VZCZCXRO8882
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0179/01 0300850
ZNR UUUUU ZZH
R 300850Z JAN 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 7186
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0914
RUEHRL/AMEMBASSY BERLIN 0665
RUEHBY/AMEMBASSY CANBERRA 0795
RUEHLO/AMEMBASSY LONDON 1677
RUEHMO/AMEMBASSY MOSCOW 0925
RUEHNE/AMEMBASSY NEW DELHI 0534
RUEHOT/AMEMBASSY OTTAWA 0753
RUEHFR/AMEMBASSY PARIS 1511

UNCLAS SECTION 01 OF 03 PRETORIA 000179 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, ISN, EEB/ESC AND CBA 
DOE FOR T.SPERL, G.PERSON, A.BIENAWSKI, M.SCOTT, L.PARKER 
 
E.O. 12958: N/A 
TAGS: ENRG EMIN EPET SENV EINV EIND KNNP SF
SUBJECT: ESKOM BENEFITS FROM A REPRIEVE OF REDUCED DEMAND WHILE 
STRUGGLING TO FUND EXPANSION 
 
REF: A) 08 PRETORIA 2654 
B) 08 PRETORIA 2403 and previous 
C) PRETORIA 173 
 
¶1.  (SBU) SUMMARY: The economic downturn has given state power 
utility Eskom a reprieve of reduced demand, but the supply and 
margin remain vulnerable.  Eskom has managed to avoid controversial 
load-shedding since April 2008.  Chief Nuclear Officer Clive Le Roux 
briefed NRC Commissioner Peter Lyons on the status of South Africa's 
plans for new nuclear build, in light of the recent cancellation of 
the 3,000 MW nuclear tender.  The SAG remains committed to expanding 
from its sole Koeberg nuclear power plant, near Cape Town.  Eskom is 
seeking additional government support and higher tariffs to fund its 
ambitious capital expansion program.  End Summary. 
 
--------------------------------------------- -------- 
Eskom's Lights May Stay on This Year - but Margin Low 
--------------------------------------------- -------- 
 
¶2.  (SBU) One year ago, a crisis at state power utility Eskom threw 
South Africa into darkness, based on insufficient power supply and 
margin and exacerbated by insufficient coal stocks at power plants. 
Eskom CEO Jacob Maroga used the one-year anniversary of the crisis 
to tell the press that the maligned parastatal remains vulnerable, 
but it is in a far better position to keep the lights on this year 
than it was in 2008.  Eskom's position has been cushioned by a 
slowdown in the mining and manufacturing sectors, which has led to 
lower-than-expected demand for power.  But Eskom has also made 
progress in some of the areas that led to outages last year, like 
coal supply and technical problems (Ref B).  Since last April, there 
have been no power cuts as a result of electricity shortages, but 
the reserve margin remains uncomfortably tight at 8 percent, up from 
a low last year of 4 percent, but still thin compared to the global 
standard target of 15 percent.  Eskom completed a significant 
maintenance program over the quiet holiday season and improved its 
ability to cope with heavy rains on its coals stocks.  Average coal 
stocks now stand at 38.7 days, compared to just 10 days last 
January.  Over the last six months, Eskom has added some capacity to 
the grid, de-mothballing units at Camden, Grootvlei, and Komati and 
commissioning two small open-cycle gas units at Gourikwa.  Two 
coal-fired stations under construction, Medupi and Kusile, together 
totaling 9,600 MW, have seen their projected costs surge to about 
$21 billion, more than 1.5 times initial estimates.  Maroga asserted 
that these were not cost over-runs, but reflected closing the gap 
between initial price estimates and the real contracted prices, 
including expected price escalations. 
 
-------------------------------- 
Ambitious Nuclear Plans Deferred 
-------------------------------- 
 
¶3.  (SBU) NRC Commissioner Peter Lyons received an update on Eskom's 
expansion plans from Chief Nuclear Officer Clive Le Roux at Koeberg 
Nuclear Power Plant, while on a familiarization trip to South Africa 
January 18-24, 2009 (Ref C and septel).  Le Roux reviewed the SAG 
QJanuary 18-24, 2009 (Ref C and septel).  Le Roux reviewed the SAG 
decision to expand nuclear power and support the development of a 
nuclear-based industry in South Africa.  He noted that the SAG white 
paper on energy targeted 50 percent of 40,000 MW new build for 
nuclear to increase nuclear's share of power production from 5 to 28 
percent by 2025.  He noted that Eskom had been designated as the 
enabler to create a local industry that would potentially include 
the full fuel cycle: mining, conversion, fabrication, and 
enrichment.  Le Roux noted that Americans in particular were 
sensitive to enrichment.  He said the SAG was still considering 
back-end recycling of nuclear fuel, but a decision had not been 
reached on this.  This localization vision would include 
manufacturing and spin-off production of ASME standard components, 
including reactor pressure vessels, but the volume of the projected 
fleet was intended to justify localized manufacturing. 
 
¶4.  (SBU) Le Roux said the recent economic downturn and related 
financing difficulties for Eskom had caused the SAG to cancel the 
nuclear tender for the first tranche of 3,000 MW of nuclear power, 
short-listed to Westinghouse and Areva (Ref A).  He said Eskom was 
approaching the SAG for more support on funding or debt guarantees 
 
PRETORIA 00000179  002 OF 003 
 
 
for its overall expansion program, beyond the phased, $6 billion 
capital injection already identified.  Le Roux asserted that even 
the two large-scale coal power plants under construction were at 
risk without additional SAG support.  He characterized the recent 
SAG announcement (by Department of Minerals and Energy Deputy 
Director General Nuclear Nelisiwe Magubane) of a reduced targeted 
fleet of 6,000 MW nuclear as part of the "Cassandra" school in the 
current debate.  Le Roux said the Cassandras believe the current 
economic growth downturn would lead to a permanent shortfall in 
demand.  Le Roux identified more with the "Pollyannas," who believe 
that the downturn was not permanent and there would be some catch up 
in economic growth, given, for example, that population growth would 
not take a pause.  He admitted the truth would lie somewhere in 
between.  (Comment: Le Roux was indulging in hyperbole.  Few 
analysts expect the current economic slowdown to be "permanent." 
End Comment.) 
 
¶5.  (SBU) Le Roux asserted that the SAG remained committed to 
increasing nuclear power, but that the critical path had been 
successively put off from 2014 to 2016 and now to 2018-19.  He said 
the now-bust commodity boom had caused a doubling in all prices.  He 
said that the Westinghouse/Areva bids submitted around January 2008 
had basically increased 3.7-fold since pricing analysis from one 
year before.  Le Roux said the Eskom board was shocked by the tender 
offer amounts.  He noted that the rand had weakened and the tender 
pricing had included a premium for the transfer of all risk to the 
suppliers for a turn-key plant. 
 
¶5.  (SBU) Le Roux said South African power tariffs were unrealistic 
and failed to reflect the economic costs of production and new 
investment.  Eskom has not yet made its formal application to the 
national energy regulator NERSA, but it has been calling for higher 
tariffs once again this year, following a 27.5 percent tariff 
increase last year.  Le Roux said Eskom was in discussions with the 
SAG on some sort of financial solution which would allow Eskom to 
move forward on its capital expansion.  He said Eskom could even 
take a minority equity partner for a nuclear power plant. 
 
---------------------------------------- 
Koeberg - French Built, American Design, 
African Conditions 
---------------------------------------- 
 
¶6.  (SBU) Le Roux described the two 920 MW Koeberg nuclear reactors 
as French-built, but American-designed.  He said the 40-year life 
plant had been commissioned in 1984.  The reference plant for 
Koeberg is the EDF CP-1 plant Tricastin (changed from the original 
reference plant of U.S. plant North Anna, when EDF created the CP-1 
safety referential).  Le Roux told Lyons that Koeberg had fallen 
behind on upgrades to the French reference plant.  Koeberg was 
planning an outage of 63 days the following week (versus the average 
outage target of up to 50 days) in order to make progress on 
catching up on deferred upgrades.  For example, this outage would 
Qcatching up on deferred upgrades.  For example, this outage would 
allow replacement of control systems, generator and turbine 
controls, and pressure valves.  He said Koeberg's safety would be in 
line with IAEA targets for newer plants.  Le Roux said it was a 
challenge to find adequate skilled work force around Cape Town to do 
work associated with the planned outages.  He noted that 
Westinghouse had opened an office in Cape Town to help with plant 
servicing.  Le Roux added that Koeberg faced special challenges from 
low off-site grid reliability (Cape Town's remoteness from the rest 
of the grid) and atmospheric induced stress corrosion cracking of 
stainless steel pipe work and tanks.  Le Roux also pointed out Eskom 
is operating the reactors at a reduced temperature of 10 degrees 
Celsius due to concerns about steam generator tube cracking, which 
can cause problems with reactor cooling, thereby accepting reduced 
output of 10-15 MW.  (Comment: NRC notes that it is good that Eskom 
is aware of the issue and has taken action, but the adequacy of the 
action cannot be judged from this visit.  End Comment.) 
 
¶7.  (SBU) Comment: Eskom is publicly grappling with the funding of 
its ambitious and necessary capital expansion program, striving to 
nail down additional SAG support and higher tariffs.  The SAG has 
taken over and deferred the development of the nuclear program, but 
Westinghouse remains optimistic about its shot at new nuclear build, 
 
PRETORIA 00000179  003 OF 003 
 
 
particularly because of the SAG's emphasis on its strength of 
localization.  The SAG is negotiating with the World Bank and the 
African Development Bank has offered a loan to help finance Eskom's 
new build.  These are international sources the SAG previously 
sought to avoid.  Coal has allowed South Africa to keep power prices 
low, but this places South Africa as a high greenhouse gas emitter, 
particularly with respect to its GDP.  There is no escaping that 
energy comes at first-world, global prices with a global 
environmental impact. 
 
¶8.  (U) NRC Commissioner Lyons has cleared this cable. 
 
BALL