# How Medupi and Kusile are sinking South Africa

- Link: https://dearsouthafrica.co.za/2019/10/09/how-medupi-and-kusile-are-sinking-south-africa/
- Published: 2019-10-09T12:34:47+02:00
- Author: dearSA

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South Africa’s economy was roaring along in 2007 on the back of the global commodities
boom when power shortages struck, bringing mines and smelters to a halt.

Then-President Thabo Mbeki publicly apologised for prevaricating about adding generation
capacity despite repeated warnings that supply was constrained, and state power 
utility Eskom swiftly opened the spending taps.

The botched implementation of the expansion plan has haunted the country ever since.

Eskom in 2007 alone approved 13 projects worth more than R200 billion that it said
would boost electricity output 56% by 2017. The flagships were two mammoth coal-
fired power stations, Medupi and Project Bravo, that were both expected to be finished
by 2015 at a total cost of R163.2 billion.

Instead of resolving the energy shortfall in Africa’s most industrialized nation,
the plants have been textbook studies on how not to execute large infrastructure
projects. Medupi’s completion date has been pushed out until next year or 2021 and
Kusile, as Bravo is now called, is scheduled for 2023. The delays have given South
Africa months of rolling blackouts, an economy in deep trouble and a huge headache
for its president, Cyril Ramaphosa.

While Eskom’s current management and Ramaphosa’s government have sought to come 
to grips with the problems at Medupi and Kusile, there’s no guarantee the plants
will ever perform optimally.

Ballooning price tag

“They needed to basically call a halt to the whole project and do a reset—to go 
back into the contracts and the design and engineering,” said Mike Rossouw, who 
was appointed as an independent consultant to Eskom in 2014 and advised it on how
to address its construction challenges. “They never did that and haven’t at any 
stage and the consequences are there for all to see.”

Meanwhile, the anticipated price tag has ballooned to R451 billion, including the
costs of interest during construction and fitting the plants with equipment needed
to meet environmental standards. That equates to Eskom’s entire current debt, a 
burden that’s left it unsustainable and reliant on a three-year, R128-billion government
bailout to remain solvent.

The utility now concedes multiple failings that led to cost overruns and delays,
including inadequate planning and front-end engineering development, plus ineffective
contracting strategy, execution and oversight. Contractors also performed poorly
and incurred limited penalties, while strikes and demonstrations compounded the 
implementation woes. Turnover at the top—the company has had 11 permanent and acting
chief executives since construction began—didn’t help.

Steve Lennon, Eskom’s former group executive for sustainability, recalled how Medupi’s
construction went awry when the utility was ordered to fast-track the process.

“The project was under development and implementation at the same time, which is
clearly a recipe for disaster in terms of any good practice for major project execution,”
he said by email. “There was a shortage of contractor capacity given the worldwide
demand for large-scale generation plant at the time. That meant that the main contractors
could virtually name their price and conditions.”

Eskom also assumed much of the risk of developing Medupi and Kusile when it decided
to coordinate the projects, rather than appointing an outsider to oversee engineering,
procurement and construction—a common practice in plant development.

“The South African market at the time was not ready for a single contractor to handle
the onerous risk of executing a project of this complexity and magnitude,” Eskom
said in an emailed reply to questions. The company also wanted to develop skills
and create jobs by bringing in small and medium-sized contractors, it said.

Medupi and Kusile, expected to be among the world’s biggest coal-fired stations,
share the same configuration. The latter’s two towering smokestacks and six enormous
boilers are visible from the main highway that runs between Johannesburg and the
east coast.

Claims against Eskom

Speculation that the plants could be delayed first surfaced in 2008. While Eskom
initially denied that the projects had gone off track, it was forced two years later
to adjust the time lines and anticipated price.

Eskom Rotek Industries, a wholly owned Eskom subsidiary, was appointed to establish
the Kusile site—a process that entailed digging drains, laying pipes and doing the
earthworks and terracing. Its contract was terminated early on because it was unable
to deliver. That created a bottleneck for other contractors, which filed for damages.

Eskom said it has paid out R14.8 billion to settle the claims, which totaled R252.9
billion, and it filed claims of its own worth R2.6 billion against companies that
failed to meet their contracts.

The delays and design changes reverberated throughout the programme. While the manufacture
of equipment continued as planned, it was left sitting in warehouses or on site 
with the clock ticking on warranties, according to Makgopa Tshehla, a professor 
at the University of South Africa and an expert on large construction project management.

Broken boilers

The biggest construction headaches were caused by the installation of deficient 
boilers supplied by Mitsubishi Hitachi Power Systems Africa, according to Eskom.
Talks on how to resolve the problems are ongoing, according to Jan Oberholzer, the
utility’s chief operating officer.

Mitsubishi Hitachi didn’t respond to questions about the defaults or the discussion
of plans. In 2014, Hitachi Power Africa, an earlier iteration of the company, blamed
local subcontractors for faulty welds on the Medupi boilers, but Eskom’s former 
finance director, Paul O’Flaherty, said the main contractors were at fault.

Tshehla says Eskom’s board should ultimately bear most of the blame for failing 
to properly assess the projects and the related risks, and for not holding management
accountable for poor performance.

Oversight deficiencies were compounded by the repeated changes to Eskom’s top management
and demands by politicians for them to get a move-on with the projects.

“Eskom was already under the whip for lack of capacity so they were chasing like
mad dogs to get those power plants done,” Rossouw said. The management “took on 
responsibility and risk which I don’t think the board ever understood properly. 
They were hardly capable of conveying a concise, understandable picture to the board.”

In 2012 Eskom invited then-President Jacob Zuma to attend a pressure test on Medupi’s
first boiler to show that the project was running according to plan. Rossouw recounted
that management ignored engineers’ advice that the plant wasn’t ready and, when 
steam was pumped into pipes connected to the boilers, tools and other debris were
blown out.

Zuma gave no indication that he was aware anything was wrong. He said in a prepared
speech that he was “delighted” with the progress being made on the project and congratulated
his minister, Eskom and its workers “for a job well done.” Zuma returned to the 
plant in 2015 when it delivered its first power to the grid—two years later than
anticipated at the time of his previous visit.

[Article](https://www.fin24.com/Budget/how-medupi-and-kusile-are-sinking-south-africa-20191009)
by Fin 24