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Full nuclear project will likely fail - analyst

Sep 09 2015 06:34
* Peter Montalto

Cape Town - Tendering for nuclear energy is only the start of a complex process, with government approvals at each step allowing for oversight opportunities of courts and parliament, explains Nomura research analyst Peter Montalto.

He gives a forecast of what could happen in South Africa regarding its Nuclear Build Programme:

- SA is still acutely aware of the arms deal scandal, which is still being investigated some 16 years later, as are the vast cost overruns of Medupi and Kusile.

- This a pet project of one part of the government and the ANC, and is interwoven with politics and the succession issue.

- A government policy may be put in place through cabinet and an IRP update that backs nuclear energy.

- Tendering will be launched in the coming months with a decision by March.

- The structure of the tender request would favour Russia (and China perhaps) asking for full vendor financing with a long repayment period that US/Japan, South Korea and France bids are unlikely to be able to meet.

- While the process may be transparent on the surface, the tender structure will likely favour Russia. China is the second most likely. Brics solidarity is key, though Brics development bank funding looks unlikely, with South Africa’s current major request there being funding for Eskom itself.

- It is highly unlikely 9.6GW will ever be built.

- The National Treasury will ultimately only be asked to assess affordability after tendering has occurred, and will do so on a “narrow” question. The Minister of Finance will likely provide sign-off.

- Strong opposition within the ANC and parliament will lead to an investigation and attempts to make public classified documents on the tender.

- Court cases driven by the DA and civil society should stall the procurement for many years. The Public Finance Management Act, procurement and tendering regulations and laws and anti-graft legislation will all come into play.

- The dynamic of the ANC in parliament in the run-up to the 2017 elective conference and the Gauteng faction in particular there and within the energy portfolio committee is likely to be key.

- Succession risks and the ability of the new leadership of the ANC after 2017 is a key risk to a successful tender being turned into construction contracts.

- The possibility of another party gaining power (DA or DA-coalition in the 2024 election) may mean that, even if construction of some units was under way, approval for final units to come on by 2030 would not be forthcoming.

- Technology changes, particularly the reduction in costs of micro-flat-pack nuclear (not to mention other fuel types), and real terms cost reductions over this period are likely to be substantial and leave nuclear looking comparatively even more expensive as time moves on.

- The full nuclear project is unlikely to be successful, and even the success of a smaller build hangs in the balance.

This is an edited extract from a report by Nomura.

NOW READ: Why SA should welcome nuclear energy

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