One decision that will push the rating agencies to downgrade South Africa to \u201cjunk status\u201d is the approval of the nuclear procurement programme, according to emerging markets economist Peter Montalto of Nomura.<\/p>\n
South Africa is currently placed one notch above \u201cjunk status\u201d, officially known as non-investment grade. The next step down is of huge concern to economists, wary of the resultant increase in inflation and interest rates as well as lower growth and, ultimately, job losses.<\/p>\n
\u201cTaking on the nuclear build programme contingent liabilities under the Department of Energy (Doe) and the ANCs preferred vendor financing model would confirm South Africa in junk for all the agencies,\u201d Montalto told Fin24 on Thursday.<\/p>\n
President Jacob Zuma is under pressure as the main driver of the nuclear procurement process as well as his links to the Gupta family, who are reportedly buying uranium mines to supply fuel to future nuclear plants.<\/p>\n
Zuma\u2019s firing of Nhlanhla Nene as Finance minister in December and the Guptas\u2019 alleged offer to replace him with Mcebisi Jonas as long as he approved the nuclear plan have added to the nuclear programme\u2019s controversy.<\/p>\n
This follows allegations that Zuma signed a secret deal with Russia for Rosatom to build the nuclear power plants in 2014, something both sides vehemently deny.<\/p>\n
However, Montalto said the ratings downgrade would be because of the size of the liability costs of nuclear, \u201cmore than the Zuma connection\u201d.<\/p>\n
The Department of Energy is releasing its Request for Proposals at the end of March, which Rosatom said it is confident it will win.<\/p>\n
Earlier on Thursday, energy expert Chris Yelland told Fin24 that Treasury is likely to be concerned that it will have to come up with a guarantee of R800bn. \u201cThe debt to GDP ratio is on the edge,\u201d he said. \u201cAnother R800bn will take it over the edge.\u201d<\/p>\n
Montalto agreed with Yelland. “There is no problem with nuclear technologically or environmentally if it can be done in a transparent and rent extraction free manner with containment of building costs and time scales,” he said. “South Africa quite blatantly fails that test on every front.\u201d<\/p>\n
“South Africa should be building rapid deployment small flat pack gas power stations whilst encouraging offshore drilling and fracking and building a pipeline from Mozambique,” he said. “Plus more renewables.<\/p>\n
“It can then wait until the next generation of smaller-scale flat pack nuclear is available to deploy at much lower cost in South Africa.”<\/p>\n
Yelland explained that rating agencies wanted South Africa to shelve nuclear, not due to safety or environmental issues, but the financing and debt issues. \u201cIt\u2019s about the money,\u201d he said. \u201cIf we went on a railway new build on R800bn it would be exactly the same.\u201d<\/p>\n
\u201cI have listened to very serious economists who tell me that there is no way this can happen in current financial circumstances,\u201d he said. \u201cIf they do go ahead with it, we will be immediately downgraded.<\/p>\n
\u201cThese are the financial realities at this time,\u201d he said. \u201cThere will be major international reaction against the financial situation of South Africa as its debt obligations go beyond all normal prudency.\u201d<\/p>\n
Fin24<\/a><\/p>\n SA nuclear power plans going ahead this month: report<\/a><\/strong><\/p>\n Nuclear costs \u201cfar from R1 trillion\u201d: energy minister<\/a><\/strong><\/p>\nMore on nuclear<\/h3>\n