Very worrying financial implications for South Africa’s nuclear deal with Russia

Nuclear urgency raises alarm, Mail & Guardian , South Africa 27 JUN 2014 LYNLEY DONNELLY The state seems set on going the atomic route despite the huge financial implications. Pressure to find a nuclear solution to South Africa’s power problems continues unabated, despite persistent concerns over its affordability.

Experts point out that nuclear vendor financing may be the way to fund the country’s nuclear ambitions, but there are unresolved legal and financial implications.

There is speculation in the energy sector that political pressure cost former energy minister Ben Martins his job, because he failed to secure a nuclear deal with Russia’s Rosatom.

Martins was replaced by Tina Joemat-Pettersson in President Jacob Zuma’s recent Cabinet reshuffle and goes back to Parliament as chairperson of the portfolio committee on public works……….

The apparent urgency about nuclear procurement runs counter to key government policies, specifically the National Development Plan, which calls for an in-depth investigation of the financial viability of nuclear procurement, and the draft update of the integrated resource plan (IRP), published last year. The document, which is government’s electricity planning road map, suggested that a nuclear decision could be delayed given revised projections of electricity demand.

Nevertheless, a decision about ways to procure nuclear power could be expected within the next two months, theMail & Guardian understands.

Elusive payment plan
The answer to how South Africa will pay for a planned 9 600 megawatts of nuclear capacity remains elusive. Eskom was named the owner and operator of new nuclear plants by the Cabinet, but it is in dire financial straits. It has declared a R225‑billion funding gap and has been placed on credit watch by ratings agency Standard & Poor’s………

The cost of nuclear energy could reach R1-trillion and faces competing energy investment demands.

Nuclear vendor financing models have been touted as a way to get around this, which Martins confirmed is the preferred model. “It was never the intention that South Africa would fund the entire nuclear programme. The stakeholders that have an interest in it would substantially fund the nuclear programme,” he said.

Ross Harvey, a visiting research fellow at the South African Institute of International Affairs, said a likely arrangement is that a nuclear vendor would build, own and operate a plant and take full responsibility for the financing.

Buy-back guarantee
In turn, an electricity buy-back guarantee by the government is the most likely way for the vendor to recover costs.

But it is not clear what legislative and tender processes would need to be in place to manage procurement, he said, and much more work is needed to create “legislative coherence” to govern a nuclear bid.

And, although this model would eliminate initial capital constraints, the government would still have to make good on a buy-back guarantee, Harvey said. It is also not clear that, in the time taken to complete a nuclear build programme, there would be sufficient electricity demand, supported by heavy industrial activity, to support such a guarantee. In addition, other technologies could rapidly develop to provide cheaper base-load power.

Rosatom is constructing a similar “build, own and operate” project in Turkey.

Harvey estimated that, based on Rosatom’s investment there, a Rosatom plant would cost between $5-billion to $7-billion, which is a “massive investment to recoup”. http://mg.co.za/article/2014-06-26-nuclear-urgency-raises-alarm?ars=true