Azar Jammine: Bemused by nuclear deal process, but pleased action at last

After the outburst of public anger around South Africa's $50bn nuclear power plant deal with Russia, chief economist at Econometrix Azar Jammine offered a more sanguine view on CNBC Africa Power Lunch today. He says in terms of global costs, the quoted $50bn for eight new power plants of 1 200 mW each is not excessive; and he is delighted that there is some action on the growing energy crisis. Jammine, however, is bemused at the manner in which the announcement was made, coming as it did from the Russian state's atomic energy arm. My head scratching comes from Government's about turn on nuclear. Those with longer memories will recall billions were invested in the home-grown and Pebble Bed Modular Reactor project – employing 800 nuclear scientists – which was scrapped. And the response to my inquiries at Eskom was that the SA power utility is totally in the dark on this development, first hearing about it when we did. Lots more questions than answers. – AH

ALEC HOGG: Welcome back to Power Lunch. Yesterday, South Africa's Energy Minister, Tina Joemat-Pettersson, signed an agreement with the General-Director of Russia's State-owned Rosatom (it's the State energy – atomic energy corporation in that country) to say that nuclear power is coming to South Africa. We already have it in Koeberg, but it's coming in dollops. A $50bn investment by this country in Russian nuclear power is on the cards. Azar Jammine, Director and Chief Economist at Econometrix joins us now. Azar, I've been scratching my head on this for a number of reason, the first one being the actual cost of it – $50bn – that's about 40 percent of what South Africa spends every year, in its National Budget at the moment. It seems like a big bet on a single stream.

AZAR JAMMINE: I think one has to be a little bit careful. $50bn is not huge in relation to the size of what is being spent on Medupi and Kusile etcetera. It's also not huge in relation to what one would expect to spend on nuclear power. We're talking here about…I read the figure $55bn for each section of eight sections of nuclear power that would eventually build up to 9.6 Gigawatts, which effectively, is 9600 Megawatts, which means about 1200 Megawatts for each section and each section would cost R55bn. For nuclear power, that is not exceptionally high, if that is what we're worried about.

ALEC HOGG: Well, how are we going to pay for it, though?

AZAR JAMMINE: My understanding from this would be that it would come over a gradual period of time. What I find totally perplexing is that this announcement should have been released by the Russians, and not by our Government or the Presidency and it is just, so vague in terms of what the conditions are and the timing of such a deal.

ALEC HOGG: The other point that perplexes me (well, one of them) is that we had a thing called a Pebble Bed Modular Reactor. We spent billions on developing this over the years, and then it was abandoned. It appeared (at some point, anyway) to have been very highly promoted as a national asset. If we were going to go into nuclear, one wonders why we didn't pursue that route and why we're now making friends with the Russians.

AZAR JAMMINE: I would totally agree with that. We ourselves did a research into the Pebble Bed Modular. We concluded that it was worth retaining and most importantly, in order to retain the skills involved in that. We lost many of those skills to overseas once the decision was taken to close the Pebble Bed Modular Reactor.

ALEC HOGG: The other thing that is a bit concerning that yourselves, the late Tony Twine (your colleague) did the research into shale gas the Karoo and came up with some extraordinary numbers of its impact on South Africa. Clearly, shale gas is also a far cheaper source of electricity – potentially, anyway. Would that not have been a more feasible way to invest the taxpayers' money?

AZAR JAMMINE: Alec, I think you're right up to a point. The problem is that we need to start doing something about ensuring that we have an electricity supply after Medupi and Kusile have been completed. It's critical because we are seeing virtually, with every day now, how the lack of sufficient electricity-generating capacity is actually impairing our economic growth. It's not a case of 'we're not growing enough. Therefore, we don't need to have as much electricity'. It also works the other way around. We cannot grow enough if we don't have enough electricity, so something does need to be done. I'm also not dead against the idea of nuclear power as an option. I personally think that in the context of the huge build-up of environmental concerns with carbon-orientated electricity generation, one needs to look at alternative sources.

The problem with shale gas is that the whole issue is immersed in controversy about whether or not it's going to do environmental damage. Consequently, we haven't even started investigating shale gas resources. What Tony Twine said was that the potential output could be so huge that it could be a game-changer. Therefore, it needs exploration and development but we haven't gotten off the ground at all in that regard. To some extent, I have sympathy with the idea of starting to plan for something that will come in to operation in the early 2020's, but what flummoxes me is the manner in which this whole thing has been disclosed – very much as the manner in which Gill Marcus' retirement was announced last week. I just doesn't seem to be totally transparent.

ALEC HOGG: Azar, just to close off with, in a geopolitical sense – and there is a lot of that happening at the moment, particularly with Russia… We have had our President and Trade & Industry Minister in the United States recently, asking the Americans to extend AGOA, which is a very important agreement for South African exporters to get their products into the United States. Given the tensions between those two countries, this size deal with the Russians…does that not put AGOA (or our membership thereof) at some kind of risk?

AZAR JAMMINE: I find that very difficult to answer. That issue is worth questioning, but I think that the answer would like more with the Americans I think, than with the South Africans. South Africa has made it quite clear that it's wanting AGOA and now it's made it clear that it wants nuclear power from Russia. If the Americans say 'no go' then of course, South Africa may have to think twice about this agreement. They clearly didn't want to feel beholden to the Americans in reaching some agreement with the Russians.

ALEC HOGG: An interesting world we live in… That was Azar Jammine, Director and Chief Economist at Econometrix. As he is telling us, he feels that some relief that at last, the energy question is being addressed, but the way it's been addressed leaves question marks.