South Africa is going to court to stop itself from going bankrupt

South Africa’s controversial R1 trillion nuclear deal is currently being decided in South Africa’s High Court (22-24 February) in a case that analysts believe could decide the country’s financial future.

According to the facts of the court case, the SA government wants to build several nuclear power plants in the country to provide 9,600MW of energy.

Conservative estimates into the costs involved say such a project would cost R500 billion – though experts say it is more likely to spill over R1 trillion in reality.

This would make it the largest procurement deal in the country’s history.

With Cabinet’s approval, requests for proposals were issued, in which vendors will supply pricing and funding models. To date, government has been silent on how it will fund the nuclear build.

It has conducted its own studies into the costs, but the subsequent reports have been classified.

The case

Now, Earthlife Africa and the Southern African Faith Communities’ Environment Institute (SAFCEI) are challenging Energy Minister Tina Joemat-Pettersson’s procedural route in introducing the procurement deal.

In terms of S34 of the Energy Regulation Act (ERA), the minister is empowered to determine both the amount and type of South Africa’s future energy supply.

According to the activist groups, however, the nuclear deal was made behind closed doors by former Minister Ben Martins in 2013 and then gazetted by Joemat-Pettersson in December 2015.

The groups are arguing that a decision of such national importance could not proceed without public consultation – something the Department of energy has failed to do.

The cost

The nuclear build programme will end up costing the South African economy over R3 trillion in debt, according to civil society group Organisation Undoing Tax Abuse (Outa) in a press release in late 2016.

According to Outa, South Africa’s current debt level currently sits at approximately R1.89 trillion with the nuclear deal potentially escalating this to well above R3 trillion as the country is expected to borrow a further R1.2 trillion to finance it.

The Democratic Alliance agreed with Outa and noted that “whether its R500 billion or R1 trillion, the project is simply unaffordable.”

“Whichever funding model is chosen, you can rest assured that it will be paid for by the South African taxpayer, and that we can expect substantial tariff increases over many years,” said DA leader Mmusi Maimane.

In December 2016, the Department of Energy announced that Eskom will fund the entire build off its own balance sheet, and the funding process will be handled in the same way as the Medupi and Kusile projects.

Energy minister Joemat-Pettersson said that no funds will come from Treasury or the fiscus, with Eskom turning to global markets to raise money it needs.

Eskom’s handling of Medupi and Kusile have drawn much criticism as both projects have seen massive delays, labour issues and come in billions of rands over budget, requiring bailouts from government.


Read: You will now be taxed R239 when you fill up at the petrol station

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