Massive Eskom project is R27 billion over budget and four years late: report

 ·22 Aug 2016

A report by Carte Blanche alleges that Eskom’s hydro-powered Ingula plant in Kwazulu Natal, is more than R27 billion over budget and will be at least four years late when it finally comes online, in 2017.

In June, the power utility’s new hydroelectric plant – Ingula unit 4 – came on stream. All four of Ingula’s units are scheduled for commercial operation in 2017.  “Thanks to the hard work and drive of the Ingula Team, Unit 4 was brought forward ahead of the 2017 schedule,” Eskom said.

According to Carte Blanche, Eskom planned to have all four units ready for business in 2013.

Group executive for group capital, Abram Masango, told media in July that two units at Ingula would be in commercial operation before the end of the financial year, with the remaining two units in operation in 2017.

Citing sources, Carte Blanche said that Eskom bypassed safety regulations in order to get unit three up and running, and broke the turbine. It then rushed to get unit four open ahead of the elections, which has led to the unit tripping.

Read: What you need to know about Eskom’s newest R25 billion power plant

Carte Blanche said that Ingula is also well over budget – with an initial budget of R8.9 billion ballooning to R36 billion.

It said it had documents showing that Eskom paid the project’s contractor millions more than it should have in bonuses, advances and flimsy compensation events, even as the contractor skimped on safety.

Mining expert, Mike Hall, who worked on the Ingula project, said that the contractors failed to adhere to the health and safety regulations with one incident leading to the deaths of six workers, while an additional seven people were injured.

Carte Blanche noted that the contractors of Ingula originally signed for a project cost of R5.9 billion in 2008, however, following claims and add-ons through the build, it has walked away with R14.8 billion.

Hall said he believed that the contractors must have contacts within Eskom to be able to receive so many additional claims.

Carte Blanche said that documents revealed that Eskom loaned more than R1.3 billion to the contractor over two tranches in order to complete the project.

It also reported that Eskom paid the contractors R700 million in incentives in 2012 alone, despite the projects’ massive delays and inflated costs.

Eskom then extended a bonus offering of R1 billion to the contractors in 2015, despite deadline not being met as agreed in the contract, Carte Blanche said.

According to civil action group Outa, that could constitute an act of financial misconduct, and a breach of their fiduciary duties.

“We find the regular repetition of excessive runaway costs of large capital expenditure projects at Eskom, a gross violation of the Public Finance Management Act and fiduciary duties of the Management and Board at Eskom,” said Ivan Herselman, Outa’s director of Legal Affairs.

“Any serious over expenditure of this nature needs to be thoroughly and independently investigated and accounted for, to the public.”

Last week, Eskom’s recent electricity tariff increase was ruled as having transgressed correct procedures and the SOE along with the National Energy Regulator (NERSA), are now having to revise the tariff increase and face a possible class action for this dire situation.

“The over expenditure issue at Ingula has once again provided the public with more reason to be incensed at the high electricity tariff hikes over the past nine years,” said Wayne Duvenage, Outa’s Chairperson.

“Eskom’s track record on capital expenditure projects at Medupi, Kusile and others, can be described as nothing short of diabolical and the Ingula matter just adds more fuel to Eskom’s fire of incompetence and unacceptably high operating and capital costs. One can imagine what lies ahead if Eskom are left to manage a Nuclear Energy build project.”

Outa said it will be accessing all avenues open to it in order to have this matter and others thoroughly investigated.

Carte Blanche said it asked Eskom for comment, but did not receive feedback.

This exposé originally featured on Carte Blanche and can be watched here

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