08 July 2013 – Eskom has confirmed that the first of Medupi’s six by 800 MW units, Unit 6, which was due to deliver first power to South Africa’s grid by the end of 2013 is unlikely to meet this schedule. The utility says that a more realistic target for the first synchronisation of Unit 6 to the grid is the second half of 2014. This is based on in-depth independent and internal assessments of the project which Eskom has undertaken. The revised schedule is based on certain assumptions and depends on the success of interventions to ensure critical timelines, on the boiler and control and instrumentation contracts, are met in the next few months as well as the stability of the labour force.
Eskom has said that critical technical challenges need to be resolved in order for Unit 6 to begin producing power. These technical challenges relate to the welding on the boilers, and the control and instrumentation systems for the units. In addition are the on-going labour challenges.
It says significant progress has been made to restore effective labour relations on site since March 2013. Processes have been developed to address all grievances and salary discrepancies are being removed. Eskom, the contractors and labour last month (June) signed an innovative new Partnering Agreement, which sets the basis for an effective partnership and should bring stability and improved productivity. “All of us on site are now focused on delivering the power station, on time, on budget, safely and to the required quality standards,” Eskom finance director and head of group capital Paul O’ Flaherty says.
Eskom says it has engaged with the global leadership of Hitachi and Alstom to resolve the technical issues on the boiler and control and instrumentation contracts, and has put significant skills and resources in place in an effort to ensure performance by the contractors, as well as pursuing contractual remedies.
The critical issues on the boiler related firstly, to inadequate post-weld heat treatment, which meant that multiple welds needed to be retested and fixed. Secondly, welds made using unqualified procedures needed to be replaced. Effective interventions have been put in place to deal with these issues. The progress of the repairs is being closely monitored and tracked by Eskom on site.
Some progress has also been made in resolving the control and instrumentation issue. However, there has been continued under-performance on the control and instrumentation contract, despite active interventions by Eskom over the past year, and it is now clear that the issues on the control and instrumentation for Unit 6 will take time to resolve.
Eskom has put several new interventions in place to expedite delivery of the Medupi project. The Eskom board is closely monitoring the project and senior Eskom executives are on site at Medupi on a weekly basis. The Medupi project team has been strengthened with specialist support brought in. A bimonthly meeting has been set up between Eskom executives and the chief executives of all the major contractors, including a site walk, in order to resolve all the issues hampering progress. A commercial strategy is being pursued to recover cost overruns from contractors.
“We have done everything in our power to meet the December target date,” Eskom CEO Brian Dames says. “However it is now clear that the boiler and control and instrumentation issues cannot be resolved in time for the first unit of Medupi to deliver first power to the grid by 2013.”
He says that Eskom is working with stakeholders to ensure security of electricity supply despite the delay. A revised outlook indicates that there could be a potential gap in supply in 2014, with the most likely scenario being a gap of in the region of 700 MW. “The power system will remain tight, as we have said, but demand for electricity has been muted because of slower than expected economic growth, and we are working to put initiatives in place to close the gap. We remain determined to keep the lights on, with the help of all South Africans. This is being done with support from government,” Dames says.
Once Unit 6 is online, the remaining five units of Medupi will be brought online at intervals, so that the entire power station should be fully commissioned by 2017.
As a result of the longer than expected construction time, the cost to completion of Medupi is now expected to increase to a maximum of R105 billion (excluding interest during construction, transmission costs and claims against contractors), from the previous estimate of R91.2-billion. The increase will be funded from existing capex allocations and will not impact electricity tariffs.
“We expect to get more than 3,800 MW of new capacity online by 2015, from Medupi, Kusile, Ingula and our Sere wind farm. We have had the programmes and the costs independently reviewed. We are working very hard indeed to make sure that we deliver, and we have the commitment of the major contractors to achieve our goals,” O’ Flaherty says.