Eskom itching to start nuclear programme

[] — ESKOM has responded to claims that it isn’t doing
enough to plan for South Africa’s nuclear energy requirements, as set down in
Government policy.

Speaking at a roundtable discussion hosted by Finweek and Accenture last
week, Paul O’Flaherty, Eskom’s financial director, said the utility had already identified
sites for a nuclear build programme and was conducting environmental studies, as
well as identifying servitudes.

“It was said that Eskom didn’t shout loud enough [during the delays in the coal-fired
power station build programme],’ said O’Flaherty. “Well we’re shouting now.’

If Eskom were eventually not the builder of the nuclear stations, estimated to cost
about R300bn, it would “sell on’ its project sites, said O’Flaherty.

Government and Eskom have been subject to a new round of criticism lately regarding
the timing of the country’s nuclear programme, set down in the Integrated Resource
Plan 2010 (IRP) as having to provide some 9,600MW of power by 2030.

Details of how this will be timed – let alone paid for – are still pending, and critics,
including the Free Market Foundation, have suggested the mistakes in Eskom’s
currently overdue R320bn (excluding interest) power station spend could be repeated
in the nuclear arena.

“Government and Eskom do not appreciate what the inconclusiveness of the nuclear
programme means to the industry,’ said Rob Adam, president of the Nuclear Industry
Association of South Africa. “Companies have spent money in preparation of this
programme.’ Adam was quoted in an article earlier this month in BDLive, an
online publication.

Government dithering is only part of the difficulties in the roll-out of capital-intensive
industrial projects.

According to O’Flaherty, who is directly responsible for the power utility’s capital
spending programme, Eskom procures construction and support services in
“packages’ of R7bn, which is often in excess of total annual revenue of some of the
companies with the tender. In other words, SA’s industrial and construction capacity is
being heavily stretched for projects such as the 4,800MW Medupi power station which,
at a capital cost of R91bn, is three times more than the Gautrain project.

Eskom has a scheme to develop project management academies throughout the
country, but skills have to be imported in the meantime.

Contractor support is a major problem for Eskom. Applied to the demands of the
nuclear build programme, the ability of SA to meet the IRP’s nuclear target become
strikingly clear. Given that Government policy on independent power producers (IPPS)
seems to be barely encouraging, the question has to be posed as to whether SA is
heading for another power deficit even after the completion of Medupi next year and
Kusile in 2019.

According to John Downie, senior partner of Accenture’s London office, the
implementation of large, capital-intensive projects in the provision of energy, among
both utilities and private companies, is streaky at best. “In reality, you’re not alone. A
surprisingly small group is getting it right,’ he said.

Downie’s cold comfort is based on Accenture’s recent survey of executives in the
energy field globally, which found that only 30% of the world’s major energy projects
were delivered within 25% of approved budgets. Half of that amount actually finished
within 25% of scheduled timelines. The scope of the capital projects from among
energy respondents was largely in the upstream and distribution network industry,
followed by pipelines, liquid natural gas and nuclear projects.

Shockingly, capital wastage is enormous globally. “There is some $5tr of wasted
money in that period,’ said Downie. And the joint top cause of missed project
schedules was “new or unconsidered regulatory requirements’, Accenture said. Sound

But what about the energy projects that do arrive roughly on time and on budget?

What are they getting right? Downie reckons the relationship between utilities and
their government owners is a crucial part of the puzzle. “Regulatory stability for that
investment over, say, a 10-year period is crucial. It’s difficult to make long-term
investment decisions if the environment might change.’

In that context, O’Flaherty thinks the three-year price path asked by Eskom of the
National Energy Regulator of SA (Nersa) is an almost minimum degree of certainty
required by Eskom, considering Medupi and Kusile will be expected to operate over 50
years. “If you think regulatory uncertainty is difficult, try building a 50-year project
with a three-year price path,’ said O’Flaherty.

– Finweek