How SA’s nuclear plant build could fuel corruption

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This opinion piece appeared in the Business Day on 23 May 2017. It can be seen here.

The government can restrict public and parliamentary oversight by using arguments on national security

The construction of a nuclear power plant is considered to be a megaproject – characterised as a significant investment, as being highly complex organisationally and technically and as having a long-lasting effect on the economy, society and the environment.

International experience shows that such projects are prime targets for corruption. Their size, complexity and longevity create thousands of contractual links — between the customer, contractor, sub-contractors, co-ordinating project offices, etc — each of which present an opportunity for corruption. A recent local example is the corruption that plagued phase 1 of the Lesotho Highlands Water Project.

Allied to this is the potential problem of central government involvement. Energy projects in particular tend to be centrally managed by governments and, by necessity, afford senior public officials discretionary powers over projects.

The construction of a nuclear power plant is particularly problematic as governments can use issues of alleged national security to restrict public and even parliamentary oversight.

In SA, apartheid-era legislation such as the National Key Points Act of 1980 could be used to withhold information about any new nuclear power plant being constructed. As Right2Know has said, “historically, the National Key Points Act has been used and abused to stifle access to information”.

In the alleged interests of national security, information about corruption (think Nkandla) or a radioactive leak could be hidden from the public. The situation is made worse by the fact that there is no public interest defence for whistleblowers in terms of the National Key Points Act.

Nuclear power plant construction is also open to corruption because of the information asymmetry between the vendor and the buyer.

SA is not able to build nuclear power plants on its own and lacks the necessary information on the technical complexity of construction processes. This means that the vendor can be confident that the buyer is not fully aware of all the features and financing needs of the power plant, creating opportunities for graft by the vendor.

The type of construction model signed with vendors can also have an effect on corruption. SA’s nuclear build front-runner Rosatom offers various models. According to Phumzile Tshelane, CEO of the Nuclear Energy Corporation of SA, the country prefers the build, own and transfer model in terms of which vendors and states work in joint venture partnerships to build and operate power plants that are eventually transferred to recipient states.

At first glance, this looks like the best model for SA because it means that anything between 25% and 50% of project implementation and construction jobs will be localised. However, in SA, where according to Transparency International, both the public and private sectors are endemically corrupt, such a model creates numerous opportunities for rent-seeking.

Already, we have seen a R171m deal for the “procurement of the nuclear build programme management system” awarded to a company called Central Lake Trading 149 that is run by the son of Vivian Reddy, long-time associate of President Jacob Zuma. While there is no indication of anything suspicious in this deal, it demonstrates the kind of opportunities created.

Best practice demonstrates that transparency and accountability are essential throughout all phases of any project, but are absolutely critical for the assessment of need (project development)

International best practice shows that above all else, the key way to counter these dangers is transparency. According to Transparency International, this means that “in the context of public procurement … laws, regulations, institutions, processes, plans and decisions are accessible to all potential bidders and the public at large … corruption thrives in the dark”.

Best practice demonstrates that transparency and accountability are essential throughout all phases of any project, but are absolutely critical for the assessment of need (project development). The basic questions to ask are: is the project necessary and has this been confirmed by independent experts?

If a project has been independently verified as necessary, then a second series of questions follow. Are there alternative ways of meeting the perceived need and have they been given satisfactory consideration? Are project costs and benefits being accurately estimated throughout their life cycles (including all assumptions and cost-benefit analysis)?

All such questions should be asked and answered in the public realm so that they are open to full scrutiny by Parliament, regulatory bodies and citizens.

For energy provision, project development should also take into account the danger of the artificial promotion of particular types of energy production and suppliers or designs to favour individual companies. Of concern here is how political influence can be used to select suppliers to which commitments are made that have not passed through oversight processes.

How nuclear procurement has been handled to date in the country shows just how far the government has departed from best practice.

Firstly, the government has failed to show that the nuclear build is necessary. Its own  Ministerial Advisory Council on Energy recommends that no new nuclear power capacity is necessary in SA for the foreseeable future.

This view is confirmed by Council for Scientific and Industrial Research (CSIR) modelling, which shows that no new nuclear power is necessary until at least 2050 (the date their modelling ended). Prof Anton Eberhard of the University of Cape Town has described the state’s determination to  pursue the nuclear procurement as “irrational”.

Secondly, the government has not properly assessed alternative ways of meeting the  perceived need.

While it has considered renewable energy options, it has done so in a fashion that artificially constrains their potential.

The government’s draft 2016 Integrated Resource Plan (IRP) places completely arbitrary limits on the amount of renewable energy that can be delivered in SA despite there being, according to the CSIR, no technical reason for this.

Energy expert Chris Yelland has stated that the constraints imposed in the IRP are the result of “a political decision rather than a rational planning decision”.

Thirdly, project costs and benefits have not been estimated accurately throughout their complete life cycles.

Energy experts throughout SA agree that the draft 2016 IRP underestimates the cost of nuclear power and overestimates the cost of renewables.

The IRP suggests a cost of R0.97/kWh for new nuclear power. The CSIR has found that the “most optimistic” cost would be R1.17/kWh, while research carried out by EE Publishers suggested R1.30/kWh.

None of these calculations factor in the considerable extra costs of nuclear fuel, routine plant maintenance and refurbishment, decommissioning, or the long-term disposal of nuclear waste. For renewables, the IRP gives a price of R0.81/kWh for solar and R0.93/kWh for wind, while the CSIR shows that both now cost R0.62/kWh, with prices continuing to fall.

How procurement has been handled shows just how far the state has departed from best practice

Lastly, particular suppliers have been favoured and deals have been reached without proper oversight.

The recent court case between the Department of Energy and Earthlife Africa-Southern African Faith Communities Environment Institute demonstrates this.

The judges in the case found that Rosatom had been favoured over other potential vendors as a “a firm legal commitment existed between SA’s government and Rosatom in terms of the Intergovernmental Agreement signed with Russia in 2014”. An agreement that the judges found, “clearly required to be scrutinised and debated by the legislature” and was in breach of section 10 of the National Energy Regular Act, which calls for participatory decision-making processes.

New Energy Minister Mmamoloko Kubayi recently stated that new agreements will be signed with nuclear vendors but that she did not want to find herself “in court every day”.

She could heed best practice and ensure that before any procurement proceeds, an anti-corruption plan is in place between the government, the vendor and civil society.

This should identify where corruption could take place, make recommendations for mitigating it and should be regularly reviewed during each phase of project implementation. Transparency International calls these plans “integrity pacts” and they have been successfully implemented in 15 countries in more than 300 procurement projects.

Sadly, in the current climate, it seems inconceivable that either Eskom or Rosatom (or any other vendor) would agree to be held accountable to civil society, such is the headlong charge for nuclear power in SA.

 

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