Labour issues at Kusile and Medupi Power stations: Eskom briefing

NCOP Public Enterprises and Communication

21 June 2011
Chairperson: Ms M Themba (ANC, Mpumalanga)
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Meeting Summary

Eskom had been asked to brief the Committee on the recent labour unrest at its Medupi and Kusile power stations. The first part of the briefing outlined the expenditure of Eskom over the financial years from 2006 to 2011, noting that although expenditure had increased, the numbers of new connections remained roughly constant, at about 100 000 new connections per year. However, more recent work had focused on electrifying the rural areas, and as these were far from existing networks, the costs per connection were higher. Eskom noted that about 2.5 million, or 17% of South Africa’s estimated 13 million households were still without electricity, with the highest figures for non-electrification being the Eastern Cape (30%) and Kwazulu-Natal (24%). In order for Eskom to reach its goal of country-wide access to electricity by 2014, it would need more funding. Eskom then set out details of three of its biggest electricity capacity projects, at Medupi and Kusile coal-fired plants, and Ingula pumped-storage facility. Each would have a considerable impact on the economies of the surrounding areas, and would, together, generate almost 11 000 megawatts of electricity. More than 50% of the total cost of each of these projects was being spent locally. They were expected to create 19 000, 12 000 and 4 500 direct jobs, and 1 700, 1 700 and 1 100 indirect jobs respectively.

Eskom then reported on labour unrest in April and May 2011 at the Medupi and Kusile construction sites. Although property, and some vehicles, had been damaged, there were no injuries. Only minor delay had been caused to the projects’ completion dates. It was explained that at Medupi, disgruntled workers had embarked on a violent protest expressing their dissatisfaction around a group of Thai welders, riggers and pipe fitters, claiming that these foreign workers had been employed although there were already sufficiently skilled welders of South African origin available. At Kusile, a “no-work, no pay” clause, which was included in the standard Project Labour Agreement signed by contractors, employers’ organisations and six trade unions, was invoked when some contractor employees demanded that a memorandum of grievances be accepted. Eskom noted that in future it would be necessary to monitor this Agreement more closely as contractors and labourers had failed to abide with it. More than 2 000 workers had had their employment terminated, and the process of replacing them was under way. Eskom could not guarantee that there would not be further labour disturbances, but was confident of completing the projects on time.

Several Members of the Committee wondered why Eskom could not source the welding skills locally and asked if Eskom had been in contact with the Department of Labour, who held a database of unemployed skilled labourers, from which welders could have been drawn. Eskom countered that the situation was not so simple as very experienced artisans, with knowledge of “exotic” materials, were needed. Members also felt that the presentation was not entirely suited to this Committee, as it had not explained certain matters in depth and very few provincial indicators were given. They expressed disappointment that inter-connected industries and training facilities were not established closer to the stations, for the benefit of surrounding communities. Members also asked why Eskom was selling electricity to other countries instead of electrifying universally in South Africa, and asked how much electricity was imported. They asked for an estimate of the cost of the damage caused by the protests, and what risk management systems were in place. Members noted the figures for job creation, but also wanted a breakdown by province and gender. They called for further details of the plans for electrification of schools and clinics, and appealed for dedicated programmes of rural development, as well as better synergy with local municipalities. They questioned why nuclear power was not apparently being considered as an alternative, and called for comment on illegal connections and meter fraud, including addressing the root causes.

Members then adopted the minutes of a previous meeting.

Meeting report

Labour disputes at Medupi and Kusile power stations: Eskom briefing
Mr Louis Maleka, Acting Divisional Executive: Distribution, Eskom, outlined the Medium Term Framework Expenditure (MTEF) figures for Eskom from 2006 to 2011/12 (see attached presentation for all figures). These figures showed increases in expenditure from R893 million to R1.75 billion over the period. Eskom, during these years, had managed to provide an average of 100 000 new electricity connections a year. Mr Maleka explained the fact that expenditure had increased during this period while the number of new connections provided had remained roughly constant, by pointing out that more recent work had focused on bringing electricity to rural areas, and as these were far from existing electricity networks, the cost of providing a single connection was higher.

He also drew attention to the figures of electrification of schools and clinics, noting that more than 11 000 schools and almost 400 clinics had been electrified by Eskom since 1991. The country had about 13 million households and about 2.5 million (17%) were currently without an electricity connection, with the Eastern Cape (30%) and Kwazulu-Natal (24%) showing the highest percentages of non-electrified households. He pointed out that in order for Eskom to achieve its goal of country-wide access to electricity by 2014, it would undoubtedly require “accelerated funding.” At current funding levels, Eskom would be able to maintain its current achievement of 100 000 new connections a year, but no more. This would have to be taken up with the National Treasury and the relevant departments.

Mr Prish Govender, General Manager: Project Development, Eskom, gave a brief outline of Eskom's capital expenditure programme and its impact on the economy. A recently gazetted policy document estimated that South Africa would need almost to double its gross electricity output by the year 2030, to around 45 600 megawatts (MW). In order to reach this output, certain power stations had been returned to service, several new coal-fired plants were being built, renewable energy was being investigated and several existing power stations were being refurbished.

Mr Govender outlined the details of three of Eskom’s largest projects. These were the Medupi and Kusile coal-fired plants, and the Ingula pumped-storage facility. Each of these projects involved a long list of local and international partners and contractors, and their impact on the economy would be significant.

At the Medupi plant, which was located near Lephalele in Limpopo province, construction had begun in 2007. This plant had a planned output capacity of 4 764 MW, and was expected to cost roughly R99 billion and have a 95% impact on the Gross Domestic Product (GDP) of Lephalele. The plan was that the first of its six units would be commissioned in December 2012, with the remaining five units coming online at six to nine month intervals.

Construction on the Kusile plant, near Delmas in Mpumalanga, had begun in 2008. It had a planned capacity of 4 800 MW, an estimated cost of roughly R121 billion, and was expected to produce a 25% impact on the GDP of Delmas. Its first unit was planned for commissioning in December 2014.

The Ingula pumped-storage station, at Ladysmith in Kwazulu-Natal, had a planned capacity of 1 352 MW and would cost roughly R21 billion. Construction had commenced in 2006 and it was planned to be fully operational by the end of 2014. Its economic impact was estimated at 7% of the GDP of Ladysmith.

Mr Govender also gave a breakdown of the proportion of the total cost of each of these projects that would be spent locally. The percentages were 58% for Medupi, 56% for Kusile, and 74% for Ingula respectively. The projects were also stimulating local industry. A new “fabrication facility” had been built in Nigel, and training centres had opened in Pretoria and Wadeville. The projects were also expected to contribute to the demand for skilled graduates and artisans in relevant fields. The three major projects were expected to create 19 000, 12 000 and 4 500 direct jobs respectively, and 1 700, 1 700 and 1 100 indirect jobs respectively.

Mr Babhalazi Bulunga, Divisional Executive: Human Resources, Eskom, confirmed that there had been labour unrest at both the Medupi and Kusile project sites in April and May 2011, but claimed that the delays caused had been minor, and would not threaten the completion dates to which Eskom had made a commitment. Although property and some vehicles had been damaged, there had been no injuries in either incident.
Eskom’s capacity expansion projects were governed by a Project Labour Agreement (PLA) signed by the contractors, employers’ organisations and the six recognised industry Trade Unions. This PLA included a 'no-work no-pay' clause, which was invoked by managers when Roshcon employees at Kusile demanded that contractor management accept a memorandum, with the Eskom Project General Manager as a witness. At Medupi, disgruntled workers had embarked on a violent protest expressing their dissatisfaction around a group of Thai welders, riggers and pipe fitters. They claimed that there were sufficiently skilled welders of South African origin who had been ignored in favour of foreign workers. The South African Police Service had been called in, and all contractors on the site had been evacuated.

Eskom regarded the failure by contractors and labourers to effectively and consistently apply and comply with the PLA as the root cause of the dispute at Kusile. The application of the PLA would be more closely monitored in future. In the meantime, more than 2 000 workers had had their employment terminated, and they were currently being replaced. In conclusion, Mr Bulunga said that although he could not guarantee that no more labour disputes would occur on the sites, he was confident that the projects would be completed on time.

Mr M Sibande (Mpumalanga, ANC) said that although there were eleven power stations in Mpumalanga, there were still some households in that province without an electricity connection. He asked why Eskom had the capacity to sell electricity to other Southern African Development Community (SADC) countries, but was not be able to provide electricity to the whole of South Africa. He stated that “charity must begin at home”.

Mr Maleka noted Mr Sibande's concern, but said that Eskom had still made a significant impact nevertheless.

Mr Sibande also asked how much Eskom spent buying electricity from other Southern African countries. He gave the example of the Cahora Bassa Dam in Mozambique, from which Eskom was known to buy power. He asked who was responsible for this situation.

Mr Andrew Etzinger, Executive: Integrated Demand Management, Eskom, replied that South Africa imported roughly the same amount of electricity (5% of the total provided) as it exported. Electricity trade was primarily with Mozambique, with small amounts being exported to other SADC countries.

Mr Sibande said that the labour incidents described seemed to reveal a contradiction with Eskom's claims to be committed to skills development. Welding and pipe-fitting were simple skills, and Eskom should not have needed to hire in foreign workers.

Mr Govender replied that there was a significant demand for welders, both locally and internationally. The welding work at Medupi and Kusile involved exotic materials, so the work needed to be entrusted to very experienced artisans. An Eskom Academy of Learning had been established at Megawatt Park in Gauteng, and Eskom was also looking at setting up a training centre for welders. Foreign workers could contribute to skills development in South Africa, if their skills were transferred.

Mr M Jacobs (Free State, ANC) insisted that the use of foreign workers was justified only if there was real transfer of skills.

Mr Sibande also requested an estimate of the cost of the damage done in the protests. He further asked what risk management measures Eskom had in place.

Mr Maleka responded that Eskom's risk management system was robust and capable of dealing with all eventualities.

Mr Sibande was not satisfied with the level of detail of this response.

Mr Maleka added that there was an executive within Eskom responsible for risk management and strategy.

Mr Sibande asked how Eskom was responding to the President's call for job creation.

Mr Govender referred the Committee to the figures given in the presentation around job creation.

The Chairperson asked the delegation also to give information about the gender breakdown of the jobs that were created.

Mr Govender said that although the summary given in the presentation did not give an indication of the gender breakdown, he would make this information available in future.

Mr Z Mlenzana (Eastern Cape, COPE) said that Eskom's presentation was a very “high-level” presentation, which would have been more appropriate for the Portfolio Committee. The Select Committee, however, would have appreciated descriptions of greater depth.

Mr Chose Choeu, Divisional Executive: Corporate Affairs, Eskom, accepted the criticism, and promised that, in future, presentations by Eskom to the National Council of Provinces would contain deeper detail broken down more specifically by province.

Mr Mlenzana appreciated Eskom's acknowledgement of the problems in the Eastern Cape. He asked for more detailed information about Eskom's achievements and plans for the electrification of schools and clinics.

Mr Maleka referred to the figures given in the presentation.

Mr Isaac Sakopo, Corporate Specialist: Electrification and Regulation, Eskom, said that the Department of Energy's policy had changed in 2010. From that time, instead of having a lump sum dedicated to the electrification of schools and clinics in general, it was decided that any institution less than three kilometres from the existing grid would be electrified through the grid, whilst those at distances further than three kilometres would be “energised” in a different way. This made it difficult to give precise figures at the moment.

Mr Mlenzana asked Eskom to explain its substation infrastructure, and to tell the Committee whether it had a policy on illegal electricity connections. These were dangerous, and often caused the death of children.

Mr Maleka suggested that the issue of illegal connections was outside of Eskom's area of operations. It was a community issue. In Diepsloot in Soweto, for instance, a team with representatives from Eskom, South African Police Service (SAPS) and the Johannesburg Metro removed a very large number of illegal connections, but within a very short time these illegal connections had been restored. When there had been power outages, due to the illegal connections, technicians had been held hostage. This led to Eskom's decision not to get involved in this problem until the situation stabilised. Operation Khanyisa had been established to address the problem, in collaboration with SAPS. One problem was that electricity theft was not currently deemed to be a criminal offence.

Mr Mlenzana asked what relationship Eskom had with the Department of Labour, since he felt that it was unlikely that Eskom had consulted with the Department of Labour prior to employing the foreign labourers at Medupi. If it had, Eskom would have known that the Department of Labour had a database of unemployed skilled labourers, from which the welders could have been drawn. He acknowledged that this was quite a serious allegation, but wanted to know if Eskom had done everything in its power to source the required skills locally.

Mr Choeu warned that it was dangerous to try to simplify the situation. A newly qualified professional was seldom chosen for a highly important and sensitive assignment, in any sector.

Mr Mlenzana appealed to Eskom to begin a dedicated programme of rural development.

Mr H Groenewald (North West, DA) asked the Eskom delegation to explain its labour-planning process. It must have known how many welders it would need at the Kusile project, and whether it would need to bring in the foreign welders, which was the cause of the unrest. Taxpayers paid a heavy price for such interruptions. He asked for an estimate of the cost of the disruptions to the country.

The Eskom delegation said that they were not yet aware of the exact cost, but said that Eskom would report this figure to the Committee as soon as it was known.

Mr Groenewald asked why Eskom seemed to be ignoring the possibility of using nuclear power, while at the same time asking for more and more money.

Mr Govender acknowledged that nuclear power was a viable alternative to coal. The technology was however very complex and capital intensive. In addition, about eight years of planning were necessary before construction could begin on a nuclear power station, compared with five to seven years in the case of a coal-fired power station.

Mr Jacobs claimed that there was no “synergy” between Eskom and local municipalities. Eskom was consistently slow at bringing electricity connections to new communities.

Mr Sakopo disagreed. One problem was that the Department of Energy had an “80 percent rule,” which stated that electrical infrastructure could only be put in place once a settlement was 80% occupied. This rule had had unintended, negative consequences. In one instance, new residents had vandalised Reconstruction and Development Programme (RDP) houses because they were not yet connected with electricity.

Mr Jacobs asked whether Eskom had any statistics on how much electricity was lost to illegal connections. He also asked whether Eskom knew of any technology that could detect when and where electricity was being stolen.

Mr Maleka said that there were two kinds of electricity theft – illegal connections and meter fraud. Currently, “smart meters” were being rolled out, and these would be able to detect tampering with the electricity network, and the appropriate responses could be made. However, technological innovation would have to continue, because individuals always would find ways to bypass the system, if communities were not involved in stopping the frauds.

The Chairperson acknowledged Eskom's efforts in this direction, but was worried that the root causes of electricity theft - which she named as unemployment, poor education and high electricity prices - were not being addressed. She lamented the “punishment mentality” of the South African establishment.

Mr Jacobs did not think that Eskom's commitment to skills development was “aggressive” enough.

Mr Choeu disagreed. Eskom produced at least 800 technically trained workers every year. In response to the President's call for jobs, Eskom was also looking at a youth development programme.

Mr Jacobs requested a provincial breakdown of this number. He was also concerned that other crucial role players were not also represented at this meeting. Some role players might be part of the Department of Energy and if it was alleged that their actions or policies were causing difficulties in service delivery (as had been suggested for new settlements) then Eskom could ask the Select Committee to intervene and see if changes could be made.

The Chairperson asked Eskom to make its electrification plans for specific areas available to the Select Committee, whose Members, as public representatives, needed to be able to inform those communities who were still without electricity as to when they could expect to be connected. She repeated Mr Mlenzana’s concerns that the kind of detail in this presentation was more suited to the Portfolio Committee.

Mr Sakopo replied that a list was released in the Government Gazette, usually in February of each year. He said that, according to the White Paper, Eskom no longer funded electrification, but that since 2001, this funding was made available from the fiscus, through the Department of Energy, via a Schedule 7 grant to Eskom. Municipalities set their own policies under their Integrated Development Plans, and Eskom would receive, from these municipalities, a list of prioritised projects. Once the budget had been approved by the National Electrification Advisory Committee (NEAC) a final list of electrification projects was compiled, which Eskom then followed for that year.

The Chairperson asked why the fabrication facility and training centres had not been built in communities nearer to the power stations themselves. She particularly wanted to know how communities near to Kusile and Medupi were benefiting from Eskom's projects.

Mr Choeu accepted the point, but noted that there was a training centre in Lephalele, which was being supported by all the contractors involved in Medupi.

Ms L Mabija (ANC) noted that electricity supply not only involved technical issues, but there was also a social side, and interruptions in supply could cause psychological trauma in children. She recommended that the Committee should undertake site visits.

The delegation from Eskom said that they would welcome this. They promised to respond to any unanswered questions of the committee in the next 48 hours.

Adoption of minutes and other business
The Committee adopted the Minutes of its previous meeting, with minor technical amendments.

The Chairperson reminded members that a visit to Mitchell's Plain Labour Centre had been planned for the following week

The meeting was adjourned.


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