South African Nuclear Energy Corporation Strategic and Annual Performance Plans 2013

NCOP Economic and Business Development

10 June 2013
Chairperson: Mr F Adams (ANC; Western Cape)
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Meeting Summary

The South African Nuclear Energy Corporation (Necsa) briefed the Select Committee on Economic Development on their Annual Performance Plan for the 2013/14 financial year. The presentation focused on Necsa’s legislative and policy mandate, its alignment to government policy (National Development Plan), the Necsa group corporate plan, human resources and its objectives and key performance indicators.
The main functions of Necsa, in terms of the Nuclear Energy Act 1999, were to undertake and promote research and development in the field of nuclear energy and radiation sciences and technology, to process source material, special nuclear material and restricted material, to reprocess and enrich source material and nuclear material, and to co-operate with any person or institution in matters falling within these functions. Necsa also had to execute institutional responsibilities on behalf of government, such as decommissioning and waste management.

Necsa had aligned itself with the National Development Plan (NDP) priorities of providing quality health care, job creation, improving the quality of education, training and innovation, expanding infrastructure and transitioning to a low-carbon economy

One of Necsa’s main achievements had been the development of medical isotopes for cancer treatment. This had been done through one on Necsa’s subsidiaries, NTP (Nuclear Technology Products). These isotopes were being exported to about 60 countries worldwide, and therefore contributed a great deal to Necsa’s annual revenue.

Members were pleased with Necsa’s presentation. However a number of concerns were raised, such as the use of consultants, bonuses to underperforming staff, and the financial sustainability of Necsa’s subsidiaries.  Members acknowledged the work done by Necsa in terms of driving nuclear education and training. However, the issue of training costs was raised, and Necsa was asked whether the learners/students would be awarded employment after the training sessions. Members were assured that most of the trainees who came to Necsa were already employed, as their companies had paid Necsa to provide the training. Necsa acknowledged that there was a skills shortage in the nuclear sector, especially when it came to experts. That was why Necsa had embarked on a mission to promote skills development, through extending bursaries for Masters and PhD studies in the sector.
Funding was another matter that came under discussion. Necsa outlined that government grants made up about only 25% of its income, and commercial funding therefore needed to be sourced, although it came at a cost.  Public funding needed to be balanced out with commercial funding.  Vaalputs, a nuclear energy waste management site in the Northern Cape was also a major point of discussion. Members wondered why Necsa had not been utilizing the area to its full capacity; promoting it as a nuclear waste management site on an international scale.   Other questions included what partnerships Necsa had with South African universities for nuclear education, what Memorandums of Understanding (MOUs) and treaties South Africa had signed on nuclear energy, was the 42% expenditure for personnel a normal standard, locally and internationally, how harmful was the radioactive waste in previously mining areas and how was it managed, and how much of the manufacturing was localised for local skills development. 
Members were asked by the Chairperson to refrain from discussing the nuclear build programme, as the matter was still before Cabinet and a formal report would be given to the Committee once the report had been finalised.   The debate on nuclear energy would be an ongoing one, seeing that the government had made a decision to explore the nuclear route.
 

Meeting report

Nuclear Energy Corporation Briefing    
Dr Mochubela Seekoe, Chairperson, South African Nuclear Energy Corporation (Necsa) thanked the Committee for the opportunity to brief the Committee on NECSA’s Annual Performance Plan for the 2013/14 financial year. He said he would be delegating to the team to deal with the presentation.

Mr Phumzile Tshelane, Chief Executive Officer, Necsa, said he was not sure what matters the Committee wanted to deal with, so detailed slide documents had been compiled. However, should there be other matters which were not on the slides which Members wanted to raise, they should do so.

Necsa’s Legislative and Policy Mandate
Mr Tshelane explained that in terms of the Nuclear Energy Act 1999, the main functions of Necsa were to undertake and promote research and development in the field of nuclear energy and radiation sciences and technology, to process source material, special nuclear material and restricted material, and to reprocess and enrich source material and nuclear material and to co-operate with any person or institution in matters falling within these functions. Necsa also had to execute institutional responsibilities on behalf of the government, such as decommissioning and waste management. According to the Nuclear Energy Policy of 2008, Necsa would serve as the anchor for nuclear energy research, development and innovation in South Africa. It would also be encouraged to participate in the uranium value chain.

Alignment to Government Policy
As for Necsa’s alignment with the National Development Plan (NDP) 2030, Necsa had aligned its functions with the NDP priority area of providing quality health care through the development of medical isotopes. Some of these isotopes were utilised in the South African health system for diagnostic studies and cancer treatments.  These medical isotopes were produced by one of Necsa’s subsidiaries, commonly referred to as NTP -- an acronym for nuclear technology products.  Necsa also aimed to create more jobs through the sale of Pelchem products on the world markets. With regard to improving the quality of education, training and innovation, Necsa had extended apprenticeship training through the Necsa Skills Development Centre. About 442 learners were trained during the 2012/13 financial year. Security learnerships had also been launched in 2010/11 and a Necsa Bursary Programme had been extended for undergraduate and postgraduate studies (Masters and PhD). About 36 students were also offered internships during the 2012/13 financial year. 

Necsa has also embarked on several key infrastructure projects.  These included a manufacturing plant for low enriched uranium (LEU) material test reactor (MTR) fuel, and the SAFARI-2 research reactor project.  The Minister of Energy had officially launched the Necsa Visitor’s Centre in February 2011 to assist in improving public understanding of nuclear technologies.

The NDP had outlined that the transition to a low-carbon economy was a priority. Therefore, in recognising the role nuclear energy played in reducing SA’s greenhouse gas emissions, as well as the importance of raw material beneficiation for SA, Necsa had drafted a report showing the status of local uranium reserves and how these resources could be locally beneficiated through the production of nuclear fuel.  This was especially pertinent to SA’s nuclear energy expansion programme.  Necsa continued to be extensively involved in technical cooperation projects of the IAEA’s African Regional Cooperative Agreement for Research, Development and Training related to the Nuclear Science and Technology Programme.
Objectives
Mr Tshelane outlined some of Necsa’s objectives.  These included:
• To maintain full operational capability of SAFARI-1 and implement the reactor’s ageing management programme.
• To grow NTP Group income from R937.3m (2012/13) to R1513.4m by 2016/17.
• To increase Necsa’s research, development and innovation outputs.
• To maintain infrastructure at a suitable level.
• To maintain and improve the Necsa Group safety culture, SHEQ processes and procedures, audit and reporting practices to ensure full compliance with all regulatory and best practice requirements.

In addition to the strategic objectives already listed, Necsa executive management had selected the following main management priorities for the near term:
• Obtaining early Shareholder support for key strategic projects.
• Increasing the awareness of Necsa research and production outputs and the positive impact thereof.
• Finding sustainable funding models for the expansion and enhanced viability of Necsa subsidiaries.
• Maintenance of site infrastructure based on the risks and potential liabilities associated with such infrastructure.
• Strengthening Necsa’s project management and business development capabilities.
• Skills development and transformation by advancing employment equity, growing the pipeline of graduates and lowering the average age of researchers.

Some of the key risks for the Necsa group were the growing financial pressures experienced by the group, ageing infrastructure and equipment and business sustainability challenges, such as the extremely tough global market conditions experienced by both the NTP Group and the Pelchem Group. Critical success factors for the group were to improve Necsa’s sustainability, to expand on its efforts to access research-based and other grants, to obtain external funding for commercial projects, to optimise business relationships between the NTP and its subsidiaries, and to secure external direct investment for Pelchem.
Income and Expenditure
Mr Tshelane said Necsa’s main source of income was from government grants, which made up about R483 million in the 2013/14 financial year. He explained that although these grants made up about 25% of Necsa’s total income, they were actually the main contributing factor to the group’s sustainability. Sales, on the other hand, made up about 68% of Necsa’s total income, amounting to about R1.3 billion.  Other grants and other income made up 3% of Necsa’s total income, while interest received contributed about 1%.  Necsa’s biggest allocation for expenditure for the 2013/14 financial year were personnel and related expenditure (42%), general and other expenses (24%) and manufacturing expenses and operating material (22%). Although expenditure for consultants was only 1%, he gave an assurance that Necsa was aiming to reduce consultation fees by making use of its internal skills.
Human Resources
As for human resource development, Necsa’s priorities were to increase the ratio’s of technical staff in regard to support staff, increase the number of Previously Disadvantaged Individuals (PDI) in its technical staff, increase the number of researchers with Masters and PHD degrees, establish a nuclear education and training unit within the Necsa Learning Academy, establish an advance manufacturing skills welding centre of excellence, and launch the Radiation Protection Training Centre.

Discussion
The Chairperson said not much could be expanded on the nuclear build programme because it still had to go to Cabinet for approval. Members were then asked to be weary of this and not ask questions on the build programme because it was still under discussion

Mr K Sinclair (COPE; Northern Cape) thanked the researchers and the Committee section for the detailed background information provided to Members on Necsa. He asked what Pelchem was and who its shareholders were. He referred to the Pebble Bed Modular Reactor (PBMR) and asked whether there were any labour related matters currently underway and whether there were any deadlines for them. On the use of consultants, who were paid about R3 million per year, he asked why there was a need for Necsa to use consultants. What were the actual costs for the use of consultants?  Why did Necsa management receive bonuses even in areas where it had not achieved its targets?  He made mention of Vaalputs, and said it was an area with high income potential for Necsa; why were they not making better use of the land?

Ms E Van Lingen (DA; Eastern Cape) asked that Necsa make available the international atomic energy report to the Committee, as well as the report on the research done in preparation for nuclear building and its once-off allocation. As for the tooling process, she asked where the schools were and whether Necsa was working with the Department of Trade and Industry (dti). Where was the welding for generators taking place?  Why had Necsa changed its initial plan to sell uranium from Koeberg and buy it from France?  What was the rand value of the training provided to learners?  She raised concern over the high number of targets which had not been met.  She asked Necsa to explain which Memorandums of Understanding (MOUs) and Treaties South Africa had signed with other countries.
Ms B Abrahams (DA; Gauteng) referred to the 442 learners in the skills development and training programme, and asked how many of them would be offered employment by Necsa.

Mr D Gamede (ANC; KwaZulu Natal) asked why the number of students in the graduate support programme seemed to decrease over the years instead of increasing. External funding surely came at a high cost to South African companies; how did Necsa reconcile and balance such costs? What were some of the conditions for funding? Was the 42% expenditure for personnel a normal standard, locally and internationally?

Ms Van Lingen asked what nuclear technology infrastructure would be used in the nuclear build programme.

The Chairperson interjected and reminded Members that they were to refrain from discussing the nuclear build programme, because it was a matter which was still before Cabinet. As soon as Cabinet had finalised discussions on the matter, a report would be presented to the Committee.

Ms Abrahams asked what NTP stood for, as it was not part of the list of abbreviations.

Mr Tshelane explained that NTP stood for Nuclear Technology Products, and it was a name for one of Necsa’s subsidiaries that produced radio isotopes, which were a treatment for cancer. These were exported to about 60 countries worldwide. He gave the example of a camera which had recently been bought for Tygerberg Hospital for cancer detection; this was a potent tool in fighting cancer. NTP was a world leading company and had a 23% global share. He explained that the government had allocated a budget to Necsa for research and development which would be spread over a three year period. Necsa therefore needed to allocate money for training and spread it out over these three years to balance out the budget. This was why the number of trainees was higher in the first year and decreased in the second and third years. On the question on the costs of external funding, he agreed that it attracted high costs. However, Necsa could not solely depend on government grants for funding. Commercial funding needed to be balanced with public funding.
Mr Tshelane responded to the question on Pelchem, and said it was the only company in South Africa which had intellectual property for fluorine development. However, fluorine was one of South Africa’s biggest imports, and therefore Pelchem was run at a loss. Necsa was, however, busy revamping its finances and management. Pelchem was one of Necsa’s subsidiaries and it was not easy to close it down, even though it was not making much profit.
On the question on PBMR, he said some of the skilled personnel had been recruited elsewhere, such as in construction industries. A few had been retained as Necsa permanent staff. On the question of consultants, he said nuclear-experienced and trained people were expensive to retain on a permanent basis, so they were recruited on a contractual basis and would leave when the projects had been completed. Consultants were therefore largely resources from the private sector.  Some were from the finance sector, contracted to generate reports and feasibility studies. On the process of the PBMR, he said it was not part of Necsa’s domain, as Eskom was the main stakeholder.

On the question on bonuses, he said no bonuses had been paid recently, but some of Necsa’s personnel had done very good jobs and were therefore deserving of bonuses. Tool-makers were needed in South Africa, and Necsa also needed them in the manufacturing sector. However, as for the tooling training provided to artisans, Necsa did not intend to absorb them permanently. The reason was that most of the learners were already employed by various companies, who were paying Necsa to provide the training. As for costs, all trainees at the nuclear skills centre already had funding.  In some cases Necsa had provided bursaries, which included training.  On treaties, he said a lot of cooperation agreements had been signed with various countries, with the Non-Proliferation Treaty an example. Necsa was bound by legislation such as the Non-Proliferation Act and the Nuclear Energy Act to determine the treaties and agreements which needed to be signed. These cooperation agreements were needed for trade regulation.  Some, however, were signed in anticipation of future trade.

Mr Sinclair asked for more information on Vaalputs.

Mr Tshelane said Vaalputs was an important area for the nuclear industry in the country. Investment had therefore been extended into the local community to train young people in maths and science. Projects were also being identified to generate work for residents. However, for industries to be established in such areas, there needed to be an adequate supply of energy and the grid did not reach such areas. Vaalputs was ideal for its stable geology -- there was a low water table in the area. Necsa was looking for a final disposal site in such an area, but the process needed to be regulated and it was still exploring other options.

Mr Sinclair responded that Vaalputs had numerous strategic possibilities for the Northern Cape to generate income, and the government did not have a nuclear waste disposal area currently. What plans did government have for the area?

Ms Van Lingen asked where South Africa stood with Emergency Planning Zones, as regulated by the International Atomic Energy Agency (IAEA). She also requested a document which stipulated the licensing number for the nuclear plant SD0003.

Mr Tshelane said Necsa had been mandated by the government to handle nuclear waste.  However, the government had since decided it would manage its own waste, through its own institute, under the guidance of the Radioactive Waste Management Act. Therefore there was not much planning which Necsa could undertake on the matter, until the Minister had taken a decision on the way forward. He acknowledged that Vaalputs was a world class site. On the IAEA, he said the organisation did not deal with legislation, but rather gave guidelines for legislation.

Mr Sinclair asked what the name of the government institute for waste management was.

Mr Tshelane said it was the Radioactive Waste Management Institute.

Mr Sinclair asked about the size of the board and its members.

Mr B Mnguni (ANC; Free State) asked whether there were Masters and PhD students from previously disadvantaged communities, and how many of them would be absorbed through the infrastructure development programme. As for the previously mined areas, such as Welkom, how harmful was the radioactive material in these communities, and how was it managed?

The Chairperson asked what partnerships Necsa had with higher education institutions and SETAs. How much of the manufacturing was localised, for local skills development? How financially sustainable were the subsidiaries?

Mr Tshelane said NTP was self-sustainable and was making a profit.  Pelchem, however, needed a bit more assistance.  Localisation in the nuclear sector could only be a success when the skills were available, and that was why Necsa had taken great strides in the training and skills development of graduates to provide fresh skills in the sector.

Mr Seekoe responded to the question on the composition of the board, and said there were eight members.

Mr Tshelane responded to the question on Welkom and other communities where there had previously been mining, and said the National Nuclear Regulator saw to it that there was radioactive protection from mining.  Necsa assisted the Regulator to make sure that there was radioactive protection through radioactive protection specialists.

The Chairperson thanked Necsa for their presentation. He said the debate on nuclear energy would be an ongoing one, seeing that the government had made a decision to explore the nuclear route.
 

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