- South Africa’s state owned energy utility, who relies on tax payer bailouts to continue as a going concern and keep jobs, has been ordered to pay French company Framatome almost R1 billion by the Western Cape High Court in a contractual dispute over the replacement of steam generators at the Koeberg Nuclear Power Station.
Background
On 5 September 2014 Eskom concluded a written NEC3 Engineering and Construction Contract (third edition June 2005 which was reprinted with three amendments in June 2006) with Areva NP for the replacement of the steam generators at Koeberg (“the contract”). On 1 January 2018 Areva NP ceded and assigned all of its rights and obligations under the contract to Framatome.
The work under the contract included the supply and installation of two sets of three replacement steam generators, one set to be installed in each of the reactor buildings at units 1 and 2 at Koeberg during separate planned outages of these units. The replacement of the steam generators can only be performed during a maintenance and refuelling outage when the power station is offline. These outages are planned in advance and around the employer’s operational requirements. Planned outages are denoted by a 3-digit number where the first digit signifies the unit and the second and third digits refer to the number of the outage.
Eskom scheduled the outage dates and planned to replace the steam generators in Unit 2 in outage 223 but then postponed it to outage 225. The start date of outage 225 was initially planned for 3 January 2022, but was subsequently postponed to 18 January 2022 when the outage commenced.
On 3 March 2022 Eskom informed Framatome that it would not be continuing with the steam generator replacement (“SGR”) work during outage 225. On 31 March 2022 Framatome notified Eskom of an event that it considered to be a compensation event after the latter decided to postpone the steam generator replacement works relayed in the employer’s communication (“E/C”) 15383 and the project manager’s subsequent instruction to stop work conveyed in E/C 15411.
The project manager acknowledged that Eskom’s decision to postpone the SGR work constituted a compensation event which was designated as compensation event CN-CE-334.
Judgement
The bringing of this application and the pending arbitration does not relieve Eskom from complying with its contractual obligations.
The applicant’s application is dismissed with costs including the costs attendant upon the employment of two counsel, with scale C to apply from 12 April 2024.The applicant is directed to make payment to the first respondent of the following amounts:
- €35,288,582.00 (R728 million), exclusive of value-added tax and subject to the price adjustment for inflation pursuant to secondary option clause X1 of the contract, and pursuant to clauses 51.3 and 51.4 of the contract, interest thereon calculated at the LIBOR rate applicable at the time for amounts due in other currencies; and
- ZAR 256,631,358.00, exclusive of value-added tax and subject to the price adjustment for inflation pursuant to secondary option clause X1 of the contract, and pursuant to clauses 51.3 and 51.4 of the contract, interest thereon.
The applicant is ordered to pay the costs of the counter application, including the costs of the first respondent’s[49] France-based attorneys and the costs occasioned by the employment of senior and junior counsel, with scale C to apply from 12 April 2024.
Link to the full judgement HERE
Related news: Koeberg Unit 1 shut down three months after re-commissioning
Eskom debt
Eskom has unsustainable debt of over R420 billion. Over a three year period, government is in the process of providing Eskom with debt relief amounting to R254 billion. This will take the form of advances of R78 billion in 2023/24, R66 billion in 2024/25 and R40 billion in 2025/26. These amounts represent Eskom’s full debt settlement requirement over the next three years. They will be financed through the R66 billion medium- term expenditure framework (MTEF) baseline provision announced in the 2019 Budget, and R118billion in additional borrowing over the MTEF period. Additionally, in 2025/26, government will directly take over up to R70 billion of Eskom’s loan portfolio.
Eskom effectively pays interest on interest. In FY23/24 it repaid R90bn principal+interest with net earnings of only R10bn, supplemented by a R76bn bailout. The state owned power utility reported a record loss of R55 billion in its latest annual financial statement for 2023/24.
Related news: Tax payers money is already nearing R495 billion in Eskom bailouts
Author: Bryan Groenendaal
