Page 4 - AfrElec Week 40

AfrElec COMMENTARY AfrElec
Clock runs down for Eskom
Eskom’s failing power projects and debt burden are threatening SA’s economic growth as the government is set to reveal its reform plans by the end of October, writes Richard Lockhart
SOUTH AFRICA
WHAT:
Medupi and Kusile costs soar as Eskom highlights management failings
WHY:
Con icts with contractors and poor management held by construction
WHAT NEXT:
The government is to outlined the details of its reform plans for Eskom on October 31
ESKOM continues to faces major problems on all fronts as it struggles to nd the cash to keep the lights on and waits for the government to outline the details of its reform plans.
Executives admitted to parliament this week that it cannot service its debt without govern- ment support.
Meanwhile, former officials admitted that the cost of the Kusile and Medupi coal-power projects had ballooned, and that poor planning, disputes with contractors and accusations of substandard equipment had all caused major project delays.
All this comes as South Africa risks los- ing its last investment grade rating at the start of November as the cost of bailing out Eskom slowed down economic growth.
Power plant costs
The cost of building South Africa’s Medupi and Kuslie power plants could now stand at ZAR451bn ($29.6bn), Eskom has admitted, the same as the company’ entire debt and three times the original estimate of ZAR163.2bn ($10.7bn).
e two projects are were originally launched in 2007 and should have been online by 2015. However, the current target dates for completion are now 2021 for Medupi and 2023 for Kusile.
e two projects have been hit by the instabil- ity at Eskom in recent years, with 11 CEOs since 2007. Eskom has admitted that cost overruns, construction delays, poor planning and FEED and poor oversight of contractors had all caused the delays.
Indeed, the two projects su ered from many development mistakes, former Eskom sta and advisers told Bloomberg.
“ ey needed to basically call a halt to the whole project and do a reset—to go back into the contractsandthedesignandengineering,”Mike Rossouw, an independent adviser to Eskom, told Blomberg. “ ey never did that and haven’t at any stage and the consequences are there for all to see.”
Meanwhile, the projects were developed too fast by inexperienced contractors.
“The project was under development and implementation at the same time, which is clearly a recipe for disaster in terms of any good practice for major project execution,” said Steve Lennon, Eskom’s former group executive for
sustainability.
“ ere was a shortage of contractor capacity
given the worldwide demand for large-scale gen- eration plant at the time.”
Other problems included claims and coun- terclaims for compensation between Eskom and contractors. Eskom has received claims worth ZAR252.9bn ($16.6bn), of which it has settled ZAR14.8bn ($971mn).
Eskom has itself led compensation claims for ZAR2.6bn ($171mn).
Eskom has also accused boiler suppliers Mit- subishi Hitachi Power Systems Africa of provid- ing de cient boilers. Talks on how to resolved this dispute are ongoing, further adding to the doubts over the two projects and potentially rais- ing costs.
Annual report
Meanwhile, Eskom Chief Financial O cer Calib Cassim told parliament on October 9 that its net income for year to March 2019 was ZAR33bn ($2.2bn), well below its debt servicing require- ments for the year of ZAR69bn ($4.5bn).
is means that the company is dependent on government subsidies to service its debt
Eskom Chair Jabu Mabuza and senior exec- utives were brie ng the Committee on Public Enterprises about the utility’s annual report for the year to March 2019. Mabuza, who is now also Eskom’s acting CEO, added that Eskom made a net loss of ZAR21bn ($1.4bn) a er tax, while generation availability factor stood at 70%.
Bail-out
In August, Eskom’s debt stood at ZAR440bn ($29bn), and since then government has not nalised any de nitive plan for the company’s long erm future.
e government of President Cyril Rama- phosa has granted Eskom a three-year, ZAR128bn ($bn) bail-out package, but propos- als to break up the company into generation, transmission and supply business, as well trans- ferring some of Eskom’s debt onto the govern- ment’s books, have yet to be agreed.
Finance Minister Tito Mboweni is set to pub- lish the government’s medium- term budget on October 30, when more details of the govern- ment’s rescue of Eskom are expected to be made public.
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w w w . N E W S B A S E . c o m Week 40 09•October•2019