State-owned electricity utility Eskom has agreed with labour and contractors at the strike-prone Medupi coal-fired power station project, in Lephalale, Limpopo, to renegotiated the project labour agreement (PLA), admitting the current arrangement “was not working” at the site, which was closed for a ten-week stretch earlier this year owing to labour unrest.

The PLA would be replaced by a “partnering arrangement”, which should be concluded by the end of May and was communicated on Thursday as part of a broader commitment to the delivery of first power from Medupi’s first unit, or Unit 6, by December.

Labour agreements at the Kusile power station site, in Mpumalanga, where work disruptions had also taken place during the course of the week, as well as at the Ingula pumped-storage project, in KwaZulu-Natal, would also be renegotiated.

The announcement of the labour-relations overhaul was made during a site visit led by Public Enterprises Minister Malusi Gigaba, Eskom chairperson Zola Tsotsi and CEO Brian Dames, and attended by Eskom board members, several senior executives, as well as Hitachi Power Africa chairperson Colin Bailey and Alstom Thermal Power president Philippe Cochet.

It was confirmed that a one-stop-shop Medupi industrial relations forum had been set up to deal with outstanding grievances, while Engineering News Online also learned that well-known labour relations specialist Charles Nupen had been brought in to help with the drafting of the new arrangement.

Agreement on the new framework was reached at a meeting of Eskom, its contractors and labour on Monday, where representative trade unions also consented to an industrial-action amnesty period for the duration of the drafting process.

Gigaba commended the participants for the spirit with which they had approached the matter, which he said “reflected their deep understanding and appreciation that they are the custodians of a project which is of significant national importance”.

The reworked framework was expected to result in a more consistent application of labour contracts across the site and was likely to include improved productivity incentives to encourage workers to play their part in delivering the project in line with the agreed schedule.

Eskom would also take a more “hands on” approach to the management of the project, with a board subcommittee having been established to coordinate, supervise and monitor progress of Eskom’s capital project and to report back to Gigaba every two weeks.

In addition, outgoing FD Paul O’Flaherty and other senior executives would be spending at least a day a week on the Medupi site as part of a set of interventions designed to maintain tight management and oversight of the project.

It was also possible that O'Flaherty would stay on for about a year following his July resignation to oversee the commissioning and grid synchronisation of the first two Medupi units, Units 6 and 5. In fact, Gigaba indicated that executive responsibility for the build programme would be separated from the role of FD, which would facilitate such a move. O'Flaherty was currenlty spending at least three days a week on the Medupi site to support the project team in meeting its delivery mandate.

COST OVERRUNS

However, it was also possible that cost overruns could result from efforts to make up for lost time and Eskom was currently working to quantify that risk.

O’Flaherty stressed that the conditions of the various contracts did allow Eskom to recover costs where it could prove that the cause of the delay rested with a contractor.

But Gigaba did not rule out the possibility that the shareholder might be requested to step in to provide support beyond that which had already been extended in the form of loans and guarantees. Such a course of action would be pursued holistically and would not be confined to the support that might be required specifically for Medupi.

The Minister’s comments came against the backdrop of growing speculation that Eskom might turn to its shareholder for additional guarantees following the National Energy Regulator of South Africa’s decision to grant it only half of the 16% a year in tariff increases it had sought for a five-year period from 2013 to 2018.

Currently, the Medupi project was expected to cost R91-billion, with nearly 60% of the project having been completed. The 4 800 MW power station was expected to reach full commercial operations in 2016, with five more 800 MW units to be added at six month intervals, following the synchronisation of Unit 6 in December.

Dames said Eskom had received written assurances from both Hitachi and Alstom that they would "deliver on time", but added that they "have to still prove that to us and to South Africa".

“Medupi is on a tight schedule . . . and meeting that deadline will be a huge challenge due to quality issues on the Hitachi boiler contract and the Alstom control and instrumentation contract, as well labour unrest."

Three work packages were of particular concern:

• The Alstom Control and Instrumentation (C&I) contract to deliver the central computer  system needed to monitor and control the plant. The software had failed factory acceptance tests and various remedial actions were currently under way.
• Irregularities had also been found with the post-weld heat treatment of the boiler and Hitachi was testing 9 000 potentially faulty welds out of a total of 53 000 boiler welds.
• Eskom was also concerned about boiler welds that did not meet Welder Performance Qualification Record specifications.

Hitachi Power Africa reported that it had finalised a solution to the welding issues and that it was already being implemented and would not delay the start of power generation from Unit 6.

Bailey said the group was deploying specialised resources and equipment from Europe in order to complete this work within the agreed timeframes.

“Whilst the welding issues identified are disappointing and have caused considerable concern, we have taken necessary action, both with people and processes, to minimise a reoccurrence of this nature,” Bailey said.

Meanwhile, Alstom’s Cochet insisted that the French group was part of the solution to the Medupi delays and “not part of the problem”, noting that the C&I contract was only part of the total work to be delivered by the group, which was also supplying the turbines.

The boiler C&I system “will perform to specification and will not delay Alstom’s delivery schedule”, he insisted.

Nevertheless, Gigaba warned that failure to meet the December target for first synchronisation would result in “tough penalties being imposed on any party responsible for such delay”.