Government Demonstrates Desperation

This week’s announcements of Government’s plan to pursue a new nuclear procurement process for 2 500MW, along with 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, appear to be taken in haste and lacking sufficient transparency, clarity and rationality.

“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 currently in positions of power may no longer be around to approve deals of this nature,” says OUTA’s CEO Wayne Duvenage.

Cabinet’s announcement on Monday that it endorsed PetroSA’s decision to sign a deal with Gazprombank was met with strong criticism for various reasons. amaBhungane has reported here that, although 20 companies submitted bids for the PetroSA tender, unusually strict criteria has disqualified 19 of them, leaving only Gazprombank’s local subsidiary, GPB Africa & Middle East.

“We’ve seen this movie before, and its often a manufactured tactic to shoe-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.

While Gazprombank is under sanctions (related to Russia’s invasion of Ukraine almost two years ago), according to PetroSA the chances of South Africa being hit by secondary sanctions are slim. Yet a partnership between PetroSA and Gazprombank could very well open South Africa up to the threat of secondary sanctions from the United States, or – in the very least – some reputational damage.

“Since the South African Reserve Bank added secondary sanctions to its list of major financial risks facing SA, one would expect government to proceed with caution, especially against the background of the Agoa trade deal that has already come under the spotlight because of the ANC government’s close relationship with Russia,” Duvenage remarks.

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, profiteering 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.

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 gas sales supplied by them to South Africa. This will be a lucrative business with potentially high profiteering that will flow off-shore, with zero benefits to the people of the country. ”We want to know what other potential options have been excluded from this transaction due to irrational conditions built into the tender process, which is not being publicised due to PetroSA’s lack of transparency on this transaction.”

Barely a day after the PetroSA announcement, the minister of electricity, Dr Kgosientsho Ramokgopa, announced that the South African government will publish a request for proposals (RFP) of a 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’s NERSA’s official announcement of their concurrence and approval of this decision and on what cost benefit basis have they and Treasury arrived at this decision?”

While Minister Ramokgopa says that NERSA has given the go-ahead for this procurement process to proceed as far back as the 2nd September 2023, having satisfied themselves that the suspensive submission has been satisfactorily addressed, no official announcement was made in this regard at the time. According to Ramokgopa, government will now proceed with the gazetting of the RFP.

NERSA’s concurrence had been conditional on the Department of Mineral Resources and Energy (DMRE) meeting several suspensive conditions, including establishing, through a demand and generation profile analysis, the rationality of adding 2 500 MW of nuclear. NERSA also wanted confirmation that engineering, procurement and construction contract principles would be used during the procurement phase.

“They claim that NERSA is satisfied that the conditions for this nuclear decision have been met, but they don’t give us any detail. 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 have been drawn on. NERSA has been reluctant to provide us with the rational for this decision for the past two years that we have been in court to challenge this decision.”

Duvenage says it’s worrisome 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 awaiting the promised release of the updated IRP 2023. “The past IRP makes no specific mention of nuclear, but only stipulates that any nuclear build programme be implemented at a pace and scale that the country can afford. It would appear to us that the 2023 IRP, which is imminent following Cabinet’s recent approval, may now contain the supposed need for 2 500 MW of nuclear energy, yet this IRP will still need to undergo public comment and scrutiny.”

OUTA also disputes the claim that the levelized cost of this nuclear procurement will be at around R0.60 per kWh, as was stated in recent announcements by Government. “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.”

Minister Ramakgopa has admitted that no new nuclear could be built before the mid-2030s, implying that nuclear technology could play no immediate role in ending the country’s prevailing loadshedding crisis. “Our understanding is that new nuclear build programs take at least a decade to complete, from procurement to production,” says Duvenage. “That said, we must remember that Medupi and Kusile not only ran R300 billion over budget, but was also not fully operational fifteen years after construction started. Why would it be any different when this government is in charge of building a nuclear plant? We definitely don’t have the funds to waste on energy projects that don’t make sense, especially given the fact that there are more feasible and cheaper options coming onto the market with every year that progress is made.”

The DMRE deputy director-general for nuclear, Zizamele Mbambo, refused to comment on the possibility that Russia’s Rosatom would be considered as the preferred bidder given the sanctions that had been implemented against Russia following the Ukraine invasion. In 2016 and 2017, OUTA supported the Southern African Faith Communities’ Environment Institute (SAFCEI) and Earthlife Africa (ELA) campaign to halt the grossly irrational nuclear deal that Zuma’s Government was desperately and hastily trying 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 need 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.”