Business

Transnet pipeline review shows 'systemic failings'

Lynley Donnelly

A review of Transnet's multi-product pipeline found errors by role players has overrun budget by R14-billion and delayed the project by three years.

Transnet chief executive Brian Molefe. (Gallo)

A review of Transnet’s new multi-product pipeline from Durban to Johannesburg, found that “systemic failings” by all key role players contributed to cost overruns of R14-billion and a delay of three years on the project.  

This is according to a statement released on Thursday on behalf of Public Enterprises Minister Malusi Gigaba, who announced an investigation into the new multi-product pipeline (NMPP) in December 2010.

The review was completed late last year, but until now no information on its outcome has been made available. But the cost overruns and delays have hurt ordinary South Africans, who faced rising fuel levy’s to pay for the pipeline.

The review found that the “systemic failings” occurred within Transnet, at the level of the main contractor, as well as at shareholder level, namely the department.

“The project management setup within Transnet Capital Projects lacked sufficient capacity and depth of experience for the client overview of a megaproject of this complexity,” the minister said.

“There was an inadequate analysis of risks and an over-reliance on the engineering, procurement and construction management (EPCM) contractor.”

The overall management of the project was also flawed, the review found. Transnet’s obligations on the project including securing authorisations, such as environmental impact assessments, land acquisition for right of way, as well as water and wetland permits, were not pursued “with sufficient foresight and vigour” and “outcomes were not adequately integrated into the forward planning of the project”, according to the statement.

Governance structures and “systems of control” failed, and the timing of the appointment of the main contractors was far too early in the life cycle of the project the review found.

Further problems included a decision to change to a new EPCM contractor 18 months into one of the earlier phases of the project - the front end engineering design (FEED) phase. This introduced unquantified risks into the project and “were detrimental to fast-tracking the completion schedule” the statement said.

The review also found that the “initial response” of the second appointed EPCM contractor was inadequate.

“Key roles should have been filled rapidly in line with proposal commitments,” it said.

“Furthermore tried and tested cost and project management systems expected of an experienced EPCM contractor were not implemented promptly or rigorously.

"Transnet should have imposed a design freeze at the earliest possible stages to limit the costs escalations associated with major design changes.”

It is not clear who the main contractors involved were.

Work on the NMPP began in 2008 and was initially budgeted at R9.5-billion.

It was meant to be complete by 2010, but has been delayed until 2013, while costs have risen to R23.4-billion.

The cost escalations and delays have cost ordinary South Africans an additional 7,5c/l, which was added to the fuel levy in 2010 to help pay for the ballooning costs of the pipeline. Transnet was also granted additional revenue allowances through its pipeline tarrifs, by the national energy regulator, in order for it to retain its investment grade credit rating. The tariff increases however have contributed to rising fuel costs for consumers.

The department had taken corrective steps to address the failings on the project it said.

A project management office was being established within the DPE to “exercise a more ‘hands on’ oversight function over major projects”.

Greater inter-departmental coordination, was taking place through oversight of major capital projects by the presidential infrastructure coordinating committee. The PICC would allow the state to improve its control and mitigate against any potential cost overruns according to the statement. ??

Internal measures were also being taken by Transent including the established of an NMPP governance steering committee - a subcommittee of Transnet's executive committee, chaired by the group’s chief executive, Brian Molefe.

It had also commissioned a “prudency review”, undertaken by an auditing firm to identify possible areas of improvement.

Molefe had also appointed a new executive in charge of Transnet Capital Projects, Charl Moller, with a mandate to deliver the project within board approved timelines and budget.

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