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Eskom washes hands of M&R blame

Pretoria - Eskom's version of the state of its contract with Murray & Roberts Holdings [JSE:MUR] for the civils work at the Medupi power station is far removed from that of Brian Bruce, chief executive of the construction giant.

On Monday Eskom financial director Paul O'Flaherty strongly denied that there was a shortage of money for this contract or for the contract as a whole, that payments were being dragged out, or that M&R should in effect finance Eskom’s capital expenditure.

This denial came on Friday after M&R partly blamed delays in the payment of claims and contract extensions at Medupi for the reversal of income previously declared, an announcement that led to M&R’s share price tumbling almost 25%.

On Friday Bruce told some 70 South African and international analysts and journalists that the scope of the Medupi contract had grown significantly and that it was taking too long to finalise claims for changes and extensions to the contract.

Speaking to Sake24 on Monday, O'Flaherty confirmed that 53% of the civils contract had been completed, but he denied that all the cash had been exhausted, as mooted by Bruce.

He said Medupi was South Africa's biggest building project to date and changes and extensions were common in such a complex project. He denied that the scope of the extensions was out of order and said that all extensions and changes had been probably financed.

If M&R had miscalculated and the work was costing it more than the agreed amount, Eskom would not foot the bill. But O'Flaherty did not know if that was the case and could not comment on how M&R managed its cash flow.

He said the Eskom contract complied with international standards and claims that were submitted in time and were justifiable were quickly paid out according to the prescribed process – a process that took months, not years. He said Eskom managed its capital expenditure with an iron fist, and inflated or questionable claims were certainly resisted.

But Eskom’s door was open for discussion with M&R. Eskom had already spoken to Brian Bruce and would speak to him again if necessary, said O’Flaherty.

Bruce had said that M&R received its monthly payment for the work specified in the original contract, but that the additional work had been subjected to another, slow process. Meanwhile Murray & Roberts had to go ahead with construction, leading to an outflow of funds while inflows were restricted.

The situation at Medupi, delays at Eskom’s other power station, Kusile, claims related to the Gautrain Project and outstanding payments for construction work on Dubai Airport were given as reasons for the revenue reversals.

The exact amount is still being calculated, but the group warned that it would consequently report a loss for the six months to end-December.

On Friday Murray & Roberts’ share price plummeted almost 13% after the announcement and on Monday it dropped more than 10% to R31.10. It is now at the level it was in 2006.

Bruce made a plea for changes in South African contracts to provide for speedier settlement for alterations and extensions.

He said that the country's legal framework was still too immature to offer contractors a workable solution.

- Sake24

For business news in Afrikaans, go to Sake24.com.

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