Court gives Eskom teeth

Supreme Court of Appeal gives power utility greater power to act against defaulting contractors after endless delays at Medupi plant

Eskom is inching closer to bringing its recalcitrant contractors at the Medupi power plant to book.

This week it scored a Supreme Court of Appeal victory, which strengthens its ability to bring Hitachi Power Africa to account for the fiasco at the Medupi site.

Five judges confirmed that the utility is entitled to ask for guarantees that the Mizhuo Corporate Bank of Japan gave to ensure Hitachi does its work properly.

Hitachi is one of the contractors responsible for delays in getting Medupi online. It is now not expected to generate power until next year, missing this year’s deadline.

According to an Eskom spokesperson, the utility will not necessarily continue with the claim of R600 million it made in February against the guarantee.

Eskom and Hitachi, which is 25% owned by the ANC’s investment arm, Chancellor House, and which was controversially awarded a R20 billion tender on the Medupi project, have been locked in battle since November 2012 over welds in the power plant’s boiler that do not meet the required standard.

Eskom threatened to make a claim under a performance bond, but Hitachi was granted an interdict preventing Eskom from making demands against the Japanese bank. This was put aside this week by the appeal court.

Eskom was able to call in guarantees relating to another contractor, Alstom, raising concerns that Hitachi was not acting within its contract, possibly owing to its ANC links.

Eskom said it had negotiated with Hitachi since the initial court order and is about to sign an agreement. Thursday’s ruling is expected to strengthen Eskom’s bargaining position significantly.

While considerable progress has apparently been made to repair the faulty work, Eskom now has a very strong contractual position because it still has to continue working with Hitachi for some time until Medupi is built.

Eskom’s other main contractor, Alstom, is also on very thin ice.

Eskom said in a presentation to the National Council of Provinces select committee on labour and public enterprises that it would call in another contractor if Alstom did not fix problems at Medupi.

Alstom’s control instrumentation system is the “brain” of the power plant.

Eskom has already called in a performance guarantee from Alstom.

Eskom apparently started to assign preparatory work to Siemens in July for another solution for Unit 5 and Unit 6. These units will be the first to be put into operation.

Eskom said this week that Alstom had deadlines and, if these weren’t met, it would decide whether to proceed with the contract or cancel.

Any cancellation could cause further delays to a project that is already way behind schedule and running way over initial budget estimates.

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