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Eskom yet again finds itself in the proverbial hot seat, due to the challenges concerning the Majuba Rail project. An initiative which the power utility initially hailed.
The Majuba Rail project is an element of the Eskom Road-to-Rail Initiative. A railway line linking the Majuba power station to the central coal railway hub in Ermelo, Mpumalanga.
On 20 September 2021, News24 reported that the National Treasury’s Office of the Chief Procurement Officer took over three months to respond to an urgent deviation request filed by Eskom.
The purpose of the request was to appoint a key contractor on the fraught Majuba Rail Project, thereby potentially saddling the power utility with hundreds of millions of rands in extra costs.
The application for the request was made on 11 June 2020. It was estimated that the project could be completed in 5 months—carrying a R108 million price tag.
News24 reported that it took Treasury just over four months to approve this request. Appointing Tenova Mining and Minerals on a single source basis. This is after denying the request twice.
Because of this and other delays, the State-Owned Power Utility could face R6.5 billion in costs and penalties before the project is finished.
Tenova, in January 2021, notified Eskom that it could no longer do parts of the work, which resulted in a new procurement process. Something the power utility wanted to avoid.
Treasury’s role is part of a series of events that have impacted Eskom. These include a crucial conveyor going up in flames, a botched investigation by the Zondo Commission, litigation, theft of overhead lines, alleged sabotage, as well as disruptions from “community pressure groups”.
All these issues have left Eskom with an estimated R6.5 billion in additional costs.
These costs could have been reduced tremendously if the deviation had been approved sooner.
The deviation was considered controversial after it emerged that Tenova was one of several contractors at Eskom’s Kusile Power Station project, allegedly overpaid by billions of rands.
News24 recently revealed Tenova paid R46 million to a slush fund for the benefit of senior Eskom executives.
The payments are currently subject to investigations by the Special Investigating Unit. News24 explained that Tenova and Eskom are still settling disputes over the alleged overpayments and claims.
Despite this, Eskom highlighted several reasons why Tenova was the best fit for the project in a letter to Treasury on 5 August 2020.
Some of these reasons include:
- Tenova is the designer and manufacturer of the coal tippler and conveyor-related works at the Majuba Power Station.
- The costs for design and manufacturing have already been paid, as well as the fact that Tenova has manufacturing guarantees for the appropriate equipment and related components.
- Engaging Tenova eliminates extra time that would be needed to develop new designs for the works.
Following Tenova allegedly being overpaid, alongside the fact that there was an over four-month wait until Treasury approved the power utility’s deviation request, Tenova withdrew from the project in June 2021.
The State-Owned Enterprise then appointed Eskom Rotek Industries, a subsidiary of Eskom, to finish the project. This decision will now see a further potential R1.3 billion in costs and penalties.
In the interim, Eskom has taken steps to alleviate the risk of penalties. This includes undertaking to deliver the coal it was not able to take during this period in the future. Click here to read more on the matter
Interesting facts on the Majuba Rail Project and its subsequent delays:
- The 68 km corridor is the first large greenfield freight-rail infrastructure project to be taken on in South Africa since 1986 and will be operated by State-owned Transnet Freight Rail (TFR).
- Initially, the project was expected to take three years to complete, from May 2013 to May 2016. However, Eskom revised the project’s completion date to December 2017.
- The original business case for the 68km Majuba rail project was authorised in December 2004 with an initial board-approved cost-to-completion (CTC) of R1.5-billion.
- Further significant obstacles experienced by Eskom in executing the project include delays in land acquisition for the rail servitude, funding constraints (which resulted in a staggering R6-billion allocation in a $3.75-billion loan to Eskom by the World Bank in 2010), unforeseen underground conditions, adverse weather conditions, and scope changes.
- During the course of 2020, the infrastructure and resources group, Aveng also lodged an R40m High Court claim against Eskom because of the power utility’s non-payment of amounts allegedly owing for the Majuba rail project, which also hampered the project.
With much ado around the Majuba Rail project, what are your thoughts on the matter? Share your views in the comment section below.