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INTEGRATED RESULTS PRESENTATION
KING III APPLICATION
 
   



Delivering capacity expansion

Eskom’s performance in terms of delivering capacity expansion is assessed in terms of:

Generation capacity installed and commissioned which measures the generating capacity added in MW
Power lines built which measures the transmission power lines built in kilometres
Substation capacity installed and commissioned which measures substation transformer capacity added in MVA
Generation capacity milestones which measures the variance of achieving the milestones in days
Capital expenditure (excluding interest during construction) which measures the amount spent on capital projects

Project management

Realising it did not have adequate engineering and project management capacity to undertake the mega projects, Eskom decided to outsource the work to execution partners that were to provide world class project management, engineering services and management of contractors.

Processes were implemented for claims and variations management. Contingency status reports capture and track the contract controls. An overarching oversight claims and variations committee performs regular analysis of the overall control and interested parties are informed of lessons learnt.

Eskom has undergone a process to revise its contractor management strategy to control cost and improve contractor management. In cases where the performance was not satisfactory the following was done:

The performance bonds for some of the contractors were called
Counter claims against the contractors are being finalised
Eskom has requested that sub-contractors are replaced and that contractors’ management teams be changed
Eskom assumed some of the management roles and increased oversight

Since 2005, Eskom has been expanding its generation and transmission capacity to meet the country’s growing demand for energy. Eskom’s nominal generating capacity in 2005 was 36 208MW. The programme will increase this by 17 384GW by 2019/20. The key generation expansion projects are the 4 764MW Medupi and 4 800MW Kusile coal-fired stations, and the Ingula pumped-storage scheme in the Drakensberg, which will deliver 1 332MW of hydro-electricity during peak demand periods. Transmission line length and substation capacity will also increase substantially.

The capacity expansion programme has cost R213.2 billion (excluding capitalised borrowing costs) to date.

Between 2005 and 31 March 2014, the programme has increased Eskom’s generating capacity by 6 137MW, its transmission lines by
5 497km and its transmission substation capacity by 27 565MVA.

Eskom has commissioned a total of 27 565MVA substation capacity since 2005
Eskom has commissioned a total of 27 565MVA substation capacity since 2005

Technical performance for the year to 31 March 2014

Indicator and unit
Target
2017/18
 
Target
2013/14
  Actual
2013/14
 
Actual
2012/13
 
Actual
2011/12
 
Target
achieved
 
Generation capacity installed and commissioned, MW 6 214   100   120   261   535    
Power lines built, km 1 539   770   810.9   787   631    
Substation capacity installed and commissioned, MVA 5 755   3 790   3 790   3 580   2 525    
Generation capacity milestones, days 30.0   30.0   48.9   43.5      

Project schedules continue to be under strain, while certain recovery plans are being implemented in order to mitigate the effects of the challenges.

Medupi power station

The cumulative cost incurred on Medupi as at 31 March 2014 is R77.0 billion against a total budget of R105.0 billion (excluding capitalised borrowing costs)
The project schedule recovery processes are already showing good results. Project cost, time and commercial reviews are aligned with the integrated schedule and preliminary milestones are in place to achieve the planned synchronisation dates, as well as the revision of their estimated cost at completion
The critical path to first synchronisation remains through the delivery, installation and testing of the boiler-protection system as part of the control and instrumentation works. The boiler-protection system factory acceptance test is planned for the first quarter of the new financial year
There are technical issues surrounding welding on the Unit 6 boiler and recovery strategies have been put in place to implement solutions to the post-weld heat treatment. The weld procedure qualification record re-qualification exercise is substantially complete with all welds procedures verified and accepted by Eskom engineering and the approved inspection authority. Remedial work is in progress at the boiler and for welds identified as being defective. Boiler re-heater work is complete and has been signed off by Eskom
The control and instrumentation contractor has progressed well in some areas while they still remain late in other areas. Site access is also a major contributing factor to current delays. The factory acceptance test in this regard was conducted and passed. There are still outstanding distributed control system related defects that will be dealt with via site acceptance testing
The control and instrumentation solution and mitigation strategy is in place:

- Units 5 and 6: The alternative system solution is on track for completion by September 2014 (first fires)
- Eskom has decided to step-in under sub-clause 17.7 (employer’s step-in rights and additional remedies) of the Medupi control and instrumentation system works contract, and has placed a contract with an alternative contractor for engineering and manufacturing of the boiler-protection system for Units 6 and 5, up to factory acceptance test stage. This contractor is currently busy with the pre-factory acceptance tests on the boiler-protection system
- Units 1 to 4: Initiated commercial process for a closed enquiry to selected group of suppliers for initially an early work order and then a complete work enquiry for the full solution
All 64 air-cooled condenser fans have been commissioned and are undergoing optimisation
The coal-conveyor system is ready to take coal from the mine
A review of the current R105 billion budget is underway and entails the following:

- An independent review of the deep dives of the control/cost logs of each contract package and owner development costs in order to quantify the cost impact
- The refinement of the integrated project schedule for Units 5 to 1. The organisational structure has been reworked, with some reorganisation done for Units 5 to 1. A new unit based organisation is in place, which includes package-based commercial management
The first synchronisation of Medupi Unit 6 is expected to be in the second half of 2014
The Medupi partnership agreement between Eskom, principal contractors and organised labour has been signed, with 69 site-specific issues that were agreed. Four are still outstanding and these are scheduled to be finalised in the second quarter of 2014
Eskom has taken the initiative in facilitating the establishment of the Medupi leadership initiative to address the consequence of demobilisation of workers and the impacts on the community and the local economy of Lephalale. More than 250 opportunities were identified, six were prioritised and funding of over R76 million was committed by the collaborating partners to kick-start the initiative

 
Construction of the Medupi power station project in Lephalale is gaining momentum   The Kusile power station project will on completion be the fourth largest coal plant in the world

Kusile power station

The cumulative cost incurred on Kusile as at 31 March 2014 is R66.6 billion against a total budget of R118.5 billion (excluding capitalised borrowing costs)
The Kusile power station project has also been impacted by overall poor contractor performance
The Unit 1 boiler continues to impact several of the top 10 critical paths for Unit 1 synchronisation. Specifically, access has been delayed to other contractors for the installation of the Unit 1 auxiliary transformers, the transverse ash conveyor foundations, the fabric filter electrical building, and the compressed air building
The Unit 1 target date for first synchronisation is October 2015. However, the latest forecast indicates January 2016 for first synchronisation. This date is driven by the release of the area by the boiler contractor and the start of construction by its sub-contractors appointed for the compressor building. Compressed air is required for Unit 1 commissioning
The Kusile team continues to work with the boiler contractor in these areas and with follow-on contractors to develop mitigation strategies for the work

The machine hall at the Ingula pumped-storage scheme project is the largest cavern in mud rock in the world
The machine hall at the Ingula pumped-storage scheme project is the largest cavern in mud rock in the world

Ingula pumped-storage power station

The cumulative cost incurred on Ingula as at 31 March 2014 is R19.4 billion against a total budget of R25.9 billion (excluding capitalised borrowing costs)
Safety continues to remain a key focus at Ingula, especially following the accident in the inclined high-pressure shaft 3 – 4 on
31 October 2013

- The Mine Health and Safety Inspectorate of the Department of Mineral Resources issued a work stoppage instruction in terms of section 54 of the Mines Health and Safety Act (MHSA) in the inclined high-pressure shafts as a result of the incident. It remains in effect in that no work is allowed to commence and continue in the inclined high-pressure shafts. The safe work procedures, risk assessments and documentation approval relating to the above accident are being finalised. The MHSA section 54 work stoppage instruction has not been completely lifted, but has been conditionally lifted to allow for cleaning of the inclined high-pressure shafts
- It is estimated that work will restart during June 2014. This has set back the completion schedule at Ingula
Although no construction work is allowed to commence and continue in the inclined high-pressure shafts, work on other parts of the site continues. Construction work in the inclined high-pressure shafts can only commence once the revised work method has been approved by the Mine Health and Safety Inspectorate of the Department of Mineral and Resources. The aforesaid documentation was submitted to them for approval at the end of April 2014. The full impact of the accident on the schedule at Ingula is currently being assessed by the project team
As a result the projected forecast dates (after the accident) for the first unit (Unit 3) synchronisation is the second half of 2015. The accident will also impact the remaining units’ synchronisation dates

Knowledge management across the capacity expansion programme
Implementation of project management tools across the capacity expansion programme, aligned to international benchmarks
Establishment of communities of practice to address welding quality control beyond the traditional quality assurance
Proactive and timely identification and involvement of alternative service providers for critical control and instrumentation activities, whilst strictly monitoring markers of success for incumbents
Revising the contractor execution and supervision approach to improve productivity
Tripartite partnership agreement with organised labour, contractors and Eskom to create a climate of harmony across the capacity expansion programme and thereby reduce disruption due to industrial action
Consistent commercial approach to contractors across the capacity expansion programme
Safety forums and interventions to drive continuous improvement in safety performance

The 94km high-voltage line from the Ingula pumped-storage scheme to the Venus substation has been completed
The 94km high-voltage line from the Ingula pumped-storage scheme to the Venus substation has been completed

Power lines and substation capacity commissioned

Eskom commissioned 811km of power lines and 3 790MVA of substation capacity in 2013/14, bringing the total power lines commissioned since 2005 to 5 497km and the total substation capacity to 27 565MVA.

Eskom’s transmission projects as at 31 March 2014

Eskom’s transmission projects as at 31 March 2014

Transmission expansion projects experienced similar obstacles to those faced by generation projects, with additional challenges posed by the need to secure servitudes on state or tribal land that first needed to be surveyed and access to servitudes over privately owned land.

The difficulty in integrating project outage schedules with the existing outage schedule poses a further challenge, although it is taken into account in the development of the Generation outage management plan.

Capital expenditure

Eskom spent R59.8 billion on capital expenditure in 2013/14, R2.5 billion less than the budget of R62.3 billion, excluding capitalised borrowing costs, mainly due to construction delays in the capacity expansion programme.

Capital expenditure (excluding capitalised borrowing costs) per division (R million)1

Division Actual
2013/14
 
Actual
2012/13
 
Actual
2011/12
 
Group Capital 33 475   37 690   39 730  
Generation 10 326   8 512   6 590  
Transmission 1 516   893   1 554  
Distribution 10 516   8 317   7 941  
Subtotal 55 582   55 412   55 815  
Future fuel 2 675   2 634   1 992  
Eskom Enterprises 453   376   473  
Other areas including service and strategic functions (including inter-group eliminations) 1 093   1 711   535  
Total Eskom group funded capital expenditure 59 803   60 133   58 815  

1. Capital expenditure includes additions to property, plant and equipment, intangible assets and future fuel, and excludes construction stock and capitalised borrowing costs.

  Construction at the Medupi power station as seen from the clean water dam
Eskom’s coal-fired power stations generate around 35Mt of ash which requires various handling methods   Construction at the Medupi power station as seen from the clean water dam