WHILE there is a great deal of discussion about whether the Intergovernmental Agreement between South Africa and Russia is a done deal for Rosatom to supply South Africa with the eight reactors it is planning, there is little discussion about what type of reactor they are offering.
There is also little debate about whether Russia can actually deliver on the deal, especially within the planned time-scale of bringing the first unit on-line in 2023.
The attraction of Russia as a supplier is the belief that they will be able to provide a full package: not just of the equipment, but also the finance.
In 2008, a tender for just two reactors had to be abandoned because South African sources could not supply the finance. Since then, Eskom’s credit rating has fallen to ‘junk’ status and the rating of South Africa is only just above junk.
So even if the South African government was to offer loan guarantees – this would mean banks financing reactor orders would effectively be lending to the South African government – this might mean finance was not available or would be prohibitively expensive.
What technology is on offer?
The South African government has pledged that any nuclear power plants it buys will meet the latest standards for nuclear safety.
The problem for South Africa is that none of the latest designs, some of which have been on offer for more than a decade, is yet operating so.
The first on-line from any vendor is not expected before probably 2017, so South Africa is inevitably going to have to choose an undemonstrated design if it sticks to its current timetable.
The ‘AES-2006’ appears the obvious candidate from Rosatom with six reactors under construction. Two are in Belarus and after two years are reportedly still on schedule, albeit 70% over budget. The other four are in Russia and, in July 2015, further delays were announced so that one reactor was three years late and the other three were five years late.
However, there are two distinct variants of the AES-2006. One, the VVER-491 designed by the St Petersburg office of Rosatom is being built at Leningrad and Belarus and is proposed for Finland, while the other designed by the Moscow office of Rosatom, VVER-392 is being built at Novovoronezh and is proposed for Turkey.
These variants are sufficiently different to require an individual safety analysis. However, a new design, VVER-TOI developed by the Moscow office was announced in 2010 and was expected to be ready for order in 2012.
This design was claimed to be 20% cheaper than AES-2006 and could be built in only 40 months. However by 2015, no orders had been placed for this yet. There is no information on which of these three variants would be offered to South Africa.
A particular problem will be the safety review of these designs.
Normally, a country in South Africa’s position would rely on the comprehensive safety analysis of the authorities in the home country of the exporting country. However, this does not work for Russia.
A senior official from Rosatom and the former head of the Finnish safety authority, Jukka Laaksonen, said the official licensing document “is a short piece of paper, since the memos are, in the regulator’s view, the property of whoever has paid for that work and in Russia that is Rosenergoatom, Rosatom’s nuclear power plant operator subsidiary”.
For exports, he said Rostechnadzor’s (the Federal safety regulatory body) requires experts to write “a bunch of separate memoranda, which are not really compiled as a single document”.
Can Russia deliver?
In the past 30 years, Russia has started building just 14 commercial reactors. Six are for its home market, four for China, two for India and two for Belarus with eight of these still under construction.
However, it claims firm orders for at least 17 further reactors in eight countries (see table 1) while deals are said to be close in another half a dozen countries (see table 2). All of these are ahead of South Africa in the queue.
TABLE 1: Russia’s firm nuclear orders
TABLE 2: Markets with advance negotiations
Source: Prof Steve Thomas
Saudi Arabia, with its plans for eight reactors, appears to be at about the same stage as South Africa, while it is much less likely to require Russian finance. Other countries to sign agreements with Russia this year expected to lead to nuclear power plant orders include Myanmar, Namibia, Ghana and Tunisia.
After a period of about 10 years when it averaged one order per year, it is hard to see how Rosatom could manufacture the equipment for five or more reactors per year.
There have been hints that South Africa would be able to set up manufacturing facilities for components both for its home market and for exports, a prospect that has been held out to a number of its potential customers, such as India.
It would seem a big risk to set up component manufacturing facilities at huge cost in the hope that Russia would allocate production to these facilities and receive enough orders to repay this cost.
However, it is the financial side that is most in doubt. The order for Finland is clearly a high priority as it is seen as a gateway into the Western European market including the UK and finance for that is coming from the National Wealth Fund but that is likely to be the only project to be able to access this limited source.
International sanctions and the fall in oil price have led to a collapse of the Ruble, with it losing more than half its value against the dollar so depleting Russia’s currency reserves that Russia is no longer defending the Ruble.
The collapse of the Ruble has led to particular problems with Rosatom’s order for two reactors for Belarus, which was reported to be a ‘turnkey’ or fixed price deal. This was denominated in dollars and the collapse of the Ruble has meant costs to Rosatom have gone up by 71% and Belarus has been asked to provide financial support to keep the project going.
The four large commercial reactors under construction in Russia are all delayed by three to five years in part because it is said there are insufficient funds to continue at full speed. Given that Russia cannot find enough finance for reactors on home soil, it is hard to see how it could finance orders for perhaps 30 export orders.
The reality may be that what is going on has more to do with diplomacy and international politics than selling reactors.
Russia can only supply a small proportion of the reactors apparently ordered or planned. Given the close connections between the Russian government and Rosatom, the likelihood is that the ones that will go ahead will be for markets where Russia most values political influence, such as the Middle East and Europe and markets that offer the lowest financial risk such as Europe and Saudi Arabia.
* Steve Thomas is the professor of Energy Policy at the University of Greenwich.