Six-year contract with Framatome is bleeding Eskom’s finances

The lawsuits against Eskom threaten its balance sheet, a burden the electricity utility cannot afford, a source in Eskom’s board said. 

“The extension of Koeberg is and will be more expensive than Eskom is willing to announce. The utility will bleed money before the project is completed. We are hoping the Koeberg problem is fixed before the state of disaster is eased because Eskom is failing to keep up with planned maintenance,” the board member said.

This comes after Eskom was slapped with a R950 million penalty last week for delays in planned maintenance at the Koeberg nuclear power station,  which was a breach of a contract agreement with French Firm Framatome.

Last year, during an energy generation board meeting, former chief executive Andre de Ruyter said it appeared Eskom was “not in control” of the contracts linked to major upgrades to extend the life of Eskom’s only nuclear power station by another 20 years.

During the meeting, De Ruyter said there was an Eskom board member and a cabinet minister who were “deliberately ensuring that maintenance was not happening at the agreed time with Framatome, which caused the utility more money in fines”.

Framatome kept dragging Eskom to court for not honouring the contractual agreement, with the legal bills piling up on both sides.

To prevent load-shedding, Eskom has been delaying the maintenance of Cape Town’s nuclear power station. Maintaining the power station means that units at Koeberg would have to be offline and not produce any power to the grid for at least six months.

This would mean that without Koeberg, Eskom would have to implement stage four and higher levels of load-shedding.

Last month, Eskom announced it had removed unit one’s steam generator at Koeberg from the containment building and placed it in storage, a move that it described as reaching a milestone.

The unit is on a planned maintenance outage to allow for the replacement of its steam generators. 

This is in line with the government’s Energy Action Plan Intervention One, which aims to ensure all power stations are well maintained and working optimally to prevent a further decline in energy availability.

Once the unit one replacement is complete, Eskom intends to pursue a similar long-duration outage for unit two, leaving the utility without electricity production from half of Koeberg for most of the year. When complete, the units will return stable energy to the grid, Eskom said.

The Framatome trouble

The utility has a contract with the French firm to replace six steam generators at Koeberg, which is key to helping the utility extend the nuclear power station’s life by another 20 years beyond its initial expiry date.

But sources warned that the relationship between Eskom and Framatome has been bitter-sweet because of contractual disputes that have been before the courts.

In 2021, Framatome took Eskom to court for being in breach of a provision for what is called “compensation events”, which allowed Framatome to claim additional payment and extra time to do the work from Eskom.

Compensation events entitle the contractor to be compensated for any effect the event has on the prices and the contractual sectional completion dates or key dates.

Judge Rammaka Mathopo of the supreme court of appeal ruled that Eskom had to pay R208 million to Framatome for being in breach of the contractual agreement by failing to pay Framatome what was due to them.

Eskom had to modify the contract with Framatome. Eskom’s former chief nuclear officer, Riedewaan Bakardien, suspended the steam generator replacement manager programme manager Justice Gumede, project engineering manager Tommy Booysen and the project controls manager, Jacky Major-Petersen, in June 2021, with full pay for the duration of the investigation into the delay. Bakardien resigned in July last year and moved to Canada and was replaced by Keith Featherstone.

Featherstone said if the steam generator replacement programme had not been deferred, load-shedding would have been at higher stages than it currently is.

Responding to M&G, Eskom said it cannot provide details on the total costs incurred through penalties awarded to Framatome but could confirm that the power station has recorded 45 days of delays.

According to sources, corruption led to the rift between Eskom and Framatome, which has led to the delay of maintenance in the plant, causing both parties  loss of more than R1.5 billion.

Cold and dark winter ahead

Koeberg is one of South Africa’s most reliable power stations; but a delay in completing maintenance is a worrying sign for winter when electricity demand is higher.

This is despite President Cyril Ramaphosa declaring a state of disaster over the energy crisis for Eskom to expedite the urgent maintenance of its plants.

Sources in the Eskom generation unit have said that Eskom burned more diesel to keep the lights on and minimise load-shedding stages during the so-called national shutdown  last month.

“The utility is in a deeper hole than it lets on; we had to burn a lot of diesel to keep the lights on, especially during the national shutdown in March. This worked because the protest went smoother than we expected,”  the generation source said. 

“But what I can say is this is not sustainable. We are looking at more sustainable ways to improve the generation for the winter months.”