And in related news...
http://www.bdlive.co.za/business/energy/2013/06/03/hitachi-in-deal-to-head-off-medupi-penalties
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LEGAL action prevented Eskom from penalising contractor Hitachi for thousands of faulty welds at its Medupi coal-fired power station, it has emerged.
A reply to a question in Parliament on Friday casts new light on the "mystery" of Eskom’s apparent failure to act against Hitachi. It shows that the power utility had in fact attempted to call the Hitachi performance bond, but had been prevented from doing so by the legal action.
The answer appears to back Public Enterprises Minister Malusi Gigaba’s insistence at the time that Hitachi would have to face consequences for any delays caused by the faulty welds.
Eskom had also been accused of showing political favouritism to Hitachi earlier this year when it called the performance bond for a second Medupi contractor, the multinational firm Alstom, but did not do the same to Hitachi.
Hitachi Power Africa, which has by far the largest contract at Medupi, is 25% owned by the ruling African National Congress’ (ANC’s) investment arm, Chancellor House, and 70% by Hitachi Power Europe.
Both Hitachi, which has a R20bn contract to construct the boilers at Medupi, and Alstom, which is contracted to supply the boiler protection system, a critical software system, have been blamed for delays at Medupi.
At the time that the faulty welds came to public attention earlier this year, Hitachi said the number of welds affected was less than 1% of all welds completed on the boilers. A full investigation — with metallurgical and forensic dimensions — had been carried out. It said that there were plans in place to rectify the defects.
Eskom is engaged in a race against time to bring Medupi online to relieve South Africa’s tight energy supply situation.
Any delay will fuel fears that South Africa could again be hit by load-shedding and blackouts and that economic growth, especially in the fragile mining sector, could be severely constrained.
In response to a question from Freedom Front Plus MP Anton Alberts, Mr Gigaba said that Eskom had called the Hitachi performance bond in February.
A performance bond, which is usually 10% of the contract price, is placed by the contractor with a bank and serves as a guarantee should agreed performance targets not be met. This in effect amounts to a loss of 10% on the price for the contractor.
Further questions to Eskom on Friday revealed that although the issuing bank of the guarantees accepted the demand as valid and proper, before payment could be made Hitachi launched an urgent interdict, which led to an order suspending the call.
Eskom had then appealed against the decision, and while the case had been pending, had been approached by Hitachi to settle the matter out of court.
The result was a settlement in which it was agreed that Hitachi would comply with all its performance obligations by the end of last month.
According to Eskom, Hitachi had accepted that Eskom would be unconditionally entitled to receive payment or issue a new demand if all performance obligations were not met by that date.
The new decision on whether to call the bond is now pending.
Hitachi had undertaken to fix all the faulty welds as part of its work programme and insisted that it would not cause delays, Eskom financial director Paul O’Flaherty said in March.
Mr O’Flaherty also said at the time that the schedules provided by both contractors indicated that the plant would be able to make first steam by July and supply first power to the grid by December.
However, there are widespread doubts over whether this will be possible.
Hitachi did not respond to a request for comment.
When the faulty welds first came to light, Mr Gigaba went to great lengths to stress that no preferential treatment would be given to any contractor.
"The minister expects every contractor to meet all its obligations and there is no expectation that Eskom should be lenient on any contractor. We are dealing with a national issue and there is nothing more important than getting Medupi online as soon as possible," said Mr Gigaba’s spokesman, Mayihlome Tshwete.
The substandard welding by Hitachi was the second major problem to hit Medupi as a result of poor contractor performance.
In 2011, Eskom was forced to revise the deadline for Medupi by a year to December 2013, due to Hitachi’s failure to get the first boiler on site in time.
Eskom said earlier this year that it had received assurances from Hitachi that fixing the welds would have no effect on its timetable. Hitachi said it accepted full responsibility for rectifying the welds on the boilers.
Eskom has said repeatedly that it is trying to meet the December deadline, which has also been affected by persistent labour problems at the site.
