Gigaba sheds light on Medupi delay
Public Enterprises Minister Malusi Gigaba gave assurances this week that the lights would stay on, despite the fact that the new Medupi power plant will start operating only by the end of 2013.
Medupi was scheduled to come online in the first half of next year, but it emerged this week that the project had been pushed back further and start-up may be only between June and September.
“We are concerned about the delays; we are concerned that the system is going to be tight until the end of next year,” he said. “But we are working with Eskom to address the factors that have led to the delays.”
The delays related chiefly to project management functions in Eskom, as well as the parastatal’s management of its suppliers, he said.
Gigaba was speaking ahead of delivering his budget-vote speech in Parliament this week. He had taken the matter up with Eskom’s board earlier this year and said he expected “no further delays”.
A pressure-testing exercise on the first boiler in Medupi would be conducted in June and constituted a “massive indicator of our preparedness to ensure the first unit of Medupi is available on schedule next year”, Gigaba said.
Since the announcement of their establishment, the costs of both Medupi and Kusile have skyrocketed to more than R120-billion and R140-billion, respectively, when items such as interest during construction are included. The company has secured extensive government support through a subordinated loan of R60-billion and guarantees in the order of R300-billion.
Other state-owned companies such as South African Airways have also gone cap in hand to the shareholder in a bid to secure more money. The national airline is seeking a further R6-billion for recapitalisation, it was revealed this week.
In the case of Transnet, meanwhile, costs have escalated on its new multiproducts pipeline from the originally budgeted R9-billion to just less than R24-billion in the past six years.
The state is planning to roll out a massive infrastructure programme that is expected to hit R3-trillion in the next seven years and the largest state-owned companies are at the heart of this economic development drive.
<strong>A positive impact</strong>
Private business has repeatedly warned of the dangers of state-led development while state institutions are inefficient and lack capacity. But Gigaba defended South Africa’s parastatals and denied that they were becoming a burden on the economy. “They are playing the role they are supposed to play,” he said.
His department was also taking a more active role in the governance of these institutions to ensure they had a positive impact on the economy.
In terms of Eskom, he said: “For a country which has for so long not invested in capital projects of this size and scale, we had to expect we would face such challenges when we began to invest.”
Those experienced in this development programme would contribute to knowledge-management systems for the next round of projects set for 2017.
“For us to implement those programmes the way we should, we [must] have learned from how we’ve done things up to this point.”
In his budget speech, he noted that Eskom had secured 75% of its funding needed until 2017. Beyond then, however, it was not clear whether it could expect further government support.
Gigaba said his department and the energy ministry were in the process of developing a funding model for the build programme beyond 2017 and a determination had not been made regarding the share of the new-generation capacity that would be allocated to Eskom. He did not want to comment any further on the matter. But he was quick to say that Eskom had made significant internal savings over the past 12 months through operational efficiencies. This money could now be reinvested in the capital programme and it was because of it that Eskom had been able to reduce tariff increases to 16% instead of 25%.
“But what must not be lost sight of is that the shareholder [government] is prepared both to lead and to support infrastructure expansion,” he said.
With regard to South African Airways, Gigaba would not be drawn on the amount of money the airline was likely to get from the government, but he stressed that it was the state’s intention to continue to support the national carrier.
The details of the financial support package are being discussed between the treasury, his department and the airline. Gigaba was adamant it was not a bailout, saying it would assist the airline to cope with a volatile global market dominated by fluctuating oil prices.
It was also in a bid to refocus the airline’s strategy, which had been deemed “inadequate thus far” because it neglected Africa, which should be its primary market.
Meanwhile, Greenpeace has called the extension of Eskom’s domestic borrowing programme from R65-billion to R100-billion in effect a bailout for the company. But Eskom spokesperson Hilary Joffe said this was in no way a bailout and the move was announced several months ago. It formed part of the company’s R300-billion funding plan announced in 2010. “As part of that plan we said we were planning to borrow around R90-billion from the domestic bond market,” she said.