Former Eskom executive blames Medupi delays on Hitachi, Alstom

Paul O'Flaherty, Eskom's former finance director. Photo: Chris Collingridge

Paul O'Flaherty, Eskom's former finance director. Photo: Chris Collingridge

Published Mar 11, 2014

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Johannesburg - Eskom had been “let down” by contractors including Alstom and Hitachi Power Africa, whose errors helped delay the start-up of the Medupi power plant for more than two years, the utility’s former finance director, Paul O’Flaherty, said in an interview yesterday.

The Hitachi unit delayed the construction of the first boiler at Medupi by changing its design hundreds of times and putting it together with faulty welds, O’Flaherty said.

Alstom had left Eskom engineers wondering whether they could put together the control system to protect the boiler after three tests failed, he added.

“Without deflecting [from] Eskom’s and my personal accountabilities to deliver this project for the country on time and on budget, I felt seriously let down by certain of the major contractors,” he said.

O’Flaherty was appointed finance director at Eskom when it was at its lowest ebb in 2010. He came to utility after almost three years as chief financial officer with Al Naboodah a Dubai-based construction company and before that five years and chief financial officer at Group Five. He spent 14 years as a partner in the energy and mining division at PricewaterhouseCoopers before joining Group Five.

In 2012 he stepped down after being widely credited with putting Eskom on a sound financial footing. After O’Flaherty was seconded to closely monitor the Medupi projects he lashed out at the way labour on the site was trained and treated and blamed the unions for a series of wildcat strikes that delayed the projects.

Contracts for Medupi were awarded in 2007 and the plant was initially scheduled to start producing power in 2012.

The delays have also increased Medupi’s cost by at least 15 percent to R105 billion.

Hitachi Power Africa replied that it had made no major design changes to the boilers and the faulty welds “were related to local subcontractors”.

Eskom’s requirements that a large part of the work had to be done locally meant Hitachi was subject to “a reduction in productivity and the sub-standard quality of work produced by some local suppliers”, it said.

Alstom said it was not solely responsible for the delays.

“The boiler-protection system is a complex system and in the case of Medupi the configuration requested by Eskom is demanding and unusually complex compared to industry standards,” Alstom said.

At Medupi, the boiler heats water into steam to drive an electricity-generating turbine. Alstom is designing the software to ensure the boiler does not overheat and get damaged.

In December 2012, six months after it was supposed to perform a pressure test on the first boiler, Hitachi told Eskom that it had been alerted that the heat treatment on a number of welds had not been done properly, O’Flaherty said. Alstom informed Eskom in the same month that tests on the boiler protection system had failed.

“We were hit by a double whammy,” O’Flaherty said. “It was a huge blow.”

Public Enterprises Minister Malusi Gigaba had summoned the global heads of the companies, who had promised to deliver power by the end of last year, O’Flaherty said.

“The meeting was brought to apply more pressure to all parties to make sure the Medupi project is accelerated,” Mayihlome Tshwete, Gigaba’s spokesman, said last week. The minister “wasn’t happy”.

Eskom brought Siemens in to develop the protection system for two boilers, but trying to change contractors for the remaining four boilers would further delay the project.

In January last year, construction of Medupi was hit by a five-month strike at the site in Lephalale, about 280km north of Pretoria. One of the issues was that workers received different pay for the same work.

Murray & Roberts and Aveng were among the construction companies employing about 17 000 workers at the site. Neither firm provided responses to queries.

O’Flaherty said the strike was caused by the inability of subcontractors to manage their workers. “The way labour was run by the subcontractors was not acceptable,” said O’Flaherty.

Gigaba had also “asked questions of the executive [O’Flaherty]”, Tshwete said. “Is it not too much for one person to be finance director and head of the build programme?”

Prolonged labour unrest and “technical challenges” related to Alstom and Hitachi’s work had contributed to Medupi’s delay, Eskom said in response to questions. “Eskom has and will continue to exercise its contractual remedies against Hitachi,” it said.

Eskom chief executive Brian Dames will step down from his position on March 31.

Tshwete said Eskom and the contractors bore responsibility for the delays.

“It would be very hard to take the issues at Medupi and reduce them to one single factor,” he said. “I think there was shared responsibility. We’re a developing country so a complex project like this is always hard to get done.”

Hitachi’s contract with Eskom was probed by then public protector Lawrence Mushwana because Eskom’s chairman at the time, Valli Moosa, was a senior member of the ANC. Chancellor House Holdings, the investment arm of the ANC, then held 25 percent of Hitachi Power Africa.

O’Flaherty said the Hitachi and Alstom contracts had been audited several times, including by a “third party”, and there was no evidence of any manipulation. – Bloomberg

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