Sunday, March 2, 2008

Sarkozy promotes Areva on South Africa visit

France pitches South Africa for new nuclear business

The Sunday Independent in South Africa reports that French President Nicolas Sarkoy is visiting to promote Areva's nuclear energy solutions over that of Toshiba's Westinghouse. Sarkozy, on his first state visit to South Africa, is leading a delegation of 40 French chief executives, including Anne Lauvergeon, the CEO at Areva. Unlike his recent trip to India, the French President was able to bring his new wife with him as the official first lady. Also unlike India, Sarkozy is dealing with a country that has signed the nuclear nonproliferation treaty.

The Independent reports that Sarkozy is frank about his intention to help French companies win business.

"We will fight to get the overall power plant market, coal and nuclear," Sarkozy told a meeting of representatives of South African and French companies in Cape Town.

Nuclear energy is critically important to South Africa because of its growing problems with electricity shortages. Areva heads a consortium of French and South African companies that is biding to build Nuclear 1, a twin-reactor nuclear power station that will produce about 3,500MW of electricity. An award on the bid and a start order for construction are expected later this year. According to the Independent, Areva has a head start over Westinghouse because it built the nuclear reactors for the Koeberg nuclear power station, near Cape Town. Koeberg is the country's only nuclear power generator.

Areva is also expected to bid for the full "fleet" of as many as 12 nuclear reactors, producing a total of 20 000MW of electricity, that Eskom is planning to build by 2025. It has been estimated that Nuclear 1 will cost up to R120-billion. At that cost, building 12 reactors to produce 20 000MW would cost about R700-billion at today's prices and a lot more by 2025.

Areva reportedly boosted its chances of winning the nuclear power plant contracts when Lauvergeon, signed a contract with the government for Areva to train South African nuclear engineers. Local technology transfer is a key component of the bid according to Eskom.

The newspaper did not report any aspects of the french proposal which dealt with financing. The South African government has taken a penny pinching approach to Eskom's needs for capital offering a loan that addresses just 20% of its requirements over the next five years. France could probably seal deal if it offered to build the new nuclear plants as merchants in return for government guarantees on rates and purchases of electricity.

To try to curtail the spread of brownouts Eskom and the government are shifting the burden of load balancing and energy conservation to large industries such as the economically important mining sector including gold, diamonds, and uranium. The brownouts have crippled South African industry and limited the country's overall economic growth.

Eskom is pedaling as fast as it can to get the new energy generation plants under construction. In the meantime South Africa has become a poster child for what happens when countries dither over fuel sources while the lights are going out, when it undercuts the rate base, and then fails to realize that short sighted politics have long term consequences. Electricity is so basic to the government's credibility that failure to supply to industry and households can destabilize the entire nation. That is what is at stake in South Africa.

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