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Eskom fires starting gun on nuclear plan

Dec 20 2016 18:04
Matthew le Cordeur

Cape Town – Eskom officially started the process to procure 9.6 GW of nuclear energy on Tuesday, when it released the request for information (RFI).

Eskom’s interim chief executive Matshela Koko announced the release of the RFI on twitter, saying the information is now available on the Eskom bulletin.

DOWNLOAD: Eskom's RFI document

The RFI forms the non-financial part of the overall request for proposals (RFP), which requires Treasury’s sign off before it can be published. That is due to be released in the first half of 2017.

It is the first step leading to the appointment of one or more foreign specialist suppliers who will work will the South Africa team in the construction of the new fleet of nuclear power stations.

Eskom had planned on releasing the RFI last Thursday, but Eskom spokesperson Khulu Phasiwe told Fin24 it would be delayed until this week, as the Eskom board's sub-committee wanted to have one final review of the RFI.

“This determination from government was done yesterday,” he said on Thursday, referring to the gazette that moved the procuring agent of nuclear from the Department of Energy to Eskom. “After that determination, Eskom needed to follow certain processes at a board level. That is why they have delayed the issuing of the RFI.”

Legal challenge

The Democratic Alliance and civil society body Outa criticised Eskom’s rush to start the 9.6 GW programme and both said they will explore all legal avenues to prevent the process for unfolding.

“Proposed energy policy contained in the integrated resource plan 2016 clearly indicates that nuclear procurement can be postponed until the mid-2020’s and the actual build until 2037,” DA MP Gordon Mackay said in a statement.

“This plan, modelled and drafted by the Department of Energy, stands in sharp contrast to the Section 34 Ministerial determination gazetted …  by Joematt Petersson, effectively handing Eskom the permission to commence with the nuclear procurement process by the end of 2016.”

“As the state continues to pursue this ill-fated nuclear deal additional legal bases are being added for a serious legal show down on the legality and rationality of nuclear procurement,” he said. “The DA will continue to explore all legal avenues available to it in order to ensure this increasingly illegal act of state is blocked.”

Outa chairperson Wayne Duvenage said “government are simply manipulating the legal process to ensure they can commence their nuclear energy procurement process before the High Court has an opportunity to scrutinise their shady dealings.”

“Outa is currently assessing its legal options and other avenues on this matter.”

Expect poor market reaction

Fear of an expensive nuclear energy programme plunging South Africa into a debt crisis and a ratings downgrade will mean markets could react negatively to this move.

In reviewing Finance Minister Pravin Gordhan's mini budget in October, Nomura economist Peter Montalto said the market took the part of the speech about the transfer of the procuring authority for nuclear to Eskom "very poorly".

"We think this highlights that the market has underappreciated this part of the narrative and the risks that stem from it to Eskom’s balance sheet and onwards up to the sovereign," he said. "Today likely confirmed in markets’ minds that nuclear is happening and it’s happening below the radar.

"The transfer of authority to Eskom reduces cabinet and parliamentary oversight of the programme and lessens the degree of Treasury oversight to a degree but not completely, especially if it requires sovereign guarantees," he said. "Eskom may well undertake a smaller build programme of around 3.5GW vs the 9.6GW originally planned, bringing costs down to (still a huge) $20bn (R281bn) odd vs $85bn (R1.2trn) odd previously."

Both Gordhan and President Jacob Zuma have committed to rolling out a nuclear programme and the scale and pace that the country can afford.

What the RFI seeks

The RFI requests countries which wish to submit bids to supply nuclear power station technology to South Africa to indicate that they are intending to bid, by answering a number of questions, nuclear firm Necsa explained. 

The questions relate to localisation of construction and fabrication technology, training schemes, intellectual property sharing and exposure, and a number of other issues which will form the basis of any large scale mutually beneficial construction programme.

It was announced recently that Eskom will be the owner, operator and procurer for the nuclear power plant construction, while Necsa will be owner operator and procurer for the entire nuclear fuel cycle system and multi-purpose reactor which Necsa has labelled the CPR for Commercial Production Reactor, since it will be aimed at the production of consumer products such as nuclear medicine.

“This is an exciting move that this major initiative is now underway," Necsa chair Kelvin Kemm told Fin24 on Monday.

“Over forty years ago, in collaboration with foreign partners, South African embarked on the construction of Koeberg nuclear power station," he said. "That decision turned out to be a great success. This time around we can do even better.”

Necsa CEO Phumzile Tshelane said nuclear power produces South Africa’s cheapest electricity and holds the promise of other dramatic economic contributions such as major water desalination.

“Necsa has been operating a nuclear reactor for over half a century,  we know what we are doing and are pleased to be working together with Eskom on this challenging road, which can deliver so much," he said.

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outa  |  eskom  |  nuclear deal


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