ATC130923: Report of the Portfolio Committee on Public Enterprises on the oversight visit to Eskom’s Medupi Power Station, dated 10 September 2013

Report of the Portfolio Committee on Public Enterprises on the oversight visit to Eskom’s Medupi Power Station, dated 10 September 2013

1. Introduction

The Portfolio Committee on Public Enterprises (the Committee) undertook an oversight visit to Eskom’s Medupi Coal Power Station from 24 to 25 July 2013.

The main purpose of the visit to Medupi coal power station was to assess progress that has been made in the construction of the power station since the last oversight visit of the Committee, establish the reasons for the delay in construction and assess the impact of the new labour agreements. The Committee met with the leadership of Eskom, representatives of the main contractors, and organised labour in order to get a balanced account of the challenges that faced the project. The Committee also undertook a site visit of the construction site.

1.1. Delegation

The committee delegation included the following members: Mr P Maluleka (Chairperson of the Committee, ANC), Dr GW Koornhof (ANC), Ms M Pilane-Majake (ANC), Mr A Mokoena (ANC), Ms N Michael (DA), Mr E Marais (DA) and Mr M Nhanha (Cope). The delegation was accompanied by the following parliamentary officials: Mr D Mocumi (Committee Secretary), Ms Y Cele (Committee Assistant), Mr R Mnisi (Content Advisor) and Mrs L Bramwell (Committee Researcher).

2. Visit to Medupi Coal Power Station

The delegation arrived at Matimba power station on 24 July 2013 to meet with Eskom, organised labour and contractors. Shortly after the delegation arrived, representatives from Eskom informed the Committee that just less than 1 000 workers of Murray and Roberts had gone on a work stoppage and had overturned cars and set them alight. Eskom had contacted the police and the situation was being monitored closely. Eskom stated that a full report would be given to the Committee before the end of its visit, once the reasons for the work stoppage were known. The meeting was chaired by Mr Dan Marokane , Acting Group Executive for Eskom Group Capital, who welcomed the Committee before handing over to Mr Roman Crookes, General Manager of the Medupi coal power station project. Mr Crookes took the Committee through a presentation providing an overview of the current status of construction and the way forward to completion, an explanation on how the cost position evolved, and gave an update of the technical challenges that have delayed completion and Eskom’s resolutions regarding these challenges.

2.1. Meeting with Eskom Leadership

The Committee met the executive management of Eskom led by Mr Dan Marokane and the Medupi project management team led by Mr Roman Crookes (Project Manager). In his presentation he highlighted the following:

2.1.1. Overview of the Medupi project

The Medupi coal power station is the l argest construction project in the southern hemisphere. There are 38 contract packages, more than 300 contractors and subcontractors and the project was valued at R105bn. There are six coal power generating units (800 MW each), which will produce total generating capacity of 4,800 MW. The plant will have greater efficiency than existing Eskom power plants and will be the largest dry-cooled coal power station in the world. Eskom has stated that the first boiler will only be ready to produce energy to the grid by the second half of 2014, but those working on the Medupi project were still pushing for the December 2013 deadline. The commercial operational date is usually 3-6 months after the boiler is completed, for synchronisation to be completed. The Mokolo dam from the Crocodile River will initially supply Medupi with its water requirements. A number of issues were reiterated as being the major technical challenges to completing the project on time, including technical challenges.

2.1.2. Technical challenges causing delays

The Committee was informed that the first synchronisation of unit six is still scheduled for December 2013, and the workers have been motivated on working towards that target. However there were certain technical issues that had the potential of delaying the project further. These included the following:

• Control & Instrumentation : In December 2012, Alstom failed the Factory Acceptance Tests on the Boiler Protection System for the third time (critical to commencing hot commissioning). The Boiler Protection System had to undergo substantial redesign;

• Post Weld Heat Treatment (PWHT) : A sub-contractor of Hitachi failed to heat-treat a large number of welds with the appropriate procedure. Multiple welds needed to be tested and insufficiently treated welds required replacement;

• Welding Procedure Qualification Record (WPQR): A sub-contractor of Hitachi manufactured certain high-pressure part equipment according to incorrect weld procedures and needed to be replaced;

• Electrical System: Access issues were preventing contractors from completing the required work; and

• Balance of Plant Mechanicals: Fire water system delayed by fabrication and pipe work and compressed air pipe routing had not been completed.

2.1.3. Interventions to remedy situation

Eskom has made several interventions to minimise further delays in the project and was working closely with the management of the main contractors to ensure that they bring in more experienced engineers and technicians and put in extra hours. The company has also implemented the conditions of the contract with regards to performance guarantees, by calling on the bond on Alstom . However the bond has not been called on Hitachi as Eskom was still exploring a penalty that would be more suitable for Hitachi. If Eskom cancelled the contract and went with another contractor, they would have a different design to Hitachi and this would cause more delays and the cost would increase as well. All the stakeholders have agreed on the establishment of a new Partnership Agreement (PA) which will address issues such as skills development, wage standardisation, dispute resolution and mechanisms for dialogue.

2.1.4. Successes in the project

Eskom reported that unit six was back-energised by the generator transformer allowing the plant to draw power from the 400kW distribution system. On 24 June 2013, Eskom achieved auxiliary boiler blow-through. The auxiliary boiler system provides steam on start-up. They successfully completed turbine on- barring on 5 July 2013. The turbine barring gear will enable safe operation of the turbine once the plant is running. Direction tests of the 64 Air Cooled Condenser (ACC) fan motors commenced in July and will be completed by 20 August. The ACC will condense steam coming out of the turbine so that it can be heated again in the boiler. The water expansion project is in phase 2 and will only come on stream in 2018.

2.1.5. Financial position of the project

It was stated that the cost of the project rose by R13.76 billion from R91.24 billion to R105 billion since its inception. Eskom informed the Committee that the following were the key drivers of the changes in costs:

• An increase in the total basic costs of packages due to e xtensions of time (EOT) and a dditional works, e.g. coal stockyard;

• An increase in the Owners Development Cost (ODC) due to delayed demobilization of workers as a result of project delays; and

• Other increases are attributed to Medupi Leadership Initiative (MLI), escalations, cost of cover and exchange rate adjustments.

2.1.6. Project management initiatives

Eskom has created different platforms to improve relations between all the stakeholders; this includes the Executive Consultative Forum (ECF ), Contractor Consultative Forum (CCF), Contractor Management Forum (CMF), CEOs meetings, and the Leadership Forum (Eskom, Contractors and Organized Labour). Eskom has convened all the relevant stakeholders and all agreed to nullify the Project Labour Agreement (PLA) , which was an agreement between Labour and Contractors, and develop a Partnership Agreement (PA) which would include Eskom as well.

2.2. Meeting with organised labour

The Committee interacted with representatives from the following unions; Numsa , Solidarity and BCAWU, while union representatives from Num, Mewusa , Cepawu and Uwasa were absent without apology. Some of the concerns that were raised by organised labour included the following:

• Inconsistency on site: Although the Partnership Agreement (PA) has been signed there is inconsistency in its implementation. Only the minimum wage issue was resolved, the other issues failed to be resolved by the stipulated deadlines;

• Continuous bashing of organised labour;

• Composition of the PLA (exclusion of Eskom);

• Disregard of dispute resolution procedures and labour legislation by contractors; and

• Non implementation of an agreement to pay local workers a commuting allowance of R2.50 per Kilometre by 1 July 2013. Labour alleged that Eskom had instead instructed the contractors to provide buses for local workers, instead of the R2.50 which provoked workers to embark on the protest action on the 24 July 2013. The buses that have been supplied by the contractors have led to intimidation from the taxi industry and have posed a security threat to the workers.

2.3. Meeting with the main contractors

The Committee met with representatives of the following main contractors: Hitachi Power Africa (Boiler manufacture), Murray and Roberts (Civil works), Alstom Africa (Turbine Island, ITC), Basil Read, Aveng, LPS Consortium (Wiring), and Actom Divisional (Supply cables). The discussion focused on the challenges facing the contractors, reasons for the delays, strategies put in place to ensure the project was completed on time. These were the outcomes of the interaction:

a) Hitachi Power Africa – A sub-contractor of Hitachi manufactured certain high-pressure part equipment according to the incorrect welding procedures and fraudulently falsified that the documentation had been certified. It further fraudulently acquired TUV certification for the welding procedures. The matter has been handed over to the law enforcement agencies. Hitachi and Eskom were working together to replace the incorrect welding and validate the qualified welding procedures.

b) Alstom - Medupi will be controlled by a Distributed Control System which has undergone Factory Assistance Tests, and Alstom as the contractor has failed the Factory Assistance Tests 3 times. Alstom has also brought in additional experienced partners to rectify the problem, and Eskom has assisted Alstom with a team of Engineers in France to ensure that the tests succeeded.

c) Atcom Divisional - for them to be successful they need access to information from the other contactors and physical access to certain areas where the cables need to be laid. Atcom needs to install approximately 40 kilometres of cables.

d) Generally all the contractors complained about the following issues:

• violent and destructive protests by employees, and the work stoppages that affect productivity and cause the delays to the project;

• Financial losses due to the delays and mistakes that have been committed;

• Poor relationship with organised labour; and that

• Hitachi and Alstom systems need to be completed before Atcom can commence with the cabling.

3. Observations

T he Committee made the following observations:

3.1. Eskom

The Committee:

• noted with concern the announcement that the synchronisation of unit six has been delayed to June 2014, but was encouraged that Eskom was still determined to successfully complete unit six by December 2013;

• praised Eskom for having replaced the German welders who were initially imported at the beginning of the project with the welders that have been produced by Eskom;

• acknowledged that Eskom had established several structures to deal with challenges of all stakeholders, but was concerned that despite the structures being in place, the work stoppage of the 24 July still occurred;

• noted with concern that the company was unable to monitor and inspect the work of contractors and verify the quality of work in order to proactively intervene;

• noted that the exclusion of Eskom from the Project Labour Agreement as a partner had contributed to the poor employee relations and the violent and destructive protests;

• noted with concern that Eskom was lenient on imposing penalties to underperforming contractors who delayed the project;

• acknowledged and welcomed the initiative to review the Project Labour Agreement into a Partnership agreement, but was concerned with the inability to enforce compliance among stakeholders;

• noted with concern the roll-on effect of the delay for the synchronisation of unit six on the rest of the project; and

• acknowledged that there was a security company contracted on site, but there was no capacity to control and manage protest actions.

3.2. Contractors

The Committee noted with concern:

• the unacceptable behaviour of the sub-contractor who had fraudulently and without following the proper procedures performed the Post Weld Heat Treatment, and was happy that the matter had been reported to the law enforcement agencies;

• the lack of adherence to labour legislation, the inhumane treatment and lack of respect for organised labour by some contractors;

• that seven contractors on the project are on a business rescue intervention;

• the inability of the contractors to manage employee relations and avert protest actions.

3.3. Organised Labour

The Committee noted with concern:

• the unacceptable violent and destructive protest actions that led to damage to property and severe injuries to fellow employees;

• that organised labour was not united, generalised issues and made inflammatory statements that could induce further violent protests;

• that inconsistent communication and the lack thereof from contractors to organised labour has created lack of trust among partners and worsened relations; and

• that organised labour felt undermined as Eskom and the Contractors failed to acknowledge and respond to their demands in reasonable time.

4. Recommendations

The Committee made the following recommendations :

The Minister of Public Enterprises should ensure that Eskom:

• resolves the outstanding issues for the completion of the Partnership Agreement (Site Specific Agreements) between organised labour and contractors, in order to improve relations and governance problems on site;

• intensifies monitoring and inspection on the quality of work and on time performance of all contractors;

• ensures that there are harsher penalties for under-performance and non-delivery of contractors;

• improves communication with the public as well as stakeholders. When something happens at Medupi , Eskom should be the first to inform the public and not the media, as that was how information got distorted.

• will address the report of the work stoppages of 24 July 2013 and of any possible consequences thereafter for the project; and

• initiate action against those workers who caused the damage to property and injury to people on the 24 July 2013, and ensure that there are consequences for workers who caused this.

The Minister of Public Enterprises should ensure that contractors:

• adhere to labour legislation and treat workers with respect;

• perform their duties with the highest level of ethical and professional standards; and

• deliver on the performance targets and are penalised severely for non performance.

The Minister of Public Enterprises should ensure that organised labour:

• does not delay this project any further and action be taken against those workers who have caused damage to property and injury to people.

Report to be considered.