Extensive analysis still needed on nuclear costs - Gordhan

Minister of Finance Pravin Gordhan (Netwerk24)
Minister of Finance Pravin Gordhan (Netwerk24)

Cape Town – An extensive cost-benefit analysis including a social and economic impact assessment is still required before the feasibility, affordability and procurement strategy of the nuclear new build programme can be properly assessed by Treasury.

That was the written Parliamentary response given by Finance Minister Pravin Gordhan in response to a question tabled by Democratic Alliance MP David Maynier.

This comes ahead of Eskom’s expected release this month of the request for proposals for the 9.6 GW nuclear procurement programme.

Acting Eskom CEO Matshela Koko said last month that the proposals submitted by nuclear firms like Rosatom and Areva/EDF will help Eskom determine the cost of the new build programme.

“It is very important for us to go into the market so that we are able to go back to give Cabinet what the best rollout is, including localisation (and) … funding options,” he said. “It’s quite important that we do that, otherwise, we keep guessing.”

DA MP Gordon Mackay said on Friday that Gordhan's response contradicts that of the Department of Energy (DoE).

On Tuesday, DoE deputy director-general Zizamele Mbambo told Parliament's Portfolio Committee on Energy that a report of the costs associated with the nuclear build programme had been conducted and finalised, said Mackay.

"National Treasury and the DoE must finally come clean on its costing and financing assumptions," he said. "Only with this information will the South African people be able to make a rational assessment of procuring additional nuclear capacity."

FULL STORY: Nuclear buzz as request for proposals looms

Gordhan's response reveals that Treasury wants to review more than just the cost of building a fleet of nuclear power stations.

“National Treasury has undertaken preliminary assessment of various aspects of the feasibility of the nuclear new build programme, based on the Draft Feasibility Study (2013) submitted by the DoE,” said Gordhan.

However, he said the DoE has not yet completed a full feasibility study with a cost-benefit analysis which includes a socio-economic assessment.

“As a result, a detailed assessment of the feasibility and the affordability of the nuclear new build programme cannot be undertaken at this stage,” he said.

“A preliminary assessment of the documents was undertaken and a letter sent to the DoE on 23 September 2016, outlining Treasury’s assessment on the state of readiness of the procurement strategy.

“The Treasury intends to engage further with the DoE once documents have reached a more substantive stage of development.”

What reports Treasury has done

Gordhan said that in September 2015, Treasury prepared a preliminary report on high-level fiscal and financial implications of a new nuclear build programme for Cabinet.

Treasury also produced an internal report assessing the DoE’s draft feasibility study in 2014. It also conducted internal research on the high level costs and risks associated with a nuclear build programme in 2013 and has been updated since, in line with updated global trends.

The Chief Procurement Officer also sent an assessment of the draft procurement documents to the DoE in February 2016.

Gordhan said all these reports “only contain preliminary observations, which were reached from limited information”.

“Extensive work is still required before substantive conclusions are reached,” he said. “A full cost-benefit analysis must be conducted which must include a comprehensive social and economic impact assessment before the feasibility, affordability and procurement strategy can be properly assessed by the Treasury.”

This comes as the Treasury said Eskom’s R350bn guarantee facility cannot be used to cover the nuclear new build programme, according to a report in Business Day on Friday.

"The discussions that are under way between Eskom and the National Treasury will certainly lead to the necessary extension until the relevant build programme is completed,”  Business Day quoted Treasury director-general Lungisa Fuzile as saying this week.

"The R350bn was never given for nuclear," Fuzile said. "If Eskom were to want to use the guarantee for anything other than what was in the build programme they would have to come and negotiate with us."

Mackay to request Treasury reports

Mackay said on Friday that he would apply for documents through the Promotion of Access to Information Act. This includes Treasury's report, "Assessment of the Nuclear Feasibility Study" and the assessment by the Chief Procurement Officer of the draft procurement documents.

"The key question is whether or not the cost-benefit report has been finalised, if not, why not?

"Why is the government continuing to hide its own cost and financing assumptions surrounding the nuclear build programme?

"Is it because government itself is aware of how blatantly unaffordable it is and how unpalatable it is in an environment where South Africa is experiencing low-to-zero growth and faces continuing ratings pressures due to heightened political uncertainty?

"Preliminary work already completed on the nuclear build programme, which was made available to the Portfolio Committee on Energy on Tuesday, includes models which seem improbable, as they suggest gearing 99% for the proposed nuclear build programme.

"Such a gearing is highly improbable as neither Eskom’s or the State’s balance sheet could tolerate the associated debt-to-equity and debt-to-revenue ratios. In addition, debt service costs would be well beyond the means of the state," said Mackay.

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