Eskom Pays US$ 561 Million in Penalties For Not Honouring Coal Take-Or-Pay Agreement at Medupi  

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  • Bloomberg reports that South Africa’s state owned energy utility, Eskom, has paid US$ 561 million in penalties on a coal supply contract for not honouring a take-or-pay agreement.  

The payments on Eskom’s take-or-pay contract at the Medupi plant for the dirtiest fossil fuel reached R9.7 billion in November, the company told parliament’s Standing Committee on Public Accounts on Tuesday. The utility’s previous attempts to renegotiate the contract with Exxaro were rejected by the mining company.

A coal stockpile at the site stood at 17.6 million tons at the end of November, the utility said. “Eskom will, thus, incur further take-or-pay penalties if Medupi Power Station cannot burn the minimum contractual volumes.”

In June last year the African Development Bank has released its Project Completion Report on 4764MW Medupi Power Project. They reported that the project will not show a financial benefit over its lifetime.

Medupi’s availability is seriously impacted by latent defects and this to lower availability has significantly reduced its return  on  investment. The  project  delivered  the  outputs required of 6 boilers and turbines but Eskom is still to establish optimal performance from the plant.  The practice of using virtual designs should be avoided since  designs need  to  be  adapted  to  local coal  quality,  ash content and related conditions effectively or else such defects  will be  to the detriment of plant performance.

R33 billion is needed to complete remedial work at Medupi and Kusilie power plants. Read more

Author: Bryan Groenendaal

Source: Bloomberg

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