POLASA in bid to avert power line industry crisis in South Africa

Gary Whalley POLASA chairman
Gary Whalley: POLASA chairman

In a paper recently presented to the industry and representatives of Eskom, Southern African Institute of Steel Construction (SAISC) affiliate, the Power Line Association of South Africa, POLASA, laid out a plan for engagement between the Power Line Industry, Eskom and the Government to address the identified challenges of the industry in an effective and collaborative manner.

“We need urgently to sit together to develop a robust, competent and sustainable industry capable of delivering on the transmission requirements of the country and the region while protecting skills and jobs,” says Gary Whalley POLASA chairman.

Whalley says that the transmission line industry in South Africa is at a critical point in its evolution in relation to the Eskom Transmission Build Programme (TBP). “The industry is in crisis having suffered significant job losses in the past few years and with up to 5 000 jobs shed in the last twelve months,” he says.

He adds that the power line industry supports the Eskom TDP in the short and medium term, with the vision of becoming part of the transmission integration aspirations of the Southern African Power Pool and ultimately the NEPAD development goals for Africa.

“In short we need to find a way of meeting the challenges of providing the necessary infrastructure for: a reliable transmission grid; increased transmission capacity; expansion of the grid in support of “electricity for all”; unlocking identified development areas; and regional integration as defined by Eskom in its Transmission Development Plan (TDP) within the context of the Presidential Infrastructure Coordinating Committee’s (PICC) defined goals contained in various Strategic Integrated Projects (SIPS),” says Whalley.

The local Power Line Industry – the burning platform

The local power line industry is comprised of eleven contractors currently undertaking construction projects (or recently completing projects), supplemented by three contractors not currently active on new build projects. The industry employed about 6 000 construction personnel and constructed 737 km of new lines in financial year ended 31st March 2013.

“However,” says Whalley, “the completion of many of the mainstream Eskom jobs and the fact that in the current environment there is no new work coming on stream, the industry is on a ‘burning platform’”.

He adds that the hampering of new work coming into the market and the failure to identify and properly address the consequent challenges has already produced well-nigh catastrophic results.  For example, a number of well known South African  companies have in the recent past been forced into liquidation or business rescue programmes: These include Transdeco GTMH (Pty) Ltd – voluntary liquidation; Edison Jehamo Power (now Symbion PNC) – business rescue; Towertel trading as Optic 1 – liquidation; Umakho Power – business rescue then liquidation; Linear Power – liquidation and AC Towers – liquidation. In addition, Stefanutti Stocks recently announced their intention to close down their transmission line construction operations.

Whalley estimates that, based on a premise of about 300 jobs per 100 km of line under construction, direct job losses that have eventuated from the drop off in volume of work is between 4 500 and 5 000.

“This does not take into account associated industries such as transport, plant hire, conductor, insulator, line hardware, fuel, concrete, reinforcing and tower steel supply all of which have already been impacted by the lack of demand.

“Moreover the very limited number of projects identified for issue to the market in the next six months could well result in a loss of industry participants, either to foreign markets or, for smaller local contractors, through business failure. This eventuality would further constrain the industry’s capacity to deliver the required kilometers identified in the TDP,” says Whalley.

Policy contributing to lack of work

Several policy areas are contributing to the hampering of work for the industry. These include: Site Access  – where the current regulatory environment within which servitudes are identified and secured is onerous  adding a component of time to the project cycle; Landowner – where landowner’s resistance to accepting servitudes across his land has been bolstered by a more complex legal framework and an increasing inclination to the litigious approach to conflict resolution; Community Unrest and Demands – where an increasing pressure on service delivery has resulted in community pressure on line route access.

Community actions have even included violence toward both Eskom and contractor personnel as well as the destruction of equipment and infrastructure; Environmental Approval – where the Environment Impact Assessment/Environment Management Plan/Record of Decision process has added significant time to the project cycle;  Permit Requirements – where evolving legislation results in unexpected requirements that are identified late in the project process and result in work stoppages or an inability to commence work at all; and “Compact” – where  Government signs an annual “Compact” with Eskom to construct a target amount of kilometers of line per annum.

Yet, it is processes within Government that, to a large degree, control the ability of Eskom to actually release projects for construction and thus deliver on its “Compact”.

“The bottom line,” says Whalley is that if there isn’t a substantial increase in jobs coming on stream in the very near future, it is unlikely that Eskom will build more than an estimated  300 km  of transmission lines in the financial year ending 31st March 2015. This represents only 24% of current construction levels of 837 km and 13% of the 1500 km per annum aspired to in the TDP over the next five years. This will be catastrophic for the local power line industry,” he says.

He adds that as much as business is dynamic, it requires a degree of certainty in terms of its future ability to generate returns on investments made. “The recent decline in enquiries to market, compounded by the lack of work currently available, has called into question the reliability of Eskom’s TDP as a forecasting tool for new build plans. Industry investors and boards of directors alike are sceptical and uncertain, resulting in a reluctance to invest and an increased appetite to exit the industry,” he says.

Conclusion

The economic development imperatives in South Africa clearly demand a robust and expanded transmission line grid to enable the effective transport of electricity from the point of generation to distribution.

“The need is paramount to ensure that the learning curve that the industry and Eskom have paid dearly for is not lost due to lack of roll out of new projects in the immediate future.

It is imperative that the power line industry, in collaboration with its key customer Eskom and Government, find effective ways to avoid job losses while developing a strong and sustainable industry capable of delivering on Eskom’s requirements, and matching its aspirations to support the SADC region and in turn Africa,” Whalley concluded.

POLASA has conducted a joint workshop with ESKOM to open debate on these and other issues and explore the cost structures of the industry, which could be 20% too high. The successful exploration and implementation of the many options tabled may well succeed in changing the environment of this important sector for the better.

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