Medupi risks impacting Dames's fate
Medupi power station's delivery timeline is at serious risk, the power system is operating on paper-thin margins and the national energy regulator has given power utility Eskom half the tariff increase it applied for, leaving it scrambling for ways to pay for new power stations in the coming years.
Amid these woes, speculation that chief executive of Eskom Brian Dames is on his way out refuses to die, despite denials by Eskom board chairperson Zola Tsotsi.
Arguably, Eskom's fortunes have not been this dim since the lights went out in 2008.
Dames was appointed chief executive in July 2010 and his contract is rumoured to be up for renewal in the coming months.
This week Tsotsi moved to quell persistent questions about Dames's future. He said that Dames was not on a fixed-term contract, and his tenure with the company had "no end date".
Tsotsi said that Dames had not approached the board with a wish to resign and the board was not seeking to replace him. Tsotsi reiterated previous statements that Dames "continues to have the full support of Eskom's board of directors".
The dire state of the power system, which is sitting at a reserve margin of 2%, the delays, cost escalations and labour unrest at the 4 800MW Medupi power station and the cost of these problems to the economy have fuelled speculation that Dames may leave.
Dames, who has spent his career at Eskom, played a critical role in bringing the Medupi and Kusile projects on line.
His detractors believe that the delivery of Medupi, which is beset by labour unrest and delays, is emblematic of Eskom's incompetence.
Those sympathetic to him believe he has worked under immense pressure to bring the parastatal to a path of relative equilibrium during his term.
Questions over Dames's future also came after Paul O'Flaherty, finance director at Eskom, announced his resignation in November. He is staying on until the delivery of the parastatal's annual results, which are expected around July.
The difficult situation
But the spokesperson for the ministry of public enterprises, Mayihlome Tshwete, also said the speculation was unfounded. Tshwete said the ministry understood the difficult situation in which Eskom's executives operated and believed they were doing their best under difficult circumstances.
On March 6, Eskom lifted a lockout of workers at the Medupi construction site. The lockout was approaching its seventh week.
Eskom has warned that the strikes pose a material risk to the delivery of Medupi, which is due to produce its first power to the grid by the end of the year. But questions over the performance of contractors and their contribution to potential delays have also begun to emerge.
Investigative journalism TV programme Carte Blanche reported on March 3 that a number of critical welds on Medupi, which need to be post-weld heat-treated, had not been done to specifications.
An industry source reiterated these claims to the Mail & Guardian and said that tests on as many as 7 000 welds, including on the boiler systems, had not been done.
Eskom referred questions to its contractor, Hitachi Power Africa. The company said that concern about some of the welds performed by its subcontractors originated towards the end of last year.
"We perform regular quality audits on every facet of the boilers and when faults are discovered corrective action is taken," said Hitachi Power Africa's spokesperson, Pamella Hadebe.
She said the number of welds affected was less than 1% of all welds completed on the boilers.
"A full investigation — with metallurgical and forensic dimensions — has been carried out.
"We know what the repair scope is and plans are in place to rectify the defects," she said.
"The repair process will run parallel to the daily work and it will be accommodated within the overall project time schedule."
On projects of this magnitude problems will arise, but what is important is that they are discovered and resolved to ensure safety and reliability, Hadebe said.
"Of more concern is the shortage of technical skills, low productivity and ongoing labour unrest, which increases the risk of work not being done according to specification."
Eskom said it had been assured by Hitachi that the welding situation would have no effect on the schedule.
"We continue to follow all our contractual remedies if there is non-performance," said spokesperson Hilary Joffe said. "We are reassessing our schedule as a result of the labour issues as well this issue and all other challenges that exist within a project of this nature. We will report publicly once we have a firm way forward."
Tshwete said the ministry was concerned about any possible delays to Medupi, but it was important to understand the effect that the labour unrest would have on the project before apportioning blame entirely to unions.
Assessing the situation
There were a number of issues pertaining to the construction programme that the state was looking into, but the minister was going to assess the situation and, if the possibility of delay arose, concentrate on the contingency plans needed to manage the very tight power system, said Tshwete.
The minister, "as a hands-on shareholder", was seeking to ensure that major project planning by the state did not happen under emergency circumstances, as has been the case.
Under these circumstances, to blame the lack of co-ordination on major infrastructure problems on one individual was unfair, said Tshwete. Better planning and oversight would enable the government to pick up on issues before they became a major problem.
Unions have denied that the strikes are solely to blame for potential delays on the project.
The power station is being built in Limpopo and employs about 17 000 workers on site, 6 000 of whom are affiliated to the National Metalworkers Union of South Africa (Numsa).
It was these workers who initially protested against deductions made on salaries and bonuses in mid-January.
Eskom brought in an independent auditor, who found no irregularities. The protests became violent and precipitated the lockout, and despite extended negotiations, which included the involvement of Public Enterprises Minister Malusi Gigaba, the issues have not been fully resolved. By March 6, 7 000 workers had returned to the site.
Early this week Numsa's deputy general secretary, Karl Cloete, said workers would return to work on the proviso that the bonus issue was addressed, workers who participated in the strikes did not receive final warnings, and that a dispute over aspects of the project labour agreement, which governs labour relations on the site, was addressed.
Cloete said such project labour agreements had been a problem before. They were reached between unions and employers, before labour arrived on site.
When workers did arrive they often identified problems that affected their conditions of service but were unable to address them because of the agreement.
Cloete denied that labour was the sole reason for delays on the project, and said that Eskom had to answer for other delays that had nothing to do with the strikes, including issues of proper planning and delivery of materials.
The union's members had returned to work on the basis that a multi-union task team would examine the bonus issue.2