Group Five has reported delays in completing a R5.29-billion power plant in Kpone, Ghana.  Photo: Simphiwe Mbokazi/African News Agency (ANA)
Group Five has reported delays in completing a R5.29-billion power plant in Kpone, Ghana. Photo: Simphiwe Mbokazi/African News Agency (ANA)
Group Five has reported delays in completing a R5.29-billion power plant in Kpone, Ghana.  Photo: Simphiwe Mbokazi/African News Agency (ANA)
Group Five has reported delays in completing a R5.29-billion power plant in Kpone, Ghana. Photo: Simphiwe Mbokazi/African News Agency (ANA)
JOHANNESBURG - Delays with the completion by Group Five of the construction of the $410million (R5.29billion) independent gas and oil-fired combined cycle power plant contract in Kpone in Ghana were expected to contribute to a significant widening in the year-on-year interim losses by the listed construction and engineering group.

Group Five said yesterday that it expected to report an almost 34percent increase in the headline loss a share to 415cents for the six months to December from the 310c a share loss in the corresponding period last year.

But shares in Group Five remained flat yesterday to close at R11.10 on the JSE.

Group Five added that trading within the construction and engineering, procurement and construction cluster was below the short-term guidance provided at the group’s year-end.

This, coupled with the impact of the additional costs expected to complete the Kpone contract, would impact the group’s 2018 half-year and full-year results and its available free cash reserves, it said.

Group Five said design delays, together with the late arrival of procured items on site following a change in Ghanaian law during the Kpone contract, were two key factors that had impacted the original contractual completion date of September 13 this year.

Group Five has reported delays in completing a R5.29-billion power plant in Kpone, Ghana. Photo: Simphiwe Mbokazi/African News Agency (ANA)


However, Group Five said the contract was also impacted by seawater tunnelling delays, which were resolved at the time of the release of the group’s annual results, although it was mentioned then that penalties could be incurred because these delays would result in a completion date after the contractual date.

But Group Five said the group had assessed its entitlement together with claims on the Kpone contract and did not expect these penalties to further negatively impact on profit recognition of the Kpone contract in the group’s 2018 financial year.

Group Five said the Kpone contract was now 97percent complete with commissioning, the only major remaining component, nearing completion, but further delays for a variety of reasons had been encountered since the annual results update.

It said the expected completion of construction and commissioning activities was now the end of February next year, which had resulted in a delay in milestone payments and an increase in the cost to complete the Kpone contract.

The Kpone contract was now expected to reflect an overall life-to-date loss, which would impact Group Five’s first-half 2018 financial year earnings and cash. “To fund the Kpone contract to its completion date, the group will be required to apply approximately 50percent of the 40million (R608m) free cash held by its Investments & Concessions business in Europe to the Kpone contract.

“Possible delay penalties due to the later completion date are quantified at $310000 a day, up to a maximum cap of $62.5m.

“Against these possible delay penalties, the group is progressing its own entitlement to contractual claims,” it said.

These include claims because of the late arrival on site of procured goods due to port delays following a change in Ghanaian law affecting the clearing of goods, a substantial claim against the design engineer sub-contractor and claims against certain sub-contractors due to poor design, delays and additional work having to be undertaken on the contract.

Group Five said these claims were progressing to finalisation with the various counter parties and “could be of substantial benefit to the group”, although the timing of the settlements was uncertain.

It added that pleasing progress had been made with the required legal and internal consultation process related to the decision to exit the construction businesses where the group did not see the potential to establish sustainable businesses, achieve targeted returns on capital and that were not core to its revised strategy.