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23 October 2014
 

 

For well-considered comment and analysis on the issues and trends shaping the South African business landscape, read Real Economy. From macro- and micro-economic developments through to black economic empowerment and trade negotiations, Real Economy offers a weekly insight into the challenges associated with growth and transformation.

 

 
 
   
 
 
Article by: Terence Creamer
 
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All South Africans should be concerned about the developments at the Medupi power station project site. For one, South Africa cannot afford first production to be delayed much beyond the current December schedule, notwithstanding a subdued demand growth outlook.

As a diligent tracker of Eskom’s twice-weekly ‘state of the power system’ releases, it has become distressingly clear that, if for nothing else, the Medupi capacity is needed to provide some operational breathing space.

Take the 124th update, which was released on March 18. On that day, Eskom reported unplanned outages of 7 227 MW. On March 14, they stood as 6 193 MW and on March 11 at 5 850 MW. In fact, I am unable to recall a recent update where the unplanned outages were below 5 000 MW.

In other words, Eskom may well have a nameplate capacity of over 42 500 MW, but in reality only about 30 000 MW is typically available on any one day, owing high levels of outages and a steady pattern of daily planned maintenance of above 3 500 MW.

Eskom is operating within a clear brief of needing to ‘keep the lights on’. The problem is that the utility also has a serious maintenance backlog, for which both the mandate and Eskom management are equally culpable.

The more Eskom pushes out maintenance to ensure that there is sufficient supply to meet demand, the more vulnerable the plant becomes to unplanned events. It’s a vicious circle that precipitated the unpopular power buy backs from the smelters – a remedy that has now been unceremoniously halted by the energy regulator.

Eskom will only really be in a position to deal with the maintenance problem when there is significant additional supply. But such headroom will only truly become available once Medupi’s first units begin entering commercial production.

However, there is another reason why South Africans should be concerned. For better of worse, Medupi has become symbolic of the current South African condition of big plans, poor implementation and even possible corruption.

The project has been afflicted from the get-go by a series of implementation problems, including serious labour strife.

In the beginning much of the fault lay with Eskom itself, which had not built a power station for decades, and its inexperience showed. But the original equipment manufacturers, component suppliers and the contractors on site have also not covered themselves in glory.

Worse yet, many South Africans have associated Medupi (rightly or wrongly) with African National Congress-linked corruption, owing to the association the ANC’s Chancellor House has with the boiler supplier, Hitachi Power Africa.

The only remedy now is for Eskom, supported by Public Enterprises Minister Malusi Gigaba, to firmly grasp the Medupi nettle and ensure that there are no further slip-ups. If there are, the Lephalale project could well become yet one more reason for foreign and domestic investors to look elsewhere.

Edited by: Terence Creamer
 
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