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In Group Five’s annual results for the year ended to 30 June 2017, the group noted that delays had been encountered on the $410 million independent gas- and oil-fired combined cycle power plant EPC contract for the design, engineering, procurement, construction, commissioning and testing of the 350 MW facility in the municipality of Kpone in Ghana. Design delays, together with the late arrival of procured items on site following a change in Ghanaian law during the Kpone contract, were two key factors which impacted the original contractual completion date of 13 September 2017.

Map of GhanaAccording to Group Five, the Kpone contract was also impacted by seawater tunnelling delays, which were subsequently resolved. The completion of the steam pipe system, as well as the on-shore and off-shore seawater intake chamber system, were on the critical path to completion.

The company said that these delays would result in a completion date post the contractual date, which could incur penalties. However, when considered together with claims on the Kpone contract, for which the group had assessed its entitlement, the group did not expect these penalties to further negatively impact the Kpone contract’s profit recognition in the 2018 financial year.

However, this week Group Five announced that it expects its interim headline loss per share for the six months to end-December to worsen by 34% to R4.15 from R3.10 in the matching period, partly as a result of delay penalties on the Kpone power station project in Ghana. The company faces potential fines of $310,000 a day up to a maximum total of $62.5-million on the Kpone project.

The construction company said it expected to complete the Kpone project by the end of February rather than December, and was contesting the penalties for missing the original deadlines because delays were caused by changes to Ghanaian law. Group Five intends to recoup delay penalties by suing the power station’s design engineer along with various other sub-contractors for causing the project to run late.

“Unfortunately, further delays have been encountered since the update in the annual results. These include: ongoing unknown marine conditions and poor weather on the seawater intake section of the Kpone contract; further late delivery of key components to site; late delivery and problematic and faulty equipment from the main equipment sub-contractors; and ongoing design challenges, which include inaccurate and late design submissions from the engineering sub-contractor and inadequate fire system design, which necessitated a major rework by the group,” the company said in a statement.

These delays have impacted the sea water intake process, which is now nearing completion, as well as the steam piping activities. These are both due to be completed by the end of December 2017. The delays have also impacted the first fire of the turbines, with turbine one complete and turbine two on schedule for completion by mid-January 2018. The process and control cabling rewiring related to the steam turbine control system and the plant commissioning progress have also been delayed.

“These delays have changed the date for the expected completion of the construction and commissioning activities from December 2017 to the end of February 2018, with performance testing and reliability runs potentially taking place in March 2018. The delays were reduced somewhat by improved construction delivery,” Group Five said.

Image credit: Copyright: sehenswerk / 123RF Stock Photo

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