Oct 11, 2011
Power supply security to hinge on growth outlook as Eskom warns of Medupi delayBack
Construction|Engineering|SECURITY|Africa|Energy|Eskom|Hitachi Power Africa|Hitachi Power Europe|Paper|PROJECT|Safety|Security|Africa|South Africa|MW Medupi Power Station|Security|Energy|Security|Brian Dames|Power|Security|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
Updated 12 minutes ago There was nothing wrong with Cabinet members having business interests as long as there was no conflict of interest, Communications Minister Faith Muthambi said. "Government has noted media reports which highlight the private business interests of President Jacob...
South Africa will use the upcoming US-Africa Leaders' Summit, which will also encompass the 2014 edition of the Africa Growth and Opportunity Act (Agoa) Forum, to appeal for a 15-year extension of the nonreciprocal trade arrangement, as well as South Africa’s...
The head of economics and trade at the Delegation of the European Union (EU) in Pretoria has acknowledged South Africa’s trade negotiators won important concessions in the long-running Economic Partnership Agreement (EPA) trade talks. But he says it was South...
Updated 15 minutes ago There was nothing wrong with Cabinet members having business interests as long as there was no conflict of interest, Communications Minister Faith Muthambi said. "Government has noted media reports which highlight the private business interests of President Jacob...
Updated 1 hour 43 minutes ago 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’...
Recent Research Reports
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.
Real Economy Insight: Steel 2014 (PDF Report)
This four-page brief covers key developments in the steel industry over the past 12 months. It provides an overview of the global and South African steel and stainless steel markets, South Africa’s major steel producers and events that have shaped these markets.
This Week's Magazine
Multinational semiconductor chipmaker corporation Intel announced its national campaign to further acquire partners to drive its She Will Connect programme, an initiative that aims to expand digital literacy skills to young women in developing countries, further into...
South Africa's MeerKAT radio telescope array programme should get back on schedule within a few months. This assurance has been given by SKA South Africa (SKA SA) associate director: science and technology Prof Justin Jonas. Early last month, Science and Technology...
The Passenger Rail Agency of South Africa’s (PRASA’s) Metrorail service will remain a subsidised service following its current multibillion-rand rolling stock, station, depot and signalling upgrade programme. PRASA group CEO Lucky Montana has allayed fears that...
The uncertainties around the remediation of affected areas as addressed in the Contaminated Land Provisions in the National Environmental Management: Waste Act No 59 of 2008 will possibly spark litigation and disputes between landowners and businesses, contractors...
South Africa is currently the largest component of the African Development Bank’s (AfDB’s) active portfolio in Southern Africa, comprising 62.5% of the bank’s $7.9-billion exposure to the 12-country region – the second largest beneficiary is Mauritius, which...