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Cabinet gives green light to nuclear procurement

The Cabinet has approved the start of the nuclear procurement programme, clearing the way for the Department of Energy to call for proposals to provide SA with 9.6GW of nuclear power without first doing a cost-benefit analysis.

The programme is controversial as several independent studies have found that the cost of new nuclear energy will be greater than energy produced by other technologies. There is also deep suspicion that the procurement will be corrupt, with Russia claiming some time ago that it had already struck a deal with SA.

The decision was made at the last Cabinet meeting of the year, after which Nhlanhla Nene was fired as finance minister. The approval was not announced by Minister in the Presidency Jeff Radebe in his Cabinet briefing.

Nene has repeatedly said that nuclear energy would not be procured if SA could not afford it. The African National Congress (ANC) has also expressed caution, passing a resolution at its national general council in October, calling for “a full, transparent and thorough cost-benefit analysis of nuclear power.”

The decision means that a request for proposals can be issued immediately. Nuclear vendors will respond to the call with proposals that will include pricing and financing models, after which negotiations will begin. While the move does not necessarily have immediate budget implications, it signals a strong statement of intent by the government.

In the context of the firing of Nene, the pounding of the rand and financial stocks and the recent credit ratings downgrade, the indication that SA wants to proceed with a large nuclear procurement will be seen as another credit-negative factor for SA.

In October, the Treasury allocated R200m to the Department of Energy to assist with a feasibility study and to procure transaction advice.

At the time, the Treasury said this was to be used to “consider the costs, benefits and risks of building additional nuclear power stations.” There is no evidence that a cost-benefit analysis was done. Department of Energy officials were not available to provide further details on Sunday, but Treasury officials said they were not aware of any work being done.

Last year, the department commissioned three studies from international consultants to explore the costs of nuclear energy. These included a KPMG study on the benchmarking of the cost of nuclear power; an Ingerop study on the cost of nuclear plants and proposed ownership models; and a Deloitte study on the financing of nuclear power plants.

In August, Business Day requested copies of these reports from the department, but was told they were classified.

The department has said its studies show that “nuclear energy is affordable.” But Business Day understands that the Deloitte and KPMG studies found to the contrary: that substantial amounts in debt and equity from the state will be required. In addition, none of the studies analysed the levelised cost of nuclear energy in relation to other technologies.

Three independent studies — one by researchers at the Energy Research Centre at the University of Cape Town; one by the Centre for Scientific and Industrial Research; and one by an engineer at the University of Stellenbosch — all published in September, found nuclear energy to be more expensive than other base-load options.

Enoch Godongwana, head of the ANC’s economic transformation committee, said he was not aware of the content of the Cabinet’s resolution and whether it would still involve a cost-benefit study at some point.

“Government needs to assess whether it is value for money and how much nuclear energy will cost relative to other technologies. Government has got to do the research … for all of that,” he said.

Business Day


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