THE Medupi nightmare has turned into a horror story. Not to be outdone, it looks as though Kusile is headed the same way.
Eskom’s latest confession, that power from the first unit at Medupi, the giant coal-fired power station under construction in Limpopo, will not be available until about October 2014, is a blow that will send the economy reeling. Given that the delay — the latest in a string of disasters — will affect all six power units, not merely the first, the hidden impact on the economy might be as much as R1.4-trillion.
This number is derived from the Department of Energy’s calculation of the cost of unserved energy, R75/kWh. This is the value placed on a unit of power not supplied due to an unplanned outage of short duration. In Medupi’s case, it works out at R234bn for one unit. The construction costs, themselves gigantic, pale into insignificance against the damage to the economy.
Medupi came to my attention in May 2005, when then Eskom CEO Thulani Gcabashe was quoted as saying the first unit was expected to be commissioned by 2010. In January 2007, Gcabashe revealed the size of the station as 4,500MW and said the first unit would be commissioned in 2010-11, with the following units at six-monthly intervals.
Barely a few weeks later the news was that the project was delayed by nine months to allow for environmental appeals. In February 2007, Gcabashe revealed the estimated cost at R56bn, with current CEO Brian Dames following hard on his heels saying R70bn had been budgeted. By October that year the cost had increased to R78.6bn. Two years later, in July 2009, it was put at R120bn and reached its maximum of R125.5bn in March 2011. After that, interest charges during construction (called IDC) were removed so the numbers looked a lot more palatable — they plummeted to R91bn before rising to an estimated maximum of R105bn by July next year.
But when Eskom published costs (excluding IDC) at R91.2bn it was estimated that the final total including interest would be at least R130bn. By extrapolation, the latest cost of R105bn (excluding IDC) means the final cost will be at least R150bn. This will make Medupi the most expensive coal-fired power station on the planet (per unit of output).
Where do we look for the causes of this ultimate farrago? Well, we begin with political interference and, second, the failure to provide appropriate direction. It was on Thabo Mbeki’s watch that his browbeaten cabinet agreed to postpone the construction of new power plants. The subsequent policy failure extended to preventing independent power producers from entering the market. That failure came directly out of the Congress of South African Trade Unions (Cosatu) and the South African Communist Party, members of the tripartite alliance, aided and abetted by elements in departments of state and Eskom, all of which nursed their own agendas. The first result was the sabotage of the government’s energy policy; the second is the current sabotage of the economy, both brought about by people who trumpet their commitment to South Africa’s wellbeing.
They are doing it again. They are now threatening the continued existence of the National Development Plan, of which Cosatu wants the economy chapter redrafted, presumably in its own image so it can protect the labour aristocracy it has devoted itself to creating and preserving.
Then there is the behaviour of two trade unions, the National Union of Metalworkers of South Africa and the National Union of Mineworkers, at the Medupi site. A series of strikes including violence threatened against specially qualified welders seriously delayed construction.
Finally, potentially the most important cause is the commercial involvement of Chancellor House, an investment arm of the ruling African National Congress, in one of the principal contractors, Hitachi Power Africa, which was awarded the contentious contract to build the boilers for R20bn. Chancellor House holds a 25% equity stake in Hitachi.
But Eskom initially awarded the boiler contract to the Alstom Steinmüller consortium, which it said did not accept the conditions in the boiler award letter. Eskom claimed it had acted diligently and followed due process, and was supported in this by Deloitte, which conducted the external review.
Alstom was awarded the R13bn contract to supply the equipment on the turbine islands, the important software for which was found to be inadequate. In both cases, these contracts are now subject to penalties.
Any failure on Eskom’s part to extract the maximum penalties from these companies, especially from Hitachi because of its political connection, will be interpreted as proof of yet further political interference at the highest level.
Look to Zambia for an example
CELLPHONE users should check this out. Modest Zambia, out of the way up there in the bundu, is bringing criminal charges against all three of its cellphone operators for failing to meet the minimum standards of quality service. MTN Zambia, Airtel Networks and Zamtel are on the chopping block.
Zicta, the Zambia Information and Communications Technology Authority, is quoted by ITWeb as saying it will take "remedial measures" to enforce the quality of service in the public’s interest. It has the option under its statute of invoking either administrative or criminal charges. Since you can’t put a company in jail, the next best is its public officer. I wouldn’t like to be one of those three. I’m told the food in Zambian jails is simply terrible. Their trials began last week.
Zicta says deteriorating levels of service quality have made communications difficult. There’s been a public outcry. It makes doing business in Zambia more difficult too. Zambians have turned to the social media to express their approval of the government’s move. Many say "it is long overdue".
Meanwhile, here at home in Africa’s biggest economy (not for much longer thanks to the unions), the Independent Communications Authority pussyfoots around without any muscle to oblige offenders to perform. Its spokesman, Paseka Maleka, says the authority doesn’t yet have the capacity to institute punitive measures.
No capacity after all these years? Per-lease.