Jul 13, 2012
Eskom deal means Medupi is no longer a problem contract for M&RBack
Construction|Engineering|Civils|CoAL|Eskom|Flow|Hitachi|Murray|PROJECT|Projects|Medupi Power Station|Construction|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)
Other News This Week News
Recent Research Reports
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 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 network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
This Week's Magazine
While Ekurhuleni-based transformer manufacturer Reliable Transformers currently designs, manufactures and tests its products according to the SANS 780 specifications for distribution transformers and other applicable transformer specifications, it is working towards...
Global endpoint security solutions company Kaspersky Lab has introduced new measures to prevent cyber criminals from accessing sensitive data, alongside its malware-signature and heuristic device analysis detection methods. Threats to mobile devices have increased...
To ensure uptake and a positive impact, Wireless Fidelity (Wi-Fi) networks in cities must be provided at schools, community centres and commercial centres to enable citizens and government to access information that will improve access to and delivery of services....
Eco-estate Monaghan Farm, located near Lanseria airport, north-west of Johannesburg, has taken a new approach to modern living and sustainability with its 517 ha development, dedicated to farm living.
Forklift and lift-truck distributor Goscor Lift Hi-Reach launched the Genie SX-180, the tallest self-propelled super boom in Africa, in Johannesburg last month. “As the official distributor of the well-known Genie range of equipment in Southern Africa, we are pleased...