Eskom to challenge Hitachi on Medupi failings

Eskom is now in a position to make performance bond demands against Hitachi Power Africa for failing to deliver on its construction contracts at the Medupi power plant, MPs heard on Wednesday.

The extended trigger date for calling in the bonds was August 9, Eskom commercial director Dan Marokane told Parliament’s portfolio committee on energy.

If the power utility called in all bonds, it would recover R1.5 billion from Hitachi, the biggest contractor at the plant and whose poor performance has contributed to driving up the estimated cost of completing it to R105bn.

“We have a lot of claims against contractors and we will be going after contractors,” Marokane said.

Eskom had demanded Hitachi restore its performance bonds to 100 percent to mitigate losses from any further failure by the company to meet standards on a R20bn contract to construct the boilers at Medupi.

“We have asked them to increase these bonds to that level so that they have more skin in the game.”

The bonds were now “sitting at about 50 percent”, he said.

Eskom had also asked Hitachi Japan for performance guarantees, and extended its supervision of contractors’ work at Medupi, a critical part of its coal-based drive to increase South Africa’s electricity supply.

It emerged in June that Hitachi had taken legal action to prevent Eskom calling in bonds, as the utility had done with Alstom, who is supplying the boiler protection system at Medupi and has also failed to meet its obligations.

Eskom was poised to do so to penalise Hitachi for faulty welding and for failure by a sub-contractor hired by the company to heat-treat welds to ensure they can withstand operational stress.

The utility called in the police to probe contract breaches after it was assured that the testing had been done, when this was not the case.

“At the heart of this is really professional fraud that has happened,” Marokane told MPs.

In February, Hitachi went to court to prevent Eskom calling in performance bonds and secured an extension of the trigger date till early August.

The company has committed itself to repairing all faulty work but Marokane indicated that Hitachi had not lived up to demands to repair defective welds on a reheater on boiler number six at the plant.

Inspections carried out on August 17 and 21 showed that “the repair methodology has not turned the boiler to acceptable tolerances”, according to his presentation to the committee.

This could delay the crucial phase of hydro testing by some four months.

Eskom had planned to have the first unit at Medupi online by the end of this year, but Marokane confirmed that the delays meant this would not happen until the second half of 2014.

The contract awarded to Hitachi Power Africa was controversial even before construction began as the company is 25 percent owned by the African National Congress’s investment arm Chancellor House.

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Eskom to challenge Hitachi on Medupi failings