The world is changing fast and to keep up you need local knowledge with global context.
The twists and turns in the political stories unfolding in South Africa read like an over-the-top action thriller. There are allegations of deals struck in secret between President Jacob Zuma and Russian heavyweights. Then there are suspicions that the president’s associates, including three brothers from India, have been involved in a chess-style plot to seize control of South Africa’s state organisations. This strategy is going so well, the narrative goes, that billions of rands have been siphoned out of government coffers. Add to the mix an antagonist in the form of fearless Public Protector Thuli Madonsela, who has been working tirelessly in the face of intimidation to unpack the deception. And, let’s not forget an economic superman in the form of finance minister Pravin Gordhan, who is believed to be blocking a deal with Russia – and stands between South Africa and the end of the world as we know it. Is this story for real or is there a #Zupta conspiracy at play? In this in-depth analysis, Fin24’s Matthew le Cordeur unpicks the details of the nuclear procurement programme – the ultimate jackpot, as far as state capture theorists are concerned. It’s a cliffhanger, as South Africa waits to hear the verdict from Madonsela on whether there is a state capture campaign at play. – Jackie Cameron
By Matthew le Cordeur
State capture theorists point to the 9.6 GW nuclear deal as the jackpot, which explains why so much attention has been given to how the nuclear procurement programme has played out.
All hell broke loose when Russian firm Rosatom said on September 22 2014 that it had struck a mega nuclear deal with South Africa, with politicians immediately crying foul over the process.
Critics immediately linked a “secret trip” by President Jacob Zuma to Russia, calling into question his role in the alleged done deal.
“The announcement, which followed a secretive trip to Moscow by President Jacob Zuma, prompted allegations that the government was dodging procurement rules,” French news agency AFP reported in 2014.
“I think the whole thing that President Zuma went to Russia in secret, the next moment he comes back with a nuclear deal, it gave people a suspicion that the tender process won’t be followed,” Dawid Serfontein, North-West University nuclear engineering lecturer, told AFP at the time.
Rosatom told Fin24 that its announcement was a public relations mistake and that it had definitely not signed any nuclear deal with South Africa.
The announcement was simply for an intergovernmental agreement needed ahead of the official procurement process, Rosatom and the Department of Energy (DoE) have continuously emphasised.
In one of many statements that followed, the DoE said in 2014 that “the procurement process has not started. Therefore, the nuclear programme is not associated with corrupt procurement processes”.
Since 2014, the DoE has signed agreements with other countries like France and China, but critics have pointed out that the Russian one seems more like a watertight deal than the others.
Two environmental groups – Safcei and Earthlife Africa – then took the DoE to court over the Russian agreement, arguing that it has indeed locked South Africa into a done deal with Russia.
While the DoE and Rosatom have seemingly brushed the case aside as delaying tactics, the green lobbyists are eager for a judge to hear their case, with a trial date set for December 13 and 14 2016.
The announcement on Tuesday that the DoE would no longer be the procurement agent of the nuclear procurement programme raised concerns that government was trying to find a way around being transparent and accountable to Parliament, where it has received stiff criticism from parties like the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF).
— Economic Freedom Fighters (@EFFSouthAfrica) October 13, 2016
Energy Minister Tina Joemat-Pettersson told Parliament on Tuesday that while the DoE would coordinate the overall programme, Eskom would now be the procurement agent and funder, while state-owned nuclear firm Necsa would be responsible for nuclear fuel and reactors.
The move was an “elaborate sleight of hand aimed at muddying the water and subverting effective parliamentary oversight”, DA shadow minister of energy Gordon Mackay said in a statement on Tuesday.
He said the “tender will be subject to Eskom’s board tender committee, the very same tender committee found to be corrupt by the Supreme Court of Appeal (SCA)”.
This allegation points to a December 8 2015 SCA ruling that Eskom “unlawfully” awarded a R5bn steam generator replacement contract for Koeberg nuclear power station to French firm Areva. It ordered that the contract be set aside and that Eskom reissue the tender properly from scratch.
In addition, Gordon said the nuclear tender will be subject to internal Eskom processes, “effectively shielding the nuclear deal from direct parliamentary oversight”.
The environmentalists’ court case and Gordon’s critical view of the nuclear programme in Parliament centre on the question of state capture and corruption.
Safcei holds a weekly protest vigil outside Parliament, calling for an end to the secrecy surrounding the nuclear programme.
DA is far-fetched, says Eskom
Gordon’s fear is that they are shifting the goal posts to retain a veil of secrecy. It is something Eskom spokesperson Khulu Phasiwe believes is “far-fetched”.
“The notion that Parliament will not have direct oversight on the nuclear build programme is a bit far-fetched, to say the least,” Phasiwe told Fin24 on Wednesday.
“Eskom accounts to the Department of Public Enterprises, and both institutions are regularly summonsed to Parliament to account on matters that affect this company.
“Mr Gordon Mackay and his organisation, the DA, are members of the Portfolio Committees on Energy and Public Enterprises, which regularly get updates from Eskom through oral presentations and/or written submissions.
“In addition to this, all the information pertaining to Eskom is contained in the annual reports – which are available online and in hard copies. Not only has Eskom not missed any deadlines in presenting its annual reports, but also releases such results twice a year (interim and final).
“It is therefore misleading to suggest that information on the proposed nuclear energy programme will be subjected to a different set of rules, or lack thereof.”
From coal to nuclear build
Linking the nuclear deal to Eskom’s disastrous coal new build programme, Gordon said a “nuclear deal not directly subject to parliamentary oversight will cost more and be subject to greater levels of corruption, in the same way as Kusile and Medupi have been with regard to their association with Hitachi”.
In a $19m settlement it reached in the US, Hitachi revealed that it landed $5.6bn in contracts to build boilers for the coal power stations, and said an ANC “front company”, Chancellor House Holdings, made a 5 000% return on its investment in the local Hitachi unit.
Eskom has been criticised for being over five years late and billions of rands over budget.
Phasiwe disagreed and said the contracts awarded for the Medupi, Ingula and Kusile power stations were awarded in an open and transparent tender process.
“Eskom has learned valuable lessons from the current new build programme … and these lessons will be put to use in the nuclear programme in order to mitigate against the risks of project delays and the resultant cost overruns,” he explained.
“Eskom is ready to deliver the nuclear programme because it has improved both its operational performance and financial position compared to two years ago,” he said.
Eskom has R150bn war chest to spend on nuclear
Phasiwe praised the DoE decision to move the procurement of nuclear energy to Eskom.
“We appreciate a vote of confidence that the DoE is showing in Eskom to carry out such a project,” he said. “Between Eskom and Necsa, we have over 80 years’ experience of operating safe nuclear energy installations.
“Eskom alone has been operating the Koeberg power station for over 30 years without any safety incidents.”
Matshela Koko, Eskom’s head of generation, wrote in a document sent by Phasiwe that Eskom’s 2016/17 corporate plan indicates a continuing trend of financial and operational stability over the next five years.
“This improving trend will continue over the medium to long term, which will culminate in the company having cash balances in excess of R150bn by year 10 of the plan. These cash resources could be deployed to fund the new nuclear build programme.”
The change in Eskom’s liquidity comes just a year after government had to sell a 13.91% stake in Vodacom to help stabilise Eskom’s depleted balance sheet with a R23bn injection. In addition, it also converted a R60bn subordinated loan to equity, meaning Eskom received a massive R83bn boost.
Eskom is also trying to get consumers to pay higher tariffs as a result of the 2015 load shedding crisis, during which time Eskom incurred extra costs to run diesel-powered generators. While energy regulator Nersa approved a 9.4% increase for 2016/17, a court shelved this pending a review.
State capture link to nuclear
The state capture theorists believe the nuclear deal is linked to an alleged “takeover” of Treasury, the nation’s fiscal watchdog that has allegedly blocked the nuclear deal on account of the state being unable to finance the multi-billion rand guarantees.
Nomura emerging market economist Peter Montalto believes if the state gives nuclear the green light, it would immediately spark a downgrade to junk status by rating agencies.
“Taking on the nuclear build programme contingent liabilities under the DoE and the ANC’s preferred vendor financing model would confirm South Africa in junk for all the agencies,” Montalto told Fin24 in March.
Public Protector Thuli Madonsela has planned to release her findings into a “state capture” probe, in which the politically-linked Gupta family allegedly offered the finance minister role to Deputy Minister Mcebisi Jonas on behalf of Zuma.
The Guptas – friends of Zuma – have business interests in mining uranium, a mineral that is refined into nuclear fuel, through Oakbay Resources and Energy. However, they announced recently they plan to divest their shares in all their businesses in SA by the end of 2016.
Madonsela wants to release the report on Friday, her last day on the job, but Zuma said he needs more time to question the complainants and recommended she leave the investigation to her successor.
In addition, the Guptas’ lawyers on Tuesday said that should the findings of her state capture report include that the family was “in any way whatsoever involved in inappropriate conduct,” she would be doing so at her “own peril”.
Whether she will release the report and what it will say, only time will tell.
Whatever the outcome, the narrative of state capture and the path towards a new nuclear era in South Africa will remain a heated, tangled web of intrigue.
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.