It appears that the nuclear and PetroSA deals were approved in haste before the elections, with both lacking transparency, clarity and rationality.
Nersa’s green light for nuclear procurement process to acquire 2,500 MW and cabinet’s decision to endorse a R3.7 billion investment deal between PetroSA and the Russian-owned financier Gazprombank, to resuscitate its gas-to-liquid fuel refinery in Mossel Bay, show how desperate government is ahead of the elections in 2024.
“Both deals smack of a government that is desperate to secure dubious contracts ahead of the 2024 elections, since there is a strong possibility that those who are currently in positions of power may no longer be around to approve deals of this nature,” Wayne Duvenage, CEO of civil organisation, Outa, says.
On Monday cabinet’s announcement it endorses PetroSA’s decision to sign a deal with Gazprombank was met with strong criticism. amaBhungane reported, although 20 companies submitted bids for the PetroSA tender, unusually strict criteria disqualified 19 of them, leaving only Gazprombank’s local subsidiary, GPB Africa & Middle East, eligible.
“We have seen this movie before. It is often a manufactured tactic to shoo in a preferred bidder for nefarious reasons,” Duvenage says.
Despite PetroSA’s bid evaluation committee and its own board warning against awarding the bid to Gazprombank, with PetroSA’s lawyers even suggesting starting the tender process anew, the state-owned entity ignored the advice and awarded the tender to the Russian entity, he says.
While Gazprombank is under sanctions related to Russia’s invasion of Ukraine almost two years ago, PetroSA believes the chances of South Africa being hit by secondary sanctions are slim. However, Duvenage says, a partnership between PetroSA and Gazprombank could very well open South Africa up to the threat of secondary sanctions from the US and in the very least, some reputational damage.
Threat of sanctions for doing business with Gazprombank
“Since the South African Reserve Bank added secondary sanctions to its list of major financial risks facing South Africa, you would expect government to proceed with caution, especially against the background of the Agoa trade deal that has already come under the spotlight due to the ANC government’s close relationship with Russia.”
PetroSA closed its gas-to-liquid fuel refinery in 2020 after it ran out of feedstock. The refinery can produce 46 000 barrels of fuel per day. PetroSA’s current purpose and the bulk of its revenue exists to buy imported diesel and sell this on to Eskom, profiting from taxes and fees built into the retail price of diesel.
Due to Eskom’s significantly higher diesel burn rate to keep the lights on over the past year, PetroSA’s turnover increased from R12 billion last year to an estimated R20 billion this year, Duvenage says.
“OUTA has concerns that an investment and equity shareholding by Gazprombank into a South African state-owned asset will enable a foreign country’s state owned company to profit from South African citizens’ fuel tax spending, as well as become the beneficiaries of Russian gas sales to South Africa.”
Duvenage points out that this will be a lucrative business with potentially high profiteering that will flow offshore, with zero benefits to the people of the country.
”We want to know what other potential options were excluded from this transaction due to irrational conditions built into the tender process, which is not known due to PetroSA’s lack of transparency on this transaction.”
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Does nod for nuclear mean business for Rosatom again?
And barely a day after the PetroSA announcement, the minister of electricity, Kgosientsho Ramokgopa, announced that the South African government will publish a request for proposals for 2,500 MW of new nuclear capacity by March 2024.
Duvenage questions the timing and transparency of this announcement.
“Firstly, why does the minister of electricity make the announcement? Where is Nersa’s official announcement of its concurrence and approval of this decision and on what cost benefit basis have they and Treasury arrived at this decision?”
While Ramokgopa says Nersa gave the go-ahead for this procurement process to proceed as far back as 2 September, having satisfied themselves that the suspensive submission has been satisfactorily addressed, no official announcement was made at the time. According to Ramokgopa, government will now proceed with the gazetting of the RFP.
Nersa concurred on condition the department of mineral resources and energy meet several suspensive conditions, including establishing, through a demand and generation profile analysis, the rationality of adding 2,500 MW of nuclear power to the grid.
In addition, Nersa wanted confirmation that engineering, procurement and construction contract principles would be used during the procurement phase. They claim Nersa is satisfied that the conditions for this nuclear decision have been met, but they do not give us any detail, Duvenage says.
“This smacks of similar approvals by Nersa on the Karpowership deal, which lacks transparency on how they arrived at the decision, along with the full cost benefit studies that were used. Nersa has been reluctant to provide the rational for this decision for the past two years that we have been in court to challenge this decision.”
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Decision for nuclear based on old Integrated Resource Plan
Duvenage says it is concerning that the decision to proceed with nuclear was made based on the prevailing Integrated Resource Plan of 2019 (IRP 2019), when the country is still waiting for the promised release of the updated IRP 2023.
“The old IRP makes no specific mention of nuclear, but only stipulates that any nuclear build programme must be implemented at a pace and scale that the country can afford. It looks like the 2023 IRP, which must be published very soon after cabinet approved it recently, may now contain the supposed need for 2,500 MW of nuclear energy, although this IRP will still need to undergo public comment and scrutiny.”
In addition, Outa disputes the claim that the levelised cost of this nuclear procurement will be at around R0.60 per kWh, as was stated in government’s recent announcement.
“This is absurd, to say the least. International financial advisory firms like Lazard indicate the cost of new nuclear energy to be well above R2,00/kWH, with others saying it will be more likely above R3.50 / kWh in South Africa’s case, after taking local conditions, construction time and other factors into account.”
Ramakgopa admitted no new nuclear could be built before the mid-2030s, implying that nuclear technology would play no immediate role in ending the country’s prevailing load shedding crisis.
“Our understanding is that new nuclear build programs take at least a decade to complete, from procurement to production. However, we must remember that the Medupi and Kusile power stations not only ran R300 billion over budget but was also not fully operational 15 years after construction started,” Duvenage says.
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After Medupi and Kusile, can government be trusted to build nuclear?
“Why would it be any different when this government is in charge of building a nuclear plant? We definitely do not have the funds to waste on energy projects that do not make sense, especially given the fact that there are more feasible and cheaper options coming onto the market every year.”
The director-general for nuclear in the department, Zizamele Mbambo, refused to comment on the possibility that Russia’s Rosatom would be considered as the preferred bidder given the sanctions implemented against Russia after the Ukraine invasion.
Duvenage points out that Outa supported the Southern African Faith Communities’ Environment Institute (SAFCEI) and Earthlife Africa (ELA) campaign in 2016 and 2017 to halt the grossly irrational nuclear deal that Zuma’s government desperately and hastily tried to ram down the country’s throat at the time.
The two civil society organisations had the proposed nuclear deal with Rosatom overturned by the high court in 2017.
“This current nuclear plan has all the hallmarks of another irrational transaction that will have to be challenged.”
Duvenage says the proposed new nuclear deal, as well as the PetroSA/Gazprombank deal, requires further scrutiny.
“We find it unacceptable for government to decide on projects on behalf of its people, without being completely transparent about the costs and the long-term implications for the country and future generations. If indeed these decisions were not taken in the best interest of South Africa, Outa will definitely consider applying the rule of law to intervene.”
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