Extreme caution needed on nuclear

THIS week, Russian stateowned nuclear company, Rosatom announced a government-to-government agreement on substantive nuclear co-operation between SA and Russia.

“The agreement lays the foundation for the large-scale nuclear power plants (NPP) procurement and development programme of SA based on the construction in (the country) of new nuclear power plants with Russian VVER reactors with total installed capacity of up to 9,6 GW (up to 8 NPP units)”, it said in a statement.

The South African government says the agreement does not amount to procurement of the said units, as that is yet to happen, but there is clearly a problem.

The inference in the statement is that this is for all intents and purposes a done deal.

There are many reasons why this is a huge problem, of which two are the most important: President Jacob Zuma and Energy Minister Tina Joemat-Pettersson’s repeated assertions that SA will install 9.6GW of nuclear energy capacity pre-empts the final Integrated Resource Plan (IRP) which is yet to be formally released. The IRP is supposed to outline SA’s energy supply outlook and give the reasons for it, as well as the electricity supply options that are likely to be available to the country in the future.

The latest version released to the public, and the National Planning Commission’s own report on the matter, did not outline a case for the procurement of so much nuclear capacity. Instead, both suggested that nuclear may have to be procured in lesser quantities, and later than initially envisaged.

It is profoundly problematic that the government has arrived at this decision and is proceeding to wheel and deal when the document that informs it, and the public, is being withheld. In addition, all available information suggests that this decision may be irrational and enormously detrimental to the economic interests of the country.

In order for new capacity to make sense, there has to be sufficient demand for consumption. In SA’s case assumed annual gross domestic product growth of 5.4% through to 2029 was meant to justify the building of nuclear power stations. Last week, the Reserve Bank again revised SA’s growth outlook downwards, this time to 1.5% for the rest of this year. Things are not looking up for next year either.

It is often argued that the economy is struggling largely because of constrained electricity supply. This is patent nonsense. SA’s economy is uncompetitive, has lost steam in key industries and is desperately short of the kind of innovations that drive economic revolutions.

Such poor growth prospects make it necessary to ask why Zuma is in such a hurry to procure so much nuclear capacity when indications are that we do not and will not have the economic growth to keep unit costs at reasonable levels.

There is another, much bigger problem. Should the rating agencies decide that the electricity price path is too steep for South African industry to absorb, another rating downgrade will almost certainly follow. That will make things difficult for a government that is already approaching its borrowing limits.

There are many other unresolved issues that the government has been astoundingly opaque about. One of them is the “affordability assessment” that has to be done before any commitments are made on procuring nuclear capacity. The government may argue that the Russians, seemingly runaway favourites now given how brazenly they are treating this as a fait accompli, will pay for and operate the new capacity.

This is a dangerous illusion that borders on a lie. Someone will have to pay for it and it will be South African consumers. On the face of it, it appears that we may have just mortgaged the future of this country on a nuclear power deal that requires caution, not haste.