Eskom already saw it coming last year that its Medupi power station, the largest base-load station it has built to date, was not going to be commissioned by December this year.
Yesterday, the power utility announced that Medupi’s first power unit was unlikely to be connected to the grid before the second half of next year.
It said the control and instrumentation system had not been installed because of delays in completing welding and boiler work.
“In December we knew there was a significant problem,” Eskom financial director Paul O’Flaherty said.
“But we had previously said before knowing these issues that we need to bring the first unit up in 2013… We needed to target and keep the 2013 commitment that we had made.”
Eskom had done a self-assessment last year in which it anticipated that Medupi’s unit 6 would be synchronised into the grid in 2014.
The utility reported this in its 2012 annual report but kept pushing for the December 2013 deadline.
Eskom said it did not change Medupi’s unit 6 deadline earlier because an independent assessment in November last year confirmed that the December 2013 deadline could be met.
The power utility said it came out publicly yesterday about its long-anticipated delay because another independent assessment study, which confirmed that the December 2013 deadline was unrealistic, was completed at the end of June.
Eskom chief executive Brian Dames said that towards the end of last month, two different parts of the control and instrumentation system experienced difficulties.
The part responsible for the control of water failed a test and on Friday the engineering team reported that it was not happy with progress on the testing of the boiler protection system, which makes up the biggest part of the control system.
“That for me was certainly a clear indication,” Dames said.
But O’Flaherty said: “We are not giving up on earlier commitment[s] in what we’ve announced, but it’s highly unlikely that it will be before June of 2014.“
Eskom said the delay would push construction costs from R91.2 billion to R105bn, excluding certain costs such as owners development costs and interest.
The delay could also threaten the security of electricity supply.
The company’s revised outlook indicated that there could be a supply gap of about 700 megawatts next year.
Eskom said it would claw back the cost overruns from the contractors responsible for the delays.
French contractor Alstom is responsible for the provision of the control system at Medupi.
Hitachi Power Africa is responsible for the installation of boilers.
The two have been at the centre of delays because of defective welding for boilers by Hitachi and, on Alstom’s side, the failure of the boiler protection system.
Eskom said it wrote to Hitachi management about calling up its performance bond for Medupi’s unit 5 and unit 6.
Eskom called up Alstom’s performance bond in March.
A performance bond protects Eskom against losses resulting from any contractor’s failure to meet its contractual obligations.
Eskom said that beside these penalties, it was looking at alternatives but these did not include replacing Hitachi as the boilers contractor.
Instead, the utility said it was in engagements with Hitachi management about strengthening its financial position in the company until the end of unit 1 construction.
“We have on a continuous basis been looking at all contractors as to alternatives.
“[But] we are not looking at this point in time at the alternatives of replacing Hitachi on the boiler work… We have to assess the risk on what will it mean if we have to get a new boiler contractor, a new turbine contractor or new civil,” Dames said.
O’Flaherty said they were looking at alternatives in case the suppliers ran into financial difficulties.
Minister of Public Enterprises Malusi Gigaba supported Eskom’s measures to hold contractors accountable, ministerial spokesman Mayihlome Tshwete said.
It would send the wrong message to the international community if the country’s approach in holding contractors responsible was more relaxed.
He said the department understood that capital projects the size of Medupi came across challenges of this nature.
“But the minister is of the view that Eskom has to do some introspection in terms of their project management capability,” Tshwete said.
The DA’s spokeswoman on public enterprises, Natasha Michael, said Gigaba should keep his promises that no further delays would be tolerated.
“The minister must now act on his word and make sure some heads roll and face the consequences of poor management at the project. This is the third time the deadline at the project has been extended,” Michael said. The DA has called for the public protector to investigate maladministration at Medupi.