NECSA & National Radioactive Waste Disposal Institute Annual Reports

Energy

07 November 2017
Chairperson: Mr F Majola (ANC)
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Meeting Summary

Annual Reports 2016/17 

The South African Nuclear Energy Corporation (NECSA) in presenting its Annual Report, confirmed that the New Build Nuclear Programme was on course and that NECSA was making all the necessary preparations as it awaited the go-ahead from Cabinet for it to send out a Request for Proposals. The NECSA Chairperson noted that the agreements the South African government had signed with five countries which were set aside by the High Court judgement in April 2017 were friendly agreements which were meant to foster collaborative efforts in training and maintenance but had little to do with procurement. He reported that the programme would be built by South Africans and that NECSA would be the procuring agent for the nuclear component while Eskom would be the procuring agent for the power generation component.

NECSA obtained an unqualified audit from AGSA, made a profit and paid R80 million to SARS in tax. Among its entities, NTP had total sales of R1.36 billion and made a profit of R202.58 after tax. Pelchem had revenue of R199.8 million, but made a loss of R35.5 million. Total revenue earned by the NECSA Group was R2.2 billion. NECSA continues to manufacture and export medical and industrial isotopes, as was well as pharmaceutical products and industrial chemicals. South Africa through NECSA received an award from the US Department of Energy for being the first country in the world to reduce its uranium enrichment from bomb grade to 20% without affecting the performance of its nuclear reactor. Among the major challenges facing NECSA is aging equipment which is hampering the group’s efforts to meet worldwide demand for its products.

Members congratulated NECSA on its turnaround. They asked why NECSA requested more government funding even though NECSA had stabilised and had made a profit as government was cash strapped.

The National Radioactive Waste Disposal Institute (NRWDI) presented its first Annual Report. The day to day operations were first handed over to the Institute by NECSA in October 2016. The Institute lacked an approved Strategic Plan and Annual Performance Plan so the Auditor-General could not audit its performance targets. A Strategic Plan for 2017-20 has been approved as well as the 2017/18 Annual Performance Plan. An organisational structure for the Institute has been developed and approved. The Institute has a total staff composition of 25 members.

Members did not put forward any questions as there was not an approved 2016/17 Annual Performance Plan and no audit. They agreed that NRWDI was a new structure with numerous challenges and it should be given time.

Meeting report

The Chairperson stated that they were going to start with remarks from the Deputy Minister of Energy, Ms Thembi Majola. He apologised to the Ministry for not having followed protocol when inviting a entity from the Department without following due process. He said he was learning.

Deputy Minister of Energy Remarks
Deputy Minister, Ms Thembi Majola, acknowledged the apology from the Chairperson and reminded him that the Department accounts to the Committee, but that the entities account to the Department. The entities account to the Committee through the Department. She particularly emphasised that the Committee cannot meet Eskom without the Department of Energy, with her reasoning that Eskom would begin to think that they were also a department. The Committee were going to listen to the financial reports of NECSA and NRWADI, two entities that fall under the department. NECSA in particular had received a clean audit, paid their dues to SARS and even received an award. They were leading in the development of young scientists in the country without any budgetary assistance from the Department. NECSA had assumed this role which had been given to them and were doing a fantastic job. They have an active board and executive which are going in the right direction but still need assistance to get the gender balance right which is a target they are working on. NECSA had challenges in terms of income to continue their research and development work. NECSA needs to find ways of marketing its products to generate income. Pelchem were facing challenges but they were looking at ways to overcome them. The newest baby NRWDI would be presenting to the Committee for the first time and it would be interesting for Committee members to listen to its mandate and the challenges it was facing. She believed NRWDI had done a commendable job. Its financials had been audited despite its challenges and NRWDI had issues around staff which it was also addressing.

Overview by South African Nuclear Energy Corporation (NECSA) chairperson
Dr Kelvin Kemm, NECSA board chairperson, in his overview, said the nuclear landscape is a complex state of affairs and NECSA was involved in many activities. He was proud that the NECSA Group had made a profit and paid R80 million in tax to SARS, got a clean audit and even got an award from the Auditor-General. Internationally, NECSA is recognised for its quality and competence and all were proud of that reputation. They were not just a good organisation but were seen by the world to be so. There were regular illustrations of this such as the recognition received from the United States Department of Energy in September for being the first country in the world to alter the fuel in our nuclear reactor safari from bomb grade level fuel down to below 20%. The international community decided that nuclear reactors for peaceful purposes should not go beyond enrichment of 20% and at the time South Africa was running at 93% enriched uranium which was well and truly weapons grade uranium. The NECSA staff altered and redesigned the reactor and brought down the enrichment to 20% without affecting the performance of the reactor and that they were surprised that they were the first ones in the world to achieve that feat. He received the news when he was in London attending the World Nuclear Association (WNA) meeting and he was able to announce this at the meeting and South Africa got applause. During this WNA meeting, the WNA Director General announced Project Harmony which is the WNA project to add 1000 extra gigawatts of nuclear power to the world by the year 2050 that would represent 25% of the world’s supply of electricity. The Director General acknowledged South Africa’s meritorious efforts in this direction and that the country was seen as a world leader. A number of international countries, large and small, were approaching South Africa for collaborative projects which involve commercial aspects intended at generating income. Other African countries interested in setting up nuclear power plants have also approached South Africa. Other people have approached South Africa with the plan of building the South African reactor model that could be built in other countries. A number of other non-African countries are interested in procuring nuclear reactors from South Africa.

The Nuclear Technology Products (NTP) division which is the isotope making division, such as medical and industrial isotopes, has been doing very well with a turnover of R1.3 billion in 2016/17 which 90% is foreign money which has been earned. The world market is expanding at a huge rate, there is both the diagnostic and the therapy line. South Africa has a big head start on most countries so that it is possible to double or triple the world market share. Pelchem, the chemicals division has a unique market position in that fluorine based chemicals are very important. Fluorine is a deadly gas which was developed by South Africa during its uranium enrichment programmes in the past. South Africa is the only Southern hemisphere country that produces those chemicals. There is a whole lot of spin-off chemicals from this such as fluoride that is used in toothpaste that are far removed from uranium enrichment. Pelchem makes about 25 chemicals which are exported around the world and they supply domestic factories as well with critical chemicals. Currently Pelchem is making a loss; about half those chemicals make profit and the other half make a loss and the overall situation is a loss. Pelchem approached the NECSA Board and requested dropping the loss making chemicals but the Board requested them to keep them all for now. The board was of the view that if they dropped those chemicals they would lose their market share in the world and would never regain it. Pelchem is now working to boost production of those chemicals that are making money and have a wide market by upgrading production lines that are at laboratory level to industrial level; but to do that, finances are needed.

On the nuclear new build project, Dr Kemm said it was widely misunderstood by the public. There would be major local industry development that would come out of it such as pumps that would be produced locally. On exports, NECSA produces systems that are exported to countries like Korea and Russia. NECSA is the only country in Africa that produces a nuclear system design. On fuels, in the past fuel elements were produced at Koeberg which currently cost R40 million each but are no longer made. With the nuclear new build, these will be manufactured again. He said the future looked good for exports from South Africa’s nuclear facility.

The Chairperson said it was always interesting to listen to Dr Kemm and thanked him for his remarks.

NECSA Annual Report 2017: CEO briefing
Mr Phumzile Tshelane, NECSA CEO, said the NECSA mandate was research and development in nuclear energy and radiation sciences, as well as the processing and enriching of nuclear material. Additional responsibilities conferred on it by the Minister of Energy were low enriched uranium (LEU) fuel conversion; decommissioning and decontamination and the handling of international nuclear obligations.

Amongst the achievements highlighted was that there had been a steady increase in the number of black employees from 1 197 in 2015 to 1 332 out of a total workforce of 1 912. There had been an increase in revenue from R1.9 billion in 2015 to R2.2 billion in 2017. Total group assets grew in value from R2.8 billion in 2015 to R6.1 billion in 2017.

A reactor calculation code called Oscar-4 which is used in reactor reload has been developed and three international clients are using it. NECSA is working on developing a new molecular compound called GluCAB that is intended to identify and treat tumours such as those found in breast and ovarian cancer. Black employees now constitute 70% of the NECSA staff with 59% comprising the technical staff. Hundreds of young people are being trained in China to take over in the future and this has been done in partnership with the State Nuclear Power Technology Corporation (SNPTC) of China. NTP is among the top three suppliers of radioisotopes that are used to diagnose diseases such as cancer. NTP, which is an entity under NECSA, experienced growth in its market share following the withdrawal of a Canadian leading supplier. NTP invested in infrastructure, increased production and established strategic relationships to cover the supply gap. The Group MD of NTP Radioisotopes SOC Ltd, Ms Tina Eboka, was elected the vice chair of the Organisation for Economic Cooperation and Development (OECD) group on medical radioisotopes. This achievement was not expected as South Africa is not a member of OECD. NTP completed its ISO 9001 transition audit and received its ISO 9001:2015 certification early this year.

Pelchem is the sole producer of fluorochemicals in the Southern Hemisphere and supplied its first molybdenum hexafluoride which is used as feedstock for increasing the proportion of the 100 Mo isotope and is also used in cancer detection. Pelchem made a net loss of R33.1 million after tax. The loss was attributed to aging infrastructure which needs investment to produce the performance that is required.

The NTP Group made a net profit after tax of R202.58 million exceeding the target by R37.88 million. The dependence on the state for operating costs for the NECSA Group was 9.3%. Company sales in terms of performance targets were in the negative by 1.2% and this was attributed to challenges in the production of sulphuric acid which requires the use of technology that is no longer within the statutory regulations. Sulphuric acid needs to be extracted from fluorine and the CFCs which have been outlawed are required in the process so there was a need to devise new ways of doing this. The sales growth has not matched the increase in inflation. The aging equipment needs to be replaced and keeping abreast of modern technology was critical to keep the industries viable. Financial capital indicators show that corporate sales have had a steady rise which is attributed to the withdrawal of the Canadians which left a gap that was being exploited by NECSA. The NTP Group profit had risen, but the Pelchem Group profit had plummeted.

Intellectual capital indicators showed that young intellectuals were producing publications in highly respected journals. All staff that are required to get professional certification are being certified and those that do not have the necessary qualifications, are undergoing capacity building. The current board of directors was more active than the previous two. The executive management committee needed to work on gender balance as there were only two women out of eleven members.

On future plans, the NECSA CEO said that in November 2016 Cabinet approved the Nuclear New Build Programme where NECSA was designated as the owner, operator and procurer for the nuclear fuel cycle and multi-purpose research reactor. There are plans to rationalise the Pelchem product line and to refurbish plants. The main challenges remain limited support from government and the sluggish national and international economic growth.

Discussion
The Chairperson said there had been a marked improvement in the performance of NECSA and it showed that the observations made in the previous BRRR by the Committee, were worked on.

Ms Z Faku (ANC) welcomed the report but asked for more information from Dr Kemm about 50% of Pelchem products were loss making. There was a report on adjustment of performance bonuses for executives and senior managers but there was no information about other staff getting bonuses.

Mr G Mackay (DA) congratulated Dr Kemm and his team for the work that they were doing as there was a significant improvement in the performance of NECSA over the past two years. NECSA was an important depository of scientific knowledge in South Africa and there was need to protect that knowledge. He asked for clarity on NECSA’s role in the New Build project particularly about the procurement process, what they intended to procure, who the procuring agents were and whether there was a single contract for both the commercial reactor and the research reactor.

Mr Mackay was aware that there were a number of countries that want to go into the building of isotopes and were improving their capacity to produce them which would threaten South Africa’s share of the market, and he asked if there would be any benefit in using a tender process for the contracts since the government was under budgetary constraints.

Addressing the NECSA chairperson, Mr Mackay said the presentation raised some very pertinent questions and that even though NECSA had stabilised, there was a request for more funding from the government which he believed would fall on deaf ears at Treasury. The State is incredibly cash strapped as it is trying to sustain and bail out a number of failing state entities such as South African Airways and Eskom. NECSA had a turnaround strategy that required additional funding from government so there would be questions raised about the viability of its business plan and the long-term future of NECSA and he wondered if there would be the possibility of engaging the private sector. He asked how NECSA was going to get funding since government was cash strapped.

Mr J Esterhuizen (IFP) said an unqualified audit report is always an achievement. Pharmaceuticals have always been part of nuclear programmes and are a very positive part. On the report that NECSA was the sole producer of fluorochemicals in the Southern Hemisphere, he said he could be wrong but South Africa only produced 5% of fluorine. Fluorine was just an organic compound which was used in toothpaste, solar panels and batteries. He had just been given a paper by the Committee researchers that the target was to achieve R491.8 million from sales but only R407 million was achieved. He asked if there were contract workers involved in the workforce.

Ms Nobanda (ANC) observed that NECSA had used the old reporting format and she hoped that they would use the new one next time. She asked if there would be job losses with the implementation of the turnaround strategy. On the commitment made by Cabinet to the New Build Nuclear Programme, she asked then why there was limited funding from government for NECSA.

The Chairperson asked where the students who had gone to China were. On the losses incurred by Pelchem, he said he was not too concerned because it was making 25 chemicals which were world leading. His only concern was that old machinery was being used in their production. He feared that with the old machinery, Pelchem may not be able to meet world demand. He asked what the future sustainability plan was for was for the whole group.

Dr Kemm replied that he was not too worried about the losses that had been suffered by Pelchem as there were 25 chemicals which were important to the world, so the competition was minimal. The half that were making money could make even more money. The only disadvantage was the use of old machinery that was not efficient. There was a need to produce a new production system as the demand was higher than the capacity currently available. All the chemicals were critical to industries such as stainless steel production. NECSA was already looking at entering into partnerships with some companies.

Dr Kemm replied about the bonuses, saying that a year ago NECSA started to redesign the remuneration system so that bonuses would be paid based on performance, that is, dependent on money that is in the bank. Everyone currently gets bonuses depending on the performance and there are plans to begin individual performance bonuses.

On the Nuclear New Build status, Dr Kemm replied that last year NECSA and Eskom came to an agreement to share the procurement. Previously, NECSA had 100% procurement agent in the project, but now NECSA has 50% rights and Eskom has the other 50% procurement rights. NECSA will concentrate on the actual nuclear part and Eskom would concentrate on the building of the entire power station. NECSA will also be responsible for the entire fuel cycle from to lining to waste disposal. Eskom would focus on turbines and generators as they had more experience in that area having built coal power stations. Anything to do with uranium would be the responsibility of NECSA.

After the High Court decision, Dr Kemm replied that there was a lot of inaccurate information. There were five inter-governmental agreements that the government had entered into, the earliest one dating back to 2005 with the United States, which the court set aside. The setting aside of the agreements made little difference because they were friendly agreements made on a friendly basis, but the groundwork had been set for collaborative efforts such as training procedures, use of metric units, maintenance procedures with the understanding that they would move to the next stage. They had little to do with procurement. Nothing had changed in the day to day operations. It was up to the Minister and others in government to decide what happens with the next deal in the process, but the project was still going ahead and all the staff working on the Nuclear New Build Project are carrying out their work and their calculations.

NECSA sent out a Request For Information (RFI) document in February 2017. There was a change of mind, instead of asking for money quotes as a Request For Proposals, the RFI was sent out to test the level of interest that would be generated. The RFI asked for agreement on a number of issues such as maintenance and training procedures. From the massive response NECSA got, it turned out to be the best decision that could have been made. There were 38 responses from all the best manufacturers in the turbine and generator industry, including fuel fabricators. NECSA was now in a position where they could send out the Request For Proposals (RFP), once those with political authority give the go-ahead, especially now that the court decision is out of the way. There will be two rounds to the RFP: the first round will take in first round bids. South Africans will build the nuclear reactor not foreigners and it was South Africans who essentially built Koeberg. The first round will consider all the bids and arrive at a shortlist of two with room for negotiation, and the second round will look at how works can be shared.

On the reactors, Dr Kemm replied that the research reactor had be renamed the commercial product reactor (CPR). The reason for that was that the Safari Reactor 1 they now have was called the research reactor because there was an interest in getting ultra-radiation from multiple angles so that you could put it to use with all sorts of things such as metals or biological samples because they were not sure what they were going to do with it in due course. The new reactor which NECSA is going to get has been separated from the Nuclear New Build by a Cabinet decision.

On funding, NECSA was not looking for more government funding as they were aware of the financial constraints and they were proud that they had made a profit this year and paid tax. Dr Kemm said where funding would come in is when government asks NECSA to carry out certain jobs for which NECSA is not paid such as carrying out inspections. NECSA was already engaging with the private sector on a number of issues and was looking at providing technical services to the private sector.

Mr Tshelane responded to Mr Esterhuizen about fluorine saying it was a critical component and no country could claim to be developed without having mastered the applications of fluorine which were used in refrigeration and touch screen technology. South Africa is fortunate to have large deposits of fluorspar, second largest in the world, but most of it was exported to foreign countries.

Mr Tshelane replied that contract workers were included in the 1 900 workers and he said the students who studied in China were already employed in industry.

Overview by National Radioactive Waste Disposal Institute (NRWDI) chairperson
Mr Tshepo Mofokeng, NRWDI board chairperson, said the National Radioactive Waste Disposal Institute was established through Act No 53 of 2008 with the mandate to manage radioactive waste disposal on a national basis. Its operations are focused on the Vaalputs repository. It maintains a radioactive waste database and conducts research aimed at finding solutions to long-term waste management. It is overseen by a board that was appointed by Cabinet in December 2016. The board has a three-year term and the current one will run from February 2017 to January 2020. The Institute commenced with an initial funding of R19.8 million in April 2014. A service level agreement was signed with NECSA for the provision of support and operational services in May 2014. The day to day operations were handed over to the Institute in October 2016.

The Institute experienced teething challenges such as excessive use of consultants, lack of a strategic plan and an Annual Performance Plan (APP). Rollover funds were applied for and approved by Treasury and additional funding of R10 million was approved. A proposed Strategic Plan and APP were submitted for consideration to the shareholder. Appropriate internal controls and necessary governance frameworks were implemented.

National Radioactive Waste Disposal Institute (NRWDI) Annual Report 2017: CEO briefing
Mr Wolsey Barnard, NRWDI CEO, said the Annual Performance Plan (APP) for 2016/17 was not approved, so the Institute had operated without any formal set targets. The Institute, however, set its own KPI targets. The Auditor-General could not audit the performance targets for 2015, 2016 and 2017 as they were not approved and there was no evidence of a Strategic Plan and Annual Performance Plans. A new three-year Strategic Plan for 2017-20 has been approved as well as the 2017/18 APP. The Institute’s first Annual Report was presented to Parliament in September this year. An organisational structure for the Institute has been developed and approved. The Institute has a total staff composition of 25 members.

Discussion
Ms Faku thanked the NRWDI team for their efforts. She said since they did not have an approved Annual Performance Plan and no audit there was not much to say.

Mr M Matlala (ANC) said NRWDI was like a baby and the only thing you could expect from a baby was to cry. They was a new structure with numerous challenges and they should be given time.

Mr R Mavunda (ANC) simply said welcome but cautioned that next year they would be asked questions based on their presentation.

Ms Nobanda (ANC) said there was no Annual Performance Plan, so there was no plan to evaluate.

The Chairperson thanked the NRWDI and adjourned the meeting.
 

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