Stefanutti Stocks aims to resolve ‘R1bn Eskom overpayment’ disputes in early 2023

But expects at least one to be referred to arbitration.
A construction site photo of Eskom's Kusile power station in Delmas, Mpumalanga. Image: Nadine Hutton/Bloomberg

JSE-listed construction group Stefanutti Stocks is focused on achieving favourable outcomes by February 2023 in the dispute resolution processes taking place on the alleged R1 billion overpayment by Eskom for the Kusile power station project.

The group’s CEO Russell Crawford, however, conceded last week that given the magnitude of the amounts in dispute on the Stefanutti Stocks Izazi JV-Package 28 project, “it is highly probable that the disputes will be referred to arbitration, which could delay this matter further”.

Read: Unit 4 of Kusile power station officially joins Eskom’s commercial fleet

The other project where Eskom has alleged overpayment is the Stefanutti Stocks Basil Read JV-Package 16 project.

Eskom in June 2020 alleged in a Kusile Power Station contract investigations briefing document that it “had overpaid almost R4 billion to various contractors at the Kusile power station, including an estimated R1 billion to two Stefanutti Stocks joint ventures (JVs)”.

Other overpayments alleged by Eskom were to:

  • ABB South Africa – Package 21A: R1 billion.
  • Tenova Mining and Minerals SA – Package 24B, 24C and 24E: R735 million.
  • Tubular Construction Projects – Package 11A and 17A: R1 billion.
  • Various site service contracts not in the Special Investigating Unit (SIU) scope: R180 million.

Stefanutti Stocks has disputed that it, or the JVs it was part of, have been overpaid. This has resulted in the disputes being referred to a dispute adjudication board (DAB).

Crawford claimed last week that Eskom has adopted an adverse approach to certification of applications for work done.

This has resulted in a substantial increase of Stefanutti Stocks’s internal funding for the Kusile projects from the initial funding requirement of R400 million to about R986 million excluding the initial impact of Covid-19.

The group raised a provision of R263 million at February 2019 for the potential unrecoverable preliminary and general costs and raised a further provision of R462 million in February 2020 for potential unrecoverable monthly measured works to complete the building works of the project.

Read:
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Stefanutti Stocks makes slow progress with Eskom claims and disputes

Basil Read CEO Khathutshelo Mapasa told Moneyweb in July 2020 that the group sold its 50% stake in the Stefanutti Stock Basil Read JV effective from September 1 2017. It had to obtain Eskom’s consent for this transaction and was given indemnity in a full and final settlement agreement “for whatever claims that can come up historically or in the future”.

Crawford last week gave an update on the two JV contracts the group was involved in at the Kusile power station.

Contract terminated 

Commenting on the Eskom Kusile Power Station SS-Izazi JV Package-28, he said the JV commenced adjudication proceedings in June 2018 related to many compensation events that had not been assessed. However, this contract was terminated during February 2019 due to Eskom’s inability to provide access to the JV site to complete the works.

Crawford added that the engineer issued two negative final payment certificates, in August 2019 and April 2020, alleging overpayments had been made to the JV.

This prompted the notification of many new disputes, which were then included in the adjudication process.

Crawford said the adjudication hearings were conducted during November 2020 and February 2021 but the JV and Eskom have embarked on an independent expert process to resolve these disputes because several related to measurement of the works.

He pointed out that the adjudicator has been requested not to publish his decision to accommodate this independent expert process.

“The measurement of direct work should be concluded by the end of May. Thereafter it is our intention to request the adjudicator to release his decision, whereafter we hope to engage with Eskom on the remaining compensation events,” he said.

Final account

“If this can be resolved amicably, we should be able to have a final account agreed by the end of July 2022,” he added.

Crawford said all construction work is complete, inclusive of snagging, on the Kusile Building Project SSBR JV Package-16.

He said exceptional final measurements have been concluded but contractors’ information requests, new rates, engineers’ instructions and variation orders still need to be agreed.

“Should the parties be unable to resolve these issues, they will be referred to the DAB for a decision. SSBR has been able to motivate certification in the amount of R71 million for the year, all of which has been paid,” he said.

Crawford added that the independent quantum experts have completed their exercise of interrogating the total costs which have been incurred on the project.

“The interrogation was conducted on a sampling basis and to date no anomalies have been found. The quantum experts have agreed the methodology to apply to the project costs to the delay entitlements to quantify the financial consequences of the delay.

“Although differences of principle are anticipated, the quantum experts are engaging on these principles and attempting to narrow the issues that would then be referred to the DAB for interim decisions,” he said.

Other claims

In regard to other claims post December 2019, Crawford said SSBR was successful with its Covid-19 claim on both merits and quantum, with the DAB awarding an extension of time of 57 days and quantum of R26.1 million.

Crawford said a further 85 claims were submitted to the engineer after December 2019, only 35 of which the engineer has responded to.

“SSBR is requesting the engineer to provide his determination on all claims submitted in order to proceed to refer the rejection of the claims to the DAB,” he said.

An analyst who did not want to be named said it seems like a bit of a mixed bag, with Stefanutti Stocks making some progress with its disputed claims but not quick progress.

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Stef Stocks should loose their operating license for complicity in years of corruption and governance wrongdoing.

Good point, maybe we should propose similar measures for Political Parties, especially those in the take from the same contractors on the 2010 world-cup stadiums. Start with the rumoured 300 Mil on the Moses Mabhinda stadium in Durban. Then move on to the Madupi Power Station thing and the “ruling” party indirect participation. JustMe > BIG picture please, then we all better of.

I am not disagreeing but the contracting environment in ANC controlled entities is (still) incredibly difficult. In many cases slush money passes from the SOE or municipality, through the contractor’s hands to ANC connected individuals and entities. The contractor gets a mark up as they facilitate the payment and claim this in their “certificates” from the employer. Even the professional who draws up these “certificates” is in an invidious position as the amounts are sanctioned by the employer and to refuse to make payment can easily lead to dismissal. See the plethora of professionals (and the turnover thereof) on these larger projects.

Contracting in the third world is not for the faint hearted.

End of comments.

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