EDITORIAL: Eskom is a disaster of epic proportions
Scrapping Kusile power station could end up being the most cost-effective decision for a power utility staggering under debt
Eskom’s Medupi and Kusile power stations could turn out to be the biggest disaster in SA’s economic history.
The latest revelations that the plants have a litany of design and technological concerns that have seriously affected their operation puts paid to any notion that SA’s power crisis may be only temporary. Eskom chair Jabu Mabuza says the power stations are producing half the electricity they should be.
The list of defects — which Eskom itself revealed as part of its plea to the National Energy Regulator SA to consider a higher tariff increase due to its financial stress — is truly astonishing. For instance, the boiler design results in high temperatures the spray water system cannot adequately cool. The design also causes ash blockages and does not allow for proper dust control, while the computer control system does not meet technical specifications. All of these, and others, result in frequent tripping and require maintenance to be done twice as frequently as would usually be required.
Public enterprises minister Pravin Gordhan’s announcement that the government will bring in engineers from outside Eskom, and perhaps from outside the country, to assess the problems is an essential first step
Eskom blames these faults on its main contractor, Mitsubishi Hitachi Power Systems Africa, the same company that has been found responsible for defective welding and for being repeatedly unable to pass a key milestone before commissioning, namely the steam quality test.
It is quite telling, though, that Eskom, which has in the past invoked legal procedures and penalties against contractors that have not delivered, is not doing so this time. By all accounts of contractors in the industry, Eskom’s project management has been appalling. It is expected that contractors, who have been unable to get onto site as per the schedule, will have large claims against Eskom, which ultimately will add significantly to the bottom line.
That bottom line is constantly moving, as are the completion dates for the projects. Medupi, for instance, was first conceived in 2004, the first sod was turned in 2007, the completion date for the first unit was 2012 and the date to finish all six was 2015. However, what happened was that first power was produced by Medupi in March 2015 and the final completion date is now 2021.
The cost of Medupi has escalated from R69.1bn in 2007 (R116.7bn in 2016 prices) to the latest estimate, in 2016, of R145bn. To this must be added R30bn for flue gas desulphurisation, interest costs over the 14 years of construction and contractor claims. The numbers for Kusile are bigger. Eskom’s R434bn (or thereabouts) in debt and its consequent financial crisis are a direct result of these two projects.
Cost and time overruns are common pitfalls of mega projects and Eskom, which had not built a power plant in more than a decade when it took on the task to build two of the biggest in the world simultaneously, has caused this country immense damage.
Public enterprises minister Pravin Gordhan’s announcement on Tuesday that the government will bring in engineers from outside Eskom, and perhaps from outside the country, to assess the problems is an essential first step. The government must also weigh up whether, at this stage, it is worth completing Kusile. So far, only one unit has been commissioned, but the costs and penalties of not going ahead may be worth sidestepping the costs of a badly built power station in the future.
The Medupi/Kusile revelations are a devastating blow to any confidence the public may still have held in Eskom.
More serious than the confidence blow, though, is the reality that the prospect now exists that SA will sit with two enormous, expensive and inefficient coal-fired mega power stations that cannot recoup their costs. This will happen just as the entire world is moving away from coal to cheaper forms of energy generated by wind and solar power.
This is what economists call stranded assets. It’s what the more polite public will call a white elephant. The rest of us, though, will be inclined to call it what it is: a cock-up of massive proportions.