{"id":4210,"date":"2015-12-18T00:00:00","date_gmt":"2015-12-18T00:00:00","guid":{"rendered":"https:\/\/amabhungane.org\/amabhungane\/stories\/nuclear-price-tag-set-nene-against-jacob-zuma\/"},"modified":"2024-09-24T12:37:24","modified_gmt":"2024-09-24T12:37:24","slug":"nuclear-price-tag-set-nene-against-jacob-zuma","status":"publish","type":"post","link":"https:\/\/further.co.za\/amabwp\/nuclear-price-tag-set-nene-against-jacob-zuma\/","title":{"rendered":"Nuclear price tag set Nene against Jacob Zuma"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">The treasury\u2019s reluctance to sanction the procurement of nuclear power stations was central to Nhlanhla Nene\u2019s&nbsp;sacking as finance minister, sources say.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Just how wide a gulf opened between the treasury and the nuclear lobby in government is evident from their different&nbsp;calculations of what nuclear would cost.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">AmaBhungane can reveal that the treasury\u2019s estimate is a minimum of $4 900 per kilowatt of installed capacity \u2013 and&nbsp;realistically up to double that. If applied across the 9.6 gigawatt being considered, the procurement would total R700-billion to R1.4-trillion at current exchange rates.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This is way over the $4 200 per kilowatt, or about R600-billion total now, that the department of energy has punted.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Both sides\u2019 estimates are \u201covernight\u201d, meaning they exclude financing costs, which will be very substantial.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">President Jacob Zuma is a key proponent of the nuclear build and regarded as particularly supportive of a Russian bid.<\/p>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong><em>&#8220;We can\u2019t spend money that we don\u2019t have&#8221;<\/em><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A variety of media has reported that friction over nuclear and South African Airways precipitated Nene\u2019s downfall.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">AmaBhungane sources with access to senior ANC and state officials confirm this, saying tension went back some&nbsp;months.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The magnitude of the vaunted procurement \u2013 the largest in South African history \u2013 explains what is at stake for the&nbsp;economy, which was already teetering as ratings agencies warned of a downgrade to \u201cjunk\u201d if government did not reign&nbsp;in its borrowing. The attendant opportunity for patronage may help explain what is at stake politically.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Despite the treasury\u2019s concerns, the Cabinet meeting preceeding Nene\u2019s axing last week Wednesday approved the&nbsp;commencement of the nuclear procurement. While the post-cabinet statement was silent on it, Business Day this week&nbsp;quoted new Finance Minister Pravin Gordhan as confirming the decision.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But Gordhan cautioned: &#8220;We can\u2019t spend money that we don\u2019t have and we can\u2019t make commitments when we know&nbsp;we are not going to get the money that is required to be spent \u2026\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">ANC deputy secretary-general Jesse Duarte reportedly echoed the sentiment, saying the party felt the procurement&nbsp;should go ahead only if affordable. \u201cThat\u2019s the message we\u2019re relating to the ANC government.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Intra-government contestation is apparent from the slippage of the procurement schedule to date.<\/p>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong><em>&#8220;Classified&#8221;<\/em><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In mid-July \u2013 shortly after Zuma, Nene and Minister of Energy Tina Joemat-Pettersson returned from a Brics summit in&nbsp;Russia \u2013 the energy department announced that the procurement would start that same month and that the vendor&nbsp;would be selected by the end of the financial year in March 2016.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The slippage and indications that Cabinet made no financial commitment suggest the decision was partly a sop to&nbsp;Zuma, the nuclear lobby in government and potential vendor countries. A request for proposals may be issued, but&nbsp;actual contracting will not take place until money is found.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">How hard that will be \u2013 and at what risk to the economy if funds are committed regardless \u2013 is apparent from financial&nbsp;modelling that the treasury has done at the hand of expert studies the energy department commissioned from&nbsp;consultants Deloitte, KPMG and Ingerop. The department has turned down requests for these reports, saying they&nbsp;were \u201cclassified\u201d.&nbsp;But a treasury source outlined some of its findings. These include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The minimum overnight cost for the first reactors would be about $4\u00a0900 per kilowatt. Although economies of scale might see later plants coming in more cheaply, factors such as site-specific complexity and localisation would militate against that.<\/li>\n\n\n\n<li>The actual cost could be double the minimum, given the likelihood of cost overruns. New-generation reactors worldwide face average cost overruns of about 70%.South African coal plants Medupi and Kusile are approaching100% overruns.<\/li>\n\n\n\n<li>These costs \u2013 the total of as much as R1.4-trillion \u2013 exclude complementary elements of the nuclear programme such as establishing a local fuel supply, building waste facilities and decommissioning plants, all of which entail significant expense.<\/li>\n\n\n\n<li>South Africans will pay for it through electricity tariffs and possibly tax subsidies. While vendors may provide financing, they won\u2019t assume much risk for overruns, which will lead to consumers paying for these over the plants\u2019 lifetimes.<\/li>\n\n\n\n<li>The procurement is extremely large relative to the economy. R1.4-trillion is roughly equal to this year\u2019s total budget and a third of gross domestic product. Few if any other countries are investing in nuclear to this extent.By comparison, the overnight cost of the arms deal announced in 1999 was only about 13% of that year\u2019s budget.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">By comparison, the overnight cost of the controversial arms deal announced in 1999 was only about 13% of that year\u2019s&nbsp;budget.<\/p>\n\n\n\n<p class=\"has-text-align-center wp-block-paragraph\"><strong><em>&#8220;P<\/em><\/strong><strong><em>olitical&nbsp;pressures were growing, calling into question the government\u2019s continued ability to maintain spending restraint&#8221;<\/em><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Low growth and government borrowing to finance capital and current expenditure have left the treasury between the&nbsp;rock of further spending demands and the hard place of credit ratings. All three major rating agencies drove the&nbsp;message home in the past two weeks by downgrading South Africa or changing their outlook to \u201cnegative\u201d, leaving the&nbsp;country hovering above \u201cjunk\u201d status. Downgrades raise the cost of servicing debt and a junk rating may spur an&nbsp;unmanageable debt spiral.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In response, the treasury has committed to an expenditure ceiling that should stabilise government debt at just under&nbsp;50% of gross domestic product. But that is not the full picture. If the R470-billion that the treasury has extended in&nbsp;guarantees to state-owned companies such as SAA and Eskom is included, the gross liability pushes over 60%&nbsp;already.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If the nuclear procurement goes ahead, the figure is likely to go through the roof given the guarantees the treasury will&nbsp;have to extend even if vendors provide finance.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Ratings agency Moody\u2019s justified changing its outlook for South Africa to negative this week by saying: &#8220;Even without&nbsp;considering the cost of expensive new programmes such as nuclear power or national health insurance, political&nbsp;pressures were growing, calling into question the government\u2019s continued ability to maintain spending restraint.&#8221;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is this political pressure, it seems, that claimed Nene\u2019s scalp.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Nene said he was not talking to the media. &#8211; <em>Additional reporting by Tabelo Timse<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>* Got a tip-off for us about this story? Click <a href=\"http:\/\/amabhungane.co.za\/page\/contact-amabhungane\" target=\"_blank\" rel=\"noopener\">here<\/a>.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"http:\/\/www.amabhungane.co.za\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/amabhungane.org\/wp-content\/uploads\/2018\/03\/94x94.jpg\" width=\"94\" height=\"94\" align=\"left\"><\/a><strong>The <em>M&amp;G<\/em> Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See <a href=\"http:\/\/www.amabhungane.co.za\">www.amabhungane.co.za <\/a> for our stories, activities and funding sources.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Treasury estimates the energy plan for SA will cost R1.4-trillion, the pro-nuclear cabal says it&#8217;s only R600-billion.<\/p>\n","protected":false},"author":2,"featured_media":22705,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-4210","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stories"],"acf":[],"_links":{"self":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/4210","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/comments?post=4210"}],"version-history":[{"count":1,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/4210\/revisions"}],"predecessor-version":[{"id":30758,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/4210\/revisions\/30758"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/media\/22705"}],"wp:attachment":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/media?parent=4210"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/categories?post=4210"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/tags?post=4210"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}