THE cost of Eskom’s Ingula pumped storage scheme electricity project, one of its three biggest capital expenditure projects, had risen from R8.9bn to more than R23.8bn, the power utility said in a document sent to Business Day this week.
This represents a near tripling of the cost of the project from before it started. The Ingula project, started in mid-2006, was, according to information supplied to Business Day in that year, initially expected to be completed this year at a cost of R8.9bn.
Its first unit is now expected to be commissioned in the first quarter of 2014. Ingula, together with the construction of the new coal-fired power stations, Medupi in Limpopo and Kusile in Mpumalanga, ranks as one of biggest capital expenditure projects by one organisation in the world today.
Eskom spokeswoman Hilary Joffe said this week there had been "more work involved than originally anticipated" on the Ingula project. This meant the power utility had to pay a number of unplanned claims from contractors on the project.
The project, near Van Reenen’s Pass in the Drakensberg, involves building two dams of about 250ha each, 46km apart, capable of holding 22-million cubic metres of water.
The dams are connected by tunnels and an underground cavern that houses turbine power generators. The top dam is emptied into the lower dam during peak electricity demand periods so as to generate 1,352MW for the national electricity grid.
Power is taken from the grid during off-peak periods in order to pump the water back to the top dam.
South African Federation of Civil Engineering Contractors CEO Neville Garry said construction-related inflation had averaged 6%-8% a year since 2006. Although every project was different, if the initial cost estimates had about tripled since 2006 and the number of contractor claims was high, then there were probably problems relating to project management.
Most construction industry contracts had penalty clauses in the event the client did not fulfil certain obligations.
Eskom finance director Paul O’Flaherty said in a presentation to Parliament’s portfolio committee on energy last month that the power utility had aligned its contract management, financial systems, project controls and systems, processes, quality standards, and safety with those of its peers.
"Together with lessons learnt, we are embedding this into the engineering, procurement, construction and project management organisation," said Mr O’Flaherty.
Construction industry sources have told Business Day that while Eskom had many contract adjudicators on its projects, cost overruns on its three biggest ones seemed abnormally high and were mainly related to claims from contractors.