Ngodwana Energy, for which Sappi and Patrice Motsepe’s African Rainbow Energy and Power (AREP) are major shareholders, is demanding that it be paid R222m by South Korean group KC Cottrell over shoddy work done at the 25MW biomass energy unit in Mpumalanga that has resulted in significant defects that require rectification.
Sappi first inked an agreement with the department of energy in 2018 to build the first biomass project under the government’s Renewable Energy Independent Power Producer Programme near its Ngodongwana mill in Mpumalanga, aimed at moving the economy away from coal.
At the time Sappi and consortium partners KC Africa from Korea and AREP were touted to spend a combined R1.8bn on the biomass power plant known as Ngodwana Energy, in which Sappi SA holds a 30% stake.
AREP acquired its 30% equity valued at R153.4m in the Ngodwana Biomass Project from original project partner Fusion Energy through a private sector bidding process.
Other stakeholders included broad-based empowerment participation through the Ngodwana Energy Employees Trust and the Ngodwana Energy Community Trust, with each holding a 5% stake in the project.
KC Cottrell along with ELB Engineering Services was appointed as the engineering, procurement and construction contractor.
The plant, which came on stream in March 2022, is located within close proximity to the Sappi Ngodwana Mill which allows it to obtain the required biomass from the Elands Valley region, surrounding plantations and screened waste material from the mill production process.
Now, a year after the renewable energy plant went live, Ngodwana Energy has reported defects in the construction of the plant and said KC Cottrell is in breach of the construction contract.
“The power plant is presently operational, but by all accounts there are significant defects in the construction work that require rectification, and which mean that the plant, while operational, is not running optimally,” Ngodwana Energy told the South Gauteng High Court.
“Ngodwana has now taken the view that the defects it has identified in the construction work are so serious as to justify the reversal of the payment milestones it previously certified had been reached, and the reclamation of much of the money it paid over under those certificates.”
Relying on its right to draw down the performance bond held by Santam, which is to be used to rectify the defects, Ngodwana Energy has said KC Cottrell is now liable to it in the sum of R222m, citing breach of contract.
KC Cottrell’s bid to try to interdict Santam from paying out on the guarantee, which would result in Santam claiming the full amount from KC Cottrell, was dismissed with costs, including the costs of two counsel by a high court in Johannesburg on Tuesday.
Head of corporate affairs at Sappi, Andre Oberholzer, told Business Day that while Sappi has no operational involvement in the plant, the group is aware of the teething issues as a shareholder. Such matters were not out of the norm for such construction projects.
“I am informed the plant operates at around 80%-85% of capacity,” said Oberholzer. Ngodwana Energy and KC Cottrell are in discussions to quantify defects and design plans to rectify them and then do the necessary work, he said.
“I can confirm that the board, management and all shareholders of Ngodwana Energy are focused on fixing the defects to get the plant to operate in the high 90% range so as to contribute to the energy mix in SA and help mitigate the impact of load-shedding.”
Fuelled by waste wood and residual products of sawmilling, the biomass programme was the result of the national need to increase energy capacity and reduce carbon emissions.
Up to 35 tonnes an hour of biomass is burnt in a boiler to generate steam and drive a turbine to generate electricity which is fed into the national grid.
The project is generating income for mostly youth and women that are involved in biomass collection. Simultaneously, the removal of additional biomass is seen as a method of reducing the risk of wildfires and the negative soil effects associated with high-intensity uncontrolled burns.
With four mills operating in SA, Sappi’s two biggest plants are self-reliant for energy, with Saiccor in KwaZulu-Natal generating about 60% of its power needs, while Ngodwana in Mpumalanga produces its own power and sells a small surplus onto the grid.
Sappi supplies Eskom with surplus energy from the 25MW Ngodwana biomass power plant and about 10MW from its Ngodwana mill.
Correction: March 8 2023
An earlier headline named Sappi in the court action. It was changed as they are technically not the ones who took the matter to court.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.