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Did we just buy R111bn worth of nuclear reactors from Russia?

Here’s what the deal really means.

Much confusion has followed an announcement on Monday afternoon by Russian state nuclear agency Rosatom of an “agreement on strategic partnership in nuclear energy” signed between the Russian and South African governments.

The same statement was later published on the department of energy website.

Many South Africans understood the statement to say that South Africa has bought nuclear reactors capable of generating 9 600MW from the Russians without any proper procurement process. The number R111 billion was mentioned ….

It did not help that Department of Energy spokespeople were missing in action.

A local representative of Rosatom who asked not to be named, confirmed to Moneyweb on Tuesday that the agreement is merely a framework agreement that may or may not lead to the procurement of the reactors from Rosatom.

He confirmed that South Africa is not bound to buy it from Russia and will be free to buy it from competitors, should it decide to do so.

In a formal response to media enquiries Rosatom also confirmed that further agreements will have to be signed (surely after further negotiations) in each field of cooperation stipulating all the details.

Russia has undertaken to make its technology “from uranium mining to decommissioning” available to develop a local nuclear industry, the Rosatom representative told Moneyweb.

Rosatom director-general Sergey Kirienko is quoted saying, “ROSATOM seeks to create in South Africa a full-scale nuclear cluster of a world leader’s level – from the front-end of nuclear fuel cycle up to engineering and power equipment manufacturing.”

It is envisaged that Russia and South Africa will, once the local industry is established, “implement joint nuclear power projects in Africa and third countries”. At that stage Kirienko talks about “placing of a considerable order to local industrial enterprises worth at least 10 bln. dollars”.

So that is where the R111 billion comes from.

Dr Kelvin Kemm, CEO of Nuclear Africa, a nuclear project management company in Pretoria, says the agreement provides for the two countries to work together to develop a local nuclear industry.

He says Nelisiwe Magubane, Director-General of the Department of Energy stated last year already that South Africa should aim for 50% localisation in its nuclear programme. Unlike its competitors, the Russians fully bought into this idea and actually proposed up to 60% localisation.

This may give the Russians a competitive advantage in the actual procurement. He says the Russian VVER reactor is a very good reactor that is not overly complicated.

Kemm explains that there are currently 440 operational nuclear reactors globally and another 75 under construction. He says the idea is that South Africa should develop the capacity to manufacture components for its own use, but also to export to other countries.

That will of course be done to the design and specifications of the original developers, be it the Russians or another party, in the same way that we may manufacture gearboxes for Mercedes of radiators for Toyota, for example.

Kemm says South Africa has a very proud history in the nuclear industry and is currently the second biggest exporter of nuclear medicine in the world. He says South Africans are more than capable of producing 50% of the components needed for its own nuclear plants.

“We have been running Koeberg very well for 30 years and that plant produces the cheapest electricity in Eskom’s whole fleet of power stations.”

While it is no secret that building a nuclear plant comes with a huge price ticket, Kemm says researchers at the North West University have in fact found that nuclear power is cheaper than coal over the lifetime of the plant, if all the costs related to coal is taken into account.

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