State of the Nuclear: Energy minister reveals the way forward

During a wide-ranging interview with Energy Minister Mmamoloko Kubayi on Friday 4 August 2017, EE Publishers investigative editor Chris Yelland took the opportunity to get an update from her on the state of the proposed nuclear new-build programme in South Africa.

It was all on track

This time last year, the procurement process for the proposed 9.6 GW of nuclear new-build in South Africa appeared to be well on track, and was indeed forging ahead. Brian Molefe, the hero, was firmly in control at Eskom, and had recently returned as a committed nuclear evangelist from a nuclear power induction programme for utility executives at MIT in the USA. Matshela Koko was head of generation at Eskom, and held similar pro-nuclear views.

Molefe put out an unsubstantiated and unlikely position statement that Eskom would soon be cash-flush, and could handle the proposed nuclear new-build on the strength of its own balance sheet, without the need for any financial support or guarantees from government and the Treasury.

The incumbent energy minister at the time, Tina Joemat-Pettersson appeared more than eager to rid herself and government of the burdensome nuclear hot potato, and happily dumped the responsibility to procure, build, own and operate the new-build onto Eskom, just as Molefe and Koko had asked.

Perhaps Molefe and Koko’s nuclear commitment was not entirely based on sound economic, financial and planning principles, nor in the best interests of South Africa and Eskom. Perhaps there were other nefarious agendas at play.

Whatever, Eskom seized the opportunity, and sprang into action, commencing the nuclear procurement process, and preparing to issue the long-awaited formal request for proposals (RFP) to the Russian, Chinese, South Korean, American and French nuclear vendors before the end of 2016.

Then it was stopped in its tracks

But the Treasury balked and refused to authorise the RFP without a clearer idea of the associated costs and benefits, financing options and business models for the nuclear new-build. In place of the RFP, and largely to save face, on 20 December 2016, Eskom was obliged to issue a watered-down and non-binding general request for information (RFI) instead.  

However, in a landmark judgement on 26 April 2017, the Cape Town High Court put a stop to all this. The judgement came as a massive blow to the nuclear procurement programme, and stopped it in its tracks.

In terms of the judgement, nuclear inter-governmental agreements (IGAs) with the USA, Russia and South Korea were declared unconstitutional and unlawful. The ministerial determination signed on 11 November 2013 and gazetted on 21 December 2015 for a 9.6 GW nuclear new-build in South Africa was declared invalid. The ministerial determination of 14 December 2016 for the appointment of Eskom as the procuring agent for the nuclear new-build was set aside, as was Eskom’s RFI of 20 December 2016.

Furthermore, any subsequent RFPs for a nuclear new-build by Eskom before finalisation of a national Integrated Energy Plan (IEP) and updated Integrated Resource Plan for Electricity (IRP) were declared irrational.

“The court found that we should have done things differently. We should have taken the IGAs to Parliament in terms of the Constitution”, said Kubayi.

The way forward

Minister Kubayi is clearly unhappy with certain aspects of the judgement, which she feels impinges on the role of government to set policy, the powers of the energy minister, and the separation of powers between the executive and judiciary.

“We are not happy that the ministerial determinations have been set aside, because it feels like the court has taken away certain powers of the minister. But we have decided not to appeal the judgement,” she said.

“We have decided instead to try to implement what the court has ruled, and rectify the nuclear IGAs. Difficulties in respect of the ministerial determinations and the public processes required will have to be addressed with Nersa, as it is the implementing body.”

But so much has changed

Thus, while Eskom was handed the baton to run with the nuclear new-build procurement in late December 2016, so much has transpired since then.

The Public Protector’s State of Capture report lead to the “early retirement” of Molefe as Eskom CEO in disgrace. A cabinet reshuffle put a new finance minister and energy minister in place. The acting Eskom CEO, Koko was suspended pending investigations suggesting corruption and nepotism. Dr Baldwin Ngubane resigned as Eskom chairperson under a cloud, and the Eskom board was decimated. The Cape Town High Court judgement stopped the nuclear procurement. Electricity demand in South Africa dropped further as the country moved into a full-blown recession. Eskom and South Africa were downgraded to junk status by some ratings agencies, and Eskom’s precarious financial position was revealed.

Over the same period, storm clouds gathered across the global nuclear horizon. Westinghouse filed for Chapter 11 bankruptcy on 29 March 2017, and its parent company, Toshiba, found itself in financial distress. French nuclear vendor, Areva, also found itself in financial difficulty, and the French national electricity utility EDF took control of Areva, hurting its own financial position in the process. Quality control issues continued to dog Areva, and the nuclear regulator forced EDF to shut down half the nuclear reactors in the French fleet for inspections.

Massive cost and time overruns continue to be experienced on the construction of nuclear power plants in the USA, UK and Western Europe. South Korea’s continued commitment to the construction of nuclear power plants also came into question in early 2017. The only nuclear vendor countries still steaming ahead are the Russians and Chinese, in political environments somewhat less than democratic, and in business environments not exactly transparent or accountable.

Some questions and answers

So while the nuclear procurement baton was passed to Eskom in 2016, it is now firmly back in the hands of the Department of Energy.

Can South Africa and Eskom really afford a nuclear new-build? How will this be financed, and what will be the business model? Is this the least-cost option, and the way to go? How can perceptions of corruption and lack of due process be addressed? When will the nuclear RFP be in a position to proceed? Will Eskom still be handling this?

To these questions, Energy Minister Kubayi answered:

“We have decided to relook at the whole nuclear process and the requirement for nuclear IGAs, to see if there is anything that needs improving or reworking. There are lessons to learn from what has happened before.

“More than nuclear power itself, people are afraid of nuclear because of a lack of transparency and accountability. People are concerned about corruption. We need to be open and transparent going forward.

“Nuclear power is a government programme, and my responsibility as minister is to put a document together and take it to cabinet. The document must reflect what we have learned and what we think should happen. We don’t want to make the same mistakes in future.

“We are reviewing the whole nuclear process, taking it to cabinet, advising them on the issues, and making recommendations.

“Issues of funding will be addressed as there are lessons to be learned here too. We want to tell the nation what we are considering for the funding of the nuclear build programme. We will address the risks and security concerns as well. There are people investing in the nuclear sector that need certainty”.

Just a few challenges

There is no doubt that the departure of the two most vocal Eskom nuclear evangelists, Molefe and Koko, under a cloud of alleged corruption and nepotism, has severely damaged the credibility of the nuclear lobby, and dealt a body blow to the nuclear cause. Those that remain at Eskom are committed, but lack the voice, political clout and connectivity of Molefe and Koko.

Following the interview with Minister Kubayi, the impression was left that the minister and the Department of Energy are starting afresh in reviewing both the nuclear case and the proposed nuclear build with new eyes and without any previous emotional attachment.

Minister Kubayi seems concerned about aggressively over-optimistic and questionable statements emanating from nuclear lobby groups and nuclear vendors, and considers these public statements and communications unhelpful and unwanted, and as making things more difficult for her.

The energy minister is rethinking the position of Eskom as the nuclear procuring agency, and confirmed what financial analysts all know – that there is no way Eskom can finance the nuclear new-build on its weak balance sheet, or without government guarantees, as suggested by Molefe.

It’s all about the money

Financing the nuclear build, and the business model to be used remain the big issues. The cupboard is bare, both at Eskom and at the Treasury, and it’s all about the money. But with the economy in recession and electricity demand in decline, it would seem that quick decisions on the nuclear new-build are both unlikely and unnecessary.

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