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‘Nuclear can’t work in current growth environment’

Would blow SA’s fiscal metrics away from EM investment grade average – Coronation.

JOHANNESBURG – A nuclear programme cannot be implemented in a fiscally-responsible way in the current economic growth environment, an analyst warns.

“Any single way you look at it – nuclear does not work in the current growth environment. It blows our metrics out further away from the emerging market investment grade average of [a] 50% [debt-to-GDP ratio],” Nishan Maharaj, head of fixed interest at Coronation, says.

If the nuclear programme is implemented, fiscal consolidation will not become a reality, he adds.

“In the current environment of 1% to 1.5% growth, this is not going to materialise. If you are going to implement it [nuclear], or lean towards implementing it, it is going to result in us moving further and further away from investment grade status.”

This is one of the key reasons why rating agencies reacted as aggressively as they did after the cabinet reshuffle, he says.

S&P Global Ratings lowered South Africa’s sovereign credit rating to junk in April, but kept the local currency rating one notch above sub-investment grade. Fitch downgraded the country’s local and foreign currency rating to sub-investment grade (see table further down). This followed after president Jacob Zuma removed respected finance minister Pravin Gordhan in a midnight cabinet reshuffle. The decision raised fears that South Africa would digress from its path of fiscal consolidation and forge ahead with an expensive nuclear build programme, decisions that could see the country plunge into a downgrade spiral.

On April 26, the High Court ruled that government’s nuclear plans were invalid.

Maharaj says although the economy seems to be in a sweet spot with inflation moderating and growth accelerating, the deterioration of South Africa’s debt and fiscal metrics still posed considerable risk in the long term.

Although expectations are that GDP growth will accelerate to around 0.9% this year from 0.3% in 2016, the low-growth scenario and the fact that many state-owned enterprises – notably Eskom and SAA – still require additional support, will result in a further deterioration of the country’s debt-to-GDP numbers, he says.

The table below sets out the rating agencies’ views on South Africa’s investment grade rating, the criteria for inclusion in various global bond indices and the current status.

Maharaj says a number of bond indices in which South Africa is included require an investment grade rating on the local currency rating. Following Fitch’s decision to downgrade South Africa’s local currency rating to sub-investment grade, the country will be excluded from the JP Morgan Investment Grade Index, triggering around $1 billion of outflows.

If either S&P or Moody’s moves South Africa’s local currency rating to sub-investment grade, it will trigger an exit from the Barclays Global Aggregate Index and outflows of around $3 billion to $4 billion.

Although this will be harder to digest, it will not be the end of the world, he says.

However, if both S&P and Moody’s adjust the local currency rating to sub-investment grade it will trigger an exclusion from the Citi World Government Bond Index (WGBI) and outflows of between $6 billion to $9 billion.

A “worst-case scenario” will result in outflows of between $10 billion to $13 billion from the local bond market.

Although such a scenario would have serious implications for the economy, their base case is not that both S&P and Moody’s would downgrade the local currency rating in the near future. However, the expectation is that S&P would downgrade the local currency rating over the next 12 months, Maharaj says.

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Fortunately we have a fiscally-responsible Government, that always take “worst-case scenarios” into consideration, as the well being of his citizens and the country economy is his most vital and major concern.

Nuclear power at this stage is meaningless if you cannot grow the economy and industry who would require the power. We all know that a major portion of the current surplus electricity in the country is not because Eskom pulled its act together, but because of less demand from industry. Spending over a trillion Rand for electricity that most probably will not be used when the money could have been used for better purposes is asinine. How even the ANC supporters cannot fathom this is beyond me.

A supporter of the ANC is, by definition, a profoundly ignorant person. The alternative would be that such people are aware of that party’s massive incompetence and gross corruption yet continue to support it – but let’s give them the benefit of the doubt.

Additional nukes are a vanity project that defy reason & economic sense, and will bankrupt SA.

Nuclear can not work under ANC government…….why do you think the NP government gave everything away to ANC, except nuclear ” technology “. They actually destroyed it. Only wise thing they have done.

Your statements are not factual.

Before the anticipated changeover to a majority-elected African National Congress government in the 1990s, the South African government dismantled all of its nuclear weapons, the first nation in the world which voluntarily gave up all nuclear arms it had developed itself.

Sorry but I can’t be more factual than this.
Either this was before your “time” or you are totally ignorant to SA history?

Chev, now you bring in the word “weapons”, oversight in your first post or done on purpose to try to further your point?

Absolutely to further my point. I don’t care if it is economical viable or not. I’m worried about the consequences of putting such technology in incompetent hands. If a coal silo can collapse just imagine a nuclear disaster.
We all know what this is really all about, a political motivated quick get rich spur of the moment idea where some people will make incredible sums of money. The Plants, just like the Fifa political motivated quick get rich spur of the moment stadiums will be with us like white elephants.

Don’t be ridiculous. The problem is that the analyst is looking at a very one dimension view. This is, of course, that future electricity generation is the sole domain of the regime or their minions, Eskom. The statist model forces the financial risk and uncertainty onto the taxpayer. The ANC do not have a good track record when it comes to building power stations.

We already have precedents where renewable power is supplied by the private sector. The only issue here is the ANC have thrown market forces out the window and are forcing Eskom to purchase electricity above the price that they can generate it themselves. Shame ANC.

The solution is simple. Eskom functions must be broken up and the privatised companies (GENERATION, GRID, SALES) can compete with others in a competitive market. Thus the grid company can purchase electricity from whomever they like.

If a company decides they can generate power cheaper than the current coal setup using nuclear then they should be welcome to set up shop (subject to stringent safety regulations). If they are undercut by renewables -then tough. The capital investment will never happen. This is how the market works and how it brings the best prices to consumers and has the optimal effect on the economy.

The private option should not affect the regime’s credit rating. Only the regime can do that and given their historical performance, one should not be sanguine about such things.

Clueless & Clan clearly have no intention to protect nor to improve the economy. Their decisions are all centered around self-gain and ANC ideology (which main simply to retain political power).

The commercial aspects of nuclear power looks like this: (1) we don’t need 9600 MW of nuclear power (2) We cannot be guaranteed a fixed price. (3) we cannot be guaranteed a fixed schedule. (4) we will only know how big the over-expense is once we have spent the majority of our original budget. At that point we cannot back out but have to continue(4) we must sign a 50 year off-take agreement during which means we cannot benefit from cost reductions and technology innovation in other technologies.

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