Address by the Minister of Public Enterprises, Barbara Hogan, to the National Assembly, on the Pebble Bed Modular Reactor, September 16 2010

Honourable Speaker and Members of the House

Thank you for the opportunity to brief the House on a very difficult matter concerning the future of the Pebble Bed Modular Reactor (PBMR) project. Without going into too much detail right now, Government, after careful deliberation, analysis and review, and mindful of the fiscal constraints in these hard economic times, has had to make a decision to no longer invest in this project. As a consequence, the scale and size of the company is being drastically reduced to a handful of people, with the focus being on the retention of its intellectual property, and of certain skills, and the preservation of its assets.

At the outset, let me emphasise that the decisions taken by government in this regard have not been taken lightly, nor are we unmindful of the regrettably big impact that these decisions will have on the future careers and livelihoods of PBMR employees. Nor have we lost sight of the significant investment already made by government in this project and the impressive scientific advances already achieved in pioneering this particular form of nuclear technology, but we have had to counter balance these weighty considerations against the following sobering realities:

• The PBMR has not been able to secure an anchor customer, or another investment partner
• Further investment in the project could well be in excess of an additional ZAR30 billion
• The project has been consistently missing deadlines, with the construction of the first demonstration model delayed further and further into the future
• The opportunity afforded to PBMR to participate in the USA's Next Generation Nuclear Plant (NGNP) programme as part of the Westinghouse consortium was lost in May this year when Westinghouse withdrew from the programme
• Should South Africa embark on a nuclear build programme in the near future, it will not be using Pebble Bed Technology, which is a Generation IV Nuclear Technology (i.e. technologies that are still primarily in the Research and Design Phase) but would have to consider options in Generations II and III
• Finally, the severity of the current economic downturn, and the strains that it has placed on the fiscus, as well as the nature and scale of government's current developmental priorities, has forced government to reprioritise its spending obligations and therefore, of necessity, to make certain tough decisions. This being one of them.

With these considerations in mind, government commissioned an independent high level review of the project, and an inter-Departmental Task Team (IDTT) was set up under the direction of an Inter-ministerial Committee (IMC) to carefully consider and evaluate various options available, and to solicit the requisite professional advice and opinion as and when it was deemed necessary.

Based on these extensive deliberations, government made an initial decision to downsize the company by 75 percent, which would have allowed it to operate for up to three years and to service its commitments to the Westinghouse NGNP consortium in the event that the NGNP bid was successful. The company embarked on a Section 189 process as prescribed in the Labour Relations Act and approximately 600 employees have already left the employ of the company in terms of these prescribed procedures. In May this year, Westinghouse withdrew participation in the NGNP programme and Cabinet has now approved the following further recommendations of the IMC.

• The PBMR will be placed in a ‘care and maintenance mode' to protect the intelectual property (IP) and the assets in PBMR. Several employees will be identified and retained to undertake this work unless the results of a capability audit to be performed by the Department of Science and Technology (DST) recommends otherwise
• The ongoing retrenchment of the remaining staff
• The Fuel Development Laboratory (FDL) on the Nuclear Energy Corporation of South Africa (NECSA) premises will be decommissioned under the auspices of NECSA and the Helium Test Facility (HTF), also on the NECSA premises, will be mothballed. The HTTF facility at Northwest University will only be mothballed should that university not wish to continue to utilise the facility
• A key nuclear skills development and retention programme will be established and funded subject to a skills evaluation by the DST
• The Department of Higher Education and the Department of Energy will seek to ensure that nuclear graduate programmes at universities such as the University of the North West are maintained and supported
• A retrospective review and audit will be done of the PBMR project, which will also assist in capturing the lessons learnt from such an undertaking and identifying any outstanding course of action still needed to be undertaken, with a particular focus on corporate governance aspects.

Mr Speaker, it is important that a number of observations be made with regard to this project. A total of ZAR9.244 billion has been invested in the PBMR project over the last decade, with the South African government having contributed an amount of ZAR7.419 billion or 80.3 percent of that amount.Eskom also contributed 8.8 percent with Westinghouse and the Industrial Development Corporation (IDC) accounting for 4.9 percent each (and 1.1 percent by Exelon).

Major work on the project started with a detailed feasibility study in 2000 and a significant milestone in the project was reached in 2003 with the National Nuclear Regulator (NNR) reporting a positive view on the possibility of the licensing thereof.Around 2005 PBMR's focus shifted to work needed for the licensing of a Demonstration Power Plant and the detailed design work required for manufacturing long lead-time items of plant for PBMR.

About the same time, government identified the potential of a successful PBMR programme to enable an advanced manufacturing industry based on home grown intellectual property that would be globally competitive and approved a significant amount of funding for the project.Government's funding was intended to ensure the continuation of the project whilst providing a firm foundation for the acquisition of additional private sector investment into the project and an anchor customer.

It was originally envisaged that Eskom would be the PBMR's anchor customer, with a possible purchase of up to 24 reactors as part of the country's expansion of its electricity generation capacity to meet increasing demand with a first demonstration PBMR to be constructed on the Koeberg Nuclear Power Station site. However, between 2005 and 2009, it became increasingly clear that, based on the direct-cycle electricity design, PBMR's potential investor and customer market was severely restricted and it was unable to acquire either; hence government has been constrained to make decisions about the future of the project.

It is absolutely clear from all the high-level reviews that have been undertaken that there is no doubt about the validity of Pebble Bed Technology itself. The main feature of the Pebble Bed Reactor is that its safety features are inherent in the physics of the design, as opposed to add-on engineered safety features as found on current Light Water Reactor (LWR) nuclear plants. In the PBMR original design, the system is a so-called direct cycle where the reactor coolant which is helium in our case, passes through the turbo generator plant without an intermediate system such as a boiler.

This arrangement promised greater thermal efficiency and safety, hence its attractiveness as a future nuclear generation technology. Both the United States and China are actively engaged in further developing this technology, with South Africa earning a reputation as been at the cutting edge of these developments. This is a remarkable achievement for a developing country and something of which we are justifiably proud.

Through this programme we were able to retain and consolidate the existing nuclear skills and capabilities that had developed during the apartheid era and most importantly, sponsor the training of a new generation of nuclear scientists and technicians. Some of our Universities have definitely benefitted from this investment and are able to offer courses related to nuclear research and training that would not have been possible without such an investment. This has been achieved in an era where the trend internationally was not to invest in developing nuclear skills.

This trend has now been reversed with the advent of the commitments made to reduce carbon emissions and many countries are now reviewing their nuclear policies. Because South Africa has been steadily investing in nuclear capability over this last decade, we are well-positioned to embark on a nuclear build should that be required. Obviously, in closing down the PBMR project there will be a leakage of skills, which is regrettable but unavoidable, but we do envisage the further up-skilling and training of a younger generation of scientists and technicians who have benefitted from our investments in PBMR.

Mr Speaker, the decision on the future of the PBMR has been a difficult one to make, especially because it affects the livelihood of so many people. Had there been other options, we would have certainly considered them. May I thank everyone who has had to embark on this long and difficult journey, including my fellow ministers, for all the hard work and support that has gone into this initiative. It is much appreciated.

I thank you.

Issued by the Department of Public Enterprises, September 16 2010

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