What is going on at Kusile?

Eskom has downplayed allegations by four independent sources that the contract of its ‘execution partner’ at its Kusile power project has been scaled down in favour of the Indian company Tata.

The value of including Tata in a project whose deadlines keep being extended, is being questioned by those on site.

US-based engineering group Black & Veatch (B&V) designed Kusile, but also plays a much wider role at the project which is the first power station in South Africa to use advanced environmental flue gas desulfurisation air quality control technology and air-cooled condensers.

B&V describes its own role as providing ”construction management, planning, engineering and design, contracts, claims and procurement management, and health and safety management services in a partnership arrangement with Eskom professionals”.

Downscaled?

Moneyweb has been told by two sources on site, that until around September B&V had 40 to 50 staff members at Eskom’s Megawatt Park head office and about 200 on site at Kusile. The sources, both engineers with intimate knowledge of B&V’s situation at Kusile, said this has been scaled down to a total of about 140.

One of the engineers questioned the value Tata could add that internationally renowned B&V, with a reputation of delivering power stations all over the world on time and within budget, cannot. According to information on its website, B&V has delivered 59 000MW of generation capacity since the 1950s.

Two other independent sources have confirmed that B&V’s presence has been downscaled.

B&V did not respond to specific questions from Moneyweb, but said it has 135 site-based employees at Kusile.

The company did say it “continues to provide engineering, training and construction management services” at Kusile. However it continues: “Working with Eskom it has been the projects’ plan to reduce the size of our site-based workforce as Eskom’s professionals assumed a larger role in the project’s execution”.

Eskom said B&V’s role is unchanged. It also said: “The downscaling of Black & Veatch is as per agreed principles of once the work is complete where they are involved, the demobilisation process will take place”. The utility did not confirm or deny whether any such demobilisation has taken place to date.

Delayed expectations

Eskom did however in November extend the expected date of synchronisation of Kusile’s first unit once again. It is only now expected by November 2017. This is about six months later than the deadline it communicated in its integrated report dated March 2015. A year before, Eskom had promised synchronisation by the end of 2015.

Eskom never gave much of an explanation for these extensions and the projected cost to completion has not been adjusted accordingly.

One source maintains the target date of 2022 for the completion of the last unit is unrealistic in the light of the earlier cancellation of the contract for the control system with Alstom. It was thereafter awarded to ABB, which now has to redesign the whole system that consists of about 750km of cables.

The on-site sources told Moneyweb that B&V engineers are extremely frustrated by the active role of Eskom as a client, which they said has limited the space for B&V to “do what we have to do.”

Moneyweb has been told that Eskom’s processes are “the slowest in the world” and the partnership agreement between Eskom, contractors and the labour force is making it almost impossible to fire unproductive workers.

B&V schedulers allegedly warned Eskom in 2012 that the first unit would only be synchronised by 2017, but Eskom only recently adjusted its public schedule accordingly.

In response to this allegation, Eskom said B&V is part of the Kusile execution team and all operational decisions made by the project are binding to the project teams.

B&V appointment

B&V was initially appointed to Kusile in 2008. At the time President and CEO of B&V’s global energy business Dean Oskvig was quoted by Reuters as saying “Drawing on our in-depth experience from implementing sustainable large-scale energy projects throughout Asia-Pacific and the United States, we will utilise our global workforce to deliver a reliable solution that will also greatly benefit economic growth and enhance the quality of life for South African residents”.

In the same article, Eskom acting senior manager Jan Oberholzer was quoted saying: “We chose Black & Veatch for this important project based on the company’s strong record of consistently delivering solutions to complex energy projects on specified performance and schedule”.

At the time, the first unit of Kusile was scheduled to come online in 2012 and the final one in 2015.

In May 2011 Eskom announced that it obtained a $805 million (R5.7 billion at the time) loan from the Export-Import Bank of the United States to fund the contract with B&V. The bank was described in an Eskom statement as “an independent US federal agency which provides financing for US exports of goods and services”. Eskom told Moneyweb the Export-Import Bank of the United States loan is not affected by the alleged down-scaling, because B&V’s role has not changed.

Tata

The utility did confirm that Tata “has been brought in to help with acceleration opportunities and lessons learnt from their most recent Mundra Power Plant”. It said: “Tata forms part of the Kusile execution team”.

Asked about the transition from B&V to Tata, Eskom said: “There is no transition from Black & Veatch to Tata. There is one team, made up of Eskom, Tata, Black & Veatch and other engineering panels”.

There are currently 17 Tata staff members at Kusile and their contracts will be funded from project savings, Eskom said.

The sources are concerned about the fact that Tata’s engineers don’t know the Eskom policies and procedures. “Tata has been brought in to work miracles, but it is not going to work,” one of the sources said.

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