/ 20 October 2017

Zuma set to blast a nuclear path

Mahlobo complained that matters were initially raised with the media
Mahlobo complained that matters were initially raised with the media

The department of environmental affairs has authorised Eskom to proceed with a new nuclear plant, the power utility announced on Friday last week.

It was a sign that government is not giving up on its nuclear ambitions. The appointment — just days later — of David Mahlobo as new energy minister, has only served to confirm this. This is despite litigation and persistent criticism from experts, civil society and unions about nuclear’s affordability and the potential for corruption.

Mahlobo is the fourth energy minister since the start of 2014. But his deployment has been described as a game changer for how plans for a nuclear deal could progress, said the Democratic Alliance’s spokesperson on energy, Gordon Mackay.

The environmental authorisation lays the groundwork for Eskom to build a new 4 000 megawatt (MW) installation at Duynefontein, near its existing nuclear plant, Koeberg.

The Nuclear Energy Corporation of South Africa welcomed the news, saying in a press release that this will “indicate to the local industry and the world that we are going ahead with the nuclear build programme”.

In light of such comments it is little wonder that Mahlobo’s deployment has been read as a sign that Zuma wants to lock in a nuclear procurement programme before the ANCs elective conference and the end to his term as president of the country in 2019. But how Mahlobo could rush through a deal is not clear because there are practical hurdles that have to be overcome, not least of which is the finalisation of a new integrated resource plan (IRP) to outline the country’s future electricity needs.

A high court judgment earlier this year set aside several milestones in the nuclear procurement process until a new IRP and an integrated energy plan (IEP) — a road map of the energy choices the country needs to make in the future — are finalised.

Questions about nuclear affordability remain. Finance Minister Malusi Gigaba told the SABC at the close of the International Monetary Fund and World Bank biannual meetings that “the South African economy … is not in a position where it can be able to carry the burden of nuclear technology, therefore we cannot proceed with that programme … until the economy has grown sufficiently and there is vast demand”.

For his part, Mahlobo told Radio 702 in an interview that nuclear energy was part of the government’s policy and part of South Africa’s required energy mix.

He said the security of energy supply, whether it was petroleum, electricity or gas, was critical to growing the economy. But it was important to ensure the energy was sustainable and affordable, and that environmental considerations were taken into account.

“We promise that there is going to be good governance, there is going to be accountability, and issues of affordability are going to be taken into account,” he said.

What is clear is that the Cabinet reshuffle could prolong the delay in finalising power purchase agreements (PPAs) with the country’s independent power producers and put billions of rands of investment at risk. Eskom has delayed the signing of the PPAs because of what it has said are financial constraints, which has stalled later bidding windows for IPP projects.

Mahlobo’s predecessor, Mma-moloko Kubayi, who only came into the job in March, promised to finalise the PPAs for bid windows 3.5 and 4 by the end of October.

One renewable energy insider said the matter was on the verge of being finalised when the reshuffle was announced, potentially delaying things further.

“This is a classic Zuma move, which ignores the investment implications, the economic implications, the job creation potential for some other end,” he said.

But, with the appointment of the new minister, the outcome of the new IRP would be key, because it would either take a least-cost approach to future electricity choices or create legitimacy for new nuclear procurement, the insider said.

The IRP, which was published in 2010 and is outdated, allowed for the procurement of 9 600MW of nuclear power, but it was based on unrealistic economic growth and electricity consumption assumptions that have since proven unrealistic.

The court judgment set aside two ministerial determinations on new nuclear generation, made under section 34 of the Electricity Regulation Act (ERA), for, among other things, being based on the outdated IRP.

A revised draft IRP was published at the end of last year and public comment on it was received earlier this year. The plan, under Kubayi, was expected to be finalised in early 2018. In addition to the cost of nuclear, another concern is whether an increasingly fragile Eskom can cope with a project of this scope.

Eskom, which has been designated the owner and operator of the new nuclear power stations, is under financial strain and is requesting a 20% tariff hike from the national energy regulator. This is in the face of declining demand for electricity as economic growth slows and consumers switch to other power sources because of rising electricity prices.

The utility is also embroiled in governance scandals and a leadership crisis. It has had four chief executives in less than a year.

The state itself is facing tremendous budgetary constraints, including large contingent liabilities because of the extensive government guarantees it has granted to state-owned enterprises.

In this context, Mahlobo’s record in the state security ministry is not untroubling. Media reports linked him to rhino poaching last year, but he has denied any involvement.

The Right2Know campaign’s Murray Hunter has criticised him for his antagonism towards civil society movements, which Mahlobo has reportedly described as agents of regime change. There also appeared to be growing spying abuses, added Hunter, citing the allegations by Deputy President Cyril Ramaphosa that his emails had been hacked, apparently with the use of intelligence resources.

Mahlobo’s role will not just be to decide the country’s nuclear future. Questions remain over several scandals involving entities reporting to the energy department, including the sale of oil from the country’s Strategic Fuel Fund, which falls under the Central Energy Fund (CEF). The country’s state-owned oil company, PetroSA, also part of the CEF group, is facing a financial crisis after reporting further losses of more than R1-billion for the 2016-2017 financial year.

A deal signed between PetroSA and the Russian firm Rosgeo to explore two oil blocks off the coast of South Africa has also raised questions. A report by the Sunday Times suggested that former convicts Gayton Mackenzie and Kenny Kunene, allegedly accompanied by Mahlobo himself, were introduced to the Russians as proposed black economic empowerment partners on the deal. But Mahlobo dismissed the report on air, saying it was not accurate and was “malicious”.

But, contrary to the belief that the cost would deter nuclear procurement, Mackay said the nuclear deal could be paid for by using a model similar to that for the PetroSA and Rosgeo gas deal.

It would be managed by establishing a joint venture between the relevant South African agency and Russia, which would put up the initial capital cost to build the power station, after which South Africa would pay for the power it supplied at a set price.