JOHANNESBURG (Business Day) -- High costs have signalled the death knell for the new plant's bidding process. Raising finance for Eskom's recapitalisation programme is giving the utility 's bosses a few grey hairs - a R343 billion programme is huge by anyone's standards.
The utility has been frank about the difficulties of funding such a programme. It has not helped that the group's financial position has come under pressure from rising primary energy sources. Adding to Eskom's cocktail of miseries have been unfavourable credit ratings - top international rating agencies have the utility on negative watch.
Something had to give, and it seems it was easier to sacrifice the Nuclear One project. This initiative would have culminated in the construction of South Africa's (SA's) second pressurised water reactor nuclear plant, after the Koeberg plant.
Portia Molefe, director-general of the public enterprises department, says this project could be put on hold without compromising security of energy.
With Eskom not proceeding with Nuclear One, eyes are on the government. Where does this leave the future of nuclear energy?
As the custodians of energy policy in SA , the government had to say something. So when Molefe and senior minerals and energy department officials Nelly Magubane and Tseliso Maqubela addressed the media on Friday, their message was simple - the government's nuclear plans have not been tampered with. Nuclear power is still part of its strategy to diversify the country's energy mix by moving away from coal-based power . The pursuit of the nuclear option is still on.
The minerals and energy department unveiled a nuclear policy and strategy last year that spells out the government's plans for the nuclear industry ,and those intentions have not fallen by the wayside . It would be foolhardy to expect the government to discard those plans, but it is safe to say that state plans on how the nuclear industry would be developed have changed.
Instead of a commercial procurement process, as with Nuclear One, the government is looking for a nuclear technology partner. How this will be done is still unclear but Maqubela has said: "We will be looking for someone who will support localisation. A partner that will be willing to relocate some of the manufacturing into SA." The minerals and energy department will lead a task team that will search for that technology partner.
From its side, Eskom has been at pains to ensure the termination of the procurement process was motivated by affordability.
"This is purely an affordability issue," Eskom spokesman Fani Zulu says. Because of the high costs, the Eskom board did not approve the project to ensure the utility does not undertake unaffordable projects .
Energy giants Areva and Westinghouse, which led consortia vying for the contract, have every reason to be unhappy. They expected Eskom to announce who had won the bid, not the scrapping of the bidding process.
Frost and Sullivan energy industry manager Cornelis van der Waal says last week's decision certainly does not mean SA's nuclear plans are being scrapped .
"Within the current financial crisis and the difficulties Eskom has in raising finance, the plan to put their nuclear ambitions on hold certainly makes sense. But I would bet my bottom dollar these plans will not be shelved forever."
Eskom is simply sending out a message that, in the context of the rest of the recapitalisation programme, it cannot afford to build a new power station now.
"There are a number of things to take into account when looking at nuclear. There are particularly high upfront costs involved," Van der Waal says.
By 2012 or 2013, when Eskom's recapitalisation programme has gained momentum, the nuclear plans will be revisited. And with the plans on hold, Eskom will be able to divert resources to its other projects, Van der Waal says.
