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Released July 10, 2013 | JOHANNESBURG
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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The commissioning of the first 700-megawatt (MW) unit at South Africa's 4,800-MW Medupi "mega" thermal power project has again been postponed. Two key contributors to the decision were faulty boiler welds and delays in the implementation of the control and instrumentation (C&I) system.
In March, South Africa's Public Enterprises Minister Malusi Gigaba promised that penalties would be imposed on any contractor or body that delayed the revised target for initial power by the end of this year. But Gigaba has had to backtrack. He is now requesting that the board of the national power utility Eskom (Johannesburg) establish a subcommittee to focus on the progress of mega projects, which include Medupi, Kusile (the second 4,800-MW thermal mega plant) and the 1,332-MW Ingula pumped storage project, plus 765 transmission lines. The aim is to avoid the series of power outages the grid experienced in 2008, which hit industry, mining and domestic users with equal force.
"The target date of December 2013 is unlikely to be achieved. A more realistic date for the first power from Unit 6 is the second half of 2014," said Eskom CEO Brian Dames at a press conference this week. He estimated that there would be a 700-MW gap in non-base-load supply owing to the delay, and that consumers should not expect tariffs to be adjusted.
Eskom CFO Paul O'Flaherty, who has been seconded to manage the Medupi project, said that the completion of the C&I system by Alstom (OTC:ALSMY) (Paris, France) is crucial to the completion of the project. "Today we don't have an operational C&I system," he said. "We don't have the brains behind the power plant. We continue to work with the manufacturer. We have engineers in France going through each of the defects of the system."
The contractors, Alstom and Hitachi (boilers), had failed to train employees and had not supervised them properly, O'Flaherty said. He added that supervision of labor was not Eskom's responsibility, but the job was not getting done without Eskom playing a leadership role. This was said against a background of wildcat strikes and defective workmanship that have plagued the project.
Another element been raised by Hitachi's (OTC:HTHIY) (Tokyo, Japan) boiler-welding problems is that Chancellor House, the African National Congress's (ANC) investment entity, took a 25% stake in the Hitachi contract. The ANC is South Africa's governing party in Parliament and the mixing of a business interest in a national project, with a political overtone, was destined to create problems.
The day following Monday's news conference, the morning newscasts were full of recriminations, some parties even going so far as to say that the contractors had "sabotaged" the project to eke out the profit supply chain.
The Kusile project is experiencing boiler problems similar to those of Medupi and Hitachi, and it has been asked to deal with these issues so that the first power can come from the project in the 2014-15 financial year.
Eskom is looking at possible alternatives to the current contractor set-up and has procedures set up to levy penalties and claw back costs. But Eskom is not under any illusions that this process could take years of legal finessing, and it would rather see the incumbents set things right.
The cost of Medupi has risen from the last estimate of $9.12 billion to $10.5 billion, and the $11.8 billion Kusile project may still suffer from cost escalation.
The two-year delay in bringing Medupi online also has kinked coal supply chain agreements. Medupi will burn 14.6 million tons of coal a year when in full operation with each of the six 800-MW sets taking 2.5 million tons. Exxaro Resources (OTC:EXXAF) (Pretoria, South Africa), the supplier, is said to be on a "take or pay" contract. The two companies are reported to have reached an "amicable" agreement over deferring coal deliveries in line with the commissioning delays.
For related information, see July 1, 2013, article - Eskom Cuts BHP Billiton's Power as South Africa's Grid Teeters on Edge of Load Shed, and March 13, 2013, article - South Africa's Power Security Teeters on Edge , Hit by Outages, Strikes and Faulty Welds.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
In March, South Africa's Public Enterprises Minister Malusi Gigaba promised that penalties would be imposed on any contractor or body that delayed the revised target for initial power by the end of this year. But Gigaba has had to backtrack. He is now requesting that the board of the national power utility Eskom (Johannesburg) establish a subcommittee to focus on the progress of mega projects, which include Medupi, Kusile (the second 4,800-MW thermal mega plant) and the 1,332-MW Ingula pumped storage project, plus 765 transmission lines. The aim is to avoid the series of power outages the grid experienced in 2008, which hit industry, mining and domestic users with equal force.
"The target date of December 2013 is unlikely to be achieved. A more realistic date for the first power from Unit 6 is the second half of 2014," said Eskom CEO Brian Dames at a press conference this week. He estimated that there would be a 700-MW gap in non-base-load supply owing to the delay, and that consumers should not expect tariffs to be adjusted.
Eskom CFO Paul O'Flaherty, who has been seconded to manage the Medupi project, said that the completion of the C&I system by Alstom (OTC:ALSMY) (Paris, France) is crucial to the completion of the project. "Today we don't have an operational C&I system," he said. "We don't have the brains behind the power plant. We continue to work with the manufacturer. We have engineers in France going through each of the defects of the system."
The contractors, Alstom and Hitachi (boilers), had failed to train employees and had not supervised them properly, O'Flaherty said. He added that supervision of labor was not Eskom's responsibility, but the job was not getting done without Eskom playing a leadership role. This was said against a background of wildcat strikes and defective workmanship that have plagued the project.
Another element been raised by Hitachi's (OTC:HTHIY) (Tokyo, Japan) boiler-welding problems is that Chancellor House, the African National Congress's (ANC) investment entity, took a 25% stake in the Hitachi contract. The ANC is South Africa's governing party in Parliament and the mixing of a business interest in a national project, with a political overtone, was destined to create problems.
The day following Monday's news conference, the morning newscasts were full of recriminations, some parties even going so far as to say that the contractors had "sabotaged" the project to eke out the profit supply chain.
The Kusile project is experiencing boiler problems similar to those of Medupi and Hitachi, and it has been asked to deal with these issues so that the first power can come from the project in the 2014-15 financial year.
Eskom is looking at possible alternatives to the current contractor set-up and has procedures set up to levy penalties and claw back costs. But Eskom is not under any illusions that this process could take years of legal finessing, and it would rather see the incumbents set things right.
The cost of Medupi has risen from the last estimate of $9.12 billion to $10.5 billion, and the $11.8 billion Kusile project may still suffer from cost escalation.
The two-year delay in bringing Medupi online also has kinked coal supply chain agreements. Medupi will burn 14.6 million tons of coal a year when in full operation with each of the six 800-MW sets taking 2.5 million tons. Exxaro Resources (OTC:EXXAF) (Pretoria, South Africa), the supplier, is said to be on a "take or pay" contract. The two companies are reported to have reached an "amicable" agreement over deferring coal deliveries in line with the commissioning delays.
For related information, see July 1, 2013, article - Eskom Cuts BHP Billiton's Power as South Africa's Grid Teeters on Edge of Load Shed, and March 13, 2013, article - South Africa's Power Security Teeters on Edge , Hit by Outages, Strikes and Faulty Welds.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
