Eskom's Financial Woes Deepen as New Plant Repair Bill Mounts

(Bloomberg) -- South African power utility Eskom Holdings SOC Ltd. is facing a mounting repair bill at two new coal-fired power stations that are still under construction, compounding its already dire financial situation.

While South African President Cyril Ramaphosa has said a plan to stabilize Eskom will be finished soon, the utility appears to be making little headway in reining in its unsustainable debt and bringing spiraling costs under control. The new Medupi and Kusile plants are a major contributor -- their construction is running years behind schedule and they are expected to cost more than 292 billion rand ($21.4 billion), roughly double initial estimates.

Fixing problems that have arisen during construction of the new plants will cost an estimated 2 billion rand, the utility said in an emailed response to questions. That’s up from a 1.5 billion rand bill disclosed by Chief Executive Officer Phakamani Hadebe at a Nov. 16 briefing.

There have been defects in the plant that grinds the coal, the boilers and the control system running the operations, and steps are being taken to get the contractors to pay for as much of the repair work as possible, according to Eskom. The problems at Medupi and Kusile have contributed to an increase in unplanned and planned plant outages and resulted in emissions limits being exceeded, it said.

“It basically comes down to the contractors” and the fact that they are inadequately supervised, said Mike Rossouw, an independent energy adviser. “The big issue revolves around the availability of the installed fleet,” which should be over 80 percent, he said.

Eskom said it November that its plant availability is below 74 percent and isn’t set to improve until after March.

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Mike Cohen, Hilton Shone

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