The content on this page is not written by Polity.org.za, but is supplied by third parties. This content does not constitute news reporting by Polity.org.za.

The Democratic Alliance (DA) is now even more convinced than before that the R300 billion earmarked in the 2012 budget review for the Nuclear Fleet Build Programme (NFBP) is a thumb suck.

Casting further doubt on the credibility of the proposed figures, Energy Minister Dipuo Peters said yesterday that the amount was ‘just the beginning’, clearly indicating that the final amount would be significantly more.

Finance Minister Pravin Gordhan has also asserted that ‘we will use all forms of funding, including emphatically the user-pay principle’. It therefore looks as though these escalating costs are going to be financed through existing pricing models.

The DA, in a meeting at the end of January, strongly recommended to the National Energy Regulator of South Africa (NERSA), that Medupi, Kusile and the NFBP should be financed through entirely different means.

Electricity Regulator, Mr Thembani Bukula, assured us that the funding of the proposed nuclear plants will not feature in the current Multi-Year-Price-Determination (MYPD2) or the next round of price determinations (MYPD3), starting in April next year.

Eskom currently uses a Modern Equivalent Asset (MEA) method to evaluate its costs, which radically inflates its reported expenses. The MEA is often used by public enterprises to justify pseudo ‘high recovery costs’ from current consumers.

This method is unjustifiable, especially when suddenly adopted to lobby NERSA to approve excessively high yearly tariff increases to fund new build programmes.

Instead of employing the MEA and placing an additional burden on South Africans and businesses, the DA has demonstrated that there is a simple alternative to the method.

Capital expenditure for Medupi, Kusile and the NFBP should be financed out of equity from loans on the basis that such expenditure is expected to increase future income. The interest and repayment of loans should therefore be financed from this future income and not out of income from the existing plants.

The construction cycle of a new nuclear plant is extremely costly, whilst the operational cost is less prohibitive, thus enabling investors to achieve a return on investment in the operational phase.

The DA’s alternative would allow the bidders for the construction of new power plants to include comprehensive financial arrangements which specify how the cost of the power plants will be repaid over a longer timeframe, without necessitating an immediate escalation in electricity prices.