Why Medupi and Kusile are Eskom's Achilles heel

Besides the financial results themselves for Eskom’s financial year ending 31 March 2016, perhaps the most important new information to come out at the media briefing at Megawatt Park on 5 July 2016 was Eskom’s latest estimate of the overnight capital costs, or cost to completion (CTC) for its Medupi and Kusile power stations, EE Publishers investigative editor Chris Yelland explains.

The 4 764 MW Medupi coal-fired power station, situated near Lephalale in Limpopo province, has been under construction since 2007.

The 4 800 MW Kusile coal-fired power station close to Kendal power station in the Nkangala district of Mpumalanga province, has been under construction since 2008.

When questioned on Tuesday, Eskom’s head of capital projects, Abram Masango, advised that:

• The latest estimated CTC for Medupi, excluding flue gas desulphurisation plant (FGD), and excluding interest during construction (IDC), had increased from R105bn to R135bn.

• The latest estimated CTC, including FGD, but excluding IDC, had increased from R118.5bn to R160bn.

The latest estimated interest during construction has still not been disclosed by Eskom.

However, in light of the significantly increased capital costs and delayed project programmes for both Medupi and Kusile (Fig. 1a and 1b), it is expected that IDC for both Medupi and Kusile could increase by about 25% above the figures previously indicated by Eskom in September 2014.

It should be noted that although the FGD plant was not initially included in the costing of Medupi, the site has been designed to be ready to install the FGD plant at the first major shutdown of each unit after construction.

Furthermore, the FGD plant is required at both Medupi and Kusile in conditions of a $3.75bn World Bank loan to Eskom, approved in April 2010. Kusile, on the other hand, is being constructed including the FGD plant from the start.

The history of the estimated CTC approved by the Eskom board from time-to-time and communicated to the public for the construction of Medupi is as follows:

• April 2007: R69.1bn: Initial CTC for 6 units excluding FGD and IDC

• September 2008: R88.5bn

• September 2009: R87.5bn

• June 2011: R91.2bn

• May 2013: R105bn

• July 2016: R135bn: Latest CTC excluding FGD and IDC

Similarly the CTC approved by the Eskom board for the construction of Kusile is as follows:

• April 2007: R80.6bn: Initial CTC including FGD and excluding IDC

• May 2013: R118.5bn:

• July 2016: R160bn: Latest CTC including FGD and excluding IDC

A previous estimated total CTC in September 2014 for Medupi and Kusile power stations, including IDC, FGD and the settling of unprocessed contractor claims, is given in the above table.

An updated total CTC as at July 2016 for Medupi and Kusile power stations, including IDC, FGD and the settling of unprocessed contractor claims, is estimated in the below table.

Thus the massive cost and time overruns at Eskom’s Medupi and Kusile power stations are expected further strain Eskom’s financial resources, and place upward pressure on Eskom’s electricity price trajectory in the years ahead.