South Africa Scraps Plan to Build Nuclear Power Plant

December 5, 2008

By Ron Derby and Carli Lourens

(Bloomberg) -- South Africa, suffering a power crisis that's
limiting supplies to gold and platinum mines, canceled a plan to build a
nuclear plant for about 120 billion rand ($12 billion) as the credit
freeze cuts financing.

State-owned Eskom Holdings Ltd's decision won't undermine "national
security of supply" as economic growth will slow and other plants are
being built, the government communications office said in an e-mailed
statement today.

Groups led by Areva SA, the world's largest supplier of nuclear
reactors, and Toshiba Corp.'s Westinghouse Electric Co. were vying for
the order. A global recession and an expected drop energy demand is
halting spending on projects from Canada to the Middle East and Africa.

"It's too big, we can't do it," Johannesburg-based Eskom spokesman Fani
Zulu said. "The bidders were informed after we took the decision at a
board meeting yesterday."

Eskom, looking to borrow about 150 billion rand, is in talks with the
World Bank for a loan of as much as $5 billion and its credit rating was
cut by Moody's Investors Services this year after regulators allowed a
27 percent increase in electricity prices rather than 61 percent.

'Disappointed'

"We're disappointed because we put a lot of work into the process, but
we're hopeful the South African government will remain committed to
developing nuclear power," Jacques-Emmanuel Saulnier, spokesman for
Areva in Paris, said by telephone. "If South Africa comes back to us,
we'll be there."

Eskom hasn't kept pace with electricity demand in Africa's biggest
economy and restricted supply to companies including Anglo American Plc
and Xstrata Plc.

The economy will probably grow at a slower pace than forecast by Eskom
over the next five years, reducing power needs, said Jac Laubscher,
group economist of Sanlam Ltd., the biggest South African-owned life
insurer. "It's not a train smash that they've canceled the nuclear
plan."

The global recession and rising interest rates in South Africa have
reduced government projections, with the economy now expected to expand
3 percent next year and 4 percent in 2010.

The plan was also canceled also to ensure Eskom's ability to "provide
the economy with competitively priced energy is not jeopardized," the
government said.

Demand Increase

South Africa had planned to generate 20,000 megawatts from nuclear
reactors by 2025, more than 10 times the current output. Power demand
has risen by 50 percent since apartheid ended in 1994, while government
indecision postponed Eskom's expansion.

The reasons for the "pause" are specific to South Africa, and don't
reflect the general state in the nuclear industry, as shown by efforts
by utilities in the U.K. and the U.S. to build nuclear power plants,
Areva's Saulnier said.

Areva proposed two 1,650-megawatt reactors, while Westinghouse offered
to build three 1,140-megawatt reactors. South African construction
groups Aveng Ltd. and Murray & Roberts Ltd. formed part of the groups
bidding for the contract.

Janine Claber, a spokeswoman for Westinghouse, wasn't immediately
available to comment on the decision.

Electricite de France SA, the world's biggest operator of atomic
reactors, has South Africa among its priorities for nuclear expansion.
The utility wants to operate about 10 so- called Evolutionary Power
Reactors by 2020 and yesterday at an investor day in London included two
in South Africa.

South Africa remains "committed to nuclear power," to lessen the
nation's carbon footprint, said Department of Public Enterprises
Director General Portia Molefe today.

To contact the reporters on this story: Ron Derby in Johannesburg at
[email protected]; Carli Lourens in Johannesburg at
[email protected].