Jan 18, 2008
R20bn boiler contract not initially awarded to Hitachi – EskomBack
Engineering|Africa|CoAL|Coal-fired Power Station|Eskom|Generators|Health|PROJECT|SECURITY|Africa|Power
© 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)
Creamer Media Senior Deputy Editor
Other Electricity News
While there are battery-powered bolting solutions for wind turbine maintenance, the general consensus among wind energy industry stakeholders is that these solutions lack battery longevity and often succumb to overheating and bending, says bolting systems...
While wind turbines are standard products that are designed, verified by prototype testing and independently certified, their foundations are designed on a project-by-project basis to suit site-specific ground conditions. This, according to engineering consulting...
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...