Dysfunctional internal audits, exacerbated looting, the high turnover of project managers and skyrocketing costs are pushing the completion of Eskom’s Kusile and Medupi coal-fired power plants to much further dates than anticipated.
Already by February last year, it was revealed to Parliament that the costs to build Medupi and Kusile had increased by more R300-billion, reaching R145-billion for Medupi and R161.4-billion for Kusile.
But the cost escalation concerns did not only end in more money being spent, but to more delays in the plants’ readiness to alleviate pressure on aging Eskom’s coal powered stations. The cost escalations have also been blamed on corrupt contract expansions and deviation processes.
It emerged during a Standing Committee on Public Accounts (Scopa) meeting earlier this month that Kusile could be fully operational only by 2023 —not this year or next as had been previously estimated.
During Eskom’s presentation to Scopa, it was revealed that irregular contract modifications and deviations were at the centre of the cost escalations and that many of the companies involved had been referred to law enforcement agencies and the Zondo commission.
Scopa chairperson Mkhuleko Hlengwa and the committee members asked how such irregularities had not been picked up internally by auditors and why there had been contradictions in the presentation relating to the completion of the new power stations.
“Where was the audit team during this mess, and were they capable now of picking up on these things?” asked Hlengwa.
Eskom chief procurement officer, Solly Tshitangano, replied that the internal audit team was dysfunctional. The reason for the modification was a cost reallocation, in which money was taken from the contract value and moved to the contingency amount, Tshitangano told MPs.
Scopa was also told that the high turnover of project and site managers caused problems for co-ordination at the stations.
During the heated meeting Eskom officials were also taken to task over Kusile and Medupi delays. ANC MP Bheki Hadebe said the document indicated Medupi would be in commercial operation by March 2020, but the verbal presentation stated the end of 2020. He said the entire document contradicted what was being verbally presented
The financially struggling state-owned entity’s chief operating officer, Jan Oberholzer, explained which units at Kusile would be completed and by when. “Unit 4, 5 and 6 would not be in commercial operation this year, but Unit 4 may be in operation in 2021. The two remaining units would be in operation only by 2023. On the construction finances, 87% had been invested in Kusile, and 95% in Medupi. Eskom was financially able to finish these projects,” Oberholzer said.
But committee members were not impressed as they accused Eskom of secrecy and protecting big companies and auditors.
They also raised concerns about individuals who were alleged to have committed corruption but were not identified, and the fact that, when a person resigned, action was not taken against them. The committee members demanded the list of implicated individuals in all the contracts at Medupi and Kusile.
“I am not shocked that these companies were predominantly white-owned and international. Why had Eskom left these details out of the information it provided to the members? It should have painted the colour of corruption. The presentation even left out the word ‘corruption’ over the last 15 years. Who were the external auditors during this period, and what were their comments?” said Economic Freedom Fighters MP Mbuyiseni Ndlozi.
In a statement to the M&G Eskom said that it has laid a number of criminal charges and was co-operating with law-enforcement agencies.
“Investigations to determine whether procurement contracts contributed to the escalation of costs at the Eskom new-build projects, including Kusile, are ongoing,” the power utility said.
“Eskom is co-operating fully with the SIU [Special Investigating Unit] and all other relevant law-enforcement agencies to investigate any suspicious activity in its procurement processes. These agencies, as well as the Zondo commission … have access to all the relevant documents and evidence held by Eskom.
“Eskom has, over the years, laid dozens of criminal charges against numerous people, including its own employees, with the police where it has uncovered suspicious activity. Eskom is fully co-operating with the Zondo commission, which has a permanent office at the Eskom headquarters. The commission has full access to all contracts and evidence it may wish to review. Eskom also makes available to the commission employees to help with evidence where necessary,” said Eskom.
It emerged during the meeting that in the contract with Alstom, Eskom would be asked to pay accommodation, which has raised concerns about what the contingency amount was used for.
It was also revealed during that presentation that in the contract with Stefanutti Stocks, which was the company used at both Medupi and Kusile, the reason for the modification was a cost reallocation, in which money was taken from the contract value and categorised under the contingency amount.
Stefanutti’s contract changed from its original value of more than R1.6-billion in 2011 to more than R3-billion by 2019.
“Subcontractors connected to project managers were appointed by main suppliers, [for example] Stefannuti package 28 in Kusile, which is still under investigation,” said Tshitangano in the presentation to Parliament. Eskom reiterated to the M&G that the Stefannuti contract is one of those under investigation.