Geopolitics Key to South Africa's $100 Billion Nuclear Plan

Vladimir Putin (Left) and Jacob Zuma, presidents of Russia and South Africa, respectively

Politics may tip the balance as Russia’s Rosatom Corp. and France’s Areva SA (AREVA) prepare to battle it out for South Africa’s planned nuclear-energy project that could cost $100 billion.

“Geopolitical and industrial relations between South Africa and the nuclear-vendor countries will play an important role,” Des Muller, the head of Johannesburg-based building company Group Five Ltd.’s nuclear construction division, said in an e-mailed response to questions Dec. 17. “It does with all major infrastructure projects and more so on nuclear infrastructures where reliance on nuclear safety and construction knowhow is paramount.”

South Africa could pay as much as $100 billion spread out over a period of 15 years for nuclear reactors to provide 9,600 megawatts of power, Muller said. The economy of the continent’s biggest electricity user relies on energy-intensive industries such as underground mining and the smelting of chrome and aluminum.

The government hopes new nuclear plants can help it reduce its reliance on coal for about 80 percent of its power and address future energy needs as aging infrastructure needs replacing.

Russia may already have a head-start as President Jacob Zuma fosters stronger economic cooperation with the country and China in a shift from his western and Africa-leaning predecessor Thabo Mbeki, Robert Besseling, a Johannesburg-based analyst with IHS Country Risk, said in an interview. The Soviet Union and then Russia historically kept close ties with the ruling African National Congress from the days in which it was battling against the apartheid regime.

Under Zuma’s watch, South Africa was incorporated into the BRICS alliance with Brazil, Russia, India and China.

“Considering the much-stronger relationship between the Zuma presidency and the Russian government than under the previous South African administration, it looks much more likely that the expansion of the nuclear program will be awarded to Russia,” Besseling said.

Zuma has already been attacked by newspapers including the Johannesburg-based Mail & Guardian and the opposition Democratic Alliance. He personally negotiated a September framework agreement with Russia, including only his closest advisers, the Mail & Guardian reported on Sept. 26, citing government and ANC officials it didn’t identify. The president’s office denies this. The Democratic Alliance is appealing the denial of its request to see the document through the Promotion of Access to Information Act.

After signing agreements allowing for nuclear cooperation with Russia, France, the U.S., China and South Korea, and conducting technical workshops with delegations from the countries, the Department of Energy has met with companies from those countries to discuss the most important elements in the project: technology, safety, financing and how much of it will be built locally. The department is in the process of determining the procurement rules, including whether the bidding process will be open to anyone or by invite only.

“The political relations could trump the technical” on a national and global scale, Anne Fruhauf, southern Africa analyst at New York-based risk adviser Teneo Intelligence, said in a phone interview. Russia is the frontrunner, not least because of Zuma’s stronger orientation to the Brazil, Russia, India and China block, South Africa is a part of, Fruhauf said. “A joint bid between the Chinese and French could perhaps give them the upper hand,” she said.

France’s Areva this year beat Toshiba Corp.’s Westinghouse Electric to a 4.3 billion-rand contract to replace steam generators at South Africa’s Koeberg nuclear plant.

That experience and a failed court appeal of the decision has left Westinghouse unsure whether it will bid for the larger nuclear project.

“Westinghouse is considering our options at this time based on our recent experience in RSA and on our experience in the last round of bidding for new nuclear plants in RSA,” the nuclear-power builder said in a Nov. 21 reply to questions, referring to the Republic of South Africa. “Nuclear projects are very large and can impact international relationships between the associated countries.”

There are 37 of Rosatom’s VVER reactors that use pressurized water operating outside of Russia, including 18 units in five European Union countries, according to the company. Areva has built more than 100 reactors around the world, with its EPR design under construction in Finland, France and China. Westinghouse said its AP1000 reactor uses “the world’s safest commercial technology.”

Source: Bloomberg – Business, Financial & Economic News, Stock Quotes.