A leading energy-policy academic, who is also a commissioner in the 26-member National Planning Commission (NPC), called on Tuesday for a formal enquiry into the cost and schedule overruns at Eskom’s Medupi and Kusile coal-fired power station projects.
The projects would be the third- and fourth-largest coal plants in the world, with Kusile set to add 4 800 MW and Medupi 4 764 MW worth of capacity between late 2013 and 2018 – only the 7 100 MW Taichung plant, in Taiwan, and the 5 000 MW Waigaoqiao, in China, are larger.
Eskom expects Medupi to cost R91.2-billion to complete and Kusile R118.5-billion (both figures exclude interest during construction).
However, NPC commissioner Professor Anton Eberhard, of the University of Cape Town Graduate School of Business, argued that cost visibility remained poor, while it was also unclear how far the current budgets exceeded initial estimates.
That said, he argued that the enquiry should not be premised on reversing the implementation of the projects. Rather, the objective should be to build greater accountability within State-owned companies on how capital expenditure was conceptualised, managed and funded.
Addressing a conference on economic regulation, hosted by the National Energy Regulator of South Africa, Eberhard said there was currently insufficient regulatory oversight and control over large capital expenditure programmes, notwithstanding the fact that these lay at the heart of the country’s recent power price increases.
He argued that an enquiry could yield planning and investment lessons and stimulate strategies that encouraged greater diversity and innovation and possibly incremental rather than mega projects.
Eberhard’s statements came as Eskom FD Paul O’Flaherty was updating lawmakers on the status of Eskom’s build programme, as well as some of the challenges that the programme had confronted.
The presentation showed that the utility still needed to spend R323-billion between April 1, 2012, and March 31, 2018, to complete Medupi, Kusile and Ingula, as well as to add transmission and distribution infrastructure.
O’Flaherty said that a combination of factors relating to the civil engineering and boiler aspects of the Medupi project had resulted in a 20-month delay and that the first unit was expected to be introduced in December of 2013.
The first Kusile unit would be commissioned in December 2014 and had been delayed owing to funding difficulties, which were now in hand.
O’Flaherty said the reasons for the cost increases were understood and that lessons had been learnt, which would help Eskom in future projects.
“Good progress has been made, but many serious risks, including contractor performance, will need to be carefully managed,” he told lawmakers.