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SA industry should take nuclear stake

French funding model proposes mix of debt and equity.

FRANCE – French nuclear leaders will propose a funding model for South Africa’s planned nuclear build programme that will include shareholding by intensive energy users.

French special envoy for the French-SA nuclear partnership Dr Pascal Colombani told a delegation of South African journalists in Paris, France that this model has worked well on some of their other projects and could be implemented in South Africa as well.

He said a Chinese equity investment could also be considered, depending on the content of the request for proposals (RFP) that the South African government is expected to issue before the end of March. The local utility (Eskom) would also be an equity partner.

Representatives of the French nuclear industry said, while they have not yet engaged South African energy intensive users, they know the kind of business that will benefit from an investment in energy security and which might have appetite for participation in the nuclear build programme.

An equity investment by intensive users could take different forms, with either individual users or a consortium taking a stake on the basis of a tariff path agreed upon as construction begins, they said.

South African energy intensive users are represented by the Energy Intensive Users Group of Southern Africa (EIUG) and include mines, and manufacturers such as PPC, AECI, Arcelor Mittal, Sasol, Consol Glass, SABMiller, Sappi and Mondi. According to information on the EIUG website, the organisation’s 31 members use 44% of the country’s electricity production. Their electricity cost as a portion of total cost increased from 9% in 2007 to 20% in 2013.

The French representatives pointed out that whatever funding proposal prospective bidders put forward, the customer ultimately pays for the project. They said France would offer loans at a rate close to the Organisation for Economic Co-operation and Development’s (OECD’s) standard rates. The split between debt and equity would have to be determined. They warned against vendors offering lower rates, saying it might amount to unsustainable sub-prime rates.

Director of the French Atomic Energy Commission Frédéric Journès told Moneyweb that while the weakness of the rand against the euro (R1.00=E16.97 at time of writing) could result in a costly deal, the French technology and strong nuclear reputation would justify awarding the tender to the French. “You have to look at what you get (for your money)” he said.

The bidding process is widely seen as a two-horse race between the French and the Russians. Russian representatives believe the exchange rate will favour its bid, as one rand currently buys about 4.5 rubles.

Flamanville, Normandy

France currently has 58 nuclear reactors in operation and the 59th one is under construction at Flamanville on the coast of Normandy, alongside two existing reactors that have been in operation since 1986 and 1987 respectively.

Flamanville 3 will be France’s first generation three nuclear reactor, incorporating additional safety features in response to lessons learnt from the Fukushima nuclear accident caused by a tsunami five years ago in Japan.

Construction of the 1 650MW Flamanville 3 started in 2007 and it was planned to come into operation in 2012. The initial budget was €3.3 billion. This has since been adjusted to commercial operations starting in 2018 at a cost of €10.5 billion.

During a visit to the construction site, planning director Antoine Ménager said building the first of a new generation reactor always takes longer. He said the second generation three reactor being built in Taishan, China is progressing much faster thanks to lessons learnt at Flamanville. Even though construction (at Taishan) started two years later than at Flamanville, it might even come into operations first, he said.

Ménagar said the amount of additional material utilised as a result of the extra safety features was initially under-estimated.

These features include a double shell for the nuclear containment building that could withstand a falling aircraft and a core catcher that is designed to contain a melting nuclear core in a water tank at the bottom of the reactor building.

SA bid

Colombani announced that the French bid would be led by power utility EDF following the restructuring of the country’s nuclear industry. EDF, which is 85% held by the French government, will be working closely with its French counterpart Areva. The restructuring takes effect on July 1.

This follows Areva recently reporting a €2 billion net loss in 2015, which cast doubt on its bid prospects in South Africa.

The French government has decided to recapitalise Areva to the tune of €5 billion. Areva will retain its mines, uranium enrichment and nuclear fuel recycling operations, while reducing its shareholding in Areva NP to about 15%.

Areva NP, which would be debt-free following the recapitalisation, would provide reactor development, fuel production, nuclear services (to existing plants), manufacturing of components, control and instrumentation and engineering. EDF would take a stake of 50% with possible Chinese or Japanese investors taking up the balance.

See gallery of France’s nuclear facilities below.

This journalist was a guest in France of the French Ministry of Foreign Affairs and Development.



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Nuclear is a highly capital intensive technology with a long lead time. The biggest variable affecting the price happen to be the capital cost, time to build, and the cost of capital. Private companies require a return on their investment that is significantly higher than a government lending rate, therefore the electricity price will be pushed higher.

Private investors will also expect the costs and schedule to be fixed at time of investment. Who is going to guarantee that on a nuclear build?

The only funding model available for SA’s dead-in-the-water nuclear build programme, is debt. Big debt.

I cannot see the ANC agreeing to any private equity involvement. So the French won’t do it, and do we need it anyway?

End of comments.





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