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Eskom fighting to impose penalties

Jul 14 2013 15:37 Dewald van Rensburg
Public Enterprises Minister Malusi Gigaba said tha

Public Enterprises Minister Malusi Gigaba said that Hitachi committed to finishing the Medupi work by the end of the year. (Werner Beukes, Sapa)

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Johannesburg - Eskom is heading to the Supreme Court of Appeal (SCA) next month to undo the damage caused by Hitachi Power Africa’s successful evasion of performance penalties.

As things stand, Eskom might be unable to decisively enforce its performance guarantees against any of the contractors on its multibillion-rand build programme.

Eskom tried and failed to demand payment of performance guarantees from Hitachi in February this year after repeated delays and evidence of faulty welding, but instead got a bloody nose in court.

Hitachi managed to get an interdict from the South Gauteng High Court in Johannesburg on February 13.

It not only spared Hitachi penalties potentially worth billions, but also, in effect, undermines Eskom’s other contracts at Medupi and Kusile.

According to Eskom, “the same or similar clauses” to those affected by the Hitachi interdict are to be found in the Medupi contracts and in those for Kusile.

Far reaching implications

“In the circumstances, the judgment has potentially far wider implications for Eskom than simply the relationship between it and Hitachi,” Eskom said in its heads of argument submitted to the SCA.

But the high court made a finding that “went beyond even the case that had been made out by Hitachi”, said Eskom.

“Hitachi will not oppose the appeal but the matter is not a formality," Eskom said on Friday.

"The SCA will need to provide its judgment on the matter.”

According to Eskom, Judge NF Kgomo granted Hitachi an interdict that stopped it from claiming guarantees until at least the end of that month.

“More importantly, however, Eskom was directed forthwith to revoke the demand that had already been made. This is an order that is unlimited by time and becomes final once effect is given to it,” said Eskom.

Golden gloves

As a result of the judgment, Eskom might now be obliged to treat all its contractors with kid gloves, giving them a month’s notice before claiming any guarantees.

“More troubling, the finding not only has retrospective effect, but also applies prospectively to future circumstances in which Eskom may seek to make demand upon the guarantees that are currently held by it.

“Eskom would, on the strength of the judgment, be required to give notice if, in the future, it sought to call up any such guarantee.”

The Hitachi contract is worth roughly R38.5bn and required Hitachi to provide performance guarantees, “which were provided in the form of six performance guarantees drawn on the bank”, said Eskom.

The bank in question is the Japanese Mizuho Corporate Bank.

Eskom claimed performance guarantees from Alstom, the French contractor responsible for the latest delay, for its failings but mystery has surrounded its failure to do the same with Hitachi.

“There has been no settlement with Hitachi,” Eskom’s CEO Brian Dames said on Wednesday when Eskom’s annual results were announced.

December deadline

On Friday, Eskom reiterated that simply making the December deadline would not be enough to secure the guarantees.

At the same event, Public Enterprises Minister Malusi Gigaba said that Hitachi committed to finishing the Medupi work by the end of the year.

“If they reach that deadline there is no reason to express displeasure,” he said.

His earlier assurances that “heads will roll” about Medupi’s delay were correct at the time, he argued.

He went on to announce that an independent consultant has been appointed to assess Eskom’s ability to manage its megaprojects.

The consultant, Acorn Consulting, will also “ascertain the full extent of any risks to the build programme”, and research risks of further delays and cost escalations at Medupi and other projects.

The study will “inform remedial actions”, he said.

That does not preclude Eskom from pursuing its contractual remedies, he added.

The original switch-on date for Medupi was the end of 2012.

 - City Press

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hitachi  |  eskom  |  medupi  |  kusile  |  brian dames  |  malusi gigaba
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