NASTASSIA ARENDSE: Chris Yelland is an energy analyst and MD of EE Publishers. As you know, he’s one who is quite vocal on Twitter and takes a keen interest in what’s happening in the energy space, and, in particular, when it comes to Eskom. He had an interview with the energy minister, Mmamoloko Kubayi, to talk about the update on the state of the proposed nuclear new build programme in South Africa. Chris joins me now.
Chris, thank you so much for your time. You had an interview with the energy minister on August 4, to get an idea of the state of the proposed nuclear bid programme in South Africa. Let’s take it back a little in terms of the past year. What has happened since the procurement process was proposed? There was the idea that Eskom would be able to do it, and then there was the judgment. Take me though what happened at that time right up till now.
CHRIS YELLAND: Certainly. About this time last year, I would say, the nuclear programme was firmly on track. Eskom was well under the control of Brian Molefe and Mr Koko, both of whom were firm nuclear proponents and had very vocally indicated their support of the nuclear new build programme. In fact, Eskom was very in favour of this and put out a statement that it didn’t need any finance from the Treasury or government guarantees, it could do the nuclear build on its own balance sheets. And on the basis of that I think the minister of energy at the time, Tina Joemat-Pettersson, was very happy to say to Eskom, well, you put up your hand, you want to do it, you are going to finance it on your own balance sheet, here it is. So she put this into Eskom’s hands. And in the course of December 2016 she passed a ministerial determination, basically appointing Eskom as the procuring agent, whereas previously, in terms of a previous ministerial determination, the Department of Energy was the procuring agent. So she basically handed this hot potato to Eskom and said, okay, you wanted it, you can handle it.
At that Eskom, without any further delay, wanted to put out a request for proposals for the nuclear new build. But Treasury dug in its heels and said that it needed further information in terms of the cost and the benefit, the financing arrangements and the business model, because this is a massive project, In terms of the law, the Public Finance Management Act, Treasury has to give the green light on this, and Treasury didn’t give the green light.
So at that point they changed it from a formal request for proposals to a request for information, a much more watered-down version of the request for proposals, and that went out in December, calling for information.
But then in April something big happened. A judgment was made in the Cape High Court which put a stop to the entire nuclear programme, the procurement programme, and it told government, you are not doing it right. Various inter-governmental agreements have not gone to parliament for approval and the Constitution requires this. The ministerial determinations have not gone out for a public participation process and that is not allowed in terms of the law.
In fact, the judgment said that this nuclear request for information and any subsequent request or proposal would be irrational and unlawful, and they’d put a stop to it, saying first you must do an integrated resource plan for electricity to decide if you need nuclear, and how much you need, when you need it by, what are the costs, etc. And only then go out for a request for proposals. So this judgment put a complete stop to the nuclear procurement process. And that is basically where we are at the moment.
NASTASSIA ARENDSE: Right. How does the new energy minister feel about that judgment? Does she agree with aspects of it, and the fact that the way this thing was going to be rolled out was just going to be completely wrong?
CHRIS YELLAND: Well, I think the new minister came in very shortly after this judgment, and was really confronted with the dilemma as to what to do next. On the one hand, they could have taken it on appeal and challenged it in court. But that would have been, I think, a risky process, because it would have delayed the process. Sometimes these legal processes can take a year or more to get heard in an appeal court, and to get an appeal. And at the end of that, if the appeal went against the minister, they would have wasted a year and they would have had to start from scratch again.
I think the minister weighed the situation up and decided that it would be best simply to listen to the judgment and to put in place what the judgment said, even though I think the minister felt unhappy about certain aspects of the judgment. It’s a risky business taking something on – you can win, you can lose. And there is no real saying how it will go. So I think the minister decided that it would probably be better and less risky just to implement the judgment and do it as the judge had said it should be done, even though it’s clear that she did not agree with certain aspects of the judgment. For example, she did not agree that the courts have the right to set aside ministerial determinations. She said that was impinging on the separation of powers between the executive and judiciary, it was taking away certain ministerial powers.
But having said all of that, the minister is not appealing the judgment and is proceeding on the basis that they need to put [the matter to] right as the judge had said.
NASTASSIA ARENDSE: The interesting thing is that, while we all focused on the nuclear plan, we were talking about Eskom and the state capture report, a lot of things were happening in the global background around nuclear as well. So take me through what some of the companies were going through, especially the French companies and those who are particularly involved in nuclear energy.
CHRIS YELLAND: As you said, a lot changed while all this was going on. Not only internationally but also locally. There was a new minister, turmoil within Eskom itself, the economy going into recession, a credit rating downgrade – all of these things were happening in South Africa.
But at the same time I can say that there were kind of storm clouds gathering across the global nuclear horizon. A number of the nuclear vendor companies and countries really have started to question the nuclear process, and these relate particularly to Western countries. The United States and France, in particular, are re-looking at the nuclear issue, but also [South] Korea has been re-looking at it.
So, for example, in the United States Westinghouse, the No 1 nuclear vendor, filed for Chapter 11, bankruptcy, as a result of massive cost and time overruns on certain nuclear projects in the United States. Now, Westinghouse’s owner is Toshiba, the Japanese nuclear company also involved in many other things besides nuclear. But, as a result of their subsidiary Westinghouse going into bankruptcy, this puts enormous pressure on the financials of Toshiba, and Toshiba is, as I say, involved in the nuclear field in Japan.
And then of course in France the nuclear vendor there is called Areva. Areva has run into financial problems and was in fact bought out by the French equivalent of Eskom, that is their national utility called Electricité de France, EDF. That would buy out Areva in order to rescue them financially.
Areva has been suffering a number of quality assurance problems – you might even say scandals – in France, which have resulted in the last six months France having to shut down half of its nuclear fleet for inspections, the result of various quality control issues. So France is having problems too.
In the UK they are building plant, which is having cost and time overruns. In Finland they are building a nuclear plant – similar problems. And they are building plants in France that are resulting in cost and time overruns. So in France the nuclear industry is under stress.
And then of course this year, at the beginning of 2017, [South] Korea announced that it was re-thinking its commitment to nuclear and thinking of phasing out its nuclear power stations. I don’t know whether that has been 100% finalised. There is a lot of politics behind it. But the short and tall of it is that three of the five nuclear vendor countries are having questions marks over their nuclear future, leaving Russia and China as the only countries that are really steaming ahead with nuclear.
And of course, these countries have a different political setup. They are not what you might call democratic countries, they are not subject to the same kind of pressure from the public. And not only that, their economic system is not subject to the same kind of scrutiny and transparency that business is in the West. So they have a kind of advantage in proceeding with nuclear because their countries are not as transparent and demanding in this regard as Western countries are.
So the nuclear horizon globally is looking quite difficult at the moment, as I say, with only two countries really proceeding strongly with nuclear.
NASTASSIA ARENDSE: So now that this thing is back in the hands of the Department of Energy, what now? I’m sure a lot of South Africans are still asking can South Africa and Eskom really afford a nuclear new build, or anything along those lines.
CHRIS YELLAND: Well, my impression from my interview with minister Kubayi was that government is going to have to start from scratch with new eyes, looking at the nuclear case and the nuclear programme in an unemotional way, and detached from any previous commitments. They are going to have to start again because that is what the court has ordered them to do – to start again and to do it properly. This is going to take time, I believe. They’ve got to put in place five inter-governmental agreements. It’s not something that can get done overnight. Not only that, it has to follow a parliamentary process, which has its own timescale. They’re going to have to put in place a number of ministerial determinations that were declared invalid. That’s going to have to follow a public process through Nersa.
Yes, so this is going to take time. I think the Department of Energy is taking the opportunity to re-look at the situation with new eyes. They are very cognisant of the fact that public perception is that this nuclear new build is corrupt. Now I’m not saying it is, I’m just saying there are indeed public perceptions along those lines and government and the minister feel the need to do it properly – transparently and openly in order to allay these fears and these perceptions. So that again is going to take time.
But in the meantime the important thing to note is that demand for electricity is not growing in South Africa. It’s actually declining and it has been doing so for ten years. So the need for a quick decision in my opinion is not only unlikely, but it’s also unnecessary. You do not need to make quick nuclear decisions. A nuclear new build in any case is going to take 10 to 15 years to bring the first nuclear reactor on, and you may know that in the draft integrated resource plan for electricity, the base case only calls for new nuclear in 2035.
The point is that not only is the economy in a weak position, and South Africa and Eskom are financially not in a strong position, but demand is declining and there is really no need for a quick decision. So I think that nuclear new build is likely to be kicked down the road a bit while we take another good, hard look at the whole situation.
NASTASSIA ARENDSE: Chris, thank you so much for your time.
CHRIS YELLAND: It’s a great pleasure. Thank you.