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Can SA learn lessons from the mega mistakes of Eskom’s mega projects?

By conservative estimation, Kusile and Medupi debt costs amount to R300bn.

Kusile and Medupi power stations continue to come under fire for poor management, ill-design and completion delays amid drastically rising costs that now stand at R300 billion, by conservative estimates. Despite being some of the most expensive projects in the world, these stations are reportedly failing in reliability, achieving a 40% rate at best.

In planning, Kusile power station, situated in Mpumalanga, would have six 800-megawatt coal-fired generating units to generate a total capacity of 4 800 megawatts. The project was expected to come on stream in six years, but by then had only synchronised the first unit in December 2016. Full commercial operation of Unit 1 was reached in August 2017. Although the commissioning of all six units is anticipated by 2021, it is highly unlikely.   

Exogenous shock shifted Kusile timeline

The year 2008 marked South Africa’s introduction to load shedding, which created a wave of urgency to begin Kusile’s development in haste. In retrospect this was the first warning sign, the consequences of which would only emerge some time later when it was discovered, among other design defects, that the site’s geotechnical aspects (the branch of civil engineering that considers the behaviour of earth materials) had not been properly examined, resulting in flawed reports; potentially as a result of an accelerated process.

 

Concretising roles and responsibilities

In 2011, the Export–Import Bank of the United States (Ex-Im Bank) approved a $805.6 million loan to Eskom to finance a US-based company to be its execution partner on Kusile to provide planning, engineering and design services, construction and contracts management, claims and procurement management, and health and safety management services.  

Early on a question mark began to form over the international team’s capabilities – another important warning sign – but it was a number of years before the company was quietly downscaled. 

Insiders at Kusile suggest that a lack of satisfactory project controls became apparent early on in the project (inter-related areas of schedule, cost and scope). For example, the baseline schedule; the immovable reference that enables an accurate variance to be established between planned and actual time and cost, was found to have been revised numerous times. 

The cost implications of delayed contractor access

With over 50 contractors expected to converge on the Kusile development site project, experienced project management would be required to manage multiple overlapping tasks and timelines. It would also be expected that built-in contingencies to mitigate the risk of delays would be an important feature of the project management. 

Yet as delays began to creep into Kusile, the sequence of work backed up (another warning flag) and a number of contractors found themselves unable to access the site on their contractually agreed start dates. The contractors were entitled to begin charging Eskom from stipulated start dates, regardless of whether or not the work had been initiated. Consider that contractors themselves, with their own supply chains, would have begun to incur costs from capital equipment hire, labour costs and other materials and resources provided by sub-contractors.

Claims and variations

Control over the essential aspects of Kusile began to unravel, and Eskom’s project teams were faced with multiple issues on all sides, including a significant number of contractor claims made against the utility. Root causes stemmed from inadequate planning, poor engineering designs and interface issues leading to cost and time implications and delayed or no access to the site.  

An unforeseen cost was contractor claims for the storage of overseas-manufactured equipment that could not be brought onsite as a result of delays. Such equipment had to be stored offshore or in local storage by the contractor including preservation and testing, a costly undertaking.

Stakeholder management

The site was complex and dynamic. In addition to the number of contractors and sub-contractors involved on site, a large number of consultants were hired to deliver solutions for personnel productivity, who failed to meet their mandates. 

Insufficient stakeholder management eventually led to labour unrest; yet another project shortcoming that had expensive and time-consuming consequences. 

Solutions to the red flags

My view is that one of the main problems with mega projects such as Kusile, is that Eskom issued numerous tenders and had to manage diverse contractors. Instead, one tender should have been issued for an Engineering, Procurement and Construction (EPC) contract.  

The EPC contractor is made responsible for all the activities from design, procurement, construction, commissioning and hand-over of the project to the end-user or owner. It is up to the EPC to issue other local scopes to sub-contractors and ensure management of local stakeholder skills. 

In addition, a transversal project management approach should have been incorporated given its suitability for managing large and complex projects. Transversal project management cuts across different functions and management practices, moving beyond the traditional top-down approach to encompass different hierarchies and functions.

If roles and responsibilities are not absolutely outlined in comprehensive contracts, grey areas can lead to disaster. As deputy president David Mabuza told Parliament recently, the contracts for both Kusile and Medupi were poorly structured. The result was that Eskom had to carry the cost of overruns and frequent delays in the building of the two vast power plants with no penalties levelled at the partners.   

If an expensive international executing partner is going to be used, a rigorous due diligence is essential and should include lengthy discussions with previous clients and other industry stakeholders. There should be a visible track record of successful delivery in other jurisdictions besides their own, as well as a comprehensive skills transfer plan developed and adhered to, with the executing partner’s input scaling down as the project progresses.

Geographical context and ways of working are also worthy of consideration. Eskom’s international execution partner proved unable to work seamlessly with the local team. In addition, there appeared to be little investment by all major parties into developing an understanding of local contractor and labourer needs.

Finally, delays are early-warning symptoms of the deeper malaise. Contractors denied access to the site at their start dates was a red flag pointing to the serious overruns that would ultimately lead to significant cost implications and contractor disputes. Comprehensive scenario planning, accurate scheduling and ongoing analysis can pre-empt, resolve or escalate the reason for the delay. 

Conclusion

Eskom general manager for group technology Titus Mathe reportedly stated in February that R8 billion would be needed to fix the design defects at Medupi and Kusile. If defects had been addressed during contract stage (which includes a defect period) this sizeable cost could have been avoided.   

Read: Cost to fix Medupi, Kusile balloons to R8bn

While the design flaws are a highly significant aspect of Kusile, a cautionary note is that this is not the only reason for the project’s shortcoming. There are other critical contributing factors, such as hasty and insufficient scoping, inadequate risk management and poor interfacing and stakeholder management.   

If these lessons are not taken into account, future mega projects on this scale in South Africa will fail to deliver better outcomes. 

Professor Makgopa Tshehla is from the Unisa Graduate School of Business Leadership.

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You would have to vote out the ANC for any ‘lessons from the mega mistakes of Eskom’s mega projects’ to have been learnt as Eskom is a sad litmus test of ANC corruption and poor policy (including BEE which ANC corruption feeds off).

The leading article asks the right question – but derives at a completely irrelevant conclusion.

If you hand a fully laden A380 Airbus, to a two-year old to fly, take one guess what the outcome will be – iow what the conclusion will be?

The answer speaks for itself. But as long as we are under duress, prohibited from stating obvious truths, SA will continue rigidly on its current path of destruction – ie a FAILED STATE WALKING.

From the United Nations’ The Universal Declaration of Human Rights (UDHR]. Article 19:

Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.

Go to the United Nations’s website and print out the UDHR. Then read it aloud every single day until the penny drops – namely: SA’S CONSTITUTION IS A DIRECT VIOLATION OF THE UDHR.

This then is the only relevant conclusion…

Brian Dames was CEO then with Gigaba the minister. Why is Dames on Ramaphosa’s current advisory team for Eskom?
Prof Tshehla has given us a glimpse into a complete fiasco with these two new plants – it’s shocking!
Another issue was the conflict of interest with the ANC investment vehicle, Chansellor House, and the appointment of Hitachi Africa to install the boilers.

I hate to sound like a conspiracy theorist, but in this case, Occam’s razor should apply.

Brian Dames is the CEO of Patrice Motsepe’s African Rainbow Energy.
Patrice Motsepe is Cyril Ramaphosa’s brother in law.
The minister of Energy, Jeff Radebe is Patrice Motsepe’s other brother in law.
I would love to be a fly on the wall at these family gatherings.

History proved that nothing good can come from conflicts of interests such as this.

In other words, Kusile is the modern-day “Tower of Babel”. The Tower of Babel story was about power.

Ignorant people with huge egos tried to build Kusile in an attempt to generate power. These overambitious lunatics tried to save everybody from the darkness. Now, as it is failing, people begin to speak different languages. Luthuli House does not understand Eskom, the taxpayers do not understand Luthuli House, the financiers do not understand each other while the voters are communicating via smoke signals as they burn tyres in the streets. Communications collapsed. These powerful cadres are now employing judges as interpreters in an effort to understand each other.

Luthuli House attracts charlatans like a rotting corpse attracts flies.

The rest of the world builds power stations, China many at a time. The main problems:
1. Size – why build monsters rather than standard sized units?
2. Not doing Turnkey EPCM. Eskom has been trying and failing since 1948 to owner-build. Various commissions even under Nats confirmed that obstinate stupidity and self-belief are poor ingredients to owner-build.

100% agree… Chinease can from start to finish have 150MW CFB unit, manufactured, installed onsite and connected to the grid in c.18 months… Standardised units, deployed enmasse, with capability to the burn the rocks we call coal… That is still the obvious solution, we are too worried about sunk capital and need to move on with our lives.

Yes, put the anc thugs on trial, they just don’t have a clue about anything other than feeding their own faces and egos and their megalomaniacal need for “power”,

Shame on their incompetence and lies!

What really shows up is that the project plan which was devised, and is defective in its execution was scoped in the most amateurish manner possible, who had absolutely no knowledge of what they were planning or hoping to execute. Even a simple program like MS Project would have told those responsible for planning that they were heading into a disaster and massive timing over -runs

In order to learn from mistakes, one has to first admit that there were in fact mistakes made in the first place. One then needs to determine what those mistakes were. Can you really see the ANC standing up and admitting that they were wrong with cadre deployment, corruption, getting rid of skilled people in the name of BEE, proceeding with glaring conflicts of interest, poor management, etc. No way – far easier to rather turn the heat up a bit more on the ever diminishing taxpayer base and extract more money in an attempt to get themselves out of this mess.

Agree 100%. They will never admit it because it requires emotional intelligence and humilty. So they will continue and SA is on its knees.

They can but they probably won’t
The primitive socialist ideology of the ANC of wanting to control everything from railways to electricity to air travel to mining (and destroy it all in the process) will prevent them from learning any lessons.

The article’s heading is completely wrong…i.e. asking what can be learned from “mega mistakes”.

The controlling ANC does NOT view Eskom’s cost overruns as “mega mistakes”!

The ANC view it as all done correctly within the legal confines of AA/BEE, planning & design, procurement, construction, etc to benefit connected elite & certain favored stakeholders.

Since ESKOM is NOT regarded as a “mega mistake”, there is thus NOTHING for the Govt to learn from, since they’re satisfied that they’re doing it correctly. Yes?

Maybe they could have learned from and utilised Sasol’s project management and enginering skills. After all, they have built Sasol 2 & 3 almost simultaniously way back in the 70’s as well as other plants locally and abroad.

Commentator:

Rather not : Sasol has also not built anything on time in budget in 40 years! But at least many Sasol projects are relatively bespoke. A coal power station is not far from off-the-shelf.

Good news though: Eskom will never be late in a new build project ever again! Mainly because IPP will own all future new build of any kind…

Not at this time. We seem to be doing the same thing over and over again expecting a different outcome. Perhaps a Ted Blom could show the way?

mothball K and M for now. Their projected power output is not going to be needed for a long time, so rather use the money towards fixing/maintaining the other power stations.When the economy scales up again, then Eskom can worry about firing up the white-elephants.In the meantime, use gas fired stations,IPP’s and renewables’ to sort out the power crunch.If that includes rooftop PVC’s then why not?

With their shocking racism the ANC has not even learned from Apartheid so how are they going to learn from the Eskom projects?

Simply put these two power stations are just giant kettles to boil water, what could go wrong.

Mining companies around the world build projects like these under ground and above ground, they get them done mostly on time and within budget.

The common denominator here is BEE and the ANC= corruption and theft.

Sasol is privatized, works well, is regularly accountable, pays hundreds of millions in taxes, employs thousands and has little to no corruption.

Eskom is State owned and unaccountable.

R450 billion in Eskom losses is not enough to convince the socialists in the ANC against their mania for State control.

Hmmm; not so sure; SASOL is another Eskom, just an efficient one. A subsidised monopoly, what could go wrong? Have a look at their US Lake Charles bungle and European fines.

Yes we can learn that as long as those in charge of government/soe’s/oligarchs continue to steal and are incompetent the downward spiral will continue

In a nutshell, if you want anything done properly, leave the politicians and public servants out of it, and privatize the whole thing.

It is an obvious answer that should have been learned from the repeated failures of SOE’s, except for Telkom, which only started growing after govt left the control structure.

Unfortunately, anc cadres cannot feed at the trough of private companies, and so it will continue ad-nauseum, till there is a seismic change in the political structure of this country, and criminals actually face the consequences of their actions.

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