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Energy expert Ted Blom warned this weekend that loadshedding could haunt South Africa for at least another five years. Blom said he believed it could take Eskom that long to sort out its coal problems and its maintenance backlog. He also mentioned that coal stations in Mpumalanga were operating at 72% capacity, which is expect to drop below 50% within the next year. This was followed by an estimate of another Eskom insider, Mike Rossouw who said that the cost overruns of Medupi and Kusile power stations could run into more than R1trn. Biznews founder Alec Hogg asked energy expert Chris Yelland whether this was an exaggeration and asked him who was to blame for the problems at the all-important Medupi and Kusile power stations. – Linda van Tilburg
Chris Yelland said the Medupi power station has brought Eskom to its knees. He said the bulk of the R450bn debt is completely unsustainable. The debt “is as a result of the cost overruns at Medupi and Kusile. These beautiful projects have actually become the downfall of Eskom, which is really tragic.” He said the country could have lived with the huge cost of the construction of something that is fit for purpose, but it seemed clear that this was not the case. There were construction deficiencies and design faults that were going to take enormous amounts of money to fix.
“The problem that the country is experiencing at the moment with loadshedding over the last week and during previous weeks is that the availability of Eskom’s coal fired fleet of power stations is decreasing. This is a result of the fact that the old power plants are getting older; they have been poorly maintained and many of them are reaching end of life and should be decommissioned in coming years.”
Yelland said the new plants coming on stream were not performing like new plants; they were performing like old plants and had some of the worst energy availability sectors of the fleet. This was because there were significant problems with both the design, construction and the execution of these projects and the problems were such that Eskom would probably never be able to operate those plants at full output or the output they had been designed for. “They should have been delivering by now”, he said.
Asked who the lead instigators of the plants were and what the next steps were when a contractor messed up and whether the South African public should be able to put in some kind of claim against them; Yelland said the answer to that was not simple. “Normally on a mega-project like this; Eskom or Eskom Generation is the customer. Eskom would have appointed what is known as an EPC main contractor that is an engineering, procurement and construction main contractor and these are very experienced project companies that operate globally.” Yelland said they took on these mega projects and their responsibility was to deliver and to take responsibility lock, stock and barrel for the overall design, engineering and procurement of all the equipment and to place all the constructs, the subcontracts and generally coordinating everything, and making it work as one system to be handed over to the customer.
He said Eskom decided in all its wisdom to take the role of being the EPC main contractor on itself and it then placed a number of subcontracts, or they could be called main contracts, but they were individual contracts that Eskom placed. It therefore took on the role of the EPC main contractor and also took on the responsibility of coordinating and integrating the whole system. This was done by Eskom Capital Projects which was a separate division to Eskom Generation.
“So, what you have here is Eskom Capital Projects being the EPC main contractor and Eskom generation being the customer. Now that saves about 10 % of the contract value. That’s probably why Eskom decided to go this route; it felt it had the skills, it had done this before, many years earlier and there was no reason why it should appoint a main contractor who would take 10% of the contract value. He said in the end, of course this was penny-wise and pound-foolish because when you had a cost overrun of a 100%; it makes the 10% price of the EPC main contract appear to be small, but ultimately Eskom is the responsible party.
Yelland said the buck stopped with Eskom; so it appointed the main contractors, the boiler contractor, the turbine contractor, the civil work contractor, the instrumentation and control contractor. Eskom appointed them and took on the legal responsibility for it. “Of course, it does have claims against those contractors but it’s never so simple as black and white. There are many shades of grey in between finger-pointing and a lot of the blame can laid, not all of the blame but some of the blame can be laid at the EPC main contractors’ door and that’s Eskom itself. So, you get into these complex legal disputes which ultimately result in arbitration.”
But where the taxpayers properly served when these enormous decisions were made, Alec asked. Yelland said it was a mixture of incompetence, inexperience, lack of the necessary skills as well as corruption. “We’ve seen massive corruption at Kusile power station particularly and I’m sure there is more still to come. But ultimately, the public were not well served. Trying to recoup these losses is a difficult, painful business and perhaps will never be achieved in full, or even in part.”
Alec asked who these EPC members were, because it appeared as though that’s where the rot began. Yelland said recently the Director of National Prosecutions has charged a number of key people at the Kusile power station. “To be honest I don’t think these are necessarily… the top of the pile. As always there are kingpins and people below them and layers of people are involved in this kind of thing that can sometimes be difficult to pinpoint and to prosecute, and to prove complicity of the people right at the top.” The head of Capital Projects is one of the people who had been arrested, Mr Abram Masango and he has not been convicted yet but has been charged and people reporting to him within the capital projects structure have been arrested. Yelland said he believed it was just the tip of the iceberg.
He thought there were a lot of people that still should be “shaking in their boots right now” and he did not want to mention names, but thought it is pretty obvious if you look at the executives at Eskom who had been fired over this period. They haven’t been charged. Yelland said many of the members of the board who have subsequently resigned had close links with the Guptas and their empire, but they have now been removed.
Yelland said there had been massive cost overruns at the two power stations, they are well well-known and well documented. The problems at Medupi and Kusile; the technical design and execution problems were reasonably well-known in the public domain. He said a recent letter to him was published by several publications including Biznews, detailing problems with the coal mills that grind the coal into powder. “They are of the wrong design. The designs were changed even though the original specification specified the right design with the agreement of Eskom. “
“The design was something that was unsuitable; to save money and perhaps for kickbacks. And the same thing happened with the boilers; the boiler height is too low. This is resulting in technical problems such as over-temperatures in the boiler which prevent the boiler from operating at full-rated output and also caused damage to things like the fabric filters that remove fly-ash from the flue gas that goes up the chimney. These are fabric filters and if the flue gas is too hot; they deteriorate quicker and they result in more pollution with excessive downtime to change the bags in the fabric filters.”
A number of issues resulting from design faults can flow from these design faults into numerous other areas of the plant and these problems are extremely difficult to rectify after the event, Yelland said. “It’s almost inconceivable that they could shut down Medupi and rebuild the boiler because it is such a major design change and that Eskom would probably have to live with reduced output from these power plants for the next 40-50 years.” The effect is that the price of electricity from these power plants is much higher than it should be because you’re not delivering the amount of kilowatt hours that you should over the lifetime of the plant.” He said Eskom and the country is stuck with these double costs and less output and the price per kilowatt hour goes up over the lifetime of the plant.
Yelland was asked whether the estimates by two commentators, Ted Blom and Mike Mike Rossouw over the weekend that we’ll have five years of loadshedding was an exaggeration. He said he did not know, and it was not what Eskom was telling the country right now. “Eskom is essentially talking about two years of loadshedding.” He said he did not think that anybody knew. It will depend on how quickly and if it is possible to get these new power plants performing like new plants should be performing. It would also depend on how quickly the procurement process could proceed for new generation capacity. He said in South Africa there were “very cumbersome, almost dinosaur-like procurement processes with central command” where there is a national plan, Nersa has to be involved and then public procurement in terms of the Public Finance Management Act and only after that can construction finally start. Added to that there are cost overruns and time overruns. Medupi and Kusile are examples of how long such large projects can take.
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