Red power is on its way

2014-09-07 15:00

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Russia remains the favourite to build South Africa’s next nuclear power station – but it is not going to be plain sailing.

President Jacob Zuma and Russian President Vladimir Putin discussed the nuclear programme on Zuma’s visit to that country last week, but City Press understands from sources inside the department of energy that no final agreement has been made between the countries. Zuma left his trade advisers at home during the visit.

Not everyone in government is happy with the choice of Russian nuclear company Rosatom for the programme, which is set to cost about R1?trillion. The controversial arms deal cost South Africa R30?billion in 1999.

“The Russians come with high risks and not everyone is ready to commit to those risks. That said, for political reasons alone, the Russians remain favourites. But nothing has been decided,” a government source with knowledge of the process told City Press.

According to the source, one of the concerns was whether Russia would remain politically stable throughout the decade-long construction of the power station.

A government-to-government agreement would in essence exclude other countries from participating because the country involved would have to give permission for a third party to be included. Although a tender process would still be followed, it would amount to a one-horse race.

Pretoria and Moscow were all set to sign a government-to-government agreement earlier this year that would have given Russia’s Rosatom the inside track on what will probably be South Africa’s most expensive infrastructure programme to date.

A draft cooperation agreement circulated government halls in March. It allegedly had a controversial clause giving the Russians veto power over any other nuclear agreements South Africa might enter into with other countries. But South Africa got cold feet, the reasons for which were unclear.

The source told City Press that most notably in Eskom, which will be the likely owner-operator, there is a lot of discomfort in going with the Russians. Eskom referred all queries to the department of energy, adding that its role in the process has not yet been defined. The energy department did not respond to questions.

A risk in narrowing the pool to one country is that South Africa will not get enough bang for its buck and that the technical competency of the project could be neglected in the face of politics.

But a government-to-government deal could speed up what is widely expected to be a lengthy procurement process. China and France have also engaged South Africa to sign on the dotted line. A deal with the Chinese is not off the cards as South Africa strengthens its ties with the other Brazil-Russia-India-China (Brics) countries.

Other companies, including French-owned Areva and US-Japanese company Westinghouse, believe they are still in the running. An encouraging sign is the department of energy’s development of a procurement road map, which is expected to be released in November.

City Press understands there is a strong faction in government pushing for an open procurement process rather than the country-to-country deal.

Decision time

It is likely that South Africa will make a decision before the end of the year. Earlier this year, the department of energy invited interested parties to submit proposals on pricing, and the resulting study on the likely costs of the nuclear programme should be completed by the end of the month.

If South Africa does go with a full procurement programme, it will first issue a prequalification phase, probably by the end of the year, where it filters vendors to fit the right technology and size for the South African market.

Zuma has a key say in making the decision as chair of the national nuclear energy executive coordinating committee.

Previously chaired by former deputy president Kgalema Motlanthe, Cabinet restructured the committee in April, adding ministers to the panel. The ministers of Energy, Public Enterprises, Finance, State Security, Defence and ­International Relations are now part of the committee.

With geopolitics likely to influence a final decision, Areva is also working with China on a Sino-Franco deal that would see Areva deliver the nuclear technology, and the Chinese get involved with management and financing.

In terms of pricing, the energy department has speculated in the past that European build programmes such as Areva come in at the higher end of the scale, with the Americans in the middle and some Asian vendors at the lower end.


Even with a country-to-country deal, so-called localisation – where local industry is also cut into the share of the pie – will be a key consideration.

Knox Msebenzi, the managing director of the Nuclear Industry Association of SA, said: “All of the listed construction companies [and others] are likely to play a role in partnership with international companies currently ­involved in nuclear construction projects abroad. The South African construction industry is a national asset and is able to make the stretch to nuclear with international partners.”

Rosatom’s director in South Africa, Alexander Kirillov, said Rosatom would ensure South Africa’s local industry benefits.


According to Msebenzi, nuclear plants are relatively expensive to build but cheap to run.

“But once you have paid for the plant, it more or less prints money. However, raising the capital for construction can be a challenge, and the most likely route is for the vendors to partner with banks to bring the funding, and for these banks to be repaid via an agreed electricity tariff trajectory. In the current global financial climate, this may exclude some vendors,” he said.

In a recent interview, Bismark Tyobeka, the CEO of the ­National Nuclear Regulator of SA, said the Russians provided an interesting financing model for a project in Turkey, which might just be what South Africa is looking for. The Russians would carry the entire cost of the nuclear power plant and the government has to provide the land and guarantees for power purchase from these plants.

“Over a number of years, the Russians will own and operate these plants and then get paid back through selling electricity, but the Turks will get a certain percentage of the electricity sales,” he said.

“Eventually, the plants can be bought by the Turkish ­government. This is an adjusted build-operate-own turnkey financing model. I am of the opinion that this model is the most attractive to many newcomer countries.”

The contenders


Korean private nuclear company Kepco said its study had found that South Africa could supply up to 40% of components in a nuclear programme and promised significant investment into the local industry.


Areva has a number of cooperation agreements with South African industry and has just won the tender to supply Koeberg with new steam generators.

It has promised to train more than 77?000 South Africans, and as many as 70?000 direct jobs could be created. It said 6?000 engineers, 18?000 technicians and 53?000 artisans would be needed for such a project, and most will be employed in South Africa.

Areva has thrown its support behind local industry in the qualification process.


Westinghouse’s mantra is: “We buy where we build.” In a Westinghouse project, it is typical for 50% of the equipment as well as most of the construction to be localised.

Westinghouse already has strategic partnerships with a number of South African nuclear industry companies.


Rosatom says projects must be mutually beneficial and must contribute to the development of local socioeconomic sectors.

It promises to create 15?000 additional jobs in construction, service and operation of the new units.

Rosatom said it could start off with 30% localisation for the first units and increase this to 60% for the last units.

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