The first in this three-part series looks at the cost of nuclear power and how traders minimize their financial risks by maximizing profits through power purchase agreements with governments.
At least 16 African countries have signed co-operation agreements with construction companies trying to sell nuclear power on the continent.
These companies, commonly known as nuclear vendors, see these collaboration agreements as the first important step in selling their diverse nuclear power technologies in Africa. They make wild promises and claim that nuclear power is the solution to the energy shortage in Africa that leaves about 620 million Africans without access to electricity.
In reality, however, any African country that opts for nuclear power will continue to burden itself with crippling financial and ecological debt for generations and generations to come. Nuclear power has never been the solution to the energy shortage on the continent.
It is fairly common knowledge that the uranium used in the atomic bomb dropped by US President Harry S Truman on Hiroshima in August 1945 came from the Shinkolobwe mine in what was then the Belgian Congo, now the Democratic Republic of the Congo. (DRK).
What is less well known is that the Belgian Congo was also home to Africa’s first nuclear reactor. This reactor, which began operating in Kinshasa in 1959, was part of US President Dwight D Eisenhower’s 1953 Atoms for Peace program.
According to Eisenhower, this program was intended to ‘help us move from the dark room of horror to light’ and promised to turn nuclear energy into peaceful purposes. At the launch of the program, he said one of the “special purposes” would be to “provide abundant electrical energy in the powerful world”.
Nearly 70 years later, nuclear suppliers are making exactly the same promise, with Russian state-owned Rosatom prominently leading the way. At the first summit between Russia and Africa in the southern city of Sochi in Russia, President Vladimir Putin, late to the second scramble for Africa, and eager to counter China’s growing influence on the continent, said Rosatom is ready to launch nuclear operations in so many African countries to create. if willing to accept the technology. At the same summit, Rosatom Director-General Alexey Likhachev said nuclear power could provide the affordable and stable energy needed for Africa to achieve its sustainable development goals.
Rosatom has so far signed no less than thirteen African countries’ nuclear power cooperation and preliminary planning agreements: Tunisia, Rwanda, Algeria, the DRC, Morocco, Nigeria, Ghana, Ethiopia, Sudan, Uganda, South Africa, Angola and Zambia. . In Egypt, the Russian energy company has been legally contracted and will begin construction of a 4.8GW nuclear power plant in El Dabaa in 2021. The Chinese state-owned China General Nuclear Power Group has signed nuclear cooperation agreements with Kenya and Sudan, while France, home of the state-owned nuclear company Électricité de France (EDF), has signed a nuclear cooperation agreement with Senegal.
Although none of these agreements, except those of Egypt, have resulted in firm commitments, it shows the extent to which nuclear power is being promoted across the continent. There are many reasons why nuclear power stations are not the best solution to Africa’s energy needs – for example, they rely on extensive network infrastructure that is lacking in many African countries and increases the dangers of nuclear proliferation – but the biggest problem is financial costs.
Fantastically expensive
Nuclear power stations have always been fantastically expensive to build. The Hinkley Point C nuclear power plant that EDF is building in the UK costs at least $ 29 billion (approximately R445 billion) and is becoming the most expensive object ever built. Rosatom is building a nuclear power plant in Akkuyu, Turkey, at a cost of at least $ 22 billion.
Rosatom’s El Dabaa nuclear power plant costs about $ 29 billion. These huge costs mean that private companies cannot afford to build nuclear power stations due to the scale of the financial risks. The French nuclear power company Areva went bankrupt in 2016, while Westinghouse in America went bankrupt in 2017.
The companies that can afford it, such as Rosatom, EDF and China General Nuclear Power Group, are state-owned enterprises that receive large subsidies from their respective governments, often more for geopolitical than economic reasons.
Rosatom is financing 85% of the El Dabaa nuclear power plant by lending Egypt $ 25 billion over a period of 35 years beginning in 2029, at an annual interest rate from the point at which the loan was made, of 3% ($ 750 million per year) . The Egyptian government will finance the remaining 15% of the construction costs. According to Likhachev, Egypt also entered into $ 60 billion transactions with Rosatom to cover the maintenance of the plant and to supply nuclear fuel during its operating period.
There are no details on what will happen if Egypt defaults on their non-payments to Rosatom. In 2017, China took effective 99-year control of the Hambantota port in Sri Lanka, which was funded by China as part of its infrastructure-driven Belt and Road Initiative. This happened after it became apparent that Sri Lanka could not recover its 6% interest payments on the $ 8 billion loan from China for the construction of the port.
Will Rosatom take full control of El Dabaa if Egypt defaults? If that were to happen, which institution would have control over issues such as electricity prices and plant safety? These are serious questions that could have major consequences for Egypt’s political and economic sovereignty, as well as its overall energy security.
Profits are prioritized
While the El Dabaa plant will eventually be owned and operated by the Authority for Nuclear Power Plants in Egypt, Rosatom is promoting a strong, known as the Build-Own-Operate model in Africa. This model is essentially a public-private partnership through which the seller builds, owns and operates the nuclear power plant on behalf of a state to which he then sells electricity.
This arrangement can continue until the end of the power station’s lifetime, or the ownership can be transferred to the state after a fixed number of years agreed upon by both parties. This model enables countries that do not have the necessary finances and technical skills to consider nuclear power as part of their energy mix.
Apart from the obvious geopolitical and domestic political risks associated with such a model, there are serious financial risks for African countries.
This model necessarily prioritizes the financial aspects of any project. If an entrepreneur accepts all the financial risks associated with building a nuclear power station, he will maximize the return he can get from the station during the course of his life. This means that it maximizes the cost of electricity generated by the plant.
As Rosatom chief financial officer Ilya Rebrov indicated last month, an “operational cash flow from the project is the main source of investment repayment”. Thus, the electricity bills that consumers are expected to pay in the future become the security for the investment in the present. These types of arrangements result in the so-called power purchase agreement, also known as a strike price, which a buyer usually buys for a considerable number of years at a fixed price.
Part two looks at how these arrangements artificially increase the cost of electricity, which have financial consequences for consumers and serve as a major source of inflationary pressures in economies.