Politically connected Hitachi must pay penalties for delays
Hitachi Power Africa has failed to deliver on their contractual obligations to Eskom resulting in a 20-month schedule overrun and an additional R60 billion in the construction of boilers for Medupi and Kusile. The DA will be writing to the CEO of Eskom, Brian Dames, to insist that the appropriate penalty clauses are invoked in the contract with Hitachi Power Africa.
In 2007, Hitachi Power Africa was awarded the largest contract that Eskom has ever signed in its 86-year history worth an astronomical R38.5 billion. The subsidiary of Hitachi Power Europe GmbH was tasked with building the boilers at coal-fired power stations Medupi and Kusile.
At the time, a broad spectrum of analysts criticised the ANC led government for pushing the project forward because of the parties 25% stake in the venture through Chancellor House's partial ownership of Hitachi Power Africa. Reports at the time suggested that the ANC in-house investment firm stood to make a profit close to R1 Billion on the deal.
Since the announcement of the infamous contract, Hitachi Power Africa have seemingly reneged on their contractual obligations resulting in massive schedule and cost overruns.
Earlier this week, Eskom Financial Director, Paul O' Flaherty told members of the portfolio committee on Energy that the challenges that Eskom was experiencing in its power station programme was in part because of delays by Hitachi in meeting boiler delivery deadlines.
When questioned about the possibility of imposing penalties on the supplier, Mr O' Flaherty said that Eskom had an international construction contract with penalty clauses calculated at around 10% - 15% of value and that "we reserve our right to charge penalties should we feel it necessary".
The DA believes that there should not be any favours handed out to suppliers who fail to deliver on contractual obligations, particularly if they are politically well connected. It's one thing to turn a blind eye in the awarding of such contracts, but quite another to fail to act when the supplier clearly violates the terms of its contract, thereby jeopardising an infrastructure expansion programme that should be supporting economic expansion and job creation.
I will be writing a letter to the CEO of Eskom, Brian Dames, insisting that he follows due process in the handling of the contractual misdemeanours of Hitachi Power Africa. A truly impartial Eskom executive would hold the Chancellor House infiltrated supplier accountable.
Statement issued by Erik Marais MP, DA Shadow Deputy Minister of Public Enterprises, August 24 2012
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