Eskom South Africa Power Plant Delayed to 2014 as Costs Rise

Eskom Holdings SOC Ltd., the South African power producer seeking to boost capacity 25 percent, said its Medupi plant will be delayed to 2014 as contractors’ “underperformance” and labor disruptions drive up costs.

“The delay is expected to increase the cost to completion of Medupi, but some of this must be recouped from contractors,” Eskom Chief Executive Officer Brian Dames told reporters today at the Johannesburg-based company’s headquarters. Eskom is considering supply options as it faces a gap of about 700 megawatts next year, he said.

The cost of Medupi has increased by as much as 15 percent to 105 billion rand ($10.3 billion), the utility said in a presentation today. Eskom had said it intended the first power from an 800-megawatt unit at Medupi to be generated by the end of this year. The Medupi site, in Limpopo province, has about 17,000 workers and 300 contractors, according to Eskom.

The utility, which generates about 95 percent of the nation’s power, is spending some $50 billion revamping old plants and building new ones to avoid a repetition of the January 2008 blackouts that halted mines of companies including Anglo American Plc. (AAL) Eskom’s new plants at Kusile and Medupi are set to be the third- and fourth-largest coal-fired stations in the world.

Yields on Eskom’s dollar-denominated bonds due in January 2021 climbed 16 basis points, or 0.16 percentage point, to 5.98 percent by 12:35 p.m. in Johannesburg.

Coal, Boilers

While Eskom’s Medupi, Kusile and Ingula power stations are intended to add 10,900 megawatts to the national grid, according to the utility, the company has battled to keep to its budgets and deadlines.

In March, coal production for Medupi stopped after workers at supplier Exxaro Resources Ltd. (EXX) went on strike. The following month, Eskom said Hitachi Kaefer would test and repair about 9,000 faulty welds on a boiler at the project.

Construction at Kusile, in Mpumalanga province, was disrupted in April because of a labor dispute. A review of the project is underway, Dames said.

While labor, boiler repairs and the lack of an operable control and instrumentation system at Medupi are the main obstacles confronting Eskom, the utility has had to increase its involvement in construction of the project, said Finance Director Paul O’Flaherty.

“We as Eskom are now driving the management, the development, the training and the supervision of labor,” he said. “That is actually not Eskom’s responsibility.”

“We’ve got a long way to go,” O’Flaherty said of the construction at Medupi. “This is unit one. We’ve got 12 boilers we have to build and we must always look for alternatives to cover our risk.”

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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