Nuclear ball rolls in June

2017-04-09 06:00

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A confidential document reveals that South Africa’s nuclear-build programme kicks off in earnest in June when Eskom issues a formal request for proposals from companies bidding for the estimated R1 trillion contract.

The nuclear deal – for which Russian company Rosatom is widely considered to be the frontrunner – is, say senior Treasury officials, “directly related” to President Jacob Zuma’s axing of finance minister Pravin Gordhan and his deputy Mcebisi Jonas.

“It is well known that Gordhan was against the project as he said the country couldn’t afford it. Eskom will be issuing a request for proposals in June and that really is the beginning of procurement. Gordhan had to go because he was going to block it again,” said a senior official.

The internal Eskom document dated three days before Gordhan and Jonas were axed reveals a tight timeline for the programme that will see four plants built to provide 9 600 megawatts of electricity to the country.

The request for information process has already been issued and closes on April 28.

After the request for proposals is issued in June, the deadline for bids is September, for evaluation in December. The winning bidder will be decided in March 2018 and the contract signed between December next year and March 2019.

The document also reveals that most of the major nuclear contracts will be implemented through “turnkey” procurement, which Treasury officials are concerned about.

“While Treasury allows for turnkey procurement, we know that it is often used to hide corruption. Companies that are asked to deliver turnkey projects are accountable to themselves. They appoint whoever they like, however they like,” a senior official said.

Turnkey projects are when a single company is appointed to manage and deliver an entire project. The management company becomes responsible for appointing all contractors and service providers. This is different from an open tender that is spread over a range of different contractors appointed by the state.

Eskom spokesperson Khulu Phasiwe said Eskom had always embraced being the owner and operator of nuclear plants.

“The focus in the next two years will be to go out on a request for proposal subject to the requisite authorisations obtained. It is possible that the request could be issued by the end of June, with selection of preferred vendors by the first quarter of 2018,” he said.

“This is dependent on the relevant approvals from Eskom being obtained, as well as the governance processes of the SA Nuclear Energy Corporation (Necsa) and relevant government departments. It is possible the preferred bidder would be selected by the first quarter of 2018.”

Zuma’s spokesperson Bongani Nqulunga said the presidency was “unaware of the June date for the issuing of the request for proposals for nuclear energy, nor does it get involved in the procurement processes of other state entities. Nuclear energy will be implemented at the scale and pace that is affordable. This position has not changed.”

Meanwhile, a confidential legal opinion Treasury commissioned reveals how Gordhan and Jonas blocked the department of energy from procuring the nuclear deal directly from foreign governments through closed bids.

The opinion, prepared by Advocate Kameshni Pillay SC and Advocate Nyoko Muvangua in March last year, shows that the South African government wanted to procure nuclear plants directly through intergovernmental agreements with foreign governments. It also shows that in March last year, the ­department had already prequalified and ­selected five countries – Russia, the US, France, Japan and Korea – to submit bids or proposals. This would have contravened the Public Finance Management Act.

The department abandoned its proposed procurement regime after a stinging critique by the lawyers. A senior Treasury official said Gordhan’s insistence on doing everything by the book prompted the Presidential State-Owned Companies Coordinating Council, headed by Zuma, to recommend the project be handed to Eskom. Cabinet ratified the decision in October last year.

The Treasury executive said his former political bosses solicited the opinion following sharp disagreements between them and the department of energy about the nuclear build programme’s intended procurement process.

“The department of energy would have taken the bid documents to the ­embassies of the prequalified countries, and not specific companies in those countries. Nobody would have known that procurement had commenced,” the official said.

The opinion said the department of energy’s procurement strategy would have led to the “conclusion of government-to-government contracts” that do “not feature in the legal procurement framework”.

“[This] will have the effect of placing the relevant governments in positions of power to decide independently on suppliers, and this would contradict procurement principles,” it says.

The opinion also says that, at the time of its compilation, the department had already prequalified and entered into intergovernmental agreements with Russia, the US, France and Korea for the nuclear project.

In response, the department stated that South Africa was bound by its international obligations as a member state to the International Atomic Energy Agency and that intergovernmental relations should be entered into with countries that are signatories to the ­Nuclear Non-Proliferation Treaty.

The department said the arrangement would be “transparent because it will be the outcome of a competitive tender process, and not the result of bilateral negotiations”.

Following the critique, the department produced a new procurement strategy with a “fundamental shift towards a competitive bidding process, albeit with a few concerns,” said the lawyers in a follow-up legal opinion in June last year.

Treasury has declined to comment.

The department of energy said it had decided with Eskom and Necsa to recommend to Cabinet that the last two take over as owner-operators and procurers of the nuclear build programme.

“The department’s decision was based on a legal opinion about [its] legal competency to procure and complications that would arise regarding the nuclear site applications if the procurer [the department] was different from the licensee and owner-operator of the power plants [Eskom]. The legal opinion noted that the department is not empowered by law to directly procure on behalf of other juristic entities, which are also organs of state, and against their will or without their consent,” the department said.

Read more on:    treasury  |  eskom

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