Stefanutti Stocks claim against Eskom for Kusile contracts rises to R1.6bn

The value of Stefanutti Stocks’s claim against Eskom related to the Kusile building project awarded to the JSE-listed construction group in a joint venture with Basil Read has increased by R474 million to R1.614 billion.

‘Claim 5’ covers the period up to 31 December 2019 while ‘Claim 6’ covers events and circumstances which occurred after December 2019 that allegedly gave rise to the entitlement for an extension of time plus costs.

Basil Read, which is in business rescue, sold its 50% stake in the Stefanutti Stocks Basil Read JV effective 1 September 2017.

Stefanutti Stocks CEO Russell Crawford said on Tuesday the claim is based on the delay analysis as calculated by the Stefanutti Stocks Basil Read JV’s delay expert and will be adjusted once the delay analysis is complete and agreed, adding that interest is not included in the current claim and will only be calculated once the contractor’s entitlement has been quantified.

Crawford said the quantum experts and the Dispute Adjudication Board (DAB) are continuing to meet on various matters related to quantum principles.

“The frequency and duration of the meetings have increased now that the matters in dispute have mostly been defined,” he said.

“We are confident that the quantum experts, with the guidance of the DAB, can arrive at a final financial outcome during the first quarter of the new financial year.

“This final outcome will then be published by the DAB as a ruling, in terms of the contract.

“On conclusion of the process, in terms of the contract, either party may issue a notice of dissatisfaction with the ruling and refer the dispute to arbitration.

“However, such a ruling will remain enforceable unless overturned in arbitration,” he said.

Another JV, another dispute

Stefanutti Stocks is also still involved in a dispute with Eskom related to another Kusile Power Station project, Package 28, which was awarded to the Stefanutti Stocks-Izazi JV.

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 Kusile, including an estimated R1 billion to the two Stefanutti Stocks joint ventures (JVs).

Read: Stefanutti Stocks aims to resolve ‘R1bn Eskom overpayment’ disputes in early 2023 [Jun 2022]

Crawford reiterated on Tuesday that the group is confident that the final payment application is accurate and therefore no provision for overpayment has been made.

Eskom terminated the Package 28 contract in February 2019 due to its inability to provide access to the JV for it to complete the works.

The engineer in August 2019 and April 2020 then issued two negative final payment certificates, alleging overpayments.

Crawford said the alleged overpayments were for measured work and compensation events, which prompted the notification of many new disputes, which were then included in the adjudication process.

He said the adjudication hearings were conducted during November 2020 and February 2021 and the JV and Eskom have embarked upon an independent quantum expert process to resolve these disputes as they relate to measurement of the works.

Crawford said the remeasurement of the measured works is complete and a final value for work done has now been agreed, and to resolve the alleged overpayment of compensation events a further agreement was signed.

“The remeasurement of compensation events is complete and the parties have now started final engagements to resolve the remaining matters.

“This engagement is expected to be completed before the end of the calendar year, following which the adjudicator will be instructed to publish his decision.

“It is anticipated to have all outstanding matters resolved and agreed within this financial year,” he said.

The update by Stefanutti Stocks on its contract disputes with Eskom coincided with the group publishing its results for the six months to end-August 2023 on Tuesday.

Crawford said the group continues to deliver a satisfactory performance but the results were affected by the termination of a significant mechanical contract in the inland region, the late award and contract start-up of a major building contract in the coastal region, and a reduction in the operating margin due to an increase in building contracts executed in the African region.

Contract revenue rose by 16.2% to R3.335 billion from R2.871 billion.

Crawford said the group is pleased to report a 27% improvement in operating profit to R69 million from R54 million in the prior year, with no material loss-making contracts.

The group reported a loss for the period of R2.02 million compared to a profit of R9.25 million in the prior period.

However, Stefanutti Stocks chief financial officer Yolanda du Plessis said the prior year’s results included a realisation of a foreign exchange gain of R71 million related to the disposal of its Al Tayer Stocks LLC.

The group reported a narrowing in the headline loss per share for total operations to 22.41 cents compared to the 25.02 cents loss per share in the prior period.

The order book grew by 3% to R6.5 billion at end-August from R6.3 billion in the prior period.

Read: Eskom successfully defends challenge to Kusile tender award [Sep 2023]

Crawford said although Stefanutti Stocks’s current liabilities have exceeded current assets for the past five reporting periods, the group has been able to successfully complete contracts to the value of R37 billion.

“Thanks to the continued support of the lenders, our operations are not hampered by working capital constraints. The lenders continue to provide guarantee support for current and future projects,” he said.

Read: Stefanutti Stocks encounters difficulties in implementing its restructuring plan [May 2022]

Du Plessis added that the group believes it remains commercially solvent based on the cash flow projections included in the restructuring plan and the continued support provided by the lenders.

She said the group is currently in negotiations with the lenders to extend the capital repayment profile of the loan and its duration to June 2025 due to further delays beyond the group’s control in resolving a number of contractual claims and compensation events on the Kusile project and the delay with respect to the disposal of the Mozambican entity.

The group’s lenders initially provided it with funding of R1.2 billion.

Du Plessis said capital repayments of R51 million and R43 million made to date have reduced the loan to R1.066 billion, with interest on the loan serviced on a monthly basis.

Challenges

Crawford said the group continues to be negatively affected through disruptive and unlawful activities by certain communities and informal business forums throughout South Africa, and there continues to be a lack of public sector infrastructure expenditure in South Africa.

“Should this improve, it will benefit the group,” he said.

Crawford said the group’s focus remains on the successful completion of all outstanding items in its restructuring plan, achieving favourable outcomes from claims and compensation events on the Kusile project, the closing out of legacy arbitration matters, and continuing with its focus on maintaining and increasing profitability.

The outstanding matters in the restructuring plan include the sale of non-core assets, underutilised plant and equipment, and identified operations.

Shares in Stefanutti Stocks declined by 2.44% on Tuesday to close at R1.20 per share.

Read: Stefanutti Stocks breaks silence on alleged payments to enrich Eskom officials [Dec 2019]