Medupi will cost R145bn - FMF

Jul 09 2013 21:55
Johannesburg - The true cost of Medupi is likely to be at least R145bn and not R105bn as Eskom is saying.

This is according to the energy policy unit (EPU), part of the Free Market Foundation (FMF) who cautioned that Medupi would not meet its December deadline at a recent media briefing held on 5 June.

Doug Kuni, chairperson of SA Independent Power Producers (SAIPP) said that not only was this delay predictable, even mid-2014 would not see Medupi supplying mainstream power to the national grid, which was only likely to happen nearer the fourth quarter of next year.

The cost to the economy of the Medupi delays was immense not only in building the station but in the compounded opportunity cost of lost and delayed growth, capacity and jobs due to constrained power supplies which was unlikely to be recouped.

How much will Medupi finally cost?

Following the Eskom announcement of the latest delay, CEO Brian Dames confirmed that the cost of the project had increased from R91.2bn to R105bn, excluding interest during construction (IDC).

Power station

He also stated that IDC was not expected to deviate materially from the R30bn estimated previously.

It was, however, more likely that this would be in the region of R35bn.

The official cost also excluded a flue gas desulphurisation (FGD) plant that had to be added to the coal-fired power station at a cost of between R10bn and R15bn.

From available figures, according to power consultant Pieter van Dam, Energy Research Associates , the likely cost of Medupi would be between R145bn (105 + 30 +10) and R155bn (105 + 35 + 15) which was considerably higher than Eskom's quoted R105bn.

•    In January 2007 Eskom said the planned 4500MW station would cost R52bn [R11.6m/MW] (incl. IDC);

•    In October 2007 Eskom said the planned 4800MW station would cost R78.6bn [R16.4m/MW] (incl. IDC);

•    In November 2009 Eskom said the planned 4764MW station would cost R124.42-bn [R26.1m/MW] (incl. IDC);

•    In April 2011 Eskom said the planned 4764MW station would cost R98.9bn [R20.8m/MW] (excl. IDC);

•    In July 2012 Eskom said the planned 4764MW station would cost R91.2bn [R19.1/MW] (excl IDC) [They excluded  transmission and other costs];

•    In July 2013 Eskom said the planned 4764MW station would cost R105-bn [R22.0m/MW] (excl IDC)

Opportunity costs

Van Dam said: “Although the estimated final cost of the station is R150bn [R31.5m/MW] (incl. IDC and FGD), the probable cost of Medupi is likely to be at least R160bn [R33.6m/MW] (incl. IDC and FGD).

"This is an increase from R11.6m/MW to R33.6m/MW, which represents a 190% increase”.

But SA’s energy woes go further, the Free Market Foundation said.

FMF economist Jasson Urbach said: “The price we see is not the price we're paying when opportunity costs involved with the delays are counted.

"Using the cost of unserved energy (COUE) from the country's integrated resource plan of 2010 (IRP 2010) of R75/kWh, the cost of these delays amounts to R234bn for one unit.

"However, it’s likely that there will be knock-on effects and all six units will be delayed.

"If this is the case then the total cost of unserved energy for a delay on all six nits amounts to a staggering R1 408bn.

The energy policy unit believes that the way forward is to abandon the outdated monopolistic model of Eskom as sole generator and distributor and adopt international proven best practice.

This means unbundling the national grid from Eskom into a separate independent unit and introducing private operators able to wheel (buy and sell) electricity over the grid at market-determined prices.

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