Eskom can fund the nuclear build programme – Molefe

Eskom has appetite for the planned nuclear build programme. It believes it can fund it and sees a role for itself in the construction and operations of the nuclear power plants.

This is clear from an interview with Eskom CEO Brian Molefe on Monday. Molefe said the board and executives of Eskom are of the view that the power utility should contribute positively to the programme and are talking to the Department of Energy (DoE) about the role it should play.

Government’s 2008 Nuclear Policy Eskom acknowledges, “South Africa’s expertise with respect to the management, operation and maintenance of nuclear power plants resides with Eskom”.

With regard to institutional arrangements it is stated that “Eskom shall be the main owner and operator of nuclear power plants in South Africa.” It does provide for public private partnerships, “with Eskom retaining the controlling shareholding as the Public player”.

In July DoE deputy director general for nuclear energy Zizamele Mbambo however expressed doubt about Eskom’s capacity to undertake the huge nuclear programme. He said Eskom had its hands full with its new power stations Medupi and Kusile that are still under construction, and cited Eskom’s financial constraints.

Mbambo said cabinet was reviewing an earlier decision designating Eskom as owner and operator of the planned nuclear power plants and would review State- Owned Companies in terms of their mandates to determine which would be fit to execute the nuclear programme.

Molefe on Monday said Eskom needed something after completion of Medupi and Kusile and “nuclear is the next big thing”.

He said the DoE would play a critical role in selecting the successful bidder. Eskom sees a role for itself in building and operating the nuclear power plants. The original equipment manufacturer would however play the biggest role in the design and construction of the plant, he said.

Molefe acknowledged that Eskom experiences problems at Medupi and Kusile, but said the issues have been identified and are being dealt with. There will be an improvement in the next two years, with no further slippage in timelines and budgets, he said.

The funding of the project, which is the major concern in most quarters, is a simple matter, Molefe said. A nuclear power plant has a life of 60-80 years with big initial capital costs, but low running cost. He said the initial capital cost is typically repaid over the first 20 years, which means that the energy will thereafter be delivered at a very low cost.

Anything with that kind of financial profile is easy to fund, he said.

This is currently the situation with Koeberg, which delivers the cheapest electricity of the whole Eskom fleet and thereby contributing to a lower average cost of generation.

Eskom could fund the project from its balance sheet, Molefe said. Molefe has gained a lot of experience in capital markets in his earlier position as CEO of the Public Investment Corporation (PIC), which is the biggest asset manager on the continent and manages the portfolio of the Government Employees’ Pension Fund.

Eskom is currently finalising its financial statements for the six months ending September 30. CFO Anoj Singh told journalists at the Quarterly System Update on Monday that Eskom will be “comfortable” for the rest of the current financial year and hopes to end the year with R10 billion to R15 billion cash.

Molefe said Eskom has special skills and experience required for running the Koeberg nuclear power plant and the technology in new plants will be fairly similar.

Representatives of two of the vendor countries that will participate in the nuclear bidding process were positive about Eskom’s involvement, saying Eskom has the required expert knowledge. They asked not to be named.

Nuclear Africa CEO Dr Kelvin Kemm said after government earlier decided that Eskom would not run the nuclear procurement, the DoE took the role as the relevant legal entity on an interim basis. He said government might establish a new agency specifically for this purpose.

Investment Solutions economist Chris Hart is however sceptical about Eskom’s capacity for nuclear.

He said Eskom cannot build a nuclear power plant in the way it is building Medupi and Kusile. Eskom’s project management is disastrous, he said. “I will be very scared if Eskom gets involved,” he said. “Medupi is five years late and they are battling to keep their existing fleet (of power stations) together.”

Hart said the nuclear programme is unaffordable for South Africa as a country and asked how a much smaller entity like Eskom would be able to afford it.

“Theoretically I agree with him that it should be possible to fund it, but the sheer size of the project makes it difficult.” Eskom is not even able to fund Medupi and Kusile off its balance sheet and is pushing a large portion onto the State, he said.

Hart said the cost has been estimated at R1 trillion and the weakening rand can see it increase to R1.5 trillion. “Even a little mismanagement on a project of that size and result in huge cost overruns.”

To fund that from tariffs would cripple the economy, he said. The capital markets may provide out the funds, but it will have to be repaid from tariffs, which are already high, Hart said.

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