Déjà vu? A false alarm over a Russian nuclear contract sounds warning bells

2014-09-25

Media reports this week that South African Energy Minister Tina Joemat-Pettersson and Sergey Kirienko, Director-General of Russia’s State Atomic Energy Corporation, Rosatom, had signed a US$50 billion deal for Rosatom to build up to eight nuclear power stations – and a research reactor – in South Africa caused something of a, well, atomic reaction.

The reports suggested that Rosatom had leapfrogged all the other countries and corporations bidding for the huge contract and had also bypassed the constitutional requirement for a proper tender process. The joint statement on the agreement, which Joemat-Pettersson and Kirienko signed on the margins of a meeting of the International Atomic Energy Agency in Vienna, certainly gave the impression of a done deal.

‘The Agreement lays the foundation for the large-scale nuclear power plants (NPP) procurement and development programme of South Africa based on the construction in RSA of new nuclear power plants with Russian VVER reactors with total installed capacity of up to 9,6 GW (up to eight NPP units),’ the statement said.

It certainly looked as though Rosatom was trying to create a sense of fait accompli to rattle its rivals

It added that the agreement provided not only for ‘the actual joint construction of NPPs’ but also ‘for comprehensive collaboration’ in developing a full upstream and downstream South African nuclear industry. This would include US$10 billion worth of local participation in building the Rosatom plants, education of South African nuclear specialists in Russian universities and participation of South African companies in Rosatom’s projects in other countries.

‘This agreement opens up the door for South Africa to access Russian technologies, funding [and] infrastructure, and provides a proper and solid platform for future extensive collaboration,’ Joemat-Pettersson was quoted as saying.

The shocked reactions ranged from Democratic Alliance (DA) demands for government clarification of this apparent short-circuiting of due process; to warnings that the deal might fall foul of Western sanctions against Russia because of its involvement in the Ukraine conflict; to the expected condemnation and expressions of safety and environmental concerns from the anti-nuclear lobby.

It raised the spectre of the Chernobyl Russian nuclear power plant disaster and also, once again, criticised the extremely high projected costs of the nuclear fleet – which have been put as about R1 trillion – compared to other forms of power.

For a day the Rosatom ‘deal’ was headline news. Then Xolisa Mabhongo, Group Executive of Corporate Services at the Nuclear Energy Corporation of South Africa, explained that there had been an ‘unfortunate misinterpretation’ of the statement and that the government had not, after all, given the contract to Rosatom.

He said it was a standard framework agreement and that Joemat-Pettersson would next month sign a similar one with France and after that with China, and later perhaps also with South Korea, Japan and the US, all of which had expressed interest in bidding for the contract.

‘In any case there has to be a tender process before South Africa buys reactors,’ he told the Cape Times. ‘This should happen in the first half of next year. Any deal’s still a long way off.’

His clarification did not quite satisfy everyone, though. Even some government officials felt the Department of Energy had handled the announcement clumsily by signing onto a statement that had, at the least, allowed Rosatom ‘to steal a march on its rivals.’

The DA’s energy spokesperson Lance Greyling suggested a disturbing pattern. He was referring to media reports last year that Rosatom’s local representative had said his company had reached agreement with Pretoria that South Africa would have to secure consent from Russia should it wish to enter into nuclear production agreements with anyone else.

The arms deal, which was also supposed to boost local industry, should sound a loud warning

Greyling demanded that Joemat-Pettersson be called before Parliament’s portfolio committee on energy to explain the statement, and DA leader Helen Zille’s office later announced she and Greyling would address Parliament on the issue. It certainly looked, at the least, as though Rosatom was trying to ‘put facts on the ground,’ creating a sense of fait accompli to rattle its rivals, if not actually trying to railroad Pretoria into giving it preferential treatment.

Not everyone condemned a possible Rosatom deal. Kelvin Kemm, the pro-nuclear CEO of Nuclear Africa, a consultancy, dismissed the Chernobyl analogy, saying Russia’s VVER nuclear power plants were among the best in the world. He said those who criticised the costs were not taking into account the potential benefits of South Africa exporting components of nuclear production once a local nuclear industry had been established as a by-product of the nuclear fleet deal.

Kemm said the Rosatom deal would be one of the best on the table, offering about 60% local participation in the construction of the fleet to launch a local nuclear industry. Other deals would offer as little as 10% localisation, he said.

The trouble, though, in a nutshell, was ‘arms deal déjà vu,’ as Judith February, public policy expert at the Institute for Security Studies (ISS) put it.

‘The long and short of it is that Parliament is, generally, being excluded from the process,’ she said, also noting that it was not even clear if the cabinet had formally approved the latest iteration of the Integrated Resource Plan (IRP), which describes a future energy mix that includes the 9,6 GW nuclear build programme.

February said that it seemed as if Russia would offer to carry the initial capital costs of building the nuclear power plants, but that South Africa may then be locked into a long-term commitment to buying energy from them at a higher cost than normal. Of course the framework agreement is not in the public domain and so this remains speculative.

The Treasury had done an affordability study but this had also not been made public. February said that Section 217 of the Constitution demanded that all public procurement should be fair, equitable, transparent, cost-effective and competitive. ‘It is therefore crucial that all of this happens firstly via a debate within Parliament regarding the cost and also safety issues.’

The other aspect of the Rosatom proposal, in particular, which hits the déjà vu button is the promise of stimulating a vast local nuclear industry. Kemm may be right, of course, that the Rosatom deal could greatly boost local industrialisation, exports and jobs.

But the arms deal, which came with a long and impressive list of offsets that were also supposed to boost local industry, should sound a loud warning. Very little of that actually materialised. The purchase of arms proved in the end to be just that, a purchase of arms – and, moreover, one steeped in the stench of corruption that lingers still.

This week’s false alarm over a Rosatom deal might just serve as a useful wake-up call that the nation must conduct a very thorough debate before plunging into all of that, all over again. 

Peter Fabricius, Foreign Editor, Independent Newspapers, South Africa

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