All quiet on South African nuclear plans

19 November 2008

South African state utility Eskom has again deferred the announcement of the preferred bidder for its ambitious nuclear new-build programme.

Eskom approved a plan to boost output to 80GWe by 2025, including construction of 20GWe of new nuclear capacity, early in 2007. Dubbed ‘Nuclear One,’ the first part of the plan called for the construction of a 3000-3500MWe PWR plant to be sited in the Western Cape region, most likely at Koeberg, the site of the country's existing nuclear power plant. Work was slated to begin on the new plant around 2010, aiming for a start up around 2016, and two designs – Areva's EPR and Westinghouse's AP1000 – were shortlisted.

Consortia led by Westinghouse and Areva submitted bids to supply the units, and both companies have also offered to go on to build the full 20GWe of new capacity. Areva's consortium includes South African engineering group Aveng, French construction group Bouygues and EDF, while the Westinghouse-led consortium includes the Shaw Group and South African engineering firm Murray & Roberts.

Initially a decision on Eskom's preferred bidder was expected in the first half of the year; reports over the summer then suggested an announcement would be made in late September. However, September saw the resignation of South African president Thabo Mbeki after allegations of interference in the prosecution of African National Congress (ANC) president Jacob Zuma on charges of corruption. In the ensuing political turmoil – Mbeki's resignation was swiftly followed by those of eleven cabinet ministers and three deputy ministers – Eskom has remained silent on its plans.

According to some reports Eskom plans to announce its decision by the end of the year, but there is widespread speculation that in reality no announcement is likely until after presidential elections in 2009. In the meantime, ANC president Kgalema Motlanthe has been installed as South Africa's president.

Capacity shortages are at the heart of South Africa's energy woes as increasing electricity consumption has eroded the margin between available generation and demand. The situation reached crisis point in January, when Eskom introduced load-shedding – switching off parts of the network in turn to protect grid stability at times of high demand – after a spate of blackouts. Voluntary consumption cuts of 10% have been agreed with large electricity consumers but Brigitte Mabandla, who took over as minister for public enterprises in the September shake-up, has warned that in practice the levels of savings have been far short of the necessary amount.

The electricity crisis has had impacts on South Africa's economic growth, with cuts to mining and manufacturing output, plus damage to the country's attractiveness as an investment prospect – and finance will be crucial to the new build plans. The budget for Eskom's capacity expansion of 343 billion Rand ($34.4 billion) up to 2013 will be largely financed through debts, but leading global credit rating agency Moody's downgraded Eskom's rating in August, making it a less attractive prospect for foreign investors. In September, Eskom applied for government guarantees on its existing and future debt, a move that prompted another major credit rating agency, Standard & Poor's, to revise its CreditWatch status for the company to ‘developing’, indicating that it too feels that a change in the company's rating is likely.

Eskom has bluntly stated that it will not commit to any expansions that it cannot afford to finance. The company is looking to raise the cash through higher tariffs (although it has been forbidden by regulator Nersa from imposing further price increases on its poorer customers) and from development agencies such as the World Bank. Earlier in the year the South African government agreed to loan Eskom 60 billion Rand ($6 billion), while in November, Eskom signed an agreement to borrow $500 million over 20 years from the African Development Bank (AfDB).




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