Is a nuclear success story about to be snuffed out?

2018-02-05 06:34
(NTP Radioscopes website)

(NTP Radioscopes website)

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Staff at South Africa's world-leading nuclear medicine supplier, NTP Radioisotopes, have been left fuming after the removal of their managing director and three other senior employees by parent company Necsa.

They see this as a ploy by cash-starved Necsa, the Nuclear Energy Corporation of SA, to make a grab at NTP's funds.

The allegations are backed by evidence of Necsa's severe cash-flow problems and plans around the time the of the suspensions to ram through an agreement for NTP to pay Necsa royalties, despite a legal opinion that none were owed.

The current discontent comes after NTP's closure in November last year, after a safety scare at its Pelindaba facility.

NTP is a global supplier of radiation-based products for healthcare, such as cancer treatment, as well as for industrial uses.

Necsa, as shareholder, ordered three senior NTP executives to go on special leave shortly after the shutdown, which was widely reported.

They are NTP managing director Tina Eboka, head of strategic operations Gavin Ball and compliance head Gerhard Wortmann.

Benji Steynberg, the executive manager for waste and maintenance, was later also put on leave.

All four remain on leave, but have not been charged.

The decision to hastily cast aside top officials, especially the organisation's head, was a curious one.

NTP staff began to wonder why, when it is the norm for state-owned company executives to be granted endless lifelines, their apparently well-respected boss would be so swiftly dispensed with in the absence of solid evidence.

Why go straight for the head when the problem appeared to be one of individuals on the floor not following proper processes? And why at such a critical time, when the executives' experience would be most needed to stabilise the situation and get the plant up and running again?

AmaBhungane spoke to a number of NTP sources – most of them sympathetic to the suspended executives – who suspect that the troubles may have more to do with politics than concerns over safety.

They claim that for Phumzile Tshelane, the long-time chief executive of cash-strapped Necsa, the stars aligned. The safety scare was an opportunity to remove higher-ups at NTP who were seen to be blocking Necsa's attempts to funnel more and more money to the parent company.

Said one: "I for one do think the closure was a convenient opportunity to shuffle the deck chairs. They took out exceptionally competent people."

Necsa on the rocks

It is an open secret that Necsa is in a precarious financial position.

Its 2017 annual report notes candidly that Necsa's corporate sales fell "substantially below target", with its Pelindaba Enterprises division posting an operating loss of R77.9-million.

"The Board recognises that Necsa has been experiencing increasing pressure on its financial, human and infrastructure resources due to a combination of rising operating costs, a declining government grant in real terms and pressure on its non-grant revenue streams," reads the report. 

The only money-spinner within the group is NTP, which was among the few state-owned entities to receive a clean audit in the last financial year.

Although wholly owned by Necsa, NTP is run as a separate company with its own board and management.  

NTP's profit after tax stood at R202.6-million, which was "substantially above target" and in sharp contrast to Necsa's other subsidiary, Pelchem, which lost R35.5-million.

The report notes that "the Group's financial performance was boosted by the NTP subsidiary having an excellent year with net profit 19% ahead of budget". Records from the parliamentary portfolio committee on energy note that NTP's total sales of R1.36-billion make up a large part of Necsa's R2.2-billion total revenue.

High-level NTP sources claim that Necsa is facing a cash crunch and may soon struggle to pay salaries. Necsa needs money urgently.

A few lines buried in the annual report suggest as much: "Although the Group has adequate cash resources, Necsa, the Company, has experienced short-term cash shortages," the report notes.

"The minister, and the National Treasury, are aware of these constraints and discussions are ongoing. These short-term shortages are funded by an overdraft facility of R120-million."

Disentangling Necsa's figures from the group gives further clues of a looming liquidity crisis.

According to the financials, Necsa's own turnover hovers at just under R1-billion, but its bloated wage bill sits at around R600-700 million.

Our sources suggest that Tshelane's efforts to appease union leaders have threatened the sustainability of the parent company, which employs three times as many people as NTP. 

Necsa, without the contribution of associated companies, was operating at a loss of R124-million for 2017, raising questions about its long-term viability.

Necsa also relies on government grant to stay afloat (it received a R599-million grant from the last financial year ending 2017), but it noted in its most recent annual report that the shrinking grant in real terms, "coupled with an escalating salary bill" posed a serious problem.

The report goes on to say, somewhat ominously, that "it is also noted that a subsidiary NTP has significant available cash resources of R518-million".

According to one source, the stash of money that NTP is sitting on is largely spoken for, and should be ringfenced for maintenance, potential accidents, and unforeseen events such as the shutdown.

NTP, says the source, does not have as much financial leeway as some might assume.

Tshelane's empire

The financial woes at Necsa under Tshelane, who has been at the helm since 2012, appear to be longstanding and getting worse.

Back in 2015 Tshelane featured in amaBhungane reports, which detailed his falling out with most of the previous board.

Among the allegations against him were that he used company funds for his own ends and funnelled money to the ANC.

Tshelane was portrayed by his critics as a man who ran Necsa as his own personal fiefdom and enjoyed high level backing. He was so powerful at Necsa that then energy minister Tina Joemat-Pettersson made a U-turn after initially supporting disciplinary action, and instead decided to launch an inquiry into the board.

Tshelane succeeded in getting the board replaced, though he remains locked in legal battles with some former directors.

But Tshelane's empire appears to be crumbling.

Not only is Necsa's commercial viability at stake, but so is its future relevance.

Necsa was set to play a key role in the controversial multibillion-rand plan to build new nuclear power stations. 

A November 2016 Cabinet decision designated Necsa as the owner, operator and procurer for the nuclear fuel cycle and multi-purpose research reactor, giving the company a new purpose.

Tshelane, who was once general manager of the Eskom Nuclear New Build Division, and Necsa chair Kelvin Kemm are both vocal proponents of the nuclear programme, which enjoyed backing from President Jacob Zuma and his faction in the ANC.

With the recent changes in the ANC leadership – and the cash crisis at Eskom – the deal looks a lot less certain.

Zuma's likely successor to run the country, Cyril Ramaphosa, recently told reporters at the World Economic Forum that South Africa cannot afford new nuclear plants.

Now, with Necsa facing its own cash crunch and its hopes for a role in the nuclear programme looking less likely, our sources allege Tshelane is desperate for funds that NTP is sitting on.

"Necsa wants every cent in NTP's bank account," said one.

Unreasonable demands

AmaBhungane understands that in the months before the safety failure, Tshelane was repeatedly making unreasonable demands on NTP's finances and looking for creative ways to squeeze more out of the subsidiary.

In 2017, NTP's management came under pressure to cough up huge sums for intellectual property rights that NTP rightfully owned.

The issue stretched back to the decision over a decade ago to incorporate NTP, which at the time simply operated as a division of Necsa.   

According to senior NTP sources, Necsa claimed that the intellectual property rights for the commercial production of the isotope molybdenum 99 were improperly transferred to NTP at the time of its incorporation.

The parent company argued that government approval for the transfer of intellectual property had not been obtained. It determined that NTP therefore owed R220-million upfront in addition to a massive 22.5% royalty on total revenue. That is, nearly a quarter of what the subsidiary makes.

But our sources claimed that the transfer was approved by the department of energy in line with the Public Finance Management Act, which governs such transactions. 

Necsa, frustrated, allegedly tried another approach, claiming that the intellectual property had not been paid for at the time of incorporation. 

However, it was pointed out to Necsa that the initial transfer price for everything that went into NTP (around R250-270 million) included the intellectual property.

Several sources say a legal opinion on the intellectual property matter which was commissioned by NTP was unequivocal. It said that no money was owed, and if Necsa wanted the intellectual property it would have to decorporatise NTP.

Necsa would not be drawn into the specifics of the intellectual property issue, saying that "NTP and Pelchem are wholly owned subsidiaries of Necsa and all IP commercialised by these subsidiaries emanates from and belongs to Necsa as an R&D organisation."

The company added: "This is simply part of the optimisation of group assets and intra-group liquidity management. This will never be done irresponsibly either to the detriment of the Group or in contravention of any Act that governs us."

However, amaBhungane has seen copies of a letter signed by NTP chairperson Namane Magau who is seen to be close to Tshelane and also sits on Necsa's board.

The letter, signed on 13 September 2017, pledged to Necsa "R220-million, excluding accumulated interest, pursuant to the incorporation agreement entered into between the parties".

A source said that Magau signed the letter without consulting others and her decision to go it alone, in spite of the legal opinion which she knew about, was highly irregular. 

Tshelane sent Magau a follow-up letter dated 14 November, shortly before Eboka, the NTP managing director, was sent home. It concerned the implementation of "royalty payments to Necsa of 22.5% of total income".

The letter stated that "for the avoidance of doubt, payment arrangements between the parties shall apply prospectively starting form 2017/2018".

It is unclear what the status of the royalty matter is now. Magau and the board did not respond to detailed questions, but the letters suggest Necsa has not given up.

Board meeting

AmaBhungane has also pieced together allegations of an NTP board meeting, around the time of Eboka was placed on leave, where Necsa's cash problem was discussed.

Necsa was said to be facing a shortfall of around R150-million and was leaning on the NTP board for an early dividend pay-out and to find a way to cover the balance. 

It is unclear whether any funds have already been transferred, but there is also talk of a R70-million Industrial Development Corporation loan for failing Pelchem that will be underwritten by NTP.

Pelchem is already paying off another R30-million IDC loan than NTP signed surety for.

NTP staff and corporate governance experts amaBhungane consulted say that there is nothing wrong in principle with NTP, as a subsidiary, channelling money to Necsa and cross-subsidising the group of companies, as long as this is done within reason and in an accountable way – and as long as it does not threaten NTP's viability.

"It's fine to help others in the family as long as you make sure you're not also pulled under and drown yourself," said one senior NTP employee.

Fallout in the nuclear industry – How Necsa is fuelling a crisis at NTP

The handling of the recent shutdown of the NTP Radioisotopes facility by Necsa CEO Phumzile Tshelane is fuelling suspicion among staff that there are ulterior motives for the removal of senior NTP managers.

Our sources concede that the National Nuclear Regulator was right to order that that production be stopped. They admit that, although the safety incident did not result in an accident, the concerns about safety failures are serious.

This is because, even though nuclear accidents don't happen often, when things go wrong they go spectacularly wrong.

Any safety issue needs to be nipped in the bud to prevent overall safety culture from sliding.

Much like the airline industry, where to prevent accidents it is critical that a culture of safety is deeply ingrained, in the nuclear industry international safety protocols are constantly reinforced and strictly adhered to. Hence even minor safety failures can result in major shutdowns.

The incident that led to the NTP shutdown took place on October 27 last year at the company's radio-chemicals complex at Pelindaba – the sprawling collection of brutalist apartheid-era buildings that make up South Africa's main nuclear research centre.

It began when staff ran into problems calibrating devices used to analyse hydrogen.

During production in Cell 19, the hydrogen analysers began giving unstable measurements, and in terms of strict protocol, production should have been halted immediately.

Despite the faulty readings, staff continued the production process for several hours until a batch of molybdenum was processed. Only then did they switch off the systems in Cell 19.

Sources said that the technicians responsible for running the facility approach technical problems with the intuition and confidence that comes with years of experience.

Engineers had learned to recognise the groans and murmurs of the equipment they work with by instinct. "Things become automatic," said one NTP source.

But the sources said there is no room for shortcuts and slipups in nuclear safety, and that if anything is even slightly out of joint it must be treated with extreme caution. In that regard, NTP's staff clearly failed.

They were also late in reporting the incident to the National Nuclear Regulator, only doing this on October 30. 

On November 1 the NNR issued a directive to NTP to stop the operations of Cell 19 while investigations were under way.

The regulator then noticed several safety shortcomings that included an expired certificate for gas used in calibration, poorly kept training records for the person responsible for calibration, contaminated clothing, an excess of waste drums stored on site, and a general weakening of safety culture.

These issues resulted in the NNR ordering the shutdown of the entire production facility on November 17.

NTP also began an internal investigation, during which four employees directly involved in the production process and the safety incident were suspended.

As the company's management scrambled to reassure international clients, the axe suddenly fell on three executives including chief executive Tina Eboka.

On November 22 media began reporting that the managing director and two other senior managers had been placed on special leave and that the company was haemorrhaging R3.5-million a day.

In what some employees view as a sign of Tshelane's overbearing leadership style and interference in NTP, he himself announced to staff the removal of the senior managers, rather than the board.

Even more baffling, they said, was the announcement at the same time that the employees suspended by Eboka's team would be reinstated. 

They claimed that while the executives could potentially be found to have been negligent, investigations had not been concluded at the time they were placed on leave, and blame could not have been apportioned beyond those working directly with the systems.

They said that if the senior managers had been kept on to stabilise the situation, it would not have precluded disciplinary action, and questioned the rush to remove them.

In addition, an NTP employee sympathetic to Eboka said she would only have known about the incident after the fact. There were layers of management dealing with safety and maintenance, and the chain of reporting incidents did not go directly from the floor to her office.

Ongoing shutdown

Meanwhile, employees have voiced fears about the effects of an ongoing shutdown.

NTP recently increased its market share after a reactor in Canada was mothballed, but sources at NTP worry that major buyers will soon look for more reliable suppliers if the company fails to resume production soon, and that getting them back will be impossible.

Clients are also anxious and have been trying to get clarity from Necsa on when they can expect supplies.

NTP is a small company that plays an outsized role globally as one of the leading producers of radioisotopes.

One of the main applications of its nuclear medicine products is in medical imaging and the diagnosis and treatment of cancer. The closure of the facility threatens the supply of these life-saving isotopes globally and in South Africa.

Because the products have a very short half-life, they need to be sold and used quickly, and supplies dry up fast.

Amabhungane has seen a January 25 letter from Lizette Louw, the president of the South African Society of Nuclear Medicine, to Necsa and NTP, which captures some of the concern within the medical community.

Louw writes that "the nuclear medicine community in South Africa has been significantly affected by the reactor shut down at Pelindaba". She adds that it has increased the cost of medicines, leading to a loss of income and a negative effect on patient care.

The angry letter states: "We are not only losing patients, but also the trust and respect of referring clinicians due to our inability to provide them with a proper explanation.

"There is no clarity on the exact extent of the problem, the planned solution, or the expected timeline for resolution.

"The manner in which the problem was dealt with and communicated to everyone involved is unacceptable. In fact, the problem has been amplified by your poor communication."

The letter ends by demanding an apology and a clear explanation.

Sources told amaBhungane that the removal of a large chunk of senior managementhas left the organisation rudderless at a time when they are needed most.

One senior technical employee told amaBhungane that since the senior staff were put on leave, other competent NTP employees have been sidelined by employees from Necsa who are not qualified to work on the facility's systems.

The source said that rectifying the problems should not have taken so long.

Two NTP sources said that the collaborative spirit that existed previously is now gone, and people now work in silos, focusing only on what is in front of them.

Asked for details of the investigation into the safety failures and plans to address them, Necsa, appearing to speak on behalf of NTP as well, offered a vague response.

"Necsa Group and NTP can confirm that we are working very hard in addressing matters raised by the National Nuclear Regulator (NNR) related to the discovery of procedural deviations with respect to a set of standard operating protocols.

"We can confirm that there have been several interactions with the NNR to ensure that the manner in which we correct these issues are of the highest standard to avoid any recurrence. At the moment further engagement with the NNR is pending."

The NNR told amaBhungane that "although the implementation of these corrective actions are ongoing, it must be noted that at this stage not all corrective actions have been implemented and therefore production activities remain suspended until the NNR is satisfied that the regulatory requirements have been addressed."


The amaBhungane Centre for Investigative Journalism is an independent non-profit. Be an amaB supporter to help it do more. Sign up for its newsletter to get more.

Read more on:    necsa  |  nuclear

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