The definition of a developing country is one where politics trumps economics. And as South Africans ready themselves for another massive electricity bill – up to $100bn over the next 15 years – they can be certain of there will be no exception to the developing nation rule here. An economist would weigh the options, find great appeal in exploiting cheap and plentiful Mozambiquan gas, Congolese hydro or even the Karoo Shale opportunity and opt to invest energy there. But when political imperatives rule, decisions are based on very different criteria. A fact emphasised in this excellent Bloomberg report. – AH
By Paul Burkhardt and Franz Wild
(Bloomberg) — Politics may tip the balance as Russia’s Rosatom Corp. and France’s Areva SA prepare to battle it out for South Africa’s planned nuclear-energy project that could cost $100 billion.
“Geopolitical and industrial relations between South Africa and the nuclear-vendor countries will play an important role,” Des Muller, the head of Johannesburg-based building company Group Five Ltd.’s nuclear construction division, said in an e-mailed response to questions Dec. 17. “It does with all major infrastructure projects and more so on nuclear infrastructures where reliance on nuclear safety and construction knowhow is paramount.”
South Africa could pay as much as $100 billion spread out over a period of 15 years for nuclear reactors to provide 9,600 megawatts of power, Muller said. The continent’s biggest electricity user is trying to make up for more than a decade of underinvestment in power generation, which is already leading to recurring blackouts and stifling investment in the economy, which relies on energy intensive industries such as underground mining and the smelting of chrome and aluminum.
The government hopes new nuclear plants can help it reduce its reliance on coal for power and address future energy needs as aging infrastructure needs replacing.
“The South African government has stressed that through the new build process we wish to revitalize a nuclear industry in South Africa with a view to long-term self-sufficiency,” Xolisa Mabhongo, group executive corporate services at the South African Nuclear Energy Corp., or Necsa, said in an e-mailed response to questions. “Therefore localization is one of the key considerations.”
@alechogg @helenzille @MyANC_ This COMPLETE & UTTER FRAUDULENT SCAM must be STOPPED! NO need for it! It WILL BANKRUPT SA! PUSH BACK HARD SA!
— Will Truthout (@WillTruthout) December 22, 2014
Eskom, Pelindaba
Eskom Holdings SOC Ltd., South Africa’s state-owned utility that generates about 45 percent of the continent’s electricity, runs the 1,800-megawatt Koeberg nuclear plant, which supplies half of the Western Cape province’s power. The company is spending 500 billion rand ($43 billion) through 2017 adding 11,000 megawatts of capacity to the grid and servicing an aging fleet of stations.
The country’s Pelindaba nuclear research plant near the capital, Pretoria, is home to the world’s second-largest manufacturer of medical radio-isotopes that help diagnose and treat some cancers. It’s also the site of a weapons program that resulted in South Africa becoming a nuclear power during apartheid. The country has since dismantled its nuclear weapons.
Head-Start
Russia may already have a head-start as President Jacob Zuma fosters stronger economic cooperation with the country and China in a shift from his western and Africa-leaning predecessor Thabo Mbeki, Robert Besseling, a Johannesburg-based analyst with IHS Country Risk, said in an interview. The Soviet Union and then Russia historically kept close ties with the ruling African National Congress from the days in which it was battling against the apartheid regime.
Under Zuma’s watch, South Africa was incorporated into the BRICS alliance with Brazil, Russia, India and China.
“Considering the much-stronger relationship between the Zuma presidency and the Russian government than under the previous South African administration, it looks much more likely that the expansion of the nuclear program will be awarded to Russia,” Besseling said.
Zuma has already been attacked by newspapers including the Johannesburg-based Mail & Guardian and the opposition Democratic Alliance. He personally negotiated a September framework agreement with Russia, including only his closest advisers, the Mail & Guardian reported on Sept. 26, citing government and ANC officials it didn’t identify. The president’s office denies this. The Democratic Alliance is appealing the denial of its request to see the document through the Promotion of Access to Information Act.
Procurement Rules
After signing agreements allowing for nuclear cooperation with Russia, France, the U.S., China and South Korea, and conducting technical workshops with delegations from the countries, the Department of Energy has met with companies from those countries to discuss the most important elements in the project: technology, safety, financing and how much of it will be built locally. The department is in the process of determining the procurement rules, including whether the bidding process will be open to anyone or by invite only.
“The political relations could trump the technical” on a national and global scale, Anne Fruhauf, southern Africa analyst at New York-based risk adviser Teneo Intelligence, said in a phone interview. Russia is the frontrunner, not least because of Zuma’s stronger orientation to the Brazil, Russia, India and China block, South Africa is a part of, Fruhauf said. “A joint bid between the Chinese and French could perhaps give them the upper hand,” she said.
Areva Position
ANC spokesman Zizi Kodwa’s mobile phone wouldn’t take any answer-phone messages and he didn’t respond to e-mailed questions.
France’s Areva this year beat Toshiba Corp.’s Westinghouse Electric to a 4.3 billion-rand contract to replace steam generators at South Africa’s 1,800-megawatt Koeberg nuclear plant.
That experience and a failed court appeal of the decision has left Westinghouse unsure whether it will bid for the larger nuclear project.
“Westinghouse is considering our options at this time based on our recent experience in RSA and on our experience in the last round of bidding for new nuclear plants in RSA,” the nuclear-power builder said in a Nov. 21 reply to questions, referring to the Republic of South Africa. “Nuclear projects are very large and can impact international relationships between the associated countries.
Arms Deal
There are 37 of Rosatom’s VVER reactors that use pressurized water operating outside of Russia, including 18 units in five European Union countries, according to the company. Areva has built more than 100 reactors around the world, with its EPR design under construction in Finland, France and China. Westinghouse said its AP1000 reactor uses “the world’s safest commercial technology.”
One risk is that the billions involved in the nuclear program could become fertile ground for corruption, according to Fruhauf. “The scale of the commitment and the potential for corruption is there for all to see,” she said. “The administration must ensure a competitive process to avoid allegations of wrongdoing.”
It wouldn’t be the first time. South Africa’s $4.2 billion purchase of jets, warships and helicopters from companies including ThyssenKrupp AG and BAE Systems Plc, agreed in 1999, is being probed by a judicial commission following persistent allegations of corruption in the awarding of the contracts.
Graft Conviction
In 2003, Tony Yengeni, a former lawmaker for the ruling ANC, was found guilty of defrauding parliament by failing to disclose a discount on a luxury car from one of the companies bidding for the arms contract.
Splitting the bid is “definitely possible,” though limited by whether the difference in technology between countries would be economically feasible, Viktor Polikarpov, Rosatom’s regional vice president for central and southern Africa, said in an e-mailed response to questions.
“One must also take into consideration that the depth of localization and the volume of technology transition is in direct correlation to the number of reactor units built by a single vendor,” he said. – BLOOMBERG
