Home » Featured » Eskom, Group Five’s woes threaten Koeberg licence

Eskom, Group Five’s woes threaten Koeberg licence

Thanks to the ongoing problems at both power utility Eskom and Group Five, a crucial construction project might not see the light of day and thus put the power supply of the Western Cape in jeopardy.

In addition, it could provide vital foreign investors in Eskom with an out in terms of their bond agreements.

Early in 2017, Eskom awarded the contract for the Eskom Ankerlig Transmission Koeberg Secondary Supply (the ATKSS project) to troubled construction company Group Five, which began working on the project in April 2017.

The project was to replace the Acacia power station in the Western Cape with a new plant, Ankerlig 3, being built to provide off-site back-up power to Koeberg power station.

Nuclear regulation in South Africa requires emergency back-up supply of power to a nuclear power station, which is located off-site for safety reasons.

Located 50km north of Cape Town, Ankerlig 3 is a back-up power plant designed to supply peak and emergency electricity to Eskom’s Koeberg nuclear plant.

Koeberg is backed up by the 1976-built Acacia plant, which is due to be decommissioned in 2026. Ankerlig 3 was projected to be completed by 2023.

On March 12, Group Five went into business rescue in South Africa.

On March 18, Group Five terminated the contract with Eskom based on the clause of non-payment in their contract with Eskom. This was not reported on the JSE news service to shareholders due to Group Five being in business rescue at the time.

A source close to the Ankerlig project, who preferred to remain anonymous, confirmed this and explained the significance of Ankerlig:

“Nuclear regulations require an off-site back-up power supply to a nuclear power station to protect the power station during worst case scenarios. Should Koeberg power station trip and power from the national grid is lost, for example during a nation-wide blackout, and the on-site back-up power supply fails to start, an additional power supply is needed to run the reactor coolant pumps to allow for safe shut-down of the reactor. This is where the off-site back-up comes into play. It is a very extreme scenario, but regulations require this back-up power.

“This means that should Ankerlig 3 not be built, Koeberg would lose its operating licence and needs to be shut down until an off-site power supply is available. This would mean a loss of close to 1800MW of power to the national grid and very likely to significant load shedding within Cape Town and the rest of the Western Cape.”

“He is absolutely correct,” National Nuclear Regulator (NNR) spokesperson Gino Moonsamy confirmed.

According to Moonsamy, due to Acacia being vital to ensure Koeberg’s nuclear safety, the regulator would have no choice but to shut Koeberg down in the event of Acacia being decommissioned. This would happen immediately in the event of Acacia reaching the end of its life as a power station or if it suffered any fault that rendered it unable to function – an outcome increasingly likely for a station dating back to the 1970s.

But independent energy expert Ted Blom disagrees. “The regulators have been known to turn a blind eye before when the price was steep enough but the real concern for Koeberg’s back-up power supply being called into question is the clout it would give bondholders.

“Bondholders have certain entrenched rights presumably one clause mentions having to adhere to all regulatory requirements. If one of those covenants is that Eskom has got to comply with requirements, then, whether Nersa or the NNR turned a blind eye or not, indirectly Acacia then would be a contravention. It could potentially give foreign bondholders that might be disaffected with Eskom, a reason to back out.”

Losing an operating licence could trigger the restructuring put option in Eskom’s eurobonds, giving bondholders the right to demand immediate repayment of billions of eurobonds.

A shutdown would put further strain on South Africa’s electricity supply.

Eskom’s 2021 bonds contain a covenant that prescribes that upon the occurrence of a “restructuring event”, and subject to certain conditions prescribed below, at the option of the bondholders, the bonds will be callable by bondholders at principal value, plus any incurred but unpaid interest.

A restructuring event will be deemed to have occurred if the government revokes (or gives notice that it will revoke) any relevant licence, or there is a modification of the relevant licence, which causes it to be materially less favourable to the group.

The relevant licences include the generation licence, the transmission licence and the distribution licence, and in any such case, and from time to time any other licence granted under electricity legislation.

Despite this, construction on the Ankerlig 3 project has ground to a halt, and it looks as though it won’t resume, thanks to the break-up of the Group Five and Eskom relationship.

According to a Group Five Construction contractor familiar with the matter, Eskom is disputing the Group Five termination. He confirmed that all work on the project had ceased and that Group Five Construction had demobilised from the site.

According to the contractor, tools have been downed and the project on Group Five’s end has been irreversibly terminated, with Group Five having already auctioned off site equipment from the Ankerlig project.

“Eskom is trying to resolve a contractual dispute with its contractor. All avenues are being considered to get to an amicable solution so that work can resume,” Eskom said in an emailed statement. The utility added that “Eskom is pursuing all legal and contractual options to get to a speedy resolution so that construction can resume”.

“Regardless of whether the dispute is resolved in Eskom’s favour or not, there will be delays to the completion of the ATKSS project and the possibility that it will be completed after Koeberg loses its operating licence,” the contractor said.

Eskom was meeting all its regulatory requirements under Koeberg’s operating licence, the power utility said.

It acknowledged that the dispute might push back the completion date for Ankerlig 3, but said this did not pose a risk to Koeberg’s nuclear licence or Eskom’s funding for the project.

The NNR is closely following the situation, including the delay, Eskom said.

Nersa, South Africa’s energy regulator, confirmed that Eskom complied with the current regulations. Eskom has refused to issue a termination certificate and called for the construction group to continue the agreed work.

Eskom’s project manager noted that “it appears that the contractor proceeded unilaterally with a termination procedure, putting himself in gross breach of contract”.

“I cannot speak to the matter of Group Five and Eskom, but I know that Group Five has been going through a difficult time,” said Eskom spokesperson Khulu Phasiwe.

Group Five did not reply to a request for comment.

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