/ 31 January 2008

ANC’s power grab

A consortium that includes ANC investment company Chancellor House has signed another mega contract with Eskom, almost doubling the ruling party’s stake in — and expected profit from — the parastatal’s drive to build new power stations.

Eskom’s five-year capacity expansion programme, designed to catch up with rising electricity demand and prevent further blackouts, has been ramped up and will now top R300-billion.

The Mail & Guardian revealed in November that Chancellor House owned 25% of engineering company Hitachi Power Africa, giving it a R3-billion stake in a R20-billion tender Eskom had awarded to Hitachi and its parent company, Hitachi Power Europe.

That contract, the largest yet in Eskom’s expansion drive, was to supply six giant boilers, also called steam generators, for Medupi, Eskom’s new coal-fired power station under construction in Limpopo.

This week it emerged that Eskom subsequently awarded the Hitachi consortium a similar contract, this time for ‘Project Bravo”, a second new coal-fired station. Bravo will be built near Eskom’s existing Kendal power station in Mpumalanga.

The Bravo contract was awarded without a further tender process. Earlier, Eskom justified its intended departure from standard procurement rules on grounds, among others, that it would save time.

Eskom has made no announcement about the Bravo contract, but construction giant Murray & Roberts let the cat out of the bag in a JSE regulatory announcement on Monday, saying it had ‘secured the construction contract to Hitachi for both the Medupi and Bravo boiler contracts”. Murray & Roberts is the Hitachi consortium’s construction subcontractor.

On Thursday a member of the Hitachi consortium, who asked not to be named, confirmed that Eskom and Hitachi had already signed the Bravo contract on December 14. The member said the contract was worth about R18,5-billion, slightly less than the Medupi contract but with similar arrangements.

Eskom failed to respond to questions about the value of the contract and when it was signed.

Chancellor House’s 25% stake in Hitachi Power Africa, which will perform 60% of the contract, translates to about R2,8-billion of the R18,5-billion total value. Coming on top of its R3-billion stake in the Medupi contract, this almost doubles the ANC company’s known stake in Eskom’s capacity expansion programme to about R5,8-billion. How much of this will be profit is not known.

The M&G and the Institute of Security Studies’s corruption and governance programme revealed in 2006 that Chancellor House was an ANC business front, set up in 2003 with the sole aim of funding the party. It has investments in mining, logistics, engineering and other sectors.

Eskom’s decision to award the Bravo boiler contract to the Hitachi consortium was not unexpected. In November, when it announced the award of the major contracts for Medupi, Eskom said that it was in negotiations with the winning bidders to supply Bravo too.

Last week Engineering News quoted Brian Dames, head of Eskom Enterprises, the division responsible for the new building programme, saying Eskom was ‘pretty much done” concluding the boiler and turbine contracts for Bravo, but that the parastatal ‘just hadn’t had the time to make an announcement”.

In December Eskom defended its ‘fleet strategy” — negotiating contracts for Bravo with the successful Medupi tenderers rather than starting a fresh tender process — by saying it represented an effective strategy to meet its capacity expansion objectives.

Eskom said the limited response it had received to its call for tenders for Medupi — there were only two competitors for the boiler contract — ‘confirmed the constraint in the global market for the construction of power stations”. The fleet strategy provided ‘greater security that Eskom will be in a position to achieve the best possible schedule for its capi-tal expansion programme”.

Eskom also said it had obtained external legal opinion confirming that its approach ‘can be justified as meeting the constitutional requirements of a procurement process that is competitive, equitable, cost-effective, fair and transparent”.

The power utility’s contracts highlight the problem of Chancellor House tendering for state contracts: the ANC, as ruling party, is effectively both player and referee.

Delegates to the ANC’s Polokwane national conference in December appear to have accepted the need for reform. A resolution mandated the party’s national executive committee to ‘urgently develop guidelines and policy on public and private funding, including how to regulate investment vehicles”.