Eskom ordered to cough up R1 billion in costs after cancelled Koeberg project

Eskom has been ordered to pay close to R1 billion to French nuclear contractor Framatome, after the Western Cape High Court found the utility refused to pay damages after it cancelled a contract to install steam generators at Koeberg nuclear power station.

The ruling stems from a 2014 agreement Eskom originally concluded with Areva, which was later ceded to Framatome. The deal covered the design, manufacture and installation of six replacement steam generators – three for each unit at Koeberg.

Framatome, which has been in operation for 60 years, was contracted to supply and install 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.

These installations were meant to take place during a scheduled maintenance outage, which kept getting postponed. Two months after the outage was finally scheduled to happen, “Eskom informed Framatome that it would not be continuing with the steam generator replacement,” the judgement said.

As a result of the cancellation of the deal, Eskom’s project manager “acknowledged that Eskom’s decision to postpone the work constituted a compensation event,” the judgment read.

Although the project manager had acknowledged that Eskom’s cancellation triggered compensation, he determined that the value of compensation was nil.

The entire matter then went to arbitration, where the adjudicator ordered that Eskom must pay compensation for cancelling the contract, including for storing equipment, as well as implementation activities, which work had been wasted by Eskom delaying the date of the planned maintenance outage.

After some back and forth between the parties and the adjudicator, during which the parties didn’t agree on costs, “Eskom made it clear that it had no intention of providing the adjudicator with any further information or participating any further in the adjudication process,” the ruling read.

As a result, the adjudicator issued a determination of the damages amount, and Eskom decided to take the issue to the Western Cape High Court, arguing that the amount in damages was not determined by the date it was due – voiding his determination.

In defending Eskom’s legal action, Framatome argued that none of the arbitration proceedings were improper, nor was the adjudicator abusing his power.

The Judge ruled that “there is no basis to set aside the decisions of the adjudicator which are valid and binding. In terms of the parties’ contract Eskom was obliged to comply therewith.”

Eskom, it found, had to comply with its contractual obligations. The court found that Framatome was entitled to the full amount it sought.

In addition to the R1bn payment, Eskom had to pay interest and costs.

IOL