The energy-related proportion of Group Five’s R14.7-billion order book as of the end of October has increased to 39%, or R5.7-billion, with power projects comprising R3.4-billion and oil and gas developments the R1.9-billion balance.

CEO Mike Upton says power, oil and gas are central to the group’s sector-based strategy, from which its geographical expansion is likely to follow, particularly into the rest of Africa, as well as Central and Eastern Europe. The other five sectors include mining, industry, water, real estate and transport.

The power sector’s order-book contribution has increased from 22% to 26% since August, supported materially by four renewable-energy projects awarded during the first two bid windows under the South African government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Engineering and construction head Willie Zeelie reports that it has been appointed engineering, procurement and construction (EPC) contractor on the 27 MW Klipheuwel and the 74 MW Noblesfontein wind farms, as well as the 40 MW Touwsrivier and the 75 MW Jasper solar projects. It is also participating in the 16 MW Mkuze biomass project, in KwaZulu-Natal, which was selected as a preferred bidder during the most recent REIPPPP bidding round and which is scheduled to reach financial close by the middle of 2014.

EQUITY POSITIONS

Zeelie reports that Group Five will consider taking up equity positions in greenfield renewables projects and operating wind and solar plants, but says the focus hitherto has been on securing EPC workflow, as well as operations and maintenance (O&M) contracts. But the aggressive corporate-finance-backed bids that emerged during the third round have lowered the immediate prospects of such investments in South Africa.

Securing O&M contracts is in line with the JSE-listed company’s ambition to secure non-construction, annuity-type orders, with such contracts raising its overall order book to R19.2-billion, of which R279-million is directly related to O&M orders in the power sector.

The company is also currently gearing up to play a key role in any nuclear build programme that could emerge in South Africa. The South African government is yet to make a final determination on whether, how and when the nuclear programme will proceed, but the current Integrated Resource Plan indicates that 9 600 MW of new nuclear capacity will be developed.

A high-level South Africa delegation is currently undertaking tours of nuclear facilities and industries across Asia, Europe and the US and a final decision on the any new build programme is still expected to be made during the current financial year, which runs until the end of March.

“Group Five’s strategy is really to ensure that we are fully nuclear compliant . . . so that we can qualify to work inside the nuclear island,” Zeelie reports. The nuclear island comprises the containment fuel buildings, with the balance of the plant falling outside of that island.

It has formed a consortium with Lesedi Nuclear Services, known as Group Five Nuclear Construction Services, which earlier this year secured the contract to design, manufacture and replace the 1 800 m³ Refuelling Water Storage Tanks at Eskom’s Koeberg station, in the Western Cape.

Besides renewables and nuclear, however, the company is pursuing a pipeline of coal, geothermal and gas-fired power projects, as well as upstream, midstream and downstream oil and gas prospects.

It is currently targeting 33 power opportunities, 19 of which are located in the rest of Africa, as well as 26 oil and gas prospects, of which 18 are outside of South Africa. That shift in opportunities into the rest of the continent is also reflected in the group’s larger cross-sector opportunity pipeline of 213 projects valued at R213-billion, of which 56% are located outside of South Africa.

For this reason, CFO Cristina Teixeira expects the order book’s geographical balance to shift materially in the years ahead, with South Africa currently comprising 81% of the existing order backlog. Teixeira describes the project pipeline as “healthy” and is optimistic that Group Five will convert about 40% of those opportunities into orders, noting that 176 of the 213 are currently in the pre-tender or tender stage.

REPUTATIONAL FALLOUT

But Upton is also keen for trust to be rebuilt between the construction sector and government in South Africa, as he believes improved relations will be important for delivery on South Africa’s large-scale economic and social infrastructure projects.

Relations have deteriorated mainly as a result of the discovery of widespread collusion, which emerged during a Competition Commission probe of 21 construction firms. Following a so-called fast-track settlement process, launched in February 2011, 15 firms concluded settlement agreements collectively valued at R1.46-billion with the commission on June 24.

Group Five, which was the initial whistle-blower and received corporate leniency for 25 infringement, is still in settlement talks with the commission on four projects, where it says “evidentiary and technical issues” remain. A contingent liability has been made, but the figure has not been disclosed.

Upton says the industry has to deal with the reputational fallout, but that a rapprochement is needed in order for the infrastructure programme to be delivered.

“[Government] wants to see a good, vibrant industry they can trust and they want to see a good, vibrant industry that is going to embrace transformation. Those are ideals to which industry also subscribed. We have just been through a very damaging environment and we now need to reach out and find each other,” he says, adding that rebuilding a collective plan for South Africa will be a theme for the next 6 to 12 months.

He also indicates that the industry and professional bodies, such as the South African Federation of Civil Engineering Contractors and Consulting Engineers South Africa, together with the Department of Public Works should probably lead the trust-building process, possibly through the Construction Industry Development Board.