By Linda Ensor
The police and two or three forensic teams were investigating the "sophisticated” and "professional” fraud related to the welding work on boilers at Eskom’s Medupi power station by a sub-contractor of Hitachi Power Africa‚ MPs were told Wednesday (11/09/2013).
Defects in the welding work on the boilers were identified and added to the delays in the R105bn project meeting its completion deadline.
Acting group executive for capital projects at Eskom‚ Dan Marokane‚ told members of the National Council of Provinces’ select committee on labour and public enterprises that the criminals had engaged in some "very serious fraudulent activities” which had commercial interests at heart. They were so sophisticated that the fraud had escaped the detection of professional quality assurance entities. Eskom has had to increase its inspection capabilities.
The fraud involved the subcontractor manufacturing high pressure equipment according to incorrect weld procedures. If not remedied‚ they would have jeopardised the ability of Eskom to obtain certification to operate the boiler. The weld repairs were completed at the end of July.
Post-weld heat treatment was also undertaken incorrectly by a subcontractor and has had to be repaired.
Marokane said in an update on the Medupi project that Eskom was turning the screws on two major Medupi contractors — Hitachi Power Africa and Alstom — to ensure that they performed according to their contractual obligations.
The next few weeks will be critical for the outcome of negotiations which could see Hitachi having to fork out about R700m to restore its performance bond to its original 100% level or 10% (R2.2bn) of the contract price of about R22bn.
The performance bond gets progressively reduced as work proceeds but Eskom wants to restore it to its original level of so that it has greater leverage to ensure that Hitachi performs according to contract. It currently stands at about R1.5bn and which Marokane believed was insufficient given the size of the project and the potential delays and damages which Eskom could suffer.
He said that increasing the size of the performance bond would give Eskom a greater hold over Hitachi than if it were to call up the bond and would keep Hitachi "more focused” on performing the work according to specifications in the contract. "We are in the last stages of finalising an agreement where they will have their bond values restated to the original value‚” he told MPs.
Eskom has already called in the performance bond of Alstom but decided not to do so with Hitachi because of the much greater magnitude of its contract and the effect that doing so on its ability continue with the work.
Marokane said that Eskom was also looking at replacing Alstom with an alternative supplier for the control system for the high pressure boiler to ensure it met the deadline for the completion of Medupi in the second half of 2014. A decision would be taken within the next few weeks‚ he said.
He explained that the whole of Medupi will be controlled by a distributed control system to monitor and control what happens in the plant. But the system had failed numerous tests due to "errors‚ omissions and faults in the design performed by Alstom despite Eskom’s assistance”. Further test failures were experienced in late July and early August and defects were discovered.
In December Alstom failed the tests on the boiler protection system for the third time‚ with the result that it had to undergo substantial redesign. Further significant defects were identified during test failures in July.
Marokane said that the continued failure of the installation to meet factory acceptance tests had delayed this part of the project by three months.
In the meantime Eskom has commissioned Siemens at a cost of R7.2m to undertake an investigatory survey for the replacement of the problematic cable and instrumentation systems. The work commenced on July 31 and was expected to take 10 weeks to complete.
Marokane said Eskom had also initiated the commercial process for a closed enquiry to a selected group of seven local and international suppliers for a full solution for the replacement work. Siemens has offered to undertake the replacement work for about R90m. © BDlive 2013