PRESIDENT Jacob Zuma may well have made a political deal with President Vladimir Putin for Russia to supply South Africa with eight nuclear reactors. Many suspect so, and the rumours have been strong since early last year when a series of circumstances coincided to stoke the mill.

These include the sudden and unexplained departure of Department of Energy director-general Nelisiwe Magubane; claims about a deal in the Russian international press; the emergence of a dodgy looking draft agreement promising exclusivity to the Russian state-owned company Rosatom; and then last week an ambiguous and misleading joint statement by Rosatom and the department over the new cooperation deal.

Add to these six personal meetings in four years between Zuma and Putin and it is certainly possible to say, that at the very least, Russia is in the lead in the nuclear procurement race.

But if a promise has been made, how certain is it that Zuma can deliver?

Several roadblocks stand in the way. First is nailing down the policy question of nuclear power. This is not secured beyond reasonable doubt.

In 2010, the Department of Energy published its electricity master plan — known as the Integrated Resource Plan (IRP) — which said, on the basis of the model, that SA would need 9600MW of nuclear power by 2030 to meet demand and carbon targets.

Last December, an update of the IRP 2010 was published for public comment, which recommended holding off on nuclear power generation for several more years on the grounds of flat demand, and not pursuing it at all if the cost went above a threshold of $6500/kW (R73358/kW). This cost, incidentally, is significantly lower than the level at which recently constructed nuclear plants have cost. But which one of these is the version of the IRP that will inform government decision-making?

The department said last week, in a reply to questions, that the updated IRP was soon to be finalised by the cabinet. What the plan says about the energy mix and the cost ceiling for nuclear energy is keenly awaited.

A significant and irrational departure from the draft published last year would be certain to give rise to political and legal objections.

The energy planning process also has a further dimension. The Integrated Energy Plan (IEP) is a composite of the sector plans and draws from the IRP (the sector plan for electricity), the Gas Master Utilisation Plan, and plans for renewable energy. The IEP is also in a state of flux and is being revised by technical experts with a final report expected by the end of the year.

The second roadblock is the financing question. While nuclear vendors typically bring their own banking to the deal as commercial banks view nuclear power as too risky to fund, there would still be substantial cost implications for the host government.

Due to the fear that the government will in some way try to pull a fast one and present nuclear power as a policy fait accompli, the policy-making process is being closely watched.

It is also not quite clear which of the two plans should trump the other, with experts arguing that the detailed plans – such as the IRP – are the most accurate, and the government hinting at the importance of “a master plan”.

The second roadblock is the financing question. While nuclear vendors typically bring their own banking to the deal as commercial banks view nuclear power as too risky to fund, there would still be substantial cost implications for the host government.

The financing model favoured by Areva, the French multinational which also hopes to win the South African tender while being financed by French utility EDF, would nonetheless require substantial guarantees. At Hinkley Point, the Areva plant under construction in the UK, the British government was required to provide guarantees of £8-billion (R146-billion), about 60% of the cost.

With SA’s debt and guarantees forecast to peak at 57.1% in 2016, there is very little room for further borrowing if the Treasury is to remain within its benchmark of 60%.

In the prospective Russian-owned Turkish build, in which the Turkish government will take on none of the financing costs, the project has stalled over the price of the power purchase agreement required as a necessary guarantee for Rosatom. In this case, it will be the consumer who repays the capital cost and loan through the tariff and who bears all the risk as well.

In setting the power purchase price in South Africa, the National Energy Regulator of SA would also have a role to play. As an independent regulator, it would need to be convinced that whatever price is settled upon through the bidding process is fair, competitive and risk-apportioned.

Finally, there is the procurement process. Following the Department of Energy’s announcement that state-owned Eskom will not be involved in the nuclear programme, the procurement is expected to be run through the department.

Under the Electricity Regulation Act, the minister has the authority to commission new energy generation.

But there would be no escaping a competitive bidding process, or the prescripts of the constitution and the Public Finance Management Act.

Here the benchmarks are set very high: public procurement must be done “according to a system that is fair, equitable, transparent, competitive and cost-effective”.

From all the evidence available and the sizeable roadblocks in the way, this could be a hard deal for Zuma to swing.

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