Stefanutti Stocks confident R1.14bn claim for Kusile project ‘accurate’

JSE-listed construction group Stefanutti Stocks, which has submitted provisional claims to the total value of R1.14 billion to Eskom for work done on the Kusile Power Station project, has expressed confidence its final payment application is accurate.

Stefanutti Stocks CEO Russell Crawford said on Thursday the group has therefore not made any provision for overpayment.

Eskom in June 2020 alleged in a Kusile Power Station contract investigations briefing document that it had overpaid almost R4 billion to contractors at the  power station, including an estimated R1 billion to two Stefanutti Stocks joint ventures (JVs).

Read: Stefanutti Stocks secures R110m from Eskom for disputed work at Kusile

Stefanutti Stocks has submitted the following provisional claims:

• An overarching preliminary and general cost claim of R337 million;

• A subcontractor overarching preliminary and general cost claim of R194 million;

• A construction cost claim of R438 million; and

• A finance cost claim of R171 million.

Delay analysis underway

Crawford said these claims are based on the delay analysis as calculated by Stefanutti Stocks’s delay expert and will be adjusted once the analysis has been completed and agreed upon.

He added that interest on all claims will only be calculated once the contractor’s entitlement has been quantified.

Stefanutti Stocks has since August 2021 secured payment of a combined total of R110 million for measured work and Dispute Adjudication Board (DAB) rulings.

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

The claims relate to the Eskom Stefanutti Stocks Basil Read Joint Venture Package 16 contract and the Stefanutti Stocks Izazi JV Package 28 contract.

Commenting on Claim 5, Crawford said the independent quantum experts in March 2023 had their first meeting with the DAB to discuss the schedules of differences.

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“All parties are committed to have the DAB issue a final decision for Claim 5 this year,” he said.

“However, in terms of the contract, a party may issue a notice of dissatisfaction with the final decision and refer the dispute to arbitration.”

Independent resolution process

The adjudication hearing for Claim 6 were conducted in November 2020 and February 2021, and the JV and Eskom embarked on an independent process to resolve several disputes related to the measurement of the work.

To accommodate this process, the adjudicator was requested not to publish his decision.

Crawford said on Thursday that between February and August 2022, the measurement and final value of the direct works was agreed – and to resolve the measurement of all compensation events, a further agreement has since been reached that sets out the process.

“It is anticipated that all outstanding matters will be resolved and agreed by October 2023,” he said.

Read: Kusile Unit 4 officially joins Eskom’s commercial fleet [Jun 2022]

Additional disputes

Stefanutti Stocks is involved in disputes on two further projects.

It said a dispute over the termination of a contract mining project is proceeding to arbitration, which is expected to commence in October this year.

The group expressed confidence the termination was lawful and has therefore not made any provision for it.

It added that the arbitration related to the cancellation of a petrochemical contract had to be postponed due to a fundamental change in the client’s defence and a date for the arbitration is yet to be set.

“At this stage the financial impact thereof cannot be quantified,” it said.

Stefanutti Stocks further reported that the arbitration process related to a mechanical project termination on a project – the identity was not disclosed – completed post its year-end and resulted in a final award to the group of R90.7 million.

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

Business restructuring plan

Crawford on Thursday also provided an update on the group’s restructuring plan.

He said Stefanutti Stocks’s lenders provided the group with funding of R1.2 billion, R45 million of which was repaid on 15 November 2021.

Crawford said agreement was reached with its lenders on 28 February 2023 to extend the capital repayment of the loan and its duration – with a residual balance of about R420 million – to February 2024.

Interest on the loan is serviced on a monthly basis, he said.

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Progress made with the group’s restructuring plan includes:

• The sale of two industrial properties for a combined value of R33 million.

• The transaction to dispose of 49% of the entire issued capital of the group’s United Arab Emirates operation became unconditional on 18 July 2022 and it received an initial purchase consideration of R92 million on 8 November 2021, with a further R35 million received in three payments between May 2022 and April 2023.

• The proposed sale of the group’s Mozambican operation was approved by shareholders on 22 November 2022 but the transaction remains subject to the fulfilment, or waiver, of one last condition precedent, with the group extending the long stop date of 28 February 2023 to 30 June 2023.

• The timing and quantum of receipts to recover historical slow paying outstanding amounts due by the Zambia government remains irregular but the group received R20.5 million in its financial year to end-February and anticipates collecting the outstanding R28 million this year.

• A total of R113 million was received from the sale of underutilised plant and equipment and marine plant.

Improved financial performance

Stefanutti Stocks on Thursday reported an improved financial performance in the year to end-February and a return to profit from total operations to R14.59 million from a loss of R415.2 million in the prior year.

Contract revenue from continuing operations rose marginally to R5.98 billion from R5.96 billion.

Operating profit improved to a profit of R101 million from the R107 million loss in the prior year.

The group’s headline loss per share declined to 10.93 cents from 14.19 cents.

The current order book grew by 28% to R6.8 billion from R5.3 billion.

Group net current liabilities, excluding funding loans, have declined significantly over the past five years from R300.7 million in February 2019 to R19.5 million.

Read: Best and worst JSE performers in 2022

Uncertain future

However, Stefanutti Stocks’s auditors highlighted that at end-February 2023 the group’s current liabilities exceeded its current assets by R1.14 billion, the group’s total liabilities exceeded its total assets by R66 million, and the group had an accumulated loss of R1.2 billion.

It said these events and conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt about the group’s ability to continue as a going concern.

But Stefanutti Stocks said the funding provided by lenders has assisted in relieving the group’s liquidity pressures despite total liabilities continuing to exceed total assets at end-February 2023, representing “technical insolvency”.

“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,” it said.

Shares in Stefanutti Stocks rose 9.57% on Thursday to close at R1.26 per share.