Time for hard men and tough calls on Medupi

Project was ill-conceived, badly planned and sloppily run, say analysts

Public Enterprises Minister Malusi Gigaba donned a hard hat at Medupi last week and said heads would roll if there were any more delays at Eskom's state-of the-art power station in Limpopo.

The man ultimately responsible, Eskom CEO Brian Dames, says his head is feeling just fine and he does not expect it to start wobbling any time soon.

But close observers of the ill-fated project says if anyone's head deserves to roll, it is his.

One analyst has called Dames a "national liability" who has "allowed dilly-dallying on the most significant national interest capex item for five years".

Dames says the delays, quality issues and cost overruns are the fault of the contractors Hitachi Africa and Alstom.

Not good enough, says another analyst. "When you appoint a contractor, there are performance measures. And if they don't perform, you give them the boot and you claim damages."

"We have levied penalties," says Dames.

Why did he not boot them?

"The impact would be quite large, but it is still an option."

Says the analyst: "He hesitated to take action when required because Hitachi's a partner of the ANC. He failed to stand up to the politicians."

"Absolutely wrong," says Dames. "The last resort is to give them the boot. The contract has many remedies. At the end of the list comes replacing them with someone else at their cost."

By the time he has worked his way to the end of the list, the December deadline that the minister is agitating about will have come and gone, of course.

That is only the first unit, he says. "We're talking about six units."

Will there be any more delays?

"This is a massive challenge and a lot of work must be done."

But will there be any more delays?

"We have written commitments from the contractors that they will achieve and we will do whatever it takes."

Those written commitments have not been worth the paper they are written on so far, and he has clearly not done whatever it takes. So will there be any more delays?

"Remember, we're not building the power station, we're not designing it, we're not building software. That is done by Alstom and Hitachi. They are the contractors, yet nobody talks about them and their role."

Why have they been messing him around?

"Alstom and Hitachi Africa have a skills issue both here and globally. I think maybe their senior management has not put the best resources into South Africa and have not actually been listening to what we've been saying to them."

Analysts say they would not have tried that on somebody more aggressive, more obviously knowledgeable and in control. They would not have tried it on a Brian Joffe or the CEO of SABMiller, for instance.

"That is certainly not the case," says Dames angrily. "After 26 years, just because I am black I am not knowledgeable?"

Electricity analyst Chris Yelland says: "He could have and should have run Medupi more ruthlessly, as a powerful project manager would."

Dames keeps coming back to what massive, complicated projects Medupi and Kusile are. For that reason alone, they should never have been embarked on in the first place, says Yelland.

He believes they are ill-advised, overambitious projects whose construction was always going to be beyond Eskom's capacity to project manage. "They are building power stations that are big by any standards and are state of the art by any standards and are pushing the boundaries of engineering by any standards. They could have gone for much simpler, less ambitious power stations.

"Medupi and Kusile are using 800MW generators, state of the art, built by Alstom. But you can go to China and buy a 600MW generator off a production line where they make one a week, make them cheap and make them good and at half the price. They're not state of the art, not pushing the bounds of technology, just standard stuff that does the job."

Dames, who was head of Eskom's generation business before becoming CEO in 2010, says tenders were issued to Chinese and Indian companies. "But many of them said they were too busy building power stations in their own country."

Were Medupi and Kusile too ambitious, too cutting-edge?

"We've contracted two big multinationals that have done this in many countries around the world, and have signed the contract to deliver that within the budget, with the quality and on time," he says. "That is where we have been let down. I'm very angry about it. The issue is one of delivery, not about being too ambitious."

Analysts are sceptical about Medupi meeting the December deadline, which Eskom has said will be when the first unit will be ready to feed 800MW into the national grid.

Dames says the deadline will be met.

What exactly will happen in December?

"What we're looking at is bringing the first unit on load," he says.

Will 800MW be fed into the national grid in December?

"Over a period of time the unit will ramp up to deliver the full load. We have said first power out of Medupi by December. That is what everybody is working towards. That is what we have a written commitment from the contractor on."

Labour unrest has bedevilled the Medupi project and led to many of the delays. Here again, analysts blame Eskom for not, if appearances are anything to go by, including this in the risk assessment they should have done upfront.

Any decent risk assessment should have flagged labour as an almost inevitable problem area and Eskom should have had a risk mitigation strategy in place to handle any labour issues that might arise.

Dames says he refuses to accept responsibility for labour. "They don't work for us. So it is their [the contractors'] workers, not ours."

Did Eskom do a proper risk assessment?

"Yes, we have done an assessment and we have now decided to play a more active role."

Is this an admission that Eskom was not as hands-on as it should have been?

"The contractors have let us down over how they've managed their labour," he says.

Should Eskom have played a more hands-on role?

"The action that we're now taking we should have probably taken earlier," says Dames. "We shouldn't have trusted them. We should have made sure they delivered on what they promised."