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Eskom and the multi-billion rand mega projects that could have saved SA

Feb 13 2019 07:25
Melanie Gosling, Fin24

Corruption and state capture are major reasons why coal plants Medupi and Kusile are not delivering electricity as planned and why South Africa is facing crippling blackouts, say energy experts.

Kusile and Medupi, the third and fourth largest coal power plants in the world, were originally due to come online in 2014 and 2012 respectively, which would have given the country an extra 9600MW of power, enough to avoid blackouts.

In 2019 both are still under construction.

When Eskom announced in 2007 that it was to build the two new mega coal power plants, the cost of Medupi was just under R70bn and Kusile R80bn.

The latest costs are now R208bn for Medupi and R239bn for Kusile.

While some of the units have come online and are generating electricity, they have been plagued by problems. Eskom calls these "design faults" and says it will cost R8bn to rectify.

Mammoth projects

Some experts say that is par for the course with mega projects worldwide, now regarded as outdated because of the almost inevitable time delays and cost overruns that go with massive projects.

Others, while acknowledging this, say there was a lack of oversight and control over the projects from an early stage, which paved the way for corruption.

Energy expert Hilton Trollip of UCT’s Energy Research Centre, said there were serious problems with Medupi almost from the start, but they were not investigated.

"Unless we are so punch-drunk that we don’t think the ANC’s role and benefits in Hitachi Africa, Chancellor House and Medupi contracts were not a clear signal, already reported in 2007, that prosecuting authorities would turn a blind eye to blatant corruption – and what the results of that would be," Trollip said.

When the problems around lack of transparency became systemic, National Planning Commissioner Anton Eberhard had recommended a probe, but nothing had been done.

"Once the conditions for both corruption and impunity had been established at the levels they were in Eskom, and as it become clearer that this impunity persisted, it became increasingly likely that things would develop along the path they have. By now there are so many beneficiaries, large and small, throughout the Eskom ecology, and the culture is so entrenched, that rooting them out within the existing institutional structure is not credible," Trollip said.

Jesse Burton from UCT’s Energy Research Centre agreed that corruption and state capture had been serious underlying factors in the delay and cost overruns of Medupi and Kusile.

“Corruption added to all of the problems, as seen by the Gupta leaks and the State Capture inquiry.”

Eskom has also acknowledged this. Andrew Etzinger, a senior manager in demand management at Eskom, said on Cape Talk on Tuesday that corruption and state capture had "wreaked havoc" on the utility, but it had also been "massively damaging in diverting attention away from critical technical issues in Eskom."

Other problems with Medupi and Kusile included labour issues and lack of capacity at Eskom to manage mega projects.

Serious mistakes

Engineer and energy analysts Chris Yelland said it had been a bad idea even to start with building the massive coal plants, and there had been some very serious mistakes made during construction.

"If Medupi and Kusile had delivered electricity on schedule, we would have an extra 9600MW and we would not have load shedding today."

Yelland acknowledged that Eskom’s problems were "multi-faceted". One of them was that because Medupi and Kusile were way over schedule, Eskom had to run old coal power plants.

"They’re being pushed to their limits and their performance is getting worse".

'Eskom wasn't up to the job'

A major reason for the delays and cost overruns was because Eskom had decided it would be the designer and project manager, a massive task.

"It’s not how it should have been done, because Eskom wasn’t up to the job. I once asked (former Eskom CEO) Brian Dames why Eskom had not given the management contract to another company, and he said because no one would take it on. So Eskom in its wisdom decided to do what the world’s main contractors decided not to do," Yelland said.

Eskom had neither the resources nor the skills to handle the two mega projects. It had been over 20 years since Eskom had built a power station when it decided to build the two big projects, and by then much of the skilled staff had left, Yelland said.

Because the cost of renewable energy was coming down all the time, Eskom may find Medupi and Kusile were stranded assets.

“The cost of solar PV is five times cheaper than it was 10 years ago. Renewable energy costs 62c a kilowatt-hour in South Africa today, whereas the cost from new coal plants is over R1 a kilowatt-hour. And the cost of Medupi and Kusile is going up all the time.”

Yelland said in the short term Eskom should get all its generators up to shape with proper maintenance.

Then it should “unlock new electricity supply” by allowing extensive rooftop solar PV installation.

"Thirdly they must scale up renewable energy to deliver electricity in two to three years. The Independent Power Producers’ Programme needs to be accelerated.

"Finally, any new coal plants must be taken off the drawing board," Yelland said.

Bleeding Money

Burton and colleagues have done research on the two mega plants and concluded that it would be cost effective for Eskom to walk away from completing Kusile’s last two units.

"To carry on, would be pouring good money after bad," she said.

Burton said mega projects almost always ran into cost and time overruns and also lent themselves to corruption because of the difficulties in managing such enormous projects.

Originally Medupi was going to be only three units, then was expanded to six. Then Eskom decided to build Kusile as well, with another six units.

Burton said wind and solar energy was more expensive than coal when Medupi and Kusile were planned, so renewables had not been a cost-effective option for Eskom.

However, had Eskom gone for smaller projects, they would have had more flexibility, and by the time the cost of renewables was declining rapidly, the utility could have cut back on building coal and brought on renewable energy.

Instead, it was locked into two massive coal plants, Kusile 4 800MW and Medupi 4764MW.

Burton said research had shown that the most cost effective option for South Africa’s electricity expansion was an extensive renewable energy programme with some sort of flexibility to complement this.

"By flexibility it could be gas, or it could be something like a more flexible or better sort of demand management".

Brent Flyvbjerg of Oxford University explains that megaprojects are not just bigger versions of small projects, but are a “completely different breed of project in terms of complexity”.

He illustrates this by saying if the manager of a conventional project needs the equivalent of a driver’s licence to do what he had to do, then the manager of a megaproject would need the equivalent of a pilot’s jumbo jet licence.

"And just like you would not want someone with only a driver’s licence to fly a jumbo, you don’t want a conventional project manager to manage a megaproject," Flyvbjerg said

eskom  |  medupi power station  |  load shedding
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