VZCZCXRO0157
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #2654/01 3411231
ZNR UUUUU ZZH
R 061231Z DEC 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 6659
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0889
RUEHBY/AMEMBASSY CANBERRA 0770
RUEHLO/AMEMBASSY LONDON 1646
RUEHMO/AMEMBASSY MOSCOW 0900
RUEHNE/AMEMBASSY NEW DELHI 0505
RUEHOT/AMEMBASSY OTTAWA 0731
RUEHFR/AMEMBASSY PARIS 1479
RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 03 PRETORIA 002654 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, EEB/ESC AND CBA 
DOE FOR SPERL, PERSON, SCOTT, AND BIENAWSKI 
DOC FOR ITA/DIEMOND 
 
E.O. 12958: N/A 
TAGS: ENRG EPET EMIN EINV EIND ETRD SF
SUBJECT: ESKOM POSTPONES NEW NUCLEAR BUILD PLANS 
 
REF: A. PRETORIA 2612 
     ¶B. PRETORIA 2401 AND PREVIOUS 
 
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Summary 
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¶1.  (SBU) Eskom announced its decision to postpone the 
development of a second nuclear power plant.  The local press 
reports that a fleet of nuclear power stations, rather than a 
single one, will probably be built in partnership with 
suppliers, bringing down the total unit cost.  A task team 
will develop a nuclear energy strategy and work with state 
power company Eskom to procure a nuclear technology partner 
to support the build and associated industrialization 
processes over the next 18 months.  Westinghouse will convey 
more about the government's plans for a nuclear program after 
a meeting with the Minister of Public Enterprises in the U.S. 
on December 11.  End Summary. 
 
--------------------------------------------- -- 
Nuclear Competition Ended for Financial Reasons 
--------------------------------------------- -- 
 
¶2.  (U) State power utility Eskom announced on December 5 its 
decision not to proceed with procurement of a second nuclear 
power station because of its inability to secure adequate 
financing, given the worldwide financial crisis, and because 
of the slowdown in the domestic economy, according to 
multiple press sources.  Eskom had been expected to make a 
decision -- perhaps by the end of the year -- between three 
1,140 MW reactors from Westinghouse or two 1,650 MW reactors 
proposed by Areva of France (Reftel B).  Eskom spokesperson 
Fani Zulu said the cost of the proposed nuclear power station 
was confidential, but its cost was not part of the USD 33.6 
billion Eskom has estimated it will spend through 2013 
increasing generating capacity to alleviate power shortages. 
Eskom had previously announced plans double its capacity to 
80,000 MW by 2026, of which 20,000 MW, or half of the 
increase, was to be nuclear.  South Africa's only existing 
nuclear power plant is a 1,800 MW double reactor constructed 
by Areva at Koeberg, near Cape Town. 
 
¶3.  (U) Westinghouse issued a press release on December 5 
announcing that it had been advised that Eskom had decided 
not to proceed with the proposed investment in the nuclear 
power project.  According to the statement, Regional Vice 
President Rita Bowser said, "Westinghouse remains committed 
to Eskom and South Africa.  We believe the AP1000 is ideal 
for South Africa as it combines proven power generation 
systems and components with advanced, passive systems.  We 
will nevertheless continue our current nuclear business in 
South Africa that includes our work at Koeberg and our 
support for the development of the Pebble Bed Modular Reactor 
technology." 
 
¶4.  (SBU) Bowser told Economic Counselor on December 5 that 
South Africa was still interested in a nuclear program and 
that the company would know more about the South African 
government's (SAG) intentions after a meeting that was 
requested by Minister of Public Enterprises Brigitte Mabandla 
(Reftel A) and that will take place in the U.S. on December 
¶11.  She promised to provide a read-out of that meeting after 
she returns to South Africa on December 15. 
Qshe returns to South Africa on December 15. 
 
--------------------------------------------- ----------- 
Eskom Decision Is Not One of the Worst Possible Outcomes 
--------------------------------------------- ----------- 
 
¶5.  (SBU) Bowser added that the Eskom decision was not one of 
the two worst possible outcomes for Westinghouse, which would 
have been to make the award to Areva or to cancel the 
development of a second nuclear power plant indefinitely.  An 
award to Areva, in addition to the fact that South Africa's 
only existing reactor was built by Areva, would have closed 
the South African nuclear reactor market to Westinghouse, at 
 
PRETORIA 00002654  002 OF 003 
 
 
least for the foreseeable future.  Nor was the Eskom decision 
the best possible outcome, which would have been to make the 
award to Westinghouse.  Westinghouse now waits to see which 
of remaining two outcomes will be chosen.  The best of these 
would be for the Eskom to say that that it had chosen 
Westinghouse technology, but would have to build the second 
nuclear power plant at a later date.  The next best outcome 
would be for Eskom to reopen the competition for Westinghouse 
and Areva, and possibly other less-qualified suppliers like 
South Korea and Russia, to build the same reactors at a later 
date.  This later option would require Westinghouse to commit 
more resources (in addition to the estimated USD 10 million 
already invested) to the bidding process without any 
assurance that there would be contract at the end of what 
will now be a much longer process. 
 
--------------------------------------------- ---------------- 
A Nuclear Technology Partner to Be Chosen Over Next 18 Months 
--------------------------------------------- ---------------- 
 
¶6.  (U) The "Weekender" newspaper reported on December 6 
that, according to SAG officials, a fleet of nuclear power 
stations, rather than a single one, will probably be built in 
partnership with suppliers, bringing down the total unit 
cost.  The same article added that Department of Minerals and 
Energy (DME) Director General Neli Magubane and DME Head of 
Nuclear Technology Tseliso Maqubela will head a task team 
that will develop a nuclear energy strategy and work with 
Eskom to implement a framework for procuring a nuclear 
technology partner to support the build and associated 
industrialization processes over the next 18 months.  This 
may involve the establishment of joint ventures of the 
creation of a special-purpose vehicle.  Maqubela is also 
quoted as saying that that Eskom will search for a nuclear 
technology partner instead of engaging in a renewed bidding 
process, although, "How we will conduct that search...it is 
too early to say.  It is a strategy used in a number of other 
countries."  Maqubela said the chosen partner's willingness 
to locate some of its manufacturing in South Africa would 
count in its favor, since the construction of industrial 
capacity to support the generation of nuclear energy would 
help to reduce its costs over time.  He also confirmed that 
the SAG would stick with its preference for pressurized water 
reactors (the type that is produced by Westinghouse and 
Areva).  Maqubela also said that a legislative framework 
dealing with nuclear safety and the disposal of nuclear waste 
would be created in the next 18 months. 
 
¶7.  (U) Department of Public Enterprises (DPE) Director 
General Portia Molefe was quoted in the same article as 
saying that cost is the biggest reason for not proceeding 
with the nuclear power station at this time.  According to 
her, the project is "not affordable" as Eskom is also 
involved in other multibillion-rand energy projects.  Molefe 
added that, "We must be vigilant to ensure that Eskom does 
not overextend its balance sheet, and that our ability to 
Qnot overextend its balance sheet, and that our ability to 
provide the economy with competitively priced energy is not 
jeopardized."  She continued that strategic partnerships with 
suppliers have become the prevailing method of building 
nuclear power plants globally.  She said the SAG would adopt 
this trend, which is also favored by suppliers.  Molefe also 
indicated a change of focus for the Westinghouse-supported 
Pebble Bed Modular Reactor program.  Instead of electricity 
generation, the emphasis will be on producing process heat 
for industrial applications.  The program will be 
accelerated, according to Molefe.  (Comment: The most likely 
users of process heat would be the SASOL coal-to-liquids 
plant in Sasolberg in Free State province and the proposed 
PetraSA refinery in Eastern Cape province.  There are also a 
number of aluminum and ferroalloy smelters that could be 
potential users.  End Comment) 
 
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Comment 
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PRETORIA 00002654  003 OF 003 
 
 
¶8.  (SBU) The Eskom announcement is disappointing from both 
the Westinghouse and South African energy mix diversification 
perspectives, but it is too early to know what the final 
outcome will be.  Eskom's expressed desire to increase local 
content works to Westinghouse's advantage, since the company 
specializes in technology transfer and does not manufacture 
major components in the U.S.  But Eskom's search for a 
strategic partner could also play into the hands of 
state-owned French nuclear power company Areva.  A decision 
to go with Areva would not be without its price; Westinghouse 
is unlikely to retain its 15-percent interest in the Pebble 
Bed Modular Reactor program if Eskom establishes a strategic 
partnership with its arch-competitor.  The Embassy should 
have a better idea of what all this means after Bowser 
returns to South Africa on December 15. 
BOST