Taxpayers will have to lie in the pebble bed government makes
Hilary Joffe

ONE of the scariest things in the Sunday newspapers was the comment by public enterprises director-general Portia Molefe that government should be willing to consider paying the full cost of the pebble bed modular reactor (PBMR) project.

It was not scary because the pebble bed would be a nuclear reactor — even though some might fear this experimental “fourth generation” nuclear power project a lot more than they would a tried and tested conventional nuclear power station. Rather, it was frightening because of the economic risks Molefe seems to want the government to take on all on its own, without the international partners that it always claimed it would bring in.

For this is no small cost, and taxpayers would have to pay it. Public Enterprises Minister Alec Erwin put the cost of building the demonstration plant at R15bn late last year; in February the pebble bed company itself said R16bn; a figure of R17bn is now being bandied about. But that may still be far too low. University of Greenwich researcher Steve Thomas has estimated the cost of the demonstration plant at R25bn. Some believe it could go as high as R32bn.

And what are the chances that in four years’ time, after all the allocated billions have been sunk into the project, its leaders come to government pleading for a few billion more to get it finished, so the money already spent doesn’t go to waste?

The cost to the economy is not just in money. The project competes for scarce process engineering and project management skills other big capital spenders such as Sasol and Eskom also need. And once construction begins, it will add to soaring demand for building materials and equipment.

Whether the money involved is R17bn or R25bn, that’s just the cost of building the demonstration plant, which is meant to be complete by 2012. If it proves viable, it would then take another four years, and several more billions, to commercialise the technology. The thinking is that government wouldn’t have to shoulder that burden, because private sector investment would be there once the pebble bed was commercially viable. Eskom would want to use it. So would international power producers, who would flock to take advantage of the new technology’s many advantages. But that assumes that a better so-called “fourth generation” nuclear technology hasn’t come to market by then to rival the PBMR process. Molefe said SA had a solid lead. But no one in government should be naive about the financial, operational or commercial risks of a project like this, especially when the lessons of the Rooivalk helicopter are so current.

Denel finally said last week that it would spend no more money on the Rooivalk. It has cost R8bn of taxpayers’ money over the past 14 years to develop the attack helicopter and Turkey’s recent decision not to buy it put paid to its export prospects.

One lesson is that even if you spend a great deal of money developing the most wonderful product in the world, there’s no guarantee that it will sell.

Another lesson may be that we shouldn’t let national pride about our technological wizardry get in the way of good commercial sense. Given how small the local market was, the Rooivalk project was only ever going to yield a return if it succeeded in the export market. The same goes for the pebble bed technology, which would also need to sell internationally to justify the investment. And the question the Rooivalk debacle inevitably, albeit uncomfortably, raises is whether international customers, in developed or developing countries, are going to choose SA as a supplier of high-tech equipment for use in a critical industry such as power generation.

That is a key reason why government shouldn’t even consider taking the risk on its own, without a partner that has serious clout in the world energy market and some serious cash to invest. The dilemma has been that if the new technology proves to be as good as its champions predict, and as timely given the global move to nuclear, SA would want to keep 100% of the intellectual property rights. That would entitle it to all the upside if the pebble bed were a success — but it can’t have that without taking on all the downside risk.

So far, Finance Minister Trevor Manuel has committed R6bn to finance 51% of the capital requirements of the PBMR over the next three years but has not formally allocated the money. That’s clearly not enough, even if an international player takes the other 49%. But if no partner materialises, the ownership and funding of the project will presumably need debate within government.