Eskom maintains Medupi, Kusile construction budgets are correct

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A bus passes power lines at dusk. (iStock)
A bus passes power lines at dusk. (iStock)

Eskom has maintained that its figures for Medupi and Kusile power stations are not incorrect, saying the numbers that were last week labelled outdated were not cost estimates but approved project budgets. 

Fin24 reported that energy expert Chris Yelland had slammed the figures given to Parliament's Standing Committee on Public Accounts (Scopa) on the cost of completing coal mega power stations Medupi and Kusile as "outdated and incorrect". 

The committee briefed the media at Eskom's headquarters at Megawatt Park in Johannesburg on Thursday, following visits to Medupi and Kusile. 

While Parliament was told the costs for completion would be R145bn and R161bn respectively, Yelland put the combined costs to complete the two stations at closer to R450bn. 

The figures quoted to Scopa were identical to those in Eskom's 2015/16 financial statements, Yelland said, and did not include the fact that Medupi needs to be retrofitted with pollution control measures for coal and sulphur content.

But in a response to emailed questions, Eskom told Fin24 that the figures in question were approved project budgets, not estimated costs. 

"The total approved budget of the Medupi and Kusile projects of R145bn and R161bn are correct, and these budgets exclude interest during construction, include flue gas desulphurisation costs at Kusile and exclude FGD costs at Medupi, respectively," said Eskom.

The correspondence from Eskom said increases to costs of construction were accounted for and that these figures were regularly updated as needed.

"Internally, the projects regularly conduct a comprehensive risk-based cost-to-completion forecasting of the total approved budget and based on the outcome of this forecast, when necessary, we update (modify) the approved budget after following the Eskom governance approval processes," Eskom said.

In response to Eskom's comments, Yelland stood firm in his assessment that the figures of the budget cost-to-completion of the Medupi and Kusile projects given in Eskom’s annual financial statements for the 2018/19 financial year were "misleading and wrong".

Omissions

"It is misleading and wrong for Eskom to leave out the estimated R39bn cost of flue gas desulphurisation plant on the Medupi project, when this FGD plant is a contractual requirement in terms of a US $3.75bn (approximately R56bn) loan from the World Bank for the Medupi project," Yelland told Fin24 via email.

Yelland also said it was misleading for Eskom to exclude capitalised interest during construction on the Medupi and Kusile projects, as these are the biggest single cost items of capital expenditure on these projects.

"It should also be noted that the budget CTC figures given in the 2018/19 Eskom annual financial statements are exactly the same as those given in Eskom’s 2015/16 annual financial statements. However, it is well known that since 31 March 2016, significant unauthorised expenditure and serious design and execution problems on the Medupi and Kusile projects have come to light and are reported on in the 2018/19 annual financial statements," Yelland said.

He said the unauthorised expenditure, and the costs of rectification work to resolve the design and execution problems, amount to tens of billions of rands.

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