National Energy Corporation of South Africa (NECSA) & National Nuclear Regulator (NNR) 2008/9 Annual Report

Meeting report

Presentation by the National Energy Corporation of South Africa (NECSA)
Dr Rob Adam, Chief Executive Officer, NECSA, briefed the Committee on the 2008/09 Annual Report of the National Energy Corporation of South Africa (see attached document).

The mandate of NECSA was nuclear research and development, nuclear fuel research and production (including uranium enrichment) and co-operation with other organisations in the nuclear domain.

In terms of Black Economic Empowerment (BEE), in 1990 NECSA was 100% white. Today, of the total staff of 1 870, there were 38 managers of which 18 were black and 8 were women. 34% of the engineers were black and 24% were women. 39% of the scientists were black and 29% were women. NECSA was a level 3 Broad-based Black Economic Empowerment (BBBEE) contributor. Safety was a key focus area for the financial year, not just nuclear safety, but general safety too. Safety figures were on the increase.

Highlights for the year included an annual turnover of R1.15 billion; the NECSA subsidiary NTP Radioisotopes became the largest global producer of radiochemicals; NTP played a key role in alleviating the global Mo-99 supply crisis; the SAFARI-1 Research Reactor was converted to low enriched uranium fuel; the Nuclear Science Centre project was launched, to educate the public and learners on Nuclear Science and 7.3% of the staff budget was spent on training.

NECSA operated as a Nuclear Skills Development Centre to provide training to NECSA staff, other stakeholders and contractors in the nuclear and energy field. Since January 2008, 278 apprentices received skills training, 83% of whom were black and 36% were female.

NECSA played a role in the Nuclear Power Cluster, the Radiation Products and Services Cluster and the Hosting of Nuclear Programmes Cluster. The Nuclear Power Cluster was involved in uranium conversion, enrichment and nuclear fuel fabrication, used fuel management and nuclear manufacturing localisation. The annual project schedule target was 85% and 80% was achieved. The National Nuclear Manufacturing Centre’s target fabrication turnover was R35 million and the actual turnover was R24.4 million. Performance was affected by Eskom’s postponement of the Nuclear 1 programme.

The Radiation Products and Services Cluster involved Radiation Science research and development, SAFARI-1 operations and the production and supply of radiochemicals and services. In terms of SAFARI-1 operations, the target for reactor availability was 100%, which was met. The target for the production and sales of radiation products by the NTP Group was R330 million and the actual turnover was R422 million.

In the Hosting of Nuclear Programmes Cluster, the target for SHEQ Regulatory compliance was 75% and 78% was achieved. The target for work-related injuries was <1% and 0.89% was achieved. The target for NKP Security Events was zero and was achieved. For Annual Site Refurbishment the target was 80% of actual plan and 100% of the plan was achieved.

In Research and Development, NECSA aimed for four successful innovations and achieved seven. The target for refereed scientific publications was one paper per researcher per year or 0.4% and 0.32% was achieved. R19.3 million was spent on upgrading the Research and Development infrastructure.

In terms of Human Resources and Training, the target for the percentage of technical staff was 53% of the total staff but only 46.9% was achieved due to a high attrition rate. The target for black technical staff as a percentage of all technical staff was 44% but only 40.1% was achieved, due to a skills shortage in the industry.

Discussion
Mr S Radebe, (ANC) asked how many disabled persons were employed and what kind of measures were put in place to enable persons with disabilities to work at NECSA. He wanted to know how NECSA would ensure that it did not find itself in the same position as the Canadian competitor for radioisotopes, who had experienced a major loss of output. He asked what NECSA’s view was on the new power mix.

Dr Adam answered that the statistics on disabled members of the staff was included in NECSA’s Employment Equity Plan Report. Disabled persons were selected for specific tasks at NECSA, such as the security control centre. Certain areas were difficult to make disabled-friendly, for example the operations areas, but NECSA was creative in finding positions for the disabled. The key lessons learnt from the experience of the Canadian competitor were that maintenance inspections were critical, particularly in the case of ageing reactors, and never to compromise on safety measures.

Concerning the power mix, the question that was usually asked was, 'Is nuclear energy affordable?' The power mix needed to be considered over its lifetime of 40 years. There were high capital costs involved but the operating costs were low. Whether nuclear was affordable or not, depended on the payback period.  If the payback period was 20 years, it was affordable but if the period was only five years, it was not.  A very specific type of partner prepared to make a long term investment was required.

Mr E Lucas (IFP) commended NECSA on the growth achieved over the previous nine years.  He noted that the high turnover of staff was a serious problem and asked what measures were implemented to retain staff. He asked what the progress was of the Pebble Bed Modular Reactor (PBMR).

Dr Adam agreed that the staff turnover rate was high, particularly in the technical positions. The high turnover rate was attributed to young people changing jobs more frequently and the stiff competition from the rest of the industry for these skills. NECSA generally paid salaries at the median of the job band, but for certain technical posts which were in high demand, the salaries paid were at a higher level in an attempt to retain skilled staff. He remarked that people did not only work for money, but also enjoyed an exciting and challenging work environment. There had been a buzz around nuclear in South Africa, which had helped to attract people to the industry, but the postponement of the Nuclear 1 project might have a negative effect. He suggested that the question concerning PBMR was referred to the management of PBMR for reply.

Mr E Nchabeleng (ANC) asked if the increased expenditure on training had diverted funds from other projects. He wanted to know what the relationship was between NECSA and the NNR and if the two organisations had met on a regular basis and shared information. He noted that the person responsible for nuclear safety was an acting manager and asked when a permanent manager would be appointed. He asked what NECSA’s staff retention policy was.

Dr Adam advised that funding for the increased training was from staff vacancies and was not taken from the funding for other operational areas. He said that there was a good, constructive relationship with the Regulator and regular meetings were held. There was a quarterly meeting at the CEO level and ongoing meetings between staff from both organisations. Regarding the Acting Safeguards Manager, the vacancy had resulted from the promotion of the previous manager and a new manager had been appointed to the position.

Mr S Motau (DA) noted that NECSA was involved in a court case as an expert witness for the prosecution and he requested further information on this matter. He wanted to know how successful the drive to bring back retired expertise had been. In the Annual Report reference was made to a loss of R104 000 as a result of the late submission for tax returns. He felt that such a loss was unacceptable as State money was used to fund NECSA and should not be wasted on penalties for late returns. 

Dr Adam explained that the court case had to do with the prosecution of two German nationals involved in the illegal trade in enriched uranium. NECSA was happy to be involved in the prosecution as an expert witness as agents of nuclear proliferation had been brought to book. He advised that many experienced ex-staff members were retired and were traced by means of the list of pensioners.  The retirees concerned were approached and requested to return to assist with the training of staff and most were found to be receptive.  He explained that the loss of the R104 000 was as a result of a change in management. A previous employee had given the assurance that certain tasks were completed when he resigned, but NECSA had subsequently fund that this was not the case. NECSA was a tax-paying entity but was currently engaged in talks with the South African Revenue Services on whether the organisation should be paying tax as it was a State-funded entity.

The Chairperson remarked that there appeared to be a lack of public awareness and understanding on nuclear energy.

Dr Adam answered that NECSA had joined forces with the Department of Science and Technology to play an active role in the Science Week. Talks and demonstrations on Nuclear Technology were held at the Science Week. However, there was no national awareness campaign, primarily as a result of budgetary constraints.

The Chairperson commented that more should be done to raise awareness.

Mr J Selau (ANC) asked what NECSA’s plans were for the future.

Dr Adam replied that he was under the impression that the goal of this presentation was to report on the past year only. What happened in future depended to a large extent on Eskom and whether the new Bill went ahead. If so, NECSA would be a very important player. If nothing happened with regard to Nuclear 1, a different strategy would have to be developed. NECSA was at a crossroads and to make premature pronouncements would not be helpful at the moment.

Presentation by the National Nuclear Regulator (NNR)
Mr Guy Clapisson, Acting Chief Executive Officer, NNR, briefed the Committee on the 2008/09 Annual Report of the National Nuclear Regulator (see attached document).

The mandate of the NNR was to provide for the protection of persons, property and the environment against nuclear damage by establishing safety standards and regulatory practices. Facilities regulated by the NNR included the Koeberg Nuclear Power Station, the NECSA Pelindaba site, the NECSA Vaalputs National Radioactive Waste Repository, the Pebble Bed Modular Reactor, mining and mineral processing of radioactive minerals and nuclear vessels.

In terms of employment equity, the NNR had 25% black male managers and 50% black female managers. There were 70% black department managers and 10% female black department managers. Of the professionals 51% were black males and 18% black females. In total there were 21% white males, 45% black males, 11% white females and 23% black females. By gender there were 61% males and 39% females.

The NNR reported overall satisfaction with the regulatory oversight on the nuclear facilities in South Africa during the year under review. However, the mining sector indicated a recurring trend of non-compliance and steps have been taken to address this challenge. There was satisfactory compliance with the NNR’s safety standards and regulatory requirements at the other nuclear facilities in the country. Licenses for two nuclear vessels were granted. The conversion from High Enrichment Uranium to Low Enrichment Uranium at the NECSA Research Reactor (SAFARI-1) was successfully licensed.

The NNR was involved in the launch of the Forum of Nuclear Regulatory Bodies (FNRBA) in Africa and presented a number of reports to the International Atomic Energy Agency (IAEA). An IAEA conference on regulatory effectiveness would be hosted by the NNR in December 2009. The NNR was embarking on a programme to position the Regulator for the planned nuclear expansion programme.

The NNR had adopted the balanced scorecard methodology to measure its performance and had identified four key strategic focus areas to ensure the achievement of its mandate.  The four focus areas were the Safety and Regulation Scorecard, the Stakeholder Management Scorecard, internal business processes and human resources. Within each strategic focus area, key strategic objectives, supporting goals and initiatives were identified and the indicators to measure performance were determined. A summary of the Regulator’s achievements of the objectives during 2008/09 was provided.

An enhanced governance system resulted in the achievement of an unqualified audit for the 2008/09 financial year. Total operating revenue for the year amounted to R85.8 million, of which R64.5 million were derived from authorisation fees and R20.3 million from a direct grant from Government. The total operating expenditure amounted to R93.8 million.  The operating deficit of R8 million was off-set by finance income of R8.7 million and a net surplus of R444 000 was declared.

The main challenges faced by the NNR during the 2008/09 financial year were the retention and attraction of skilled personnel, the recurring non-compliance of the mining sector, regulating developments around nuclear installations such as the Koeberg Nuclear Power Station and the management of stakeholder relationships. The NNR was in the process of establishing a capability for oversight over Nuclear Security Management.

Discussion
Mr Motau asked for further details of the two nuclear incidents reported in the Annual Report of the NNR. NECSA had claimed that no incidents had occurred during the year.

Mr Clappison answered that the incidents reported by the NNR were very minor and considered by NECSA to be insignificant.

Mr J Schmidt (DA) was concerned over the lack of achievement against certain performance objectives. He asked for an explanation of the irregular expenditure of R1.9 million. The report from the Auditor-General stated that there was no supply chain management policy in place, which was unacceptable. The amount of the Government grant differed between the presentation and the published Annual Report. There had been an increase of 36% in salary expenses over the previous year and the Directors’ emoluments had almost doubled and appeared to be relatively high.

Mr Clappison replied that the NNR expected to improve on the achievement of objectives. Serios challenges concerning human resources were experienced during the first quarter of the year.  For example, the post of the Chief Financial Officer had been vacant. The NNR was not happy with the achievement rate but had since implemented the necessary processes and appointed staff to fill the key vacancies. Challenges remained in the area of conducting inspections as resources were scarce but the Regulator was attempting to rectify the situation.

Ms Ramasela Moloto, Chief Financial Officer, NNR, explained that the normal Government grant amounted to R20.3 million, but a special grant of R18 million had been approved a few years ago and made available during the year under review. She confirmed that a supply chain management policy had been implemented. Recently, the NNR had undergone a process of transformation, from being an organisation managed by relatively low-level administrators, to an entity with a higher level organisational structure. She explained that the irregular expenditure had occurred prior to the re-organisation of the NNR, when financial control systems were not yet in place.  The new measures had been implemented and there should be no further occurrences of irregular expenditure.

Regarding the matter of the Directors’ emoluments, Ms Moloto said that the NNR needed to attract skilled people with the right knowledge. Previous packages were not attracting staff to the NNR and remuneration was increased. Concerning the increase in salary costs, the NNR went through a process of benchmarking salaries with the general market and found that employees were leaving because the salaries paid by the Regulator were too low. The salary scales were adjusted and the salaries paid were now in line with other Government departments and the industry. The financial reporting was changed and the total employee cost to the company was now reflected.

The Chairperson asked if this meant that the public entity was managed as an organisation in the private sector.

Ms Moloto answered that the NNR was not in competition with Government on the salaries paid, but was in competition with the private sector. Salaries were benchmarked with other public entities, such as Eskom.

Mr EG Lucus (IFP) asked what the recurring problems were with the mining sector and whether the NNR was able to act as a completely independent watchdog.

Mr Clappison replied that ten mines out of 143 were guilty of non-compliance with the regulations and the mines concerned were monitored and appeared to be making changes. The regulatory independence of the NNR was established by an Act of Parliament, which gave the Regulator a lot of power without interference from outside. The degree of independence was not optimal but compared well when measured against international standards.

Mr Radebe complimented the NNR on its BEE status, but made it clear that this did not mean that there should be no white people employed.  The aim of employment equity was to achieve a balance in the racial and gender composition of the staff complement. He felt that the ratio of men to women needed to be improved. He asked if the NNR made use of external consultants because of a lack of in-house skills.

Mr Clappison assured the Committee that the NNR’s employment equity policy was not about ‘getting rid of’ white staff. The requirements in terms of qualifications applied to all employees and the black staff were employed because they had the required skills. The Regulator was working towards achieving gender parity, but the majority of employees were in the engineering and scientific fields where women were generally under-represented. The NNR did make use of the services of external consultants in cases where the Regulator did not have the necessary skills capacity and when expertise was required on a part-time basis, for example civil engineers were not employed on a full-time basis as their expertise were only required for a limited period of time. In line with the drive to reduce the use of external consultants, the NNR ensured that the transfer of skills to employees took place when the services of consultants were utilised.

Mr Nchabeleng asked why certain strategic objectives were listed as ‘not applicable’ in the presentation.

Mr Clappison explained that three-year goals were set for certain objectives and the achievement of the goals were not applicable in the year under review.

The Chairperson asked when the IAEA conference would be held and asked if the Members of the Committee would be invited to attend.

Mr Clappison advised that the conference would be held from 14^th to 18^th December 2009.  The conference was about regulatory matters and the NNR would facilitate the invitation to the Members of the Committee with the IAEA.

Mr Radebe asked what the relationship of the NNR was to the National Radioactive Waste Institute.

Mr Clappison replied that the new Institute had been formed to manage the operation of all nuclear waste activities and would also undertake some research and development. South Africa followed a similar model as applied by other countries.

The Chairperson asked why 24% of NECSA’s engineers were women but the NNR had not managed to attract a similar percentage.

Mr Joe Muase, Head of Executive Strategy and Stakeholders, NNR, replied that the NNR and NECSA were competing for skills and NECSA was able to offer better remuneration packages. The reality in the industry was that people would rather join NECSA or Eskom than the NNR.

Professor Tseliso Baatile Maqubela, Deputy Director-General, Department of Minerals and Energy, commented that the nuclear sector had made significant progress over the last ten years. A decade ago, the sector was in decline but Government had managed to turn it around and currently it was a growing, vibrant sector. He appealed to the Committee to ensure that the sector continued to make progress and that the plans were implemented. The nuclear sector was a 100-year commitment by Government. Planning took 10 years, operations lasted for 60 years, decommission took 10 years and any waste generated needed to be effectively dealt with. He gave the assurance that the Department would continue to involve the Committee in all matters concerning nuclear energy.  The Policy Framework was in place but the Integrated Resource Plan (IRP) would include targets for legislative amendments and was expected to be released in the near future. In certain areas, there was a shortfall in the required capacity. In particular, there was a lack of skills in the industry, but the talent was there and all that was required was a strategy for harnessing it, for example by introducing mentorship programmes. Another issue was access to land for nuclear power plants. Nuclear power plants have to be built on the coast but most of the coastline was prime land in private possession and the cost of building a power plant was inflated by the substantial cost of purchasing the land. He said that a way had to be found to acquire suitable land at a reasonable cost.

In conclusion the Chairperson commented that the Committee looked forward to working more closely with NECSA and the NNR during the following year.  Follow-up meetings on a regular basis would allow the Committee to stay on top of the issues faced by the sector.

The meeting was adjourned.