The crisis at SA’s nuclear corporation can’t be allowed to continue

The South African Nuclear Corporation (Necsa), is staffed beyond capacity, waiting for a R750-billion nuclear build that is never coming. It is loss-making, its liabilities probably outweigh its assets and it will run out of cash before its financial year-end.

It was also almost the nerve centre of the biggest heist seen in post-apartheid South Africa, but fortunately, the efforts of Earthlife Africa and the Southern African Faith Communities Environmental Institute resulted in the Constitutional Court setting aside the intergovernmental agreement signed with the Russian government in 2015.

Thus the crisis precipitated by the resignation of the four remaining board members — the chairman and three other directors resigned in 2019 — should result in a strategic rethink on the future of the organisation.

Yet the Department of Energy appears blithely unconcerned and looks set to let the crisis drag on. “Stabilising the boards of state-owned entities is a key priority for the minister. But we have to do things systematically,” says Natie Shabangu, spokesman for Minister Gwede Mantashe.

“The first priority [after Mantashe was appointed minister in May 2019], was to sort out the board at the Central Energy Fund. After that, we focused on Necsa. We advertised for the positions in November [2019] and now it’s January [2020], and we have a list that we will submit to Cabinet.”

The intention, he says, is that the board will be stabilised within the current financial year. Necsa may well implode before that, which should come as no surprise.

Almost a year ago, on 5 March 2019, then chairman Rob Adam and Mbali Mfeka, Necsa’s general manager for finance appeared before parliament’s Portfolio Committee on Energy. In December 2018, energy minister Jeff Radebe had fired the entire Necsa board following “continued ineptitude and deliberate acts of defiance”, and suspended the CEO, Phumzile Tshelane.

Adam, a CEO of the organisation between 2006 and 2012, was appointed chairman by Radebe. While he had not signed off on the annual financial statements as he was not chairman at the time, he was there to explain the dire financial performance of the organisation and explain what had led to the multiple disclaimers issued by the Auditor General (AG), and what was to be done about it.

The AG had been particularly scathing in the independent report attached to the 2017/2018 financial statements.

“Management did not provide adequate and effective leadership based on a culture of honesty, ethical business practices and good governance.”

There were no internal controls, he said, and no processes and procedures to speak of. Procurement was not fair, equitable or transparent; revenue was not collected timeously; significant shareholding in a company was acquired without approval by the executive authority; steps were not taken to prevent irregular expenditure; and record-keeping was so poor, it did not stand up to scrutiny.

At the holding company level, he said, Necsa’s current liabilities exceed its current assets by R153-million and it made a loss of R132-million in the year ended March 2018, with accumulated losses of R510-million at year-end.

He also flagged Necsa’s adverse liquidity ratios and forecast severe cash deficits for the next financial year (ending March 2019).

At the operating (Group) level, the picture was not much rosier, although operations made a profit of R98.6-million, largely thanks to NTP Radioisotopes, which exports radioisotopes used in the identification of cancer cells and earned an after-tax profit of R131.1-million in the 2018 financial year.

Once a star in the SOE universe, NTP’s performance has slipped in recent years, and lack of internal controls and adherence to safety standards caused the regulator to force it to shut down for much of 2018. This saw sales, which used to cover 90% of the costs of running the ageing Safari-1 nuclear reactor, plummet.

The performance of other group companies, Pelchem and Pelindaba Enterprises left much to be desired.

Necsa is a legacy of South Africa’s nuclear past, but it is now expected to perform multiple, contradictory roles.

On the one hand, it is responsible for nuclear research and development, while processing and storing nuclear material, and running the Safari-1 nuclear reactor based in Pelindaba near Hartebeestpoort. On the other hand, it oversees various commercial enterprises.

The commercial operation was expanded to ensure Necsa remained sustainable while it prepared for SA’s planned nuclear build. Thus, Necsa was divided into a commercial group, Pelindaba Technology, which includes Nuclear Technology Products (of which NTP Radioisotopes is one company) and Pelindaba Nuclear Institute which is concerned with statutory compliance and other functions.

Necsa employs 1,800 people, just less than half of whom are specialists in the fields of physics, chemistry, engineering and electronics.

But back to the results and the commercial sustainability of the entire operation. Addressing the portfolio committee in March 2019, Adam agreed that Necsa was in crisis and that while assets covered liabilities (of the operating (group) entities — see page 130 of the annual report), this could not be guaranteed.

The problem is Necsa is hopelessly over-staffed. “For a decade-and-a-half, there was talk of a nuclear new build and Necsa was requested to retain nuclear capabilities during that period, but the nuclear build never materialised.”

In the meantime, Necsa pursued its commercialisation strategy.

While it had some notable successes, notably NTP, the contradictions were too great. To illustrate, writing in the 2018 annual report, former chairman Dr Kelvin Kemm notes that, “about half of the Pelchem chemicals are sold profitably and the other half at a loss. However, the Board instructed Pelchem to maintain production of all, due to their strategic nature.”

Similar problems are visible at Pelindaba Enterprises, which serves as the incubator intended to commercialise Nuclear Engineering and Manufacturing Services. It accounted for Necsa’s largest loss in 2018. Pelindaba, says Adam, originally manufactured a wide range of products such as pressure vessel pipes for non-nuclear purposes.

However, it had geared up for the nuclear build, achieving a “nuclear stamp” and began to manufacture according to nuclear quality standards, as it anticipated nuclear work. That pushed up manufacturing costs, making it uncompetitive on “ordinary work”.

In March 2019, the company had only one job on its order book, he said, and that was the pipeline to Koeberg.

Another consequence of waiting for the nuclear build, Adam said, is the staff complement. “A central challenge is the salary bill of R800-million, while the grant received from the DoE was only R513-million.”

At the time, Adam told the committee, NTP, if managed correctly, could get back on its feet and sales would return to pre-shutdown levels. As for the rest of the group, things would have to be done “the hard way” as there was no “quick solution to commercial viability”.

At this point, it should have been clear to the energy department that Necsa, in its current structure, was not sustainable.

Unfortunately, the highly politicised nature of the SA government means that during an election year, ordinary departmental work stops, because operational decision-makers, like directors-general, are not able to make critical decisions.

No one in the department bothered or cared, and in June 2019, Adam resigned, diplomatically saying he needed to focus his energy on his other role as director of the Square Kilometer Array in SA.

At the same time, the tenure of acting CEO Don Robertson came to an end and he was replaced with another acting CEO, Ayanda Myoli.

These were all red flags. It was a matter of time before the rest of the board resigned, which it did in January 2020.

“The departure of this board is not something that we welcome,” says Francesca de Gasparis, executive director of the Southern African Faith Communities' Environment Institute). “While we question the appropriateness of nuclear energy in South Africa, and believe this is something that should be discussed, a revolving door at Necsa is not desirable.”

Honorary Research Associate at the University of Cape Town, David Fig agrees that the resignations raise broader questions about Necsa’s future and the need for South Africa to maintain its nuclear complex. “Isotope production is still viable. But the question is whether it requires an entire Pelindaba-sized research establishment to proceed. The reactor is now too elderly to have a bright future, and there’s no money to replace it,” he wrote in this article.

Speaking to Business Maverick, he also raised concerns about the management of nuclear waste, which is housed in over 40 buildings and trenches at the Pelindaba site. “Necsa is in disarray, which calls into question the management of the National Radio Active Waste Disposal Institute,” said Fig.

He said that while South Africa complies with all the international laws in this regard, and always has done, this should be a concern for all South Africans.

He suggests that South Africa’s nuclear research, while valuable, could be pared down and relocated to the CSIR and other universities. Pelindaba should be repurposed to focus on sustainable energy and related areas.

This is a suggestion that will infuriate the anti-renewables lobby. But it is clear that innovative thinking is required. Necsa cannot carry on regardless. BM