Medupi start-up muddle

Brendan Ryan | Tue, 08 Dec 2009 12:10
[miningmx.com] -- THE start of operations for the first generating set at Eskom’s Medupi power station will be delayed by six months according to Exxaro Resources. However, the South African power utility denies this.

Exxaro has the contract to supply 14.6 million tonnes (mt) per year to the new power station, which is being built near its Grootegeluk colliery on the Waterberg coalfield near the town of Lephalale in Limpopo Province.

Exxaro was originally contracted to start supplying coal to Medupi in the fourth quarter of 2011, with a ramp-up to full production of 14.6mt annually by 2014.

Exxaro announced on Tuesday that “indications are that the date for first coal delivery to the power station, in terms of the coal supply and off-take agreement (CSA), has been confirmed to be during the first half of 2012”.

Exxaro financial director Wim de Klerk told Miningmx: “They are looking at a six-month delay in starting up the power station.”

That’s denied by Brian Dames, CEO for Eskom’s generation business. He said: “That is Exxaro’s perspective and I cannot speak for Exxaro.

“Our forecast start-up for the first generating set at Medupi is the first half of 2012 and we are sticking to that prediction.”

De Klerk retorted: “I cannot speak for Eskom but - in terms of the Stock Exchange News Service announcement we put out and that they signed off on - there will be a six-month delay in the delivery of the first coal for Medupi.”

According to Eskom corporate advisor Ras Myburgh, “the dates in the coal supply contract were out of kilter with the construction schedule for the power station and all we are trying to do here is to bring them into line.

“There is no change to the start-up date for the first generating set at Medupi which, as we have stated repeatedly over the past year, will take place in April 2012.”

There has been persistent industry speculation – repeatedly denied by Eskom – that construction work on Medupi was running behind schedule.

As recently as October 13, former Eskom CEO Jacob Maroga told a media conference that both the Medupi and Kusile power stations were running to schedule.

Maroga said: “There’s nothing that threatens Medupi and Kusile assuming the 45% annual increase scenario, but we may have to delay making decisions on other stations.”

On November 19, Eskom announced a delay of up to a year in bringing the first generation set at the Kusile power station on line.

Medupi's first generating set was originally planned to be commissioned by April 2012, while the first generating set at Kusile was to be brought on stream in early 2013. Kusile will be supplied with coal by Anglo Coal.

Any delay at Medupi would have various negative financial implications for Exxaro, but far more serious adverse implications for the overall power supply situation in South Africa.

Medupi and Kusile are crucial to Eskom’s plans to keep the lights on in South Africa and meet the country’s growing demand for power. Maroga has warned that there would be a “hole in Eskom’s ability to supply the power needs of the country” if these stations were not built on time.

On December 2, Erica Johnson, head of customer relations at Eskom, said the utility did not anticipate problems with power supply for the next 12 months but warned that from 2011 and 2012 onwards capacity would not meet demand.

The repercussions would be widespread, among others affecting the ability of platinum and ferro-alloy companies to bring proposed new projects on stream.

That, in turn, would have a negative impact on foreign investor sentiment regarding South Africa.

Exxaro’s capital expenditure for the expansion of Grootegeluk to supply the extra coal needed by Medupi is estimated at about R9bn.

De Klerk said that, pending the outcome of a “review process” with Eskom, Exxaro had temporarily suspended its funding programme as well as the placement of additional contracts for the Grootegeluk expansion project.

De Klerk said: “The amounts are material. We were looking to spend some R2bn in capex on the project over the next year, but that amount could now drop by around R1bn because of the delay.”

The review of the CSA will be over the coal delivery ramp-up and the coal price escalation mechanism.

Exxaro added it was in separate discussions with Eskom on the delivery of early coal from July 2011, “to be used by the power station for pre-commissioning tests and the creation of stockpiles”.