Junk status may scupper nuke plan
It will ‘impossible’ to fund nuclear power after the downgrades by ratings agencies
South Africa’s credit rating downgrades to junk status are a blow to the government’s nuclear ambitions. This is according to economists and international nuclear industry experts, who said it was highly unlikely that the state, under the purview of beleaguered utility Eskom, could afford to build nuclear plants at the 9 600 megawatts it has planned.
If nuclear procurement went ahead regardless, the likelihood was “very high” that the South African economy “would be badly hurt”, said Mycle Schneider, the lead author of the World Nuclear Industry Status Report (WNISR).
Despite concerns about the state’s ability to finance nuclear power initiatives, President Jacob Zuma’s recent Cabinet reshuffle has been seen as clearing the way for accelerated nuclear procurement. The reshuffle prompted ratings agencies S&P Global and Fitch to act, whereas Moody’s has placed the country on review for a further downgrade.
In its decision Fitch noted that, under “the new Cabinet, including a new energy minister, the [nuclear] programme is likely to move relatively quickly”.
Russia is believed to be among the frontrunners in South Africa’s procurement plans.
But the financial muscle of vendor states such as Russia to help the government finance nuclear expansion has also been questioned.
Russia has, through its state nuclear conglomerate Rosatom, helped to fund other nuclear projects internationally. But in 2015, as the Russian economy sank into recession, credit ratings agencies downgraded it.
The likelihood that two junk-rated economies would engage in a multibillion dollar investment was “virtually zero”, Schneider said.
In the case of Russia’s rating from Moody’s, the outlook on its sovereign debt improved early this year to stable, but its rating remains subinvestment grade.
This also applies to the likes of JSC Atomenergoprom — Rosatom’s nuclear construction firm — which Moody’s has rated at Ba1.
“Russian proposed financing schemes for nuclear power projects in South Africa and many other countries would stretch Russian state finances way beyond its capacities and are therefore hardly credible,” said Schneider.