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Dentons report: Why Eskom fell behind on Medupi, Kusile

Feb 10 2017 08:56
Gareth van Zyl

Johannesburg - Limited skills, poor upfront planning, inadequate quality control and labour strikes were key reasons for delays at Eskom’s new build projects Medupi and Kusile.

This is according to a redacted version of the Dentons report, commissioned by Eskom in 2015 to probe issues like the poor performance of plants, high energy costs and financial challenges.

READ: Eskom Dentons report shows serious breaches

Global law firm Dentons was contracted to carry out the probe and in a chapter about the high cost of primary energy, the report looks at how and why Eskom failed to meet its own deadlines for new generation capacity.

The report outlines how Eskom indicated to government that new baseload generation was not required until 2012 when it was in fact required in 2008, a year characterised by load shedding.

When a mandate for new generation capacity was then finally granted to Eskom, the company already had a supply-constrained system and realised it would need to bring on more capacity urgently, said the report.

The report subsequently looked at the two largest ever power plant projects in South Africa for coal-fired plants, Limpopo’s Medupi and Mpumalanga’s Kusile projects, which have faced several delayed completion deadlines and ballooning costs over the years.

Construction on these two projects started in 2007 and 2008 but may only be fully completed after 2020, according to estimates.

“As a result, Eskom set unrealistically aggressive timelines for the development of the new baseload projects in an attempt to meet the new revised forecast of supply-shortfalls,” said the report.

Lack of skills

Original timelines for the commissioning of the first unit of Medupi was targeted at late 2012 or early 2013, but the company only managed to switch on this unit in 2015.

Amid this situation, Eskom said a number of preparation processes were fast-tracked or not done at all, such as ensuring it had the necessary skills on board.

“When the decision to proceed with the new build projects was made, Eskom had limited skills to conduct such a project,” said the report.

“Eskom had not developed coal power plants for decades. Experienced power plant staff (mostly operational staff) were moved to the new build programme which left substantial skills gaps at the operating power stations,” added the report.

Contract strategy and pre-construction activities

Eskom’s contract strategy regarding the new build projects were also under the spotlight, especially the company’s decision to execute the Medupi and Kusile projects on a multi-contract basis rather than structuring them on a minimum number of large contracts.

This left the responsibility and risk of the project implementation with Eskom itself.

“This decision coupled with the shortage of the appropriate skills in Eskom to manage such a large complex project contribute greatly to the new build projects being over budget and behind schedule,” said the company.

Furthermore, because of the project’s time pressures, Eskom also failed to undertake a number of pre-construction activities or even failed to execute them properly.

READ: BLACKOUT: 10 things in Dentons report that Eskom has hidden

“No proper feasibility study was conducted to ensure that all technical, commercial and environmental hurdles were identified and mitigated. Some of the issues arising during the construction phase should have been identified during the feasibility stage and dealt with prior to construction,” said the report.

The report further said the engineering design prior to the tender phase was not “adequately done, which led to an under estimation of the project costs and inappropriate designs being utilised".

An independent productivity analysis into the new build projects by an independent consultant also revealed that delays and cost increases were mainly caused by poor upfront planning, poor project integration management and inadequate quality control that led to inferior components.

Other factors that held back the power station builds were supply failures by contractors, work packages that had to be re-done, labour strikes and a lack of funds.

'Lessons learnt'

However, the Dentons report said that lessons learnt at Medupi were “carried forward” to the Kusile project.

“The contract integration planning at Kusile was done on a much more rigorous basis than at Medupi,” said the report.

Kusile has also had more appropriate quality verification procedures and a consistent philosophy to labour issues that did not result in as many stoppages as at Medupi.

While the report has been released, it has contained redactions with company and individuals' names being blacked out as in the image below. Rand amounts relating to projects have also been blacked out. 

News24 has obtained a copy of the redacted report, which was commissioned by the Eskom board in 2015, through a Promotion of Access to Information Act application.

READ: Much more to Dentons report than Eskom revealed



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