NEWS ANALYSIS
I spent a few days in Russia last week to kick the tyres, so to speak, of its nuclear power stations, to get a better idea of how good a potential supplier the country is of South Africa’s mooted R1-trillion, 9 600-megawatt (MW) nuclear power programme.
That we should have such a programme at all is a wonder because our economic development master plan, the National Development Plan, put together with some effort by the National Planning Commission called for a thorough inquiry into nuclear costs and finances.
Policy, though, is meant to be guided by the integrated resource plan. We have a set of these that have contradictory things to say about nuclear, if and when we will need it.
But actual policy in this case appears to be more about what President Jacob Zuma and his energy minister, Tina Joemat-Pettersson, want. This is for a supplier for a 9 600MW fleet of nuclear power stations to be agreed on by the end of the present financial year. That’s by next March – no matter that the treasury had not been involved in the process until a few weeks ago and Joemat-Pettersson has told parliamentarians that even issues such as affordability may remain secret and not open to public scrutiny.
The extraordinary way the issue has been handled has led many to conclude that a secret deal has been struck by Zuma on one of several visits hosted by Russian President Vladimir Putin, and that the country is committed to a costly and risky nuclear future without any due process having being followed.
The ANC itself appears to have concerns. Its national general council in August said that the “government must commit to a full, transparent and thorough cost-benefit analysis of nuclear power as part of the procurement process, and clarify the status of the update to the integrated resource plan.
“Government must also announce publicly that nuclear energy can only be procured in line with the legal prescripts and after a thorough-going affordability assessment.”
Finance Minister Nhlanhla Nene said he wouldn’t sign off on the nuclear power deal if it was unaffordable, and won’t be swayed by political meddling, according to an interview published in Business Day.
The Russian state nuclear giant, Rosatom, which has been positioning itself as the preferred supplier, invited a press group to visit its facilities in Russia to get a better idea of its technological capabilities, and to learn more about the country itself.
This is in part because South Africa and Russia, though both members of the Brics (the others being Brazil, India and China), have little direct relationship, as is shown by the fact that imports and exports both amounted to just R2.4-billion in the first six months of this year. Imports and exports to China, by comparison, are 28 and 48 times higher.
The nuclear power station at Rostov is a world apart from Moscow’s historic Red Square. (Maxim Zmeyev, Reuters)
A Rosatom document made available to our press group, Integrated Offer in Nuclear Energy, describes this colossus. It has 360 companies in the group, with 34 reactors in operation and 29 under construction. These include nine in Russia.
Rosatom says it is the world leader in nuclear power plant construction, first in uranium enrichment, second in uranium reserves, second in the world by installed nuclear capacity and has 17% of the nuclear fuel market.
It is on an aggressive expansion drive, developing nuclear plants in Belarus, Finland, India, Vietnam, Hungary, China, Iran, Turkey and Bangladesh; it is in the process of tendering or negotiating in Nigeria, Jordan and Kazakhstan, and is keen to bid in the United Kingdom, the Czech Republic, Brazil, Argentina, Saudi Arabia, Malaysia, Indonesia and South Africa.
Key to its offering, and why it is seen to be the frontrunner to secure a possible nuclear contract in South Africa, is that it can include finance deals at low interest rates and with grace periods so the customer only begins paying once the nuclear plant is operational.
It is able to do this because it receives funds from the state budget earmarked for nuclear projects in specific countries.
These deals are seen by some observers to be politically rather than strictly business related, because Russia wants these relationships more badly than its American, French, Chinese and Korean competitors.
Our party agreed, as we were driven to the city centre, that Moscow looks a lot like Johannesburg. Except for the lettering, which we learned later is said to have been introduced by two Greek monks about 1 300 years ago.
In the morning, we visited the Kremlin, which means fortress and is Moscow’s oldest site, dating back to the 1300s, and got a peek at Red Square, which was closed because a major concert had been held there the night before and scaffolding and other infrastructure had yet to be removed.
In the afternoon we took a two-hour flight to Rostov, which is south near the border with Ukraine and then we were driven for three hours to Volgodonsk, one of many closed cities during Soviet times that were so secret that they did not appear on any map.
Getting to any nuclear installation means you have to drive, because airports have not been built at these sites to lessen the chances of air attack. The roads were bad and, the closer we got to the facility, got worse – we were bouncing around in the back of the bus as the suspension took a brutal hammering.
Volgodonsk
The next morning we were given an overview of the nuclear operations at Volgodonsk, with public affairs official Elena Shedko at one point holding up a tiny 8g uranium pellet.
Two million of these are placed in rods in the core, each eight grams producing the equivalent energy of 40 tonnes of coal, 50 barrels of oil or 900m3 of water, in the case of hydroelectricity.
A map showed 10 nuclear power plants operated by Rosatom across Russia, mostly in the east of the country, with a combined 34 operating reactors. These produce 17% of Russia’s electricity.
Our next stop was Atommash, a company in the Rosatom family that manufactures most of the equipment needed for the production of nuclear energy, including the giant reactors that produce the heat and the steam turbines that convert this into electricity. This is not Rosatom’s only such facility; this one alone has production lines that can simultaneously produce the hardware for eight plants. It’s a vast, towering factory with monster I-beams and huge cranes that run across the width of the facility so no matter the weight and size of the equipment, it can be moved through the various processes.
Much of the place feels like old-style heavy engineering, but there is high-tech too, such as the use of X-rays to test the integrity of welds and water testing under extreme pressure of the reactor as a whole.
The reactor vessel weighs in at 320 tonnes with a diameter of 14.5m and a length of 12.5m. An upper part that is placed on the vessel weighs another 200 tonnes and the equipment inside another 200, bringing the total to 800 tonnes.
We drove to the site of the nuclear power stations, which is confusingly called Rostov, but which is actually at Volgodonsk.
There are four 1 000MW reactors here, two in operation, a third that was in the process of final commission, and a fourth that is due to start operations in 2017.
Construction at Rostov began in 1979 but was delayed by the catastrophe at Chernobyl, which brought all development to a stop. Chernobyl, in Ukraine on the border with Russia, is the iconic site of the world’s most famous nuclear disaster – the core of one of its four reactors melted down in April 1986.
Two workers died on the night from acute radiation and another 28 within a few weeks. Hundreds of thousands of people were relocated and 600 000 were involved in the clean-up. The area has remained unsettled but this is now beginning to change and the site was declared an official tourist site in 2011, according to the World Nuclear Association.
Rostov
Construction was suspended at Rostov until 1999, when it was re-started using modernised design principles, and commissioned in 2001. A second unit was commissioned in 2010.
We went into the turbine hall of the third unit wearing earplugs to protect ourselves from the deafening noise. This unit was due to be in full commission in a few days, having taken four years to be constructed.
It was hard not to be impressed by the scale of the machine production facility and the size of the giant reactors Rosatom produces and of the efficiency in which it is able to add plants on a modular basis.
We next went into the reactor under construction, into the core itself, with the reactor below and the steel dome ceiling soaring 66m above. This reactor had not been made at the nearby plant we had just visited: it was built near St Petersburg and floated by river to the site.
Feverish construction was taking place as rods were tied and welded into place. A giant crane on a circular base hovered below. The manager of this section, Gennadiy Dovgan, told me he had worked on nuclear construction sites for 32 years and that this was the fifth unit he was building from zero.
Welders and other workers focused on their tasks, oblivious of us. The scene was not unlike what I had seen while deep underground in a gold mine. But South Africa has made a vast investment into getting minerals, including coal, out of the ground to produce energy at some cost, and then uses massive amounts of this energy to beneficiate the minerals from a raw to usable state. Some of this we sell at close to or, in some cases, below cost.
Here were people building a plant to make energy. I know that “release energy” would be a more accurate description of what these plants do, but altogether I was struck by the fact that this may be a much more efficient use of resources than the current mining-energy model that dominates the South African economy.
It is not that we have no experience of nuclear. The 1 800MW plant at Koeberg near Cape Town, with two reactors of 900MW each, has been in operation since 1984, and now supplies by far the cheapest electricity to the grid.
Rosatom is proud of its technology. One application, which we had to look at through 3D glasses, shows a model of the plant as it is being constructed, the 3D master plan being updated on a continual basis as work progresses.
We bounced back along the rough roads to Rostov and flew to Moscow, arriving at midnight.
You need a well-trained workforce to run operations such as these. Rosatom has 260 000 employees across its network of companies, which include uranium mining, enrichment, manufacturing, engineering, power distribution and nuclear icebreaker construction. By comparison, Eskom, which is also a giant on the global stage, employs 45 000 people.
In the morning, after a better look at Red Square, including the glorious St Basil’s Cathedral and the impressive Soviet-era underground stations, we went to MEPhi, the Moscow Engineering Physics Institute, a university that concentrates on nuclear and, among other things, trains students to operate the nuclear plants.
A glossy document gives the scale of the institution: “Beyond Moscow, MEPhi has 21 satellite campuses located in 15 federal districts in 20 atomic cities all over Russia. It combines 11 higher education institutions and 20 colleges, totalling over 38 000 students and over 1 500 full and associate professors.”
It has about 500 foreign students, including from Vietnam, Turkey, Jordan, Mongolia, Nigeria, Bangladesh and a single South African, who was not in Moscow, but at the Obninsk plant.
We met and questioned five of the students. They spend the first year learning Russian. The minimum training period is five-and-a-half years, the idea being that personnel are sent to MEPhi for this time while the plants are being constructed.
Our visit had been timed to coincide with an exhibition, in a grand hall near the entrance to the Kremlin that was once used for stabling horses, which celebrated 70 years of nuclear power in Russia.
Here, in one giant hall, was the reason some people will never accept nuclear power, it being so strongly connected to some of the worst events of human history, namely Hiroshima and Nagasaki, and the resulting arms race that saw the superpowers the United States and the Soviet Union develop sufficient bombs to be able to destroy the planet several times over.
Meanwhile, renewable energy from the wind and sun has been coming to the fore and now makes not only environmental but economic sense too. It received a significant boost after the meltdown at Fukushima where earthquakes triggered a tsunami that flooded the nuclear plants, damaging support systems, which meant that the operators were unable to cool down the overheated reactor.
Germany has since said it will decommission its nuclear plants and move entirely to renewable energy. But if there is a move to renewables away from nuclear, it is not showing up in Rosatom’s order books – it claims to have a backlog of $100-billion in orders to meet.
In recent years, because of slowing electricity demand in Russia, it began to work on a global expansion plan. Even more recently, low gas prices and concerns about selling this finite resource cheaply have led Russia to expand its own number of nuclear plants further.
Rouble trouble
The Russian economy has suffered in recent times from US and European Union sanctions arising from its role in Ukraine and the collapse of energy prices, so much so that some of the Russians we spoke to said their buying power has halved.
Nomura’s Peter Attard Montalto says in his research note on South Africa’s nuclear tender that Rosatom, as a state-owned company in a strategically important sector, is funded directly from the state budget. “Prior to the crisis, this was roughly Rub300- to Rub350-billion [about $4.5- to $5.3-billion] annually, but has contracted in the past two years because of the effect of sanctions on the budget.
“In 2015, Rosatom had anticipated receiving Rub300-billion, but received only Rub260-billlion, representing a 13% shortfall.”
Montalto says, though funding is declining, this is of limited concern [for South Africa] because the state budget predetermines the allocation to specific projects. For example, in 2015, of the Rub260-billion available, Rub30-billion was earmarked for the Akkuyu nuclear power plant in Turkey. So, as long as the Russian government is on board with the project and Rosatom wins the tender, financing should be of limited concern.
Montalto says: “It is also important to consider Rosatom’s self-financing capabilities. Rosatom’s vice-president for sub-Saharan Africa, Viktor Polikarpov, highlighted that the company is generating $16-billion per annum, of which $5-billion is generated from overseas contacts investable in new builds.”
He says information about a loan from Rosatom to South Africa is still opaque, but there are tentative signs that it will be a 20-year loan, which South Africa will only start repaying once the first reactor comes online. “This was the same deal accepted by Hungary for the Paks II project, where the government received the loan at an initial interest rate of 3.95%, rising to 4.95% (the loan was for 30 years and for a value of €10-billion).”
Montalto speculates that the Hungarian case would be closest in terms of ownership structure because it is expected that Eskom will retain ownership of the plants. “Turkey’s Akkuyu represents an alternative case, where Rosatom retains a controlling ownership stake and is also the designated operator of the plant.
“Rosatom vice-president Polikarpov indicated that Rosatom would consider a similar structure in South Africa, but that the contracts would then become much more complex.
“A key difference here is the scale of the projects: Akkuyu cost roughly $20-billion whereas South Africa’s deal could cost up to five times this amount,” he says.
Montalto ends his note with a 14-step prescient prediction of what is likely to happen.
He says South Africa is acutely aware of the arms deal scandal, which is still being investigated some 16 years later, as are the vast cost overruns of Medupi and Kusile.
“This is a pet project of one part of the government and the ANC, and is highly interwoven with politics and the succession issue.”
An exhibition in the Kremlin is celebrating 70 years of nuclear power in Russia. On show is a replica of the biggest Soviet nuclear bomb ever exploded. (Maxim Zmeyev, Reuters)
The structure of the tender request, he says, is likely to “favour Russia (and China perhaps), asking for full vendor financing with long repayment periods that US/Japan, South Korea and France are unlikely to be able to meet.
“However, the Chinese government has shown much less enthusiasm than Russia for South African nuclear power on a state-to-state level.”
Montalto says, though, it is highly unlikely that 9 600MW will ever be built, even though the minister of finance is likely to sign off on the deal on the basis that he will be asked whether South Africa can find the money (it could be from vendor finance), rather than being asked whether the investment makes sense in terms of its wider economic impact.
But “strong opposition within the ANC, and Parliament more broadly, will likely lead to an investigation and attempts to make public various classified documents on the tender”.
“Court cases driven by the Democratic Alliance and civil society should stall the procurement for many years. The Public Finance Management Act, procurement and tendering regulations and laws and anti-graft legislation will all come into play.
“It may well be possible to get a few gigawatts through this process to completion but the obstacles are considerable. We therefore believe that the full nuclear project is unlikely to be successful, and even the success of a smaller build hangs in the balance.”
Rosatom is undoubtedly a global leader in nuclear power and is competitively placed to supply South Africa should we go this route. My view is that if it is affordable we should have nuclear in our energy mix.
But none of this has anything to do with the completely unacceptable approach pursued by Zuma and Joemat-Pettersson. Nuclear, both in its costs and environmental risks, is not to be taken lightly. The process of deciding whether this energy is needed and from whom it can be sourced should be used to build public confidence. We need to understand where the skills will come from to manage and regulate the industry.
The treasury, and the financial expertise and procurement legality it requires, should have been involved from the outset. I tried to interview the treasury for this article but was told it only very recently started working on the issue and, because of this, has nothing to say.
What Zuma and Joemat-Pettersson have done is to ensure that the issue is heading for the courts and that what is rightly a complex process will become even more procedural, so much so that it could end up being bogged down in legal process. Their attempts to rush this complex process by insisting that a supplier be decided by March next year is as foolhardy as it is irresponsible.
SA to shoulder disaster risk
Finance is about pricing risk. In the case of nuclear power this includes the possibility, as remote as it might be, of a Fukushima-type catastrophe.
Bloomberg reported in 2012 that, based on projections to 2015 the Tokyo Electric Power Company had asked the government for more aid after estimating it may need at least $137?billion to cover costs from the nuclear disaster the previous year at its Fukushima Daiichi power plant.
The utility, which had lost 94% of its stock value in Tokyo trading since the March 2011 disaster, faced having to pay that amount to decontaminate areas around the plant and compensate those affected by the disaster, Bloomberg reported at the time.
Regarding the question of insurance, Rosatom officials said that a convention agreed to in Vienna, in terms of the International Atomic Energy Association (IAEA), requires the plant operator to take out insurance.
This convention, adopted by 80 states, as explained on the IAEA website, requires the operator to hold insurance of not less than $400-million.
But the agreement signed by Tina Joemat-Pettersson between Russia and South Africa, which was unearthed by anti-nuclear campaigner Vladimir Slivyak, a senior lecturer of environmental policy at the Russian National Research University, and published by the Mail & Guardian in February, included this clause: in the case of a nuclear accident, South Africa will accept all the liability.
Russian roulette with costs and competence?
Vladimir Slivyak, a senior lecturer in environmental policy at the Russian National Research University, says two recent South African studies have found that nuclear-generated electricity will be more expensive than electricity generated by new coal plants, solar photovoltaic panels and wind.
“The Council for Scientific and Industrial Research projects the levelised cost of electricity from nuclear power to be R1/kWh, R0.80/kWh from new coal, R0.80/kWh from solar photovoltaic, and R0.60/kWh from wind in today’s prices,” he writes in an article published by The Conversation Africa.
This conflicts with Rosatom’s view. One of its officials told our press group that nuclear has the lowest costs when compared with coal, hydro, gas and renewable energies such as wind and solar. Slivyak puts the plant cost at $6-billion for a 1 000 megawatt reactor. Under discussion for South Africa are eight 1 200 megawatts plants, 9 600 megawatts in all. The 2013 Integrated Resource Plan sets a price of $6 500 a kilowatt.
Some observers see this as a low estimate and say that actual costs could be $7 000 or $8 000 a kilowatt. Group 5’s Des Muller told Bloomberg that the reactors could cost as much as $100-billion (R1.3-trillion) over the next 15 years.
It is worth pausing to consider how much money this is. Medupi and Kusile are megaprojects on a global scale, and have the same combined 9 600-megawatt capacity as the mooted nuclear fleet, but even with cost overruns they are projected to come in at R150-billion and R190-billion respectively.
Government debt is about 40% of gross domestic product, about R1.6-trillion. President Jacob Zuma and the energy minister, Tina Joemat-Pettersson, are rushing to get loans, which could add another R1-trillion to the final figure.
Given its history and position in the nuclear market, Rosatom, not surprisingly, has its critics. Greenpeace says in an October 2014 report that the company is actively pursuing expansion domestically and abroad, despite the decline of the nuclear industry globally.
“Rosatom is a questionable business partner,” the report says, “plagued by concerns over corruption … safety and quality control standards … its competence at building and operating nuclear plants, its model for financing projects, and concerns over its ability to complete construction on time and budget.”
Kevin Davie travelled to Russia as a guest of Rosatom.