Nuclear Energy Corporation of South Africa Annual Report 2010/11

Energy

31 October 2011
Chairperson: Mr G Selau (ANC)(Acting)
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Meeting Summary

The Nuclear Energy Corporation of South Africa (NECSA) presented its Annual Report for 2010/11. Its core business was directed by the Nuclear Energy Policy (NEP) of 2008, which mandated the development of a South African nuclear energy fleet. Some highlights for the period under review included the successes by NTP Radioisotopes, the SAFARI-1 Reactor and NECSA Fuel Development. NECSA recorded 31 disclosures, had run successful Research and Development, and outlined some of the innovations. Its NTP Group had exceeded budgeted sales by 13% and had maintained its position as the world leader in the supply of medical isotopes and the sole company in the world to produce Melybdenum-99 (Mo-99) using a low enriched uranium process. The achievements of its subsidiary Pelchem were also set out, noting that it continued to dominate worldwide supply of Xenon Diluoride, ad had increased production of hydrogen fluoride. It had achieved sales of R162 million, a 6% increase on the previous year, and had alliances for manufacturing with a Swiss company.  NECSA had been awarded a contract by the American Society of Mechanical Engineers which would enable it to undertake highly technical nuclear manufacture of pressure components, so that it could bid independently for work in the nuclear supply chain. Research and development was centred on the local nuclear fuel cycle and advanced metals initiatives. These projects were linked to Department of Science and Technology programmes, and were aimed at integrating research and development in the country. Some of the research was outlined and explained. The SAFARI-1 reactor had been successfully converted to Low Enriched Uranium, and this reactor had exceeded its intended operational availability time. NECSA was also given a licence to transport some nuclear waste and had conducted research into storage techniques. NECSA was maintaining the Vaalputs licence conditions on behalf of the Department of Energy until the National Radioactive Waste Disposal Institute had been fully established. US origin spent fuel was, in terms of a contract entered into in the 1960s, returned to the US. The National Nuclear Regulator had issued 40 nuclear installation licences to NECSA, and NECSA had performed safeguards and testing for the Department of Energy, and had achieved 95.5% on its National Key Point Audit. It had managed to reduce its injury rate to 4.3 injuries. It had conducted six site emergency exercises, and was assisting the Madibeng Disaster Management Group with readiness to respond to any emergency. Its communication strategies were outlined, as well as training at schools. The staff complement was also tabled. Training was offered through partnerships, and it had been accredited to offer security learnership training.

On the financial side, although NECSA had achieved R711 million of sales, which was 22% above budget, there were concerns about increasing competition from Canadian competitors, who were undercutting prices, as well as NECSA’s rising costs, so it was unlikely that this trajectory could be continued in the next year. The government grant had been reduced, and there was not correct alignment of human resources with corporate objectives. Personnel costs had risen by about 12.3%, compared to total income rise of 8.9%. The two subsidiaries were also facing challenges to their revenue and profit generation. The Nuclear Energy Policy strategy meant that South Africa now needed to respond to new electricity generation capacity, and this would require extra funding. NECSA had an unqualified audit report, although the Auditor-General highlighted some fruitless expenditure, and NECSA was attempting to recover it from the staff involved.  


Members asked what grant levels might be suitable for NECSA, sought clarification on the cost and benefits of replacing the ageing SAFARI-1 reactor, and felt that NECSA’s future should be debated in the broader context of the economic value of the new nuclear build to South Africa. Members asked for the long-term implications of the build, and commented that NECSA, despite its expertise, seemed not to be a leader in the project. They asked if NECSA had the capacity to launch the programme, asked where NECSA saw its position in the Integrated Resource Planning projects, and asked about skills training and retention of staff. They also asked if there were guarantees about how the waste transported back to USA would be used. They were interested to hear how the competition from Canadian companies would be addressed, asked for further details on the certification, the communication campaigns and the assistance to Madibeng Municipality.


Meeting report

Nuclear Energy Corporation of South Africa (NECSA) Annual Report 2010/11
Mr G Selau (ANC) was appointed as Acting Chairperson.

Adv Nazreen
Shaik-Peremanov, Deputy Chairperson, National Energy Corporation of South Africa, noted that although the Corporation (NECSA) still faced challenges, it was working to improve them.

Dr Rob Adam,
Chief Executive Officer, Nuclear Energy Corporation South Africa, noted that the core business of NECSA was directed by the Nuclear Energy Policy (NEP) of 2008, which mandated the development of a South African nuclear energy fleet. He indicated some of the highlights for the period under review. These included the successes by NTP Radioisotopes, the SAFARI-1 Reactor and NECSA Fuel Development in addressing the supply crisis of global medical radio isotopes. NECSA managed to record 31 disclosures, which was testimony to the success of its Research and Development (R&D) policy. Some of the innovations included waste stream decontamination with carbon nanotubes, agents for decontamination of graphite, and Identification of accelerator-induced radioactivity in shielding material. The NTP Group achieved sales of R869 million, 13% more than budgeted, and maintained its position as the world leader in the supply of medical isotopes and the sole company in the world to produce Melybdenum-99 (Mo-99) using low enriched uranium process.

NECSA had been
awarded a contract by the United States (US) Department of Energy in recognition of and support of the South African programme to fully convert the Mo-99 production process from highly enriched uranium (HEU) to lower-based operations and technology. The contract was aimed at accelerating the industrialisation process to make LEU-based Mo-99 on a commercial scale.

NECSA had built a state-of-the-art NECSA Centre which had been launched by the Minister of Energy, Ms Dipuo Peters, in February 2011. As part of its contribution towards developing skilled people in the nuclear Industry, NECSA, through the Nuclear Skills Development (NSD) Centre, trained 487 apprentices in semester training programmes. A Decentralised Trade Test Centre was launched by Dr Rob Davies, Minister of Trade and Industry.

This Centre, apart from attending to the training, helped also to test people and issue certificates so that they could become recognised. The Centre was awarded an ASME3 certificate that enabled NECSA to undertake highly technical nuclear manufacture of pressure components.
South Africa was now among180 other companies in the world that had ASME3 certification. Dr Adam explained that this standard applied to the manufacture of nuclear grade components, and no entity, without having been certified to this standard, could bid independently for work in the global nuclear supply chain.

The Acting Chairperson asked Dr Rob Adam to explain the meaning of ASME3.

Mr Adam replied that ASME3 was an acronym for the “American Society of Mechanical Engineers”, a nuclear certifying board in the United States that credited manufactures. He explained that NECSA had chosen to be certified by this organisation, instead of under similar codes in, for instance, Russia or France, because this certification would enable NECSA to bid independently for work and not only operate through another vendor.

Dr Adam noted that the R&D efforts were concentrated on the local Nuclear Fuel Cycle (NFC), specialising in fuel preparation manufacturing technology, and on other technologies including the Advanced Metals Initiative (AMI), which specialised in metals associated with nuclear matters. NECSA was also concentrating on improving the performance of its two main subsidiaries, NTP Radioisotopes (Pty) Ltd (NTP), and Pelchem (Pty) Ltd.

Research and Development programmes at NECSA were linked to the Department of Science and Technology (DST) programmes, including those on Energy Security, Farmer to Pharma climate change and Space Science. Nuclear Technologies in Medicine and the Biosciences Initiative (NTeMBI) was managed by NECSA, and was aimed at integrating research and development in the country. A sub programme falling under NTeMBI was the sterile insect technique, which had been applied with success in combating fruit flies in the Western Cape. NECSA was planning to use the technique also to eradicate mosquitoes in KwaZulu Natal and the Mozambican border. Other breakthroughs in Research and Development had been made in managing fast growing Intellectual Property (IP), including contaminant identification during decommissioning, analytical techniques and Hi-tech cell techniques and equipment that assisted in dealing with radiator substances.
 
In the area of Nuclear Technology and Industrialisation, NECSA successfully converted SAFARI-1 to LEU. It also set up a fuel development team to focus on manufacturing components for nuclear Power Water Reactor (PWR) fuel elements. A spent fuel study covering various options for the storage of cooled PWR spent fuel was conducted. Conceptual designs for uranium conversion and uranium enrichment facilities were formulated.

The SAFARI-1 reactor achieved its operational availability of 101% against scheduled availability of 100%, at an average reactor power of 19.44 megawatts (MW).

Dr Adam
said that prior to 2010/11, only Eskom had been allowed to transport Intermediate and low level waste to the Vaalputs waste site, but in this year, NECSA was given a licence by the National Nuclear Regulator (NNR) to transport waste from Pelindaba to Vaalputs. The Nuclear waste projects approved by the NNR for the period under review included the transport of low level waste to Vaalputs, relocation of molybdenum transfer system and the construction and decommissioning of the volume reduction facility in Pelstore, for the purpose of reducing the volume of waste. As part of the delegated function, NECSA was maintaining the Vaalputs licence conditions on behalf of the Department of Energy (DoE) until the National Radioactive Waste Disposal Institute (NRDWI) had been fully established and capacitated.

Dr Adam reported that one of NECSA’s significant projects was the return of US Spent Origin Fuel. As part of the original agreement of the highly enriched uranium consignment, which arrived in South Africa in the 1960s, the fuel was returned. This culminated in the signing of a contract on 24 August 2010 between the US Department of Energy, the National Security Agency and NECSA.

In regard to compliance matters, Dr Adam reported that the NNR issued a total of 40 Nuclear Installation Licence (NILs) to NECSA. In line with legislative requirements and international agreements, NECSA had performed safeguards and nuclear non-proliferation activities on behalf of the Department of Energy. Significant resources were allocated to planning and implementing the nuclear safety plan during the FIFA World Cup, when radiation protection and monitoring officers had manned every port of entry.

An annual National Key Point (NKP) audit was conducted on 2 August 2010, on which NECSA achieved an overall score of 95.5%. As a result of good performance, South Africa was rated by the
International Atomic Energy Association (IAEA) on the absence of undeclared nuclear material and activities in the country. The Behaviour Based Safety (BBS) process was implemented, resulting in major improvements in NECSA’s Total Injury Rate (TIR), which had fallen from 20.9 injuries in September 2002, to 4.3 by March 2011. The NECSA Emergency Control Centre was upgraded and used during the FIFA 2010 World Cup Tournament. Six NECSA site emergency exercises were conducted during the year and a plan was developed to assist the Madibeng Disaster Management Group to build capacity to ensure appropriate readiness levels to respond in times of emergency.

Mr Fanie Van Vuuren, Manager: Governance and Reporting, NECSA, presented the financial statements for the period ending 31 March 2011. He said that by the end of 2010/11, NECSA had a total of 1,118 suppliers, of whom 498 had Broad Based Black Economic Empowerment accreditation levels of 1 to 8. The purchases from these suppliers amounted to 29.2% (R238.3 million) of the NECSA Group procurement spend. However, some suppliers had lowered ratings during the financial year. NECSA itself was assessed as a Level 4 contributor, with procurement recognition of 100%, and 125% as a value-adding supplier. NPT, one of NECSA’s major subsidiaries, was assessed as a level 4 contributor with a BBBEE procurement level of 100% and 125% as a value adding supplier.

Mrs Chantal Janneker, Group Executive: Communications and Marketing, NECSA outlined the communication strategies and media campaigns. She said that NECSA hosted Public Safety Information Forums (PSIF) to engage with communities in Pelindaba and Vaalputs who were situated within 5km from the Centre. During the current financial year 2 075 learners and educators from 41 schools across the country attended the National Science Week (NSW) programme at NECSA Training Centre.

Following the tsunami in Japan that affected the Fukushima Nuclear Reactors, NECSA had maintained a round-the-clock monitoring, its brand was profiled as a credible source of opinion, and awareness programmes were posted on its website about the risk, myths and benefits of nuclear energy. A marketing campaign was initiated to address public perceptions on nuclear technologies.

Mrs Ntebatse Matube, Senior Manager, NECSA presented the company’s employment policy for the financial year. She said that the NECSA staff complement increased by 3.12% to 2 179 employees. The number of females employed increased by 7.5%, from 607 in the previous year, up to 653. A total of 1 020 black employees were employed and this represented 54.6% of NECSA’s permanent staff complement.

Dr Adam added that NECSA managed to offer high quality training by forming partnerships with the Department of Public Works, the Development Bank of Southern Africa, Alstom (a French company), and DB Thermal (a South African high-tech company). 328 students were trained. NECSA had also initiated a project through the Safety and Security Sector Education and Training Authority to obtain accreditation as a service provider for security learnership training in National Qualification Framework Levels 3 and 4, National Key Point and Firearms training. It had obtained this accreditation on 12 December 2010. This would allow for learnership training of ten learners in 2011.

Dr Adam outlined that NECSA had achieved sales of R711 million, which was 22% above budget and 8% better than the previous financial year. Group sales totalled more than R869 million, or 13% more than budgeted. Despite the sales, there were concerns that NECSA was facing new competition from Canadians, who were undercutting prices. NECSA’s own production costs were rising, since it used Low Enriched Uranium. Despite the challenge, NECSA had been profitable in its operations. However, he cautioned that the level of exceeding targets may not be possible in the next financial year.

Mrs Mapula Letsoalo, Director: NTP, said that the 46-year old SAFARI-1 Reactor was slowly coming to the end of its operational life and there were plans to start looking for a new reactor dedicated to production. The construction of a Dedicated Isotope Production Centre (DIPR) was being considered. The feasibility study was already being conducted. This covered environmental impact assessments, compiling user requirements specifications, and pre-selection of a viable turnkey. By the end of 2012 NECSA would have completed the feasibility study and public input would be sought.

Dr Adam presented the financial performance of Pelchem a wholly-owned subsidiary of NECSA, that focused mainly on the fluorochemical industry. A volume of 70% Hydrogen Fluoride (HF) was sold to Brazil. Pelchem was also awarded a tender to supply the shell refineries in Australia and has become the sole supplier of AHF to the Australian refineries, through offering competitive pricing and superior service. Pelchem had managed to remain the sole supplier of AHF and 70% HF to the Southern African market. In 2010/11, it had increased its production of HF, achieving a record high of 4 659 tonnes. Despite slow growth in the sales of Xenon Diluoride (XeF2) it continued to dominate the supply of this globally. Dr Adam explained that Xenon was a substance used in car airbags and other applications where a movement triggered an electric response. Pelchem had gone into a joint venture with Linde Group and was negotiating with it on the purchase of the NF3 plant, after Linde indicated that it wanted to disinvest in the partnership. The approval of the Minister of Energy was required for the purchase.

Pelchem achieved sales of R162 million, a 6% increase on the previous year. A strategic alliance was formed with Lonza, a Swiss company, to manufacture and market APIs, primarily for anti-retroviral and other applications. The strategic alliance would be marketed under the name “Ketlaphela”. Another subsidiary involved in human resources capital was AREVA, a joint venture (JV) between AREVA France and NECSA, where NECSA represented the interests of Eskom and NNR. The JV Company took offset obligations and converted them into opportunities for training.

Some of the significant risks faced by the company in 2010/11 included financial constraints, as a result of the reduction of the government grant, misalignment of human resources with corporate objectives, and regulatory capacity resulting in time overruns by the NNR. Dr Adam indicated that the need to comply with regulations meant that NECSA needed to have requisite skills and human capital to ensure an effective process on both the operating and regulatory side.

Dr Adam said that although the total income of NECSA Group increased by 8,9%, to R1,7 billion in the current financial year, that would not compensate for the increased personnel costs and other expenditure, which rose by on average 12.3%. Although there was growth in sales, there was also a need to increase the budget for staff.

Despite the expansion of NECSA’s mandate, by publishing the Nuclear Energy Policy, its baseline was reduced by R270 million over the 2010/11 to 2013/14 Medium Term Expenditure Framework (MTEF). NECSA’s two major subsidiaries were facing challenges to their revenue and profit generation. The Nuclear Energy Policy strategy meant that South Africa now needed to respond to new electricity generation capacity, and there were some further challenges due to the misalignment between the Integrated Resource Planning Policy and the national budget process. New priorities to prepare for South Africa nuclear energy expansion had been put in place (see attached presentation for full details). Dr Adam noted that NECSA was unlikely to show a similar financial growth in the new financial year. All funds would be utilised, under the tough economic climate. There was risk involved in generating of revenue and the new sundry grant allocation.

NECSA had received an unqualified audit report, although the Auditor-General (AG) had highlighted one emphasis of matter, where fruitless expenditure was incurred, through payment of penalties and interest, mostly in regard to the subsidiaries (see attached presentation for full details). Measures had been taken to recover the fruitless expenditure from the staff members concerned, as it had included traffic fines. New measures had been implemented to prevent recurrence.

Dr Adam highlighted that in future, NECSA would be pursuing a number of projects, including NFC development in line with IRP 2010 and Eskom requirements, developing localisation capabilities, investment to upgrade the quality of assurance system to comply with the latest international Good Manufacturing Practice (GMP), development of Pelchem’s diversification strategy and successful completion of industrialisation projects.

Discussion
Mr L Greyling (IFP) asked whether the constraints faced by NECSA were a growing concern. He wanted to know whether NECSA was operating as a public enterprise, and what level of grant might be suitable. Mr Greyling asked for clarification on the cost and benefits to the nation of replacing the ageing SAFAR-1 research reactor. He wanted to know the future of South Africa in nuclear energy, and said that NECSA’s future should be examined in line with the broader considerations around the economic value of the new build to South Africa, and the viability of projects. He felt that there was a need for further debate on the issues, to determine the amount of grants that could be allocated for the new build programme and skills training.

Dr Adam replied that government funded NECSA, but its major subsidiaries Pelchem and NTP operated as commercial enterprises, with NECSA producing the technology that resulted in sound commercial activities by its subsidiaries. He said the major concern of Parliament should rather lie with interrogating different portions of NECSA and the largely separate corporate work, although he agreed that it would be difficult to create a subsidiary instantly, without a good industrial policy in place. One advantage of the new build programme was that this would make it possible, similar to the position in the US, Korea and France, to separate commercial enterprises and entities that relied on government funding. Dr Adam said NECSA was not asking the government to fund the new reactor, as it was possible to build it using money generated from cumulative profits of selling isotopes, whilst other funding would come from banks and Industrial Development Corporation. Government would only be asked for funding if NECSA wanted to refurbish the reactor into a research centre, towards the end of its lifetime. He said that the project could cost between R300 and 400 million.

Mr D Ross (DA) expressed concern on the pricing implication of the new build programme on the public. He asked NECSA to shed more light on the long-term implications of undertaking the new build programme, to inform the public. He also asked if it was necessary to build six new nuclear plants, and the implications of undertaking a project of that magnitude. He also asked how the new build programme was going to be funded, and in what sense this project would contribute towards energy production.

Mr Ross was pleased to hear the highlights on technological innovations, but asked if NECSA could give clarity on the shipment of Origin Fuel back to the US, treatment and transportation of nuclear waste, as well as the new licence that was awarded to NECSA.

Mr S Radebe (ANC) was concerned about the capacity of NECSA to launch the new build programme, given the fact that it was already struggling with human resource constraints. He asked what plans had been put in place to address the issues of skills training, which NECSA had highlighted as of concern. He noted that many white-owned companies had resorted to fronting to get BBBEE status, although officials allegedly appointed had no idea of their job descriptions.

Mr S Motau (DA) asked where NECSA saw its position in the IRP 2010.

Dr Adam said NECSA would do two main things as a result of the IRP programme. Firstly, it would ensure long term provision of nuclear fuel for the reactors. It had already engaged with Eskom on the matter, and stressed that because long lead-times were needed for nuclear plants, during which much could change in the world, it was important that an entity had operational control, because reliance on others and on imports could present problems. Secondly, it was to use the ASME3 Certification to lead in localisation, and to ensure that building and spending was coordinated in a way that new plants and other high-tech companies could benefit from the ASME3 accreditation.

Mr E Lucas (IFP) commented that the cut in funding to NECSA was unfortunate, because it affected its ability to undertake research. He was also concerned with waste, asking whether South Africa had any guarantee that nuclear spent fuel that was transported to the United States would not be diverted to manufacturing nuclear weapons in future.

Dr Adam said the major reason why the spent fuel was returned to the USA was because it was part of the original agreement when USA first supplied the reactor in the 1960s.He said that it would not be possible to use the fuel for weaponry. USA and Russia had embarked on disarmament. In any event, this country had tonnes of enriched uranium it could use, other than the spent fuel. The industry of isotopes was very complicated. However the USA was putting measures in place to ensure that highly enriched uranium did not enter its borders.

The Acting Chairperson asked how the competition from the Canadian companies would be addressed.

Dr Adam reported that it was against global operating laws to collude with competitors but it had resorted to promoting principles for the future sustainability of the market.

The Acting Chairperson asked NECSA to explain how its ASME3 certificate differed from other certificates.

Dr Adam explained that the advantage of the ASME3 over other certificates such as the ICCM of France was that it gave NECSA the opportunity to work independently, rather than under a vendor, as there were costs involved in acquiring a license.

The Acting Chairperson wanted to know if NECSA was doing anything to help the Madibeng Municipality through its corporate governance interventions.

Dr Adam said that there was a need for a joint effort between NECSA and this Committee, which probably had better contacts at the Municipality.

The Acting Chairperson was happy with NECSA’s BBBEE rating of 44.5% and the increase in the number of women employed by the company, but urged it still to work on this. He asked for an update on the current Board of Directors

The Acting Chairperson asked for more clarity on the marketing campaigns done by NECSA and some of the 31 technological innovations that the entity launched.


Ms Janneker said that NECSA implemented a number of campaigns, some through print media (Daily Sun) and Khaya FM, particularly to carry awareness messages about the dangers and benefits, and to dispel some of the misperceptions around nuclear energy. Campaigns were done also in schools. NECSA erected billboards around the Centre as a way of raising community awareness.

Dr Adam outlined some of the innovations, which included c
ement compositions for radioactive waste encapsulation, cold ceramics encapsulation for radioactive waste disposal, waste stream decontamination with carbon nanotubes, agents for decontamination of graphite, and identification of accelerator-induced radioactivity in shielding material.

The Acting Chairperson what relationship existed between NECSA and SANEDI, which he described as a development company that specialised in energy, and asked if NECSA’s operations were limited to nuclear energy only. He also wanted to know the number of subsidiaries that fell under NECSA.

Dr Adam said NECSA and SANEDI had held a meeting on a project to produce energy on bio waste but there was no close cooperation between the two. He reiterated that NECSA had three main subsidiaries, Pelchem, Arexa and NTP, who specialised in logistics, pharmotopes that supplied nuclear and radiopharmaceutical products

Mr Lucas asked what measures NECSA was taking to ensure that it retained its staff.

Dr Adam said the organisation was benchmarking its staff composition and retention plans against other organisations in the world
.
Mr Ross wanted to know how much NECSA could possibly source from government to help it with its financial constraints.

Mr Radebe noted that the report on human resource achievements should not only have listed the number of black employees, but should have indicated all races.

Dr Adam said that the BBBEE document was very complex and NECSA was trying to meet the specifications on targets set by the Department of Labour, based on demographic composition of staff.

Mrs Matube added that NECSA delivered human resources within the context of the Labour RelationsAct, which specified that the nature of transformation should be indicated in the report.

Mr Motau said that the presentation appeared to indicate that NECSA was only on the periphery of the new Nuclear Build project, despite its expertise. He asked for an update report on contamination in a specified area.

Dr Adam said because of the security of information surrounding the build projects, which were also very expensive, NECSA had been consulted but government was the major player.

The meeting was adjourned.









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