Jan 18, 2008
R20bn boiler contract not initially awarded to Hitachi – EskomBack
Engineering|SECURITY|Africa|Alstom|CoAL|Eskom|Generators|Hitachi|Hitachi Power Africa|Hitachi Power Europe|L&C Steinmüller Group|Mail & Guardian|PROJECT|Security|Steinmüller|Africa|Germany|South Africa|Security|Security|African National Congress (ANC)|Eskom|Hermann Brümmer|Power|Security|Koss R-80 Consumer Headphones|Limpopo|The Mail & Guardian
© Reuse this South African power utility Eskom confirmed last month that the initial letter of award for the R20-billion Medupi boiler contract had, in fact, been extended to the Alstom Steinmüller consortium and not to the Hitachi consortium, which was officially named as the winning bidder on November 13.
The contract, awarded to Hitachi Power Africa and Hitachi Power Europe (Germany), is for six 800-MW utility steam generators for a coal-fired power station being built at a cost of R78,6-billion, at a site near Lephalale, in Limpopo province. The consortium will also supply a similar offering for the R80-billion-plus Project Bravo, which is to be built almost simultaneously at a site near Emalahleni, in Mpumalanga.
The revelation of a revised contract award is likely to raise eyebrows, coming as it does on the back of revelations that Chancellor House – which is said to have strong ties with the ruling African National Congress (ANC) and has even been described by the Mail & Guardian as an ANC business front – is the 25% black economic-empowerment shareholder in Hitachi Power Africa.
CONFLICT OVER REFERENCES
Hitachi claims that, through a series of mergers and acquisitions, it is the current owner of all the know-how and references of the for-mer L&C Steinmüller Group, which includes the Majuba, Tutuka, Duvha and Kriel boilers, even though it did not build these facilities. But Steinmüller Africa MD Hermann Brummer told Engineering News recently that, while it was true that Hitachi acquired the know-how, such ownership could not be considered a sufficient basis for a claim of ‘references’.
Eskom had refrained from commenting on the award, but in its letter, dated December 11, asserted that an independent review by Deloitte had adjudged Eskom to have “acted diligently” and to have “followed due process” in the reassessment of the letter of award to Alstom Steinmüller, and that “given the urgency of the situation, Eskom’s decision to approach Hitachi was justified”.
“[There were a number] of technical and commercial issues that needed to be resolved with regard to the Alstom Steinmüller boiler tender and the Alstom Steinmüller Consortium did not accept the boiler letter of award. Amongst others, one of the issues related to a different interpretation of the scope of the works. This resulted in a significant difference in the prices originally tendered,” Eskom explained in the letter.
It said that, in an attempt to resolve the matter, Eskom suggested that an agreement be concluded that the outstanding matters be dealt with in terms of the mechanisms of the contract. But the Alstom Steinmüller Consortium rejected that proposal.
The utility then entered into a process of engagement with the con- sortium “in a final attempt to resolve the outstanding issues”, but this process failed and Eskom then informed the Alstom Steinmüller Consortium that it would consider alternatives.
“The choice faced by Eskom was to reissue the tender for the boiler package or to approach the other tenderer, that is the Hitachi Boiler Consortium, regarding the boiler tender. In the light of the delays that would result from a new tender process, the view was that it was necessary to ensure security of supply and it was, therefore, in Eskom’s best interests to approach the Hitachi Boiler Consortium. External legal opinion was also obtained in this regard and confirmed that this approach by Eskom was justifiable from a legal perspective,” the utility explained.
The upshot was a recommendation from the Eskom board tender committee and supported by the Eskom board that the Medupi boiler tender be awarded to the Hitachi Boiler Consortium. The contract was then signed at a function held at Eskom’s Megawatt Park head office, in November.
In the letter, Eskom stressed that the board was particularly concerned about the potential for “conflicts of interests” throughout the tender process and stated that “a detailed integrity check was done on the employees involved in the pro- cess as well as the members of exco, and the board, and that no concerns were reported”.
During this process, the participation of Chan- cellor House as a shareholder was reportedly highlighted in the Deloitte report. But the report concluded that “there was no information that indicated that there was any political influence in this regard”.
FLEET STRATEGY and BRAVO
The utility said the objective of the fleet model was to secure a supplier relationship that would allow Eskom to meet its capacity expansion objectives in the most effective and sustain- able manner.
For this reason, negotiations for the turbine and boiler packages for the second coal-fired station, currently dubbed Project Bravo, to be built in Mpumalanga, would also be conducted with the Alstom and Hitachi consortiums respectively.
“The fleet strategy is based on the award of the Medupi tender and, therefore, does not involve a tender process. In this regard, external legal opinions have confirmed that such an approach can be justified as meeting the constitutional requirements of a procurement process that is competitive, equitable, cost effective, fair and transparent,” Eskom stated.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Other News This Week News
Updated 5 hours ago The retail price of 95-grade petrol in South Africa will drop by 45 cents or 3.3 percent a liter from next Wednesday, while wholesale diesel will decrease by 4.9 percent, the government said on Friday. Petrol will cost 13.16 rand ($1.20) a liter while the wholesale...
Updated 5 hours ago Special purpose vehicle GreenCape will, by the end of 2014, make an application to the Department of Trade and Industry (DTI), the Western Cape provincial government and the City of Cape Town to declare Atlantis, on the Western seaboard, a special economic zone...
Updated 5 hours ago The German government has committed a further R70-million towards the second phase of the Non-Motorised Transport (NMT) programme. The NMT programme forms part of the Department of Environmental Affairs’ 2010 FIFA World Cup National Greening Legacy Programme.
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
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.
This Week's Magazine
In the next 20 years, it was expected that, in Africa, more people would live in cities and towns than in rural areas, United Nations Habitat executive director Dr Aisa Kirabo Kacyira said at the Human Settlements Indaba that took place earlier this month in...
Tough-talking Human Settlements Minister Lindiwe Sisulu has committed government to building 1.5-million low-cost houses over the next five years, telling the Human Settlements Indaba in Johannesburg on Wednesday that the State would achieve this target through the...
Over the past 20 years there has been persistent concern about deindustrialisation in South Africa, as well as the fact that locally produced manufactured products have been increasingly displaced by imports.
Financial agreement for Ghanian independent power producer (IPP) Cenpower Generation Company’s $900-million, 350 MW combined-cycle gas-turbine power plant was finalised earlier this month, paving the way for the project’s construction to begin before 2015 in Tema,...
The revenue implications for South Africa of ‘base erosion and profit shifting’ by corporate taxpayers are firmly in the crosshairs of the Davis Tax Committee (DTC) and Judge Dennis Davis hinted last week that recommendations were being considered to “detect and...