Stefanutti Stocks has secured payment of R110 million from Eskom for measured work, as well as rulings by the Dispute Adjudication Board (DAB) since August 2021, related to contracts it secured in joint ventures (JVs) for Kusile Power Station.
Russell Crawford, CEO of the JSE-listed construction group, said on Thursday that substantial variations are still being agreed with Eskom.
He said the group has submitted provisional claims to the experts after taking into account all payments received to date on the project for:
- An overarching preliminary and general cost claim of R337 million; spirit
- A subcontractor overarching preliminary and general cost claim of R194 million.
He said the intention is that the group will submit the remaining claims relating to construction costs, commissioning costs and interest and finance costs to the experts by December.
In an update on the Eskom Stefanutti Stocks Basil Read JV Package 16 contract – and specifically events or circumstances that occurred pre-December 2019 that gave rise to an entitlement to an extension of time – Crawford said agreement has been reached by the experts: on 49 964 days’ delay related to access-related delays, and 23 208 days’ delay for construction-related delays.
He said the DAB will shortly be engaged to issue interim decisions on the differences between delay experts on the commissioning-related delays.
The original contract completion date was November 2016, but agreements were reached to delay this to September 2021.
Crawford said the group envisages that the DAB will issue its final binding decision during the second quarter of 2023, but stressed that either party has the right to appeal.
“At this stage, the group’s claims team is unable to quantify the value of the potential awards as the claims must follow due process. Therefore, these provisional claims have not been recognized in the financial statements,” he said.
The Stefanutti Stocks Izazi JV Package 28 adjudication proceedings commenced in June 2018 related to two negative final payment certificates issued by the engineer in August 2019 and April 2020 alleging overpayments.
The adjudication hearings were conducted during the months of November 2020 and February 2021 but the claims process has not yet been finalised.
Eskom in June 2020 alleged in a Kusile Power Station contract investigations briefing document that “it had overpaid almost R4 billion to various contractors at the Kusile power station, including an estimated R1 billion to the two Stefanutti Stocks” JVs.
Other alleged overpayments highlighted by Eskom at the time included:
- ABB South Africa, Package 21A – R1 trillion;
- Tenova Mining and Minerals SA, packages 24B, 24C and 24E – R735 million;
- Tubular Construction Projects, packages 11A and 17A – R1 billion; spirit
- Various site service contracts not in the scope of the Special Investigating Unit (SIU) investigation – R180 million.
Comment was requested from Eskom on Thursday on the status of the alleged overpayments to various contractors. Eskom referred Moneyweb to statements it issued on 2 June 2020 and 11 December 2020, adding that it has “no further comments in this regard”.
Stefanutti Stocks is not mentioned by name in either statement.
Eskom Group CEO André de Ruyter said in the first statement that Eskom was working closely with the South African Revenue Service (Sars), the SIU, the Hawks, “the JSE for those companies that are listed on the stock exchange”, and the head of investigations at the office of the National Director of Public Prosecutions.
The second statement refers predominantly to an agreement in terms of which ABB SA agreed to pay Eskom R1.56 billion in full and final settlement of an overpayment dispute, relating to a contract unlawfully awarded through corrupt means for work at Kusile.
Recoveries from McKinsey, Deloitte and others
There are also brief references to the recovery of money from certain contractors, including R1.1 billion from McKinsey and R171 million from Deloitte Consulting, and the R3.8 billion claim it had instituted against members of the Gupta family, Gupta associates, former Eskom executives and a former government minister.
The statement said further investigations are ongoing against other contractors and suppliers, former and current Eskom employees, and other interested parties.
Stefanutti Stocks has consistently disputed that it, or the JVs it was part of, have been overpaid, which has resulted in the disputes being referred to the DAB.
Crawford said on Thursday that Stefanutti Stocks delivered an improved performance for continuing operations in the six months to end-August.
However, he said the adjudication and award of tenders, especially in the public sector – where tender cancellations are common and it can take up to two years for an award to be made – continues to impact the group’s performance.
Crawford said there is currently a lack of public sector infrastructure expenditure.
“Over the past five years, revenue generated by the group from public sector work has reduced by 50%,” he said.
Crawford said the group also continues to be negatively affected through disruptive and unlawful activities by certain communities and informal business forums in certain parts of South Africa.
He said the focus of the group remains on reducing the number of loss-making projects.
In the reporting period, of 158 active projects, seven declared an aggregated operating loss of R19 million compared to aggregated contract revenue of R130 million, with 78% of contracted revenue executed at better than tender margins compared to 59% in the prior period, he said.
The group on Thursday reported a 9.4% decrease in contract revenue from continuing operations to R2.9 billion from a restored R3.2 billion in the prior period.
However, operating profit improved significantly to R54 million from a restated R9 million.
Crawford said excluding restructuring costs of R22 million and abnormal legal costs of R6 million, the operating profit would have been R82 million at an improved operating margin of 2.9% from 2.7% in the prior period.
The group’s headline loss per share narrowed to 25.02 cents from 67.12 cents.
It has an order book of R6.3 billion, of which R1.6 billion relates to work beyond South Africa’s borders.
Crawford said in the short term there are potential awards to the value of about R5.5 billion while future opportunities to the value of about R69 billion have been identified by the group.
Shares in Stefanutti Stocks rose 6.19% on Thursday to close at R1.03 per share.