To enjoy the full Mail & Guardian online experience: please upgrade your browser
06 Jul 2015 11:03
The Kalininskaya nuclear power plant, about 285km north-west of Moscow, on May 25 2011. (Reuters)
Russia is seen as the frontrunner to win the right to build
South African nuclear power plants that may be worth as much as $100-billion.
With a six-month deadline to award contracts, who’s going to pay for the
country’s biggest project yet remains a mystery.
Price-tag estimates for as many as eight reactors generating
9 600 megawatts, which the government wants to begin operating from 2023 and complete
by 2029, range from $37-billion to $100-billion. Bids are due to start this
quarter, with Russia’s Rosatom seen as a leader.
Areva, EDF, Toshiba’s
Westinghouse Electric, China Guangdong Nuclear Power Holding and Korea Electric
Power have also shown interest.
The planned investment comes as the government battles to
fend off a junk-grade credit rating and the Treasury seeks to rein in the
“There appears to be a simple-minded assumption that
countries like China or Russia will provide cheap plants and offer finance,”
Steve Thomas, professor of energy policy at the University of Greenwich in the
UK, who has monitored South Africa’s nuclear plans since 1997, said in a phone
interview on June 24. “That’s an illusion.”
Head startRosatom may have a head-start in the bidding because of the
close historical ties between the ANC and Russia, according to analysts
including IHS Country Risk’s Robert Besseling and Teneo Intelligence’s Anne
Fruhauf. President Jacob Zuma has met his Russian counterpart Vladimir Putin
several times over the past year and the two nations have signed a nuclear
The agreement provides a “proper and solid platform for
future extensive collaboration”, South African Energy Minister Tina
Joemat-Pettersson said in a statement in September.
South Africa has concluded similar pacts with China, France,
the US, Japan and South Korea.
Rosatom has agreed to fund construction of plants elsewhere.
In 2013, Hungarian President Viktor Orban agreed a €12-billion ($13.3-billion)
expansion to a nuclear power plant with Rosatom, funded with a €10-billion loan
from Russia, payable over 30 years at below-market rates. Hungary’s Parliament
classified the deal for three decades.
“We can’t comment on financial terms of our possible bid
until South Africa starts the tender and clarifies the tender conditions,” Rosatom
spokesperson Sergey Novikov said by phone from Moscow on July 3.
Eskom operates South Africa’s sole
nuclear plant, the 1 800-megawatt Koeberg facility near Cape Town, which has
been in operation since 1984. Five years ago, the government shelved plans to
additional conventional atomic stations because they were too expensive and
difficult to finance.
The government has revived its nuclear expansion plans as it
seeks to address energy shortages that are already causing blackouts and to
reduce its reliance on coal, which Eskom uses to generate about 80% of the
nation’s electricity. While South Africa has had 80 days of load shedding this
year, including 20 in June, there are none so far in July.
CostsThe new reactors could cost as much as $100-billion over 15
years, according to Des Muller, head of Johannesburg-based building company
Group Five’s nuclear construction division. That’s more than five times what
Eskom is spending on two coal-fired plants that will generate a similar amount
A study published in 2013 by the University of Cape Town’s
Energy Research Centre found nuclear plants weren’t needed and would not be
cost-effective for 15 to 25 years, based on a projected cost of $7 000 per
The Department of Energy’s 2013 master-plan – which the
government rejected – suggested deferring a decision on whether to build
atomic power facilities until at least 2025, and scrapping the option if the
cost exceeded $6 500 per kilowatt of capacity. Thomas estimates current costs
at about $8 000 per kilowatt installed.
The nuclear programme will benefit the country for the next
80 years and promote industrialisation, said Zizamele Mbambo, a deputy
director-general at the department of energy.
Investment return“The return on investment will far exceed the investment,”
he told reporters in Cape Town on June 2.
While the new plants will go ahead, the cost and funding
arrangements still have to be worked out, according to the energy minister.
“The true test of affordability for nuclear power will be in
the price and financial offering provided by technology suppliers,” she said in
a written reply to a parliamentary question on June 11. “It is crucial to start
the actual nuclear procurement as soon as possible. The expected cost of the
project will be announced once the procurement process has been finalised.”
While Zuma and his deputy Cyril Ramaphosa back the nuclear
programme, the Treasury is more circumspect.
“Nuclear would be a substantial financial commitment and
government can only make the final commitment after careful and thorough modelling
and an affordability assessment,” it said in an e-mailed response to questions
on June 29.
The Treasury’s three-year budget released on February 25
provides for the budget deficit to be cut to 2.5% of gross domestic product by
the year until March 2018, from 3.9% this financial year, and doesn’t allocate
any money for new nuclear plants. Moody’s Investors Service rates South African
debt at Baa2, the second-lowest investment grade, while Standard & Poor’s
has an assessment one level above junk.
“I’ve always been skeptical of such an ambitious programme
for a country like South Africa,” Chris Gadomski, a nuclear- power analyst at
Bloomberg New Energy Finance, said by phone from San Francisco on June 29. “You
have gone through this exercise in 2007 to 2008. What stopped it was the lack of
finance. My thinking is that very little has changed in the country as far as
the capacity to finance something like this.”
While the government may consider requesting companies to
build, own and operate the nuclear plants subject to power- purchase
agreements, developers do not favour such deals because the projects are so capital-intensive,
said Elchin Mammadov, a utilities analyst for Bloomberg Intelligence.
Country financeMost reactors in developing countries other than China and
India are likely to be financed with 15- to 20-year subsidised loans provided
by the suppliers’ host nations, he said by phone from London on June 29.
The government will battle to finance the plants even if it
gets cheap loans, and off-take agreements are the only viable nuclear option if
power-tariff increases can be contained, said Nazmeera Moola, an economist at
Investec Asset Management.
“If the build costs a reasonable amount of money and it ends
up being that the tariff required to fund it is viable, great,” she said by
phone from Cape Town. “It all depends on how much it costs.”
Electricity prices in South Africa have almost quadrupled
Detailed financial analysis should precede any decision to
invest in additional nuclear capacity, said Harald Winkler, the Energy Research
“There are serious questions that need to be answered as to
whether South Africa is able to finance this programme and how any investment
would have to be repaid,” he said by phone on June 26. “It’s very unclear.” -
Create Account | Lost Your Password?