Eskoms new power station Medupe delayed again

Eskom Statement

Eskom Statement Monday, 08 July 2013:

Eskom has today provided a detailed update on the progress of its new build programme, ahead of the announcement of its annual financial results on Wednesday 10 July.

Since the inception of the build programme in 2005, Eskom has shown it can deliver the new electricity infrastructure which South Africa needs to support economic growth and development. By 31 March 2013, Eskom had delivered 6 017 of new Generation capacity as well as 4 686 km of new Transmission network and 23 775 MVA of substation transformers.

The two new large coal-fired stations which Eskom is currently building, Medupi and Kusile, and the new pump storage scheme, Ingula, will together add a further 10 896 MW to the national grid, expanding Eskom’s current installed capacity by over 25% by the time they are completed, supporting higher rates of economic growth.

These projects are far advanced, with more than 80% of the funding secured, most of the contracts already placed, and significant progress made on construction and implementation Eskom’s infrastructure investment programme is unparalleled in South Africa and has yielded tangible benefits in terms of job creation, skills development and the development of local supplier industries.

There are now 35 759 individuals working on new build project sites, of whom 16 100 are employed from the local districts. Since the inception of the build programme, 6 851 individuals have completed their skills development training and 2 763 are currently in training.

Since the inception of the respective new build projects, the total local content committed by the Eskom supplier network amounted to R85.9-billion, or 62.8% of the total contract values awarded in the build projects.

“In line with government policy, we are not just investing in the physical infrastructure which South Africa needs to enable higher rates of economic growth but we are also building a legacy of skills and industrial development for the country,” said Eskom Chief Executive Brian Dames.

The build programme has faced challenges since inception, but significant progress has been made. Medupi is the first of the three large new power stations which is due to come online and Eskom has been transparent about the risks to delivery, indicating earlier this year that labour unrest and under-performance by key contractors put the timelines at the project in question.

Unit 6, which is the first of Medupi’s six 800 MW units, was due to deliver first power to the grid by the end of 2013.

However, Eskom earlier communicated that critical technical challenges need to be resolved in order for Unit 6 to begin producing power. These technical challenges relate to the welding on the boilers, and the control and instrumentation systems for the units. In addition are the ongoing labour challenges.

Significant progress has been made to restore effective labour relations on site since March 2013. Processes have been developed to address all grievances and salary discrepancies are being removed. Eskom, the contractors and labour last month (June) signed an innovative new Partnering Agreement, which sets the basis for an effective partnership and should bring stability and improved productivity. “All of us on site are now focused on delivering the power station, on time, on budget, safely and to the required quality standards,” said Eskom Finance Director and head of Group Capital Paul O’ Flaherty.

Eskom has engaged with the global leadership of Hitachi and Alstom to resolve the technical issues on the boiler and control and instrumentation contracts, and has put significant skills and resources in place in an effort to ensure performance by the contractors, as well as pursuing contractual remedies.

The critical issues on the boiler related firstly, to inadequate post-weld heat treatment, which meant that multiple welds needed to be retested and fixed. Secondly, welds made using unqualified procedures needed to be replaced. Effective interventions have been put in place to address these issues. The progress of the repairs is being closely monitored and tracked by Eskom on site.

Some progress has also been made in resolving the control and instrumentation issue. However, there has been continued under-performance on the control and instrumentation contract, despite active interventions by Eskom over the past year, and it is now clear that the issues on the control and instrumentation for Unit 6 will take time to resolve. In its update today, Eskom has confirmed that the December 2013 target date is unlikely to be met.

A more realistic target for the first synchronisation of Unit 6 to the grid is the second half of 2014. This is based on in-depth independent and internal assessments of the project which Eskom has undertaken. The revised schedule is based on certain assumptions and depends on the success of interventions to ensure critical timelines, on the boiler and control and instrumentation contracts, are met in the next few months as well as the stability of the labour force. Eskom has put several new interventions in place to expedite delivery of the Medupi project.

The Eskom board is closely monitoring the project and senior Eskom executives are on site at Medupi on a weekly basis. The Medupi project team has been strengthened with specialist support brought in. A bi-monthly meeting has been set up between Eskom executives and the Chief Executives of all the major contractors, including a site walk, in order to resolve all the issues hampering progress. A commercial strategy is being pursued to recover cost overruns from contractors.

“We have done everything in our power to meet the December target date,” said Dames. “However it is now clear that the boiler and control and instrumentation issues cannot be resolved in time for the first unit of Medupi to deliver first power to the grid by 2013. We are communicating this pro-actively, in line with our commitment to keep South Africa informed on the progress of the build projects.”

Eskom is working with stakeholders to ensure security of electricity supply despite the delay. A revised outlook indicates that there could be a potential gap in supply in 2014, with the most likely scenario being a gap of in the region of 700 MW.

“The power system will remain tight, as we have said, but demand for electricity has been muted because of slower than expected economic growth, and we are working to put initiatives in place to close the gap. We remain determined to keep the lights on, with the help of all South Africans. This is being done with support from Government,” Dames said.

Once Unit 6 is online, the remaining five units of Medupi will be brought online at intervals, so that the entire power station should be fully commissioned by 2017. As a result of the longer than expected construction time, the cost to completion of Medupi is now expected to increase to a maximum of R105 billion (excluding interest during construction, transmission costs and claims against contractors), from the previous estimate of R91.2-billion.

The increase will be funded from existing capex allocations and will not impact electricity tariffs. The cost of Medupi remains within international benchmarks. “We expect to get more than 3 800 MW of new capacity online by 2015, from Medupi, Kusile, Ingula and our Sere wind farm. We have had the programmes and the costs independently reviewed. We are working very hard indeed to make sure that we deliver, and we have the commitment of the major contractors to achieve our goals,” O’ Flaherty said.

Notes to Editors                    

It is the first South African power station to have super-critical technology, and is one of the world’s largest dry cooled stations, so it will much more efficient than older coal fired stations, using less water and producing less carbon emissions for each unit of power it generates. The power station has an expected lifespan of more than 50 years.

Kusile, a 4800 MW coal-fired power station in Mpumalanga province, has the same technology but with the addition of flue-gas desulphurisation – a first in South Africa.

Ingula is a 1332 MW pumped storage scheme near Ladismith in KwaZulu Natal. The 6017 MW of new Generation capacity which Eskom has delivered since 2005 includes the open cycle gas turbines at Ankerlig and Gourikwa as well as the 3700 MW Return to Service programme, which is now almost entirely completed, at a cost of R25.1 billion.

Two of the return-to-service power stations – Camden and Grootvlei – have been commissioned and only one unit of the third station – Komati – remains to be completed. The new Transmission infrastructure which has been delivered is part of a programme of 60 grid-strengthening projects designed to upgrade and expand South Africa’s national grid.

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