Gigaga cracks the whip: on Medupi

Address by Malusi Gigaba, Minister of Public Enterprises, on the occasion of a Ministerial visit to Medupi Power Station 

 Context and background for Medupi Power Plant

In the last thirty years South Africa has under-invested in infrastructure including road, rail, energy and logistics and this, coupled with the current global economic slowdown, has consequently led to sluggish economic growth, as well as under-investment in human capital in particular strategic skills which are critical for infrastructure development.

This under investment has also impacted on private sector planning and development of, particularly, the manufacturing sector. As such, our national Capex programme is largely dependent on imported capital goods and this is the market failure our economy had not anticipated and should avoid in the future.

The phenomenon I have highlighted above has directly affected the energy sector with implications on electricity supply. This is evidenced on the fact that the last power station that was built and managed by Eskom was in the 1980s.

Government has recognised that the provision of sufficient electricity is essential to support economic growth and social development imperatives of the country. It is in this context that we announced an ambitious infrastructure build programme to ensure that going forward; the economy is supported by the requisite infrastructure.

The build programme is anchored on the policy objectives of the Integrated Resource Plan which seeks to ensure security of supply through the identification of future energy capacity requirements over the next twenty (20) years until 2030.

Eskom is the nerve centre of this energy infrastructure rollout, wherein the three key projects – Kusile, Medupi and Ingula – do not only add the much needed generation capacity to alleviate the constrained power system, but they also contribute to economic growth and job opportunities in the areas where they are being constructed.

The Medupi Power Plant currently under construction provides a significant economic boost to the Lephalale region with a labour force of 17 000 workers.

The multiplier effects of this project range from job opportunities, skills development, investment in education in the form of upgrading infrastructure and expanding the curriculum of the local FET college, expansion of the existing incubation hub for the further development of small medium and micro enterprises in the area.

To date, Eskom has spent a total of R2.3 billion on infrastructure investment within Lephalale since the inception of Medupi project. It has invested R11.5 million for the upgrading of the initial 2.2 kilometres of the D1675 road leading to the project site. Eskom and Exxaro are spending more than R150 million to upgrade and repair the Nelson Mandela Road as well as tarring the Kuipersbult Road.

This road project was initiated by Exxaro and Eskom to alleviate the traffic congestion in the area and this initiative will support the traffic flow to the site.

Progress with Medupi construction

With the Integrated Power System constraints currently being experienced by the country, it is critical that Medupi and the rest of the capital expansion programme be completed on time.

This timeous completion will not only contribute towards supporting Government’s economic growth and developmental objectives, but will further contribute towards ensuring security of electricity supply for the country as well.

Medupi will be the fourth-largest coal fired plant and the largest dry-cooled power station in the world and its planned operational life is 50 years. Once completed, it will have generation capacity of 4 764 MW comprising six 794 MW units.

Construction on this site began in May 2007 and since then some significant milestones have been achieved namely:

  • Up to 116 000 tons of coal is already on site in preparation for first firing of the boiler;
  • Final Unit 6 Turbine coupling installation is already in progress;
  • Coal stockpiles, ash stockpiles and all related equipment are close to commissioning;
  • The water treatment plant is close to completion;
  • The transmission HV (high voltage) yard is complete for five units, and infrastructure to access transmission lines is well in progress;
  • More than 1 000 houses have been built by Eskom for employees and contractors on site; and
  • As at 31 December 2012, the Medupi was 62% complete.

Challenges

Notwithstanding the milestones achieved, the project has not been without its challenges some of which I have already alluded to in the introduction. These range from:

  • contract management
  • engineering coordination and poor technical performance with weak supervision
  • lack of strong industrial relations management
  • poor community relations and other stakeholder management.

These delays have led to the shifting of the dates from the originally planned first synchronisation of the first Unit to December 2013. Whilst a lot of work has been done to recover the lost time, there have been recent challenges that continue to affect the delivery of the project.

The Board and Eskom management have put plans in place to improve productivity which would include a 7 day work week, increased shifts to two shifts per day, additional senior project management and technical staff, and ensuring that access to all complete construction work and areas is provided to other sub-contractors.

Labour unrest

In relation to people management issues, the construction site has been confronted by labour unrest midway into the project and Eskom has battled successfully to resolve these industrial related issues until recently. This has resulted in the site closing for several weeks at each time.

The most recent labour unrest that began in January 2013 resulted in the longest duration of site closure of more than 10 weeks. This adds to the negative impact on the already constrained timelines.

To assist Eskom to reduce tensions at the construction site, I facilitated several meetings in February and March of 2013 with all major contractors, subcontractors and all unions represented on the Medupi site.

These meetings led to an agreement and commitment from all stakeholders involved to return to work immediately and ensure stability on site. The parties also agreed, as part of this process, to review the existing agreement that governs the employer and employee relations on site, so that the new agreement addresses concerns that have been raised, leading to sustained peace and stability.

I wish to commend all the parties for the spirit with which they have approached this matter which reflected their deep understanding and appreciation that they are the custodians of a project which is of significant national importance and its success rests on their shoulders. I believe that the contractors and the unions remain committed to ensure successful delivery of the project timeously.

I also support the effort to develop a partnership framework which, transcending the current Project Labour Agreement, will guide all the people management related issues at the site going forward and will be undergirded by commitment to amicable resolution of any disagreements.

Equally, Eskom has enhanced the presence of senior industrial relations staff at the construction site and a new industrial relations one stop shop comprising of shop stewards and employer representatives is in the process of being set up. In essence Eskom is taking a much needed hands on approach now.

Shareholder intervention

After being presented with the progress report of Medupi, I have then instructed the Board to increase institutional oversight over Medupi and the build programme broadly, and to ensure that the delivery of first power (first synchronisation) is still met by end of 2013:

  1. Following my instruction to the Board, a Board Sub-Committee has been established to coordinate, supervise and closely monitor progress and to report to me every two weeks about any emerging risks that may require my attention and intervention

 

  1. Furthermore, I have directed that the project receive the utmost attention from Senior Management at Eskom. In this regard, I have been advised that the Finance Director and other Senior Executives will be spending at least a day every week on site as part of the effort to maintain a tight management and oversight of the project. I expect that senior management from contractors will show the same level of commitment.

In cognisance of the fact that there is still a massive infrastructure programme to deliver, I have also directed Eskom to indicate to me the improvements and the lessons learnt on project risk management, contractor management capabilities and industrial relation management, amongst other things.

Lessons learned from this project, which include issues I have just mentioned, must be taken to other projects in particular Kusile and Ingula to ensure that history does not repeat itself.

One of the critical lessons to date I would like to draw from the project and share with South Africans, and specifically the public sector, is that the responsible entity/utility for a project must ensure that there are tight monitoring systems upfront and that there is sufficient human capacity to deliver on the project.

Furthermore, the entity sponsoring the project must have sufficient supervisory institutions and capacity to ensure contractors do not default on their obligations and are kept in very stringent check. In undertaking a mega project, care must be taken to ensure there is sufficient time allocated and spent on the planning phase upfront and no project is executed under pressure.

Are we still to meet December 2013 deadline?

In response to the obligation I placed on Eskom to deliver the first power in December 2013, I have received commitment from Eskom and its contractors that all the necessary resources will be made available to make sure that the project is delivered on time.

This will certainly be a mammoth task which will require all hands on deck. I, again, to reiterate the statement I made a few weeks ago that I am adamant that this date be met and that the country does not have the luxury of time to brook any delays.

Failure to meet this deadline of December 2013 for first synchronisation will result in tough penalties being imposed on any party responsible for such delay. There is recognition that the delays and additional measures being put in place to recover lost time may result in costs overruns which Eskom will resolve through remedies provided for in the contracts.

Conclusion

In conclusion, I would like to urge the country to continue supporting our efforts of keeping the lights on, especially as we go into winter which will be even more challenging.

My call to all South Africans is to treat electricity as a finite resource as well as a national asset which we must preserve and use sparingly.

I thank you!

Issued by: Department of Public Enterprises

 

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