Jul 13, 2012
Eskom deal means Medupi is no longer a problem contract for M&RBack
Construction|Engineering|Civils|CoAL|Coal-fired Power Station|Contractor|Eskom|Flow|Hitachi|Murray|PROJECT|Projects|Medupi Power Station|Flow|Power Station Project Site|Henry Laas|Power
© Reuse this
CE Henry Laas told investors late last month that the agreement dealt with all historical claims and, more importantly, defined the scope and value of the remaining works, now estimated at around R3-billion. The full value of the contract was estimated at around R8-billion for the M&R-led civils joint venture, which also included Aveng.
The high-level settlement still had to be signed off by the Eskom board, but Laas said he did not foresee any problems related to the clearing of that governance hurdle.
The solution, together with a deal concluded with Hitachi in the first half of 2011, meant that M&R no longer perceived the Medupi-related orders to represent ‘problem contracts’.
The JSE-listed contractor is also the mecha- nical works subcontractor for the multibillion-rand boiler contract awarded to Hitachi in 2007. The contract value to M&R was estimated at around R18-billion, with about R5-billion having been executed.
“The relationship with Hitachi really changed in June last year, when we came to an agreement on the way forward. Since then, progress on the Medupi site has improved materially,” Laas told Engineering News during a recent interview on the Medupi site.
He also indicated that the progress achieved with both Hitachi and Eskom was enabling the contractors to “claw back” some of the time lost during the earlier phases.
Nevertheless, Eskom was still forecasting output from the first unit at the R91-billion (R120-billion with interest) six-unit project towards the end of 2013. The coal-fired power station, with a final nameplate capacity of 4 764 MW, would be ramped up to full capacity by 2017.
“The relationship is now, such, that the parties are working together and they are delivering the project,” Laas said, adding that he did not expect any costs to M&R as a result of a ‘flow through’ claim by Aveng’s DSE against Hitachi.
Financially, the arrangements were such that M&R was recovering all costs related to the Hitachi subcontract, while it had the potential to earn a profit based on performance.
“There was no profit for us up to the end of June 2011. But, as from July onwards, the arrangement is working well for us and we expect to earn a profit of between 5% and 7.5%.”
On the civils side, the group also expected to secure margins within the 5% to 7.5% range following the settlement.
“There is clear definition of what we need to do and we are all in agreement on the programme; we are also in agreement on the cost and the value to complete the project.
This has effectively derisked the project to a large extent,” Laas explained, adding that in the absence of the agreement, the issue would have probably moved into arbitration.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Creamer Media Senior Deputy Editor
Other News This Week News
Recent Research Reports
Water 2015: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2015 Report considers the aforementioned issues, not only in the South African context but also in the African and global context in terms of supply and demand, water stress and insecurity, and access to water and sanitation, besides others.
Input Sector Review: Pumps 2015 (PDF Report)
Creamer Media’s 2015 Input Sector Review on Pumps provides an overview of South Africa’s pumps industry with particular focus on pump manufacture and supply, aftermarket services, marketing strategies, local and export demand, imports, sector support, investment...
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
This Week's Magazine
The BMW Group will invest R6-billion at BMW Group South Africa’s (BMW SA’s) Rosslyn plant to produce the next-generation X3 sports-activity vehicle (SAV) for the local and export markets. Rosslyn will continue production of the current 3 Series through its lifecycle,...
The lack of consequences for poor performance and transgressions on the part of contractors remains a significant hurdle to tackling South Africa’s service delivery challenges, delegates heard at the Consulting Engineers South Africa Infrastructure Indaba, on...
City of Ekurhuleni executive mayor Mondli Gungubele earlier this month officially named the city’s bus rapid transit (BRT) system, Harambee.
About 58% of unstructured data stored by companies is dark data, which means that the value or regulatory importance of the data has not been determined. Subsequently, most of the stored data add costs, rather than increasing revenue or reduce regulatory risks, says...
Effective logistics, import/export and manufacturing consulting services require detailed industry knowledge and experience, but can add significant value to these industries by providing expert advice on various technical elements in their value chains, says...