Zuma nuclear deal far from done and dusted

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 this six personal meetings in four years between Zuma and  Putin and it is certainly possible to say, that at the every 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?

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, nor 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.