Oct 11, 2011
Power supply security to hinge on growth outlook as Eskom warns of Medupi delayBack
Eskom|Hitachi Power Africa|Hitachi Power Europe|South Africa|MW Medupi Power Station|Brian Dames|Limpopo
© Reuse this
Observers agreed that any delay to the Medupi programme could raise the spectre of supply disruptions, owing to South Africa's tight supply/demand balance. But those canvassed by Engineering News Online also stressed that much would depend on the outlook for economic growth, which would, in turn, dictate the pace of power sales growth in 2012.
Slower-than-anticipated growth in 2010 and 2011 had helped sustain Eskom’s reserve margin and had been material to ensuring that Eskom did not need to resort to rotational load shedding, which had caused severe economic harm in 2008 and had led to the closure of many of the country's mines on safety concerns.
Eskom CEO Brian Dames told lawmakers that the schedule was being negatively affected by the underperformance of the boiler contracts. These contracts were awarded to a consortium comprising Hitachi Power Africa and Hitachi Power Europe, but controversially also included Chancellor House, which is directly associated with the governing African National Congress.
Together, the boiler contracts for the Medupi and Kusile power stations were valued at R38.5-billion and represented the largest single contract ever awarded by Eskom.
Dames told Parliament’s Portfolio Committee on Public Enterprises that Eskom was working closely with Hitachi to put in place remedial measures to mitigate delays. Eskom had also received confirmation from the Japanese parent company that it should meet its commitments under the contract.
“With a year to go, we are concerned that the performance of some contractors could put the schedule at risk,” Dames said.
The utility had initiated a detailed assessment of the timelines for the first unit, or 'Unit Six', to determine whether the project could indeed be synchronised to the grid in late 2012, as outlined in the current schedule. An expert review team had been assembled to assess the schedule and a detailed update on the Medupi timelines would be provided when Eskom released its interim financial results on November 23.
Hitherto, Eskom and Dames had insisted that the first 800 MW unit would be commissioned before the end of 2012, despite several contractors, including JSE-listed construction group Murray & Roberts, warning of delays, scope changes and contract variations.
But the recently promulgated Integrated Resource Plan 2010 (IRP2010), covering the period 2010 to 2030, took a more conservative view, indicating that the first Medupi unit would be commissioned only during 2013.
Should the commissioning of the first unit be delayed it would not be the first significant schedule change, with Eskom initially anticipating the first Medupi unit being synchronised in early 2012, before changing that date to June 2012 and then to September 2012. Most recently, it published a revised date in its annual report indicating the unit would be commissioned by the end of next year.
Frost & Sullivan energy sector consulting manager Marc Goldstein said that the delay had the potential to cause disruptions, but added that much would hinge on the outlook for economic growth.
He noted that year-on-year electricity growth levels had been lower than anticipated and well below the levels anticipated in the IRP2010, which had been premised on yearly economic growth of 4.5%.
During Eskom’s financial year to March 31, 2011, sales expanded at a lower-than-expected rate of 2.7% to 224 446 GWh – the State utility had been expecting growth of 4.2% and sales of around 227 000 GWh as South Africa’s economy recovered from its 2009 recession.
Manufacturing Circle chairperson Stewart Jennings, whose fellow members were directly affected by the 2008 shortages, but were currently more concerned about the margin impact of surging power prices, said any threat of new supply disruptions would be bad for manufacturers and future job-generating investment.
Jennings said reliability of power supply was essential, but that the immediate threat of disruptions had been lowered by the low economic growth rates.
“But we have to get this economy growing at rates better than 4%. If we do that, I think Eskom will be in trouble,” he added.
That said, the more pressing concern for manufacturers was the impact rising power prices, as well as other administered prices, were having on margins, particularly in a context where the strong currency was offering little relief.
The Manufacturing Circle was finalising a paper on the impact of power prices and hoped to petition the National Energy Regulator of South Africa before year-end on the need to put in place mechanisms to moderate the price path.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines
Other Macro and Micro News
South Africa's rand was slightly weaker on Thursday following the US Federal Reserve's announcement that it would begin scaling back its massive bond-buying stimulus from January. The rand was at 10.3700 to the dollar at 0630 GMT, down 0.3% from Wednesday's New York...
The South African government was committed to addressing the concerns identified in Fitch's Rating review, National Treasury said on Wednesday night. It said Fitch Ratings had earlier announced that it had affirmed the country's long term foreign and local currency...
The ANC-led government has failed to decrease unemployment, poverty and inequality, suspended Cosatu general secretary Zwelinzima Vavi said on Wednesday. "It is obvious that the post-Polokwane administration has spectacularly failed to reverse the crisis of...
Recent Research Reports
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 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...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
Projects in Progress - Second Edition (PDF Report)
Creamer Media’s second Projects in Progress supplement considers some of the major project developments under way, including high-profile energy and transport projects, as well as a few of the lower-profile public and private developments. What remains apparent is...
Water 2013: A review of South Africa’s water sector (PDF Report)
Creamer Media’s Water 2013 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Canadian Mining Roundup for June 2013 (PDF Report)
The June 2013 roundup includes details of the development of TSX-V-listed Aldridge Minerals’ flagship Yenipazar polymetallic project, in Turkey; the Canadian Nuclear Safety Commission’s renewal of Cameco’s uranium mining licence pertaining to the Cigar Lake...
This Week's Magazine
Johannesburg-based locomotive solutions provider DCD Rolling Stock officially launched Phase 1 of its R240-million recapitalisation programme at its Boksburg manufacturing facility, last month.
Sales of electric cars should pick up once more such vehicles become available on the South African market, says Nissan South Africa (SA) chief marketing manager Ross Garvie. The local arm of the Japanese car company launched the country’s first fully electric...
Denel Land Systems’ (DLS) Mechem division is successfully marketing the latest version of its highly regarded Casspir mine-protected vehicle, the Casspir NG2000 series wide body ambulance. As its description says, this has a notably wider body than standard...
The infrastructure boom in Africa has seen investment in 322 megaprojects reach $222.7-billion, says professional services firm Deloitte in its ‘African Construction Trends’ report. Deloitte Southern Africa infrastructure and capital projects leader André Pottas...
ASME, the international engineering profession’s cooperative, educational and training, research, outreach and codes and standards development organisation (originally the American Society for Mechanical Engineers, founded in 1880), is seeking to improve the...