Tegeta scandal report gives whiff of global rot in nuclear industry

This opinion piece appeared in the Business Day on 18 May 2017. It can be seen here.

The Eskom board decision to reappoint Brian Molefe as CEO only days after the explosive findings of the PwC report on the Guptas’ suspect Tegeta deal with Eskom — completed under Molefe’s watch — demonstrates yet again just how much the rot has set in at Eskom and in the government generally.

It is “deals” like this and the almost daily media disclosure of similar suspect tenders and contracts being awarded throughout the country that led the global anticorruption organisation Transparency International to state recently that “in SA, corruption and a lack of accountability are endemic”.

This grim state of affairs has alarm bells ringing on the proposed procurement of 960MW of nuclear power that, at an estimated cost of R1-trillion, would be by far the largest procurement in SA’s history.

Strong commitments to clean corporate governance by nuclear vendors should in theory scupper any rent-seeking practices through corruption. But how realistic is this? Transparency International has established a Bribe Payers Index that ranks the likelihood of companies from 28 leading economies winning business abroad by paying bribes. Russia is last on this index — its companies are considered most likely to pay bribes to win foreign contracts.

Little is known about the internal workings of Russia’s Rosatom — clearly the front-runner in SA’s nuclear procurement — as it appears to operate outside any substantive regulatory authority in Russia.

It is not subject to federal procurement laws like other Russia state entities, nor does it account directly to the Russian Accounts Chamber (the Russian equivalent of the auditor-general). According to a 2014 Greenpeace report, it is excluded from “obligations to make public its activities, expenditures or use of property”.

Its policy objectives appear to be directed by the president of the Russian Federation and his government and have as much to do with foreign policy objectives as they do with anything else. The president elects Rosatom’s director-general and its supervisory board, which has resulted in a revolving door — government officials regularly exchange places for senior management positions in the company and inevitably compromise effective oversight.

Current director-general Alexey Likhachov was previously deputy minister of economic development and trade in President Vladimir Putin’s government, while the previous Rosatom director-general Sergey Kiriyenko is now Putin’s first deputy chief of staff.

Russian nuclear physicist Andrey Ozharovsky has described Rosatom as a “state within a state, a powerful and secretive dominion with an almost limitless access to government funds and no accountability to either the state or the public”. From 2009 to 2012, Rosatom fired 68 executives and 208 mid-level managers for corruption. In 2009, the director-general and deputy director-general of its nuclear waste subsidiary, RosROA, were fired for purchasing nuclear waste containers at artificially inflated prices without a legal tender.

Also in 2009, the Russian state’s environmental watchdog, Rostekhnadzor, reported on the use of uncertified or counterfeit concrete reinforcement being supplied to Rosatom’s Rostov and Leningrad nuclear power plants. In 2011, the Rosatom’s deputy director-general was arrested on suspicion of embezzling research grants from Rosatom by presenting research he had found on the internet as his work. He was also implicated in redirecting funds meant for the reprocessing of nuclear waste.

In 2012, the procurement director of another Rosatom subsidiary, ZIO-Podolsk, was arrested and charged with embezzling state funds by passing off low-grade steel that was to be used in nuclear reactors in Russia  and abroad as high-grade.

Also in 2012, Chinese authorities monitoring Rosatom’s construction of the Tianwan nuclear power plant made 3,000 complaints about low-quality materials being used.

In 2013, joint research carried out by several international academics found evidence of the “sale and use of obsolete and counterfeit reactor equipment” at the Kudankulam nuclear power plant being built by Rosatom in India. The former chairman of India’s Atomic Energy Regulatory Board, Dr A Gopalakrishnan, called for the immediate suspension of all construction work on the site until inspections could be carried out.

In December 2015, the Russian director of a Rosatom subsidiary, Tenex, which is based in the US, was convicted of corruption and given a four-year jail term for accepting payments to influence the awarding of contracts between Tenex and US companies.

All of this would seem to support University of Melbourne Richard Tanter’s view there is “persistent, deep-seated and widespread corruption of state-owned and private nuclear industry companies” in Russia.

While China’s culture of state secrecy makes analysis more difficult, what evidence exists hardly inspires confidence.

China is one place above Russia in the index and its nuclear energy sector has also been riven with corruption.

In 2008, the vice-general manager of China General Nuclear Power was accused of corruption. The general manager of China’s largest nuclear company, China National Nuclear Power Corporation (CNNPC), was jailed two years later for bribery.

In 2015, the Chinese government reported that there were 12 continuing corruption cases related to the CNNPC.

Shandong Taikai Power Engineering, which responded to Eskom’s Request for Information, was banned from World Bank projects in 2015 after committing fraud in Vietnam and Uganda.

While South Korea fares better in the index, positioned in the middle of the table at 13th, the Korean Electric Power Corporation (Kepco) has been no stranger to corruption scandals.

In October 2013, the South Korean government charged more than 100 Kepco employees including its then vice-president, for corruption relating to fake safety certificates for parts in the country’s nuclear power plants, resulting in the shutting down of at least four plants. At the time, a senior government official spoke of a “nuclear mafia-style” operation in the country.

There is ‘widespread corruption of nuclear industry companies’ in Russia

Less than two years later a further 15 employees including the company’s chief auditor, were arrested for taking bribes from suppliers.

While France is seventh in the index, EDF and Areva, the nuclear engineering arm of EDF, have been accused of corruption in recent years.

Areva is the subject of a judicial investigation in France related to the falsifying of documents at its Le Creusot foundry that manufactures parts for nuclear reactors. The inquiry was initiated after a defect was found in the reactor vessel with 20 other equipment “irregularities” at the long-delayed nuclear power plant Areva is building  in Flamanville.

Areva is also facing a separate judicial investigation about the purchase and subsequent, possibly fraudulent, disposal of several African uranium mines in 2007. Former CE Anne Lauvergeon is under investigation for “publication of inaccurate accounts” and the “spreading of false information”.

The implications of using low-quality and sub-standard components in nuclear power plants could be catastrophic. The seniority of those arrested and charged seem to indicate a culture in which corruption is endemic within nuclear vendors. That these cases occur year after year suggests that attempts to combat corruption are ineffective.

Tanter argues the situation is so serious a “systematic review of corruption in the nuclear industry worldwide” is needed.

In SA, rent-seeking through corruption appears to be institutionalised within the state looking to procure nuclear power and in the vendors looking to provide it – both of which could initiate it. The alarm bells should be ringing in SA.

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