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Eskom battling to meet Medupi deadlines

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By Londiwe Buthelezi.

Eskom has once again raised the alarm that there is a material threat to meeting the revised deadline for the commissioning of its Medupi power station, a delay that Mike Schussler, the chief economist at Economists.co.za, says will raise its loan repayments and cost consumers money.

Eskom spokeswoman Hilary Joffe told Business Report last week that the labour unrest that had forced the construction site to close for more than three weeks now posed a threat to the delivery of the Medupi power station on time. The project is running on a very tight schedule as its first unit is expected to be commissioned at the end of this year.

The date for commissioning the first Medupi unit has been revised twice. Initially, it was scheduled for the end of 2012 and then revised to May 2013 and now to the end of 2013.

The power station, which is Eskom’s largest single investment in its 86-year history, has been engulfed by a series of protests ranging from disputes between contractors and workers to opposition by environmental groups, which challenged its use of coal.

Construction has had to be suspended a number of times.

Eskom has also attributed some of the delays to poor performance by Hitachi Power Africa, the company partially owned by the ANC’s investment arm, Chancellor House, which was awarded a R20 billion contract to supply boilers for the power station. Eskom said Hitachi was not meeting boiler delivery deadlines.

Hitachi Power Africa did not respond to questions sent last week about its reasons for the delays or measures to avoid further similar situations.

Schussler said the delay would increase financing costs and result in an increased price of electricity. “It might not be immediate but this delay will cost us,” he said.

Schussler said the delay in commissioning Medupi was already costing the economy because it was supposed to be on line by now.

“When you look at the first quarter of this financial year, Eskom has been buying back a lot of power from companies and that constrains manufacturing and mining operations,” he said.

Mayihlome Tshwete, the Department of Public Enterprises ministerial spokesman, said there had not been any official engagement between the department, which is Eskom’s shareholder, and the power utility.

“But of course we would be concerned about any delays and we would have to ask the hard questions on how they occurred and who is responsible,” Tshwete said.

The Treasury, which provided guarantees for the loans that Eskom secured to finance Medupi, said it had been closely monitoring Eskom’s build programme and it was comfortable that the rescheduling of the commissioning dates would not have an impact on Eskom’s capacity to meet its guaranteed obligations.

“The Treasury is satisfied that Eskom has been taking the necessary actions to address these challenges. Although the commissioning dates have been revised, the new commissioning dates are still within the target dates set in the government’s Integrated Resource Plan,” it said.

Business Report learnt that there have been delays on Eskom’s side as well in terms of installing parts.

But Alstom, which won a R13 billion contract for the equipment on the turbine islands, said although delays had occurred because of the project complexity, the company preserved all equipment that was yet to be installed under nitrogen gas to prevent rust.

Alstom said all the major components for both Medupi and Kusile had been acquired and delivered to the construction sites while some were kept in storage facilities as they awaited delivery. The firm said it was pushing to meet Eskom’s target for commissioning Medupi’s first unit.

Joe Meyer, the general manager of Exxaro Coal’s Grootegeluk Medupi expansion project, said the coal producer was on schedule and within budget. However, the railway infrastructure that was supposed to link the Grootegeluk colliery and Medupi was still not in place.

Exxaro was in the past forced to delay the delivery of the first coal to Medupi because of construction delays but Meyer said the company would honour the agreement with Eskom.

Joffe said despite these delays, Medupi had no cost overruns and its price tag had remained R99bn since 2009.

Joffe said most of Eskom’s borrowings were not for specific projects except in the case of export credit agency funding, and the World Bank loan for Medupi. “Where it is project specific, the drawdowns would depend on the project progress,” she said.

Cornelis van der Waal, the electricity analysis programme manager at Frost & Sullivan, said it was common for projects of Medupi’s size to have budget overshoots and delays.

“All major projects experience delays. Take the Gautrain, for instance, and even the Square Kilometre Array there are already indications that it will have delays. It’s not ideal but it is not unheard of when you look at its complexity.”

Van der Waal said Eskom had played its part of being the project manager fairly.

Medupi’s site preparation began in July 2008 and to date units are at different stages of construction, with unit six boiler pressure tests in progress.

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