however, Eskom needs to be even-handed in its response. And the early signs are that Hitachi Power Africa, in which the ANC’s investment arm, Chancellor House, has a 25% stake, appears to be getting off more lightly than the French contractor Alstom.

Eskom has already called in Alstom’s performance bond — the insurance the company posted to underpin its contractual commitments. Hitachi, we are told, will have to up the security it has posted, but will not face further penalties.

These may be appropriately apportioned penalties, but Eskom and its government shareholder, Gigaba, must be absolutely transparent in their explanation of the measures they take to limit South Africa’s financial losses.

Eskom CEO Brian Dames has promised that the utility will keep the lights on, without resorting to blackouts, until Medupi’s boilers begin to steam. His assurance is aimed at private clients, however, and dodges the huge impact the mismanagement of the project is having on South Africa’s economic growth — and, therefore, on job creation.

The lights may be staying on and TVs may be glowing in homes across the country as consumption enters the last 1% of available capacity. But to make that possible, giant corporations such as BHP Billiton have been forced, since the politically costly blackouts of 2008, to slow production during the peak evening hours.

Voters may punish the government if they do not get power at home in the evenings, but the more serious truth is that investors are already putting the squeeze on South Africa’s growth potential by withholding projects and dollars that could turn the tide of our economy and invigorate job creation.