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French have nuclear edge

Oct 23 2016 06:08
Yolandi Groenewald

Eskom’s power grab in the new nuclear deal has given the French nuclear industry an edge to secure what is sure to be South Africa’s biggest tender.

Up to now, Russian nuclear firm Rosatom was widely viewed as the frontrunner in the nuclear deal. But it is no secret that Eskom and the French nuclear industry have a close working relationship thanks to Koeberg, Africa’s only nuclear power station, which Eskom has operated for the past 30 years.

It is evident that Rosatom only has a limited relationship with Eskom. Sources in the industry say it appears that Eskom trusts French technology and holds it in high regard.

Energy Minister Tina Joemat-Pettersson confirmed this month that Eskom would be taking charge of South Africa’s nuclear build programme, adding that Eskom was much better equipped to handle the procurement because of the lack of nuclear skills in the energy department. This week Eskom group executive of generation Matshela Koko confirmed Eskom’s intention to take charge in an opinion piece outlining Eskom’s plans on funding and possible timelines.

South Africa wants to add 9 600 megawatts of nuclear power to its grid, and Eskom will now ultimately decide who is awarded the contract. The state utility denied any allegations of favouritism, insisting that all bidders would be treated as equals.

French nuclear company Areva was also considered the preferred bidder the last time South Africa was close to finalising a nuclear deal back in September 2008. But Eskom, also the procuring agent then, withdrew the tender citing a lack of capital. Areva also won a controversial bid from Eskom to replace Koeberg’s ageing steam generators recently.

This time, the French will bid as EDF/Areva – nuclear technology company Areva sold its reactor business to the state-owned energy utility EDF earlier this year.

French nuclear counsellor Thomas Mieusset did not want to comment on whether Eskom’s new leading role has boosted the French’s chances.

“The French industry has not engaged in any discussion about the new build with Eskom since 2008,” he said. “We are committed to strengthen our long-standing partnership with our South-African counterparts in order to cooperate in many fields of the new build programme.”

But Mieusset believed that the experience that Eskom has acquired with its current technology, including the now defunct 2008 nuclear tender, would be key to make nuclear expansion successful in South Africa. He praised Eskom as a “good operator”, adding that Koeberg was built based on a know-how transfer from French reactors more than 40 years ago.

He said the French nuclear industry has constant exchanges with Eskom, including its top management, in the framework of the operation of the Koeberg plant.

Viktor Polikarpov, regional vice-president of Rosatom, said his firm could see the value in Eskom’s new role, because of its experience in successfully running a world-class nuclear power plant.

Rosatom had a limited but highly professional working relationship with Eskom, said Polikarpov, through supplying enriched uranium products to Koeberg.

Rosatom was confident that its technology, comprehensive offer and global track record would speak for itself, Polikarpov said.

Where will the funding come from?

A big question remains where the funding for nuclear – estimated to be anywhere between R500 billion and R1.1 trillion – will originate. Koko said that Eskom, Treasury, the department of public enterprises and the department of energy (DoE) were collaborating on a funding plan for the nuclear build programme. This funding plan will be finalised after the final proposals from the vendors have been received and presented to Cabinet. 

Koko argued that government should not wait around for the long-awaited Integrated Resource Plan (IRP), but that prices from the nuclear bid could help shape the IRP. 

The DA slammed Koko this week for jumping the gun. 

“Koko’s haste stems from a desire to get the ball rolling before the release of the updated IRP because this could push the need for the new nuclear build back as far as 2040,” said DA public enterprises spokesperson Natasha Mazzone, adding that Koko was usurping both the role of the DoE as well as that of Treasury in commenting about funding and timelines. 

Any proposal will have to include serious capital from investors. Koko said Eskom had assessed possible funding models, including project financing options, export credit agency financing, and part equity from original equipment manufacturers. 

Joemat-Pettersson earlier said that these would fund the programme in total, with no funding coming from Treasury. She believed Eskom would turn to global markets to raise the needed capital for the new nuclear project. 

Koko was confident Eskom could raise the required money, with critical investors coming to the party. He cited Eskom’s R70 billion funding scheme for its coal-fired plants as an example of its success in accessing funds, adding that the power utility had learnt valuable lessons from the building of its coal-fired plants. 

But did investors have an appetite to invest in nuclear? 

Erika van der Merwe, CEO of the Southern African Venture Capital and Private Equity Association (Savca) said the bulk of current investment activity in Africa is within the power sector and especially in renewable energy. But she cautioned that investment tends to select smaller energy projects, compared with large, traditional power projects that are complex to fund and manage. 

Private infrastructure investors are interested in funding large initiatives such as the Independent Producers Programme, said Vuyo Ntoi, regional head at African Infrastructure Investment Managers. 

“Nuclear does provide a significant challenge, though,” he said, adding that the finance scale of nuclear projects is much higher than the other projects. In addition, nuclear power stations have in the past shown a higher propensity for cost escalations and schedule slippage, which is the very risk that private infrastructure investors seek to avoid.” 

Ntoi said weak credit ratings also played a role in securing finance. “For instance, power-generation projects that have Eskom as the off-taker are exposed to Eskom credit risk, to the extent that Eskom’s obligations are not backed by a Treasury guarantee.” 

Nuclear projects are also likely to be too large for most private investors, said Emile du Toit, head of infrastructure investments at Harith General Partners Private Investors. Investors will also be skittish as a result of the inability to transfer some key risks to various contracting parties and the residual long-term liabilities that could be associated with nuclear power, he explained. 

He said a combination of private equity investors, country-specific sponsors and energy performance certificate providers such as large multinational construction firms could provide a private sector-funded solution. 

Read Fin24's top stories trending on Twitter:

eskom  |  russia  |  france  |  sa nuclear deal  |  koeberg  |  nuclear energy
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