Nuclear vendors interested in competing for South Africa’s installation of 9 600 megawatts of nuclear power admitted this week that they were concerned about whether the country could afford the programme.
However, at the same time, the vendors were investigating creative financing options and models to help South Africa pursue its nuclear dream.
In the running are Russia, South Korea, France, China and the US.
Russian state-owned enterprise Rosatom is considered the hot favourite in the race after it signed a detailed intergovernmental agreement with South Africa more than a year ago.
This week, Russia, China and South Korea attended the Nuclear Africa conference, where they explicitly stated that they were eager to do business with South Africa.
But whether South Africa will embark on a new nuclear build programme is far from decided, despite a clear political appetite for the deal.
Money is at the heart of the issue. The nuclear deal has emerged as a central point of contention in the battle for the soul of Treasury, with allegations that former finance minister Nhlanhla Nene was fired to make way for a more nuclear-sympathetic minister.
Treasury is reluctant to pursue the deal at the moment as senior officials fear it could bankrupt South Africa.
So far, government has set aside R200 million to support preparatory work for nuclear procurement.
However, no money has been allocated for the cost of building the new nuclear power stations.
South Africa’s programme is expected to cost anything between R500 billion and R1.2 trillion.
The department of energy is set to release its request for proposals by the end of this month.
It will take interested vendors between six and nine months to draw up their proposals.
Tim Yeo, chairperson of New Nuclear Watch, said that despite the significant price tag, the question was whether South Africa could afford to not go nuclear if it wanted to build a strong economy.
New Nuclear Watch is an international lobby group whose members are part of the nuclear industry. It mainly operates in Europe.
“South Africa needs to drive a hard bargain to make that happen. These vendors want your business. With a skilled negotiator, you can get a lot of bang for your buck,” Yeo said.
A senior official from Rosatom said that South African finances were a concern, but that it was considering all avenues to help South Africa afford the deal.
He admitted that it could be a challenge for South Africa to provide the necessary guarantees for some of the models.
Bae Sang Ha, chief representative of Korea Electric Power Corporation, agreed.
However, he warned that guarantees for an engineering, procurement and construction format could be too steep for South Africa, citing an upfront cost of $40 billion (R614 billion).
South Korea, the dark horse in the programme, is quite buoyant after its nuclear success in the United Arab Emirates.
China is another strong contender, but it lacks the strong connections that the Russians have.
Li Su, vice-president at China’s state-owned energy corporation SNPTC, said the company was able to offer South Africa a “one-stop solution” and said China had a number of models that it could offer South Africa.
However, the vendors definitely have reason to be worried about South Africa’s finances.
If South Africa is downgraded to junk status, it will have less money to spend than it has now, making it even more difficult to pursue a nuclear dream.
Nikolay Drozdov, Rosatom’s director of international business, said there were a number of models under discussion, but it was too early to go into detail.
The Koreans and Russians are interested in pursuing an independent power producer (IPP) agreement that would be similar to that of South Africa’s successful renewable power programme, where they would sign a power purchase agreement with government.
IPP-generated electricity would initially be very expensive because of the large upfront costs of constructing a nuclear plant, driving up electricity prices in South Africa.
South Africa’s strict nuclear legislation also states that a nuclear island – the heart of a plant that produces the steam – in South Africa has to be 60% owned by a state utility such as Eskom or the SA Nuclear Energy Corporation.
Rosatom admitted it would be difficult to invest in a plant where it was not the straight-out owner.