Contingency budgets, unapproved proposals and contractual variations went ahead willy-nilly, allowing tenders to morph from R200m to billions

Eskom has launched a series of investigations to determine how project management fees for the construction of two of its power stations, Kusile and Medupi, ballooned from R200 million to more than R20 billion.

In a presentation by Eskom’s chief procurement officer, Solly Tshitangano, to MPs last week, he revealed that during the mid-2000s, Eskom had contracted US engineering firm Black & Veatch and engineering consultants Parsons Brinckerhoff, Africa (PB Africa) at a cost of R200 million – but ended up paying the two firms more than R20 billion because of variations in the scope of work at both Kusile and Medupi.

Also attending the presentation was Eskom’s top brass, including board chair Malegapuru Makgoba, chief executive André de Ruyter and chief operating officer Jan Oberholzer.

They appeared before the standing committee on public accounts and the portfolio committee on public enterprises to brief them on the latest developments at the power utility.

According to the presentation, in 2005 Eskom contracted Black & Veatch to manage the construction of Kusile, situated in Mpumalanga, for R100 million.

But by the end of December 2017 – and after changing the contract and amending the scope of the job six times – the power utility had paid the US firm a total of R14.9 billion.

Eskom’s executives also told MPs attending the presentation that in April 2006, the parastatal had contracted PB Africa to supervise the construction of Medupi for R100 million.

By the end of July last year – and after changing the contract and reviewing the scope of work nine times – Eskom had paid PB Africa about R5.8 billion.

In 2015, PB Africa was acquired by British firm WSP.

An Eskom executive, who knows the construction sector and asked to remain anonymous, told City Press that at the time, the power utility “was clueless about what was needed to build the power stations”.

The source added: “In 2007, Eskom asked Black & Veatch to make a proposal detailing a ‘shopping list’ of all the services the firm could offer us. That is why, in September 2007, Black & Veatch’s contract increased from R100 million to R2.7 billion.

“The increase was effected after Black & Veatch developed and submitted its own scope of work to Eskom. This is unheard of in construction,” he said, adding that the standard practice is for the client to develop the scope and hand it over to the service provider.