Eskom’s millstones
MEDUPI, KUSILE: COAL-FIRED POWER STATIONS’ PRICE TAGS BALLOON
Flagship projects were supposed to have been completed by 2015.
SA’s economy was roaring along in 2007 on the back of the global commodities boom, when power shortages struck, bringing mines and smelters to a halt.
The then president, Thabo Mbeki, publicly apologised for prevaricating about adding generation capacity, despite repeated warnings that supply was constrained, and state power utility Eskom swiftly opened the spending taps.
The botched implementation of the expansion plan has haunted the country ever since.
Eskom in 2007 alone approved 13 projects worth more than R200 billion that it said would boost electricity output by 56% by 2017.
The flagships were two mammoth coal-fired power stations, Medupi and Project Bravo, that were expected to be finished by 2015 at a total cost of R163.2 billion.
Instead of resolving the energy shortfall, the plants have been textbook studies on how not to execute large infrastructure projects. Medupi’s completion date has been pushed out until next year or 2021 and Kusile, as Bravo is now called, is scheduled for 2023.
The delays have resulted in months of rolling blackouts, an economy in deep trouble and a huge headache for President Cyril Ramaphosa.
Mike Rossouw was appointed as an independent consultant to Eskom in 2014 to advise it on how to address its construction challenges. He said: “They needed to call a halt to the whole project and do a reset – to go back into the contracts and the design and engineering. They never did that ... and the consequences are there for all to see.”
Meanwhile, the anticipated price tag has ballooned to R451 billion, including the costs of interest during construction and fitting the plants with equipment needed to meet environmental standards.
That equates to Eskom’s entire current debt, a burden that’s left it unsustainable and reliant on a three-year, R128 billion government bailout to remain solvent.
The utility now concedes multiple failings that led to cost overruns and delays, including inadequate planning and front-end engineering development, plus ineffective contracting strategy, execution and oversight.
Contractors performed poorly and incurred limited penalties, while strikes and demonstrations compounded the implementation woes. Turnover at the top – the company has had 11 permanent and acting chief executives since construction began – didn’t help.
Eskom also assumed much of the risk of developing Medupi and Kusile when it decided to coordinate the projects, rather than appointing an outsider to oversee engineering, procurement and construction – a common practice in plant development.
“The SA market at the time was not ready for a single contractor to handle the onerous risk of executing a project of this complexity and magnitude,” Eskom said in an e-mailed reply to questions.
The company also wanted to develop skills and create jobs by bringing in small and medium-sized contractors, it said. – Bloomberg