Category Archives: Treasury

Treasury to approach banks in bid to avert Eskom default

Carol Paton, Business Day, 22 January, 2018.

Eskom executives and the Treasury will approach local banks as early as Monday to restore lending as the company races to avoid the suspension of its bonds by the JSE and to dodge a pending letter of default from the World Bank.

The state-owned company needs to raise R20bn over the next few weeks to persuade its auditors that it is a going concern. This will enable it to publish interim financial statements and allow access to foreign debt capital markets.

If the World Bank issues a default letter during a scheduled meeting with Deputy President Cyril Ramaphosa at the World Economic Forum in Davos, Switzerland this week, it will trigger a 14-day recall on its $3.75bn loan, which could trigger a recall on Eskom’s R350bn debt mountain.

On Saturday, the Presidency announced a new board for Eskom, to be headed by Telkom chairman and business leader Jabu Mabuza.

The new interim group CE is Phakamani Hadebe, a former Absa executive and former Treasury official.

If you are already a subscriber, please click on the following link below to go to the full article: Eskom, Treasury to turn to local banks

How to remove the Eskom albatross from around SA’s neck

Business Day, 22 JANUARY 2018 – 07:01 TOBIAS BISCHOF-NIEMZ AND JOHAN VAN DEN BERG

Eskom’s current debt is R350bn; it needs to raise an additional R150bn or so over the next three to four years. This is almost certainly impossible, even with a government guarantee, say the writers. Picture: Getty Images

There is a simple way to stabilise electricity prices, cast off Eskom’s crippling debt, boost SA’s credit rating and liquidity, kick-start our economy and yet maintain public sector ownership of critical assets in the electricity sector, all while becoming profoundly green.

It requires a shift of perspective, and so we have developed a metaphor: imagine the country as a modern cargo ship in the middle of the Atlantic. It is driven by both sails (wind) and diesel engines. The engines have broken down and there is no wind — the ship is literally in the doldrums.

A mayday message has been sent and a tugboat has arrived, but has run out of fuel. The ship is leaking and sinking deeper in the water. There is inertia: the tugboat cannot pull.

Time passes, the ship sinks deeper. What to do? The situation seems intractable and a pessimistic mood is becoming despair. It seems a matter of time before the ship sinks and the tugboat saves itself by severing the cable.

The cargo could gradually be thrown overboard, but this would only postpone the inevitable.

Then, magically, someone points out that in addition to gold and diamonds, much of the cargo consists of diesel. If the diesel is transferred to the tug, the tug could pull, the ship would get lighter, its speed would gradually increase, the doldrums would pass, the sails would kick in, the ship would safely reach harbour with everything and everyone intact — bar the diesel.

If we regard Eskom generation (specifically its coal power stations) as an eternal asset like gold or diamonds that must be guarded in perpetuity, the ship (the South African economy) will sink.

If, however, we see it as something with a limited lifetime that must be best used before ceasing to exist (like diesel), all will be well.

Marooned ship

Eskom’s current debt is R350bn and it needs to raise perhaps another R150bn over the next three to four years. This is almost certainly impossible, even with a government guarantee. Eskom cannot stay afloat without a gargantuan government bail-out.

The low electricity price increase, announced by watchdog Nersa in December, has mostly passed the responsibility for funding Eskom from the electricity rate payer over to the taxpayer and the fiscus.

It has been widely reported that Eskom will run out of cash by end of February. Just last week Finance Minister Malusi Gigaba said Treasury did not have the funds to bail Eskom out.

Treasury might break it down into periodic components, fund the most immediate need for some months and hope the problem goes away, but the electricity price is well below what Eskom requires for sustainability, and the question will return again and again.

The build programme for Medupi and Kusile may have to be suspended. We will come to the inevitable choice between a slow submerging and a very unpalatable turn to the International Monetary Fund or World Bank. These institutions would likely impose conditions on lending that would conflict fundamentally with government policy and South African opinions on sovereignty. It would be the impasse of the ship, slowly sinking with no solution in sight.

Fuel for safety and prosperity

The equivalent of the diesel in the hold is the Eskom generation fleet, consisting of 15 coal-fired power stations. These all have limited lifetimes and were built to serve the country and economy before being retired and replaced. Scheduled decommissioning dates start soon and end in 2050 or later.

Given that these assets were meant to be extinguished over time for the common good, we can choose to do so in the most beneficial manner. This would be to remove them from the Eskom fold and to dispose of them to public or private entities as described below.

How it would work

1. The existing power stations would be grouped into three categories:

• Category 0: The oldest, which have recently been calculated to be more expensive to keep than to shut them down immediately: Camden, Hendrina, Komati, Grootvlei and Arnot

• Category 1: All others but Medupi and Kusile: Kriel, Matla, Duvha, Tutuka, Lethabo, Matimba, Kendal, Majuba

• Category 2: Medupi and Kusile

2. Power stations of category 0 would remain with Eskom for controlled immediate decommissioning over the next five years (in sync with Medupi and Kusile coming fully online).

Power stations of categories 1 and 2 would be sold in a staggered manner, one by one, over the next five years in competitive auctions.

3. What is up for sale in these auctions is the power station itself, all its power station-specific obligations (staff contracts, coal-supply contracts, supplier contracts, environmental obligations, etcetera) lumped with a power purchase agreement at a predefined, power station-specific tariff.

4. The power purchase agreement is a contract that entitles the new power station owner to supply a specific amount of electricity annually, an electricity budget, over the power station’s lifetime to the Single Buyer Office (hosted in Eskom’s Transmission System Operator division) at the predefined tariff. The amount of electricity will equate to the expected output at normal system-friendly operations.

5. There will be payment for electricity delivered (and only for electricity delivered) and a penalty for not being available (a “capacity nonavailability penalty”). The new owner of the power station will be fully responsible for maintaining and operating the power station, while the Eskom System Operator, in its national control centre, would be responsible for the day-to-day system-optimal dispatch of the power stations within the technical restrictions and the agreed annual electricity budget, broken down into monthly sub-budgets.

6. The agreed electricity budget would constitute both an entitlement and an obligation. The new power station owner would be entitled to have at least the agreed electricity budget bought or paid for (ie, a “take-or-pay contract”), making the power purchase agreement “bankable” — that is, financeable. On the other hand, the new power station owner would be obliged to produce at least that agreed amount of electricity per year if requested by the System Operator, or face penalties.

7. The power station-specific power purchase agreement tariff would be high enough to cover all coal, employee and operational costs and leave a margin. The present value of that margin over the lifetime of the power station, minus the present value of the expected rehabilitation cost, is the amount of money that can be raised through the auction.

8. From the revenue of electricity sales, the new owner must set aside ring-fenced, insolvency-safeguarded funds for closure and rehabilitation of the power station at the end of its lifetime (and the synchronised end of the power purchase agreement lifetime). The cost of rehabilitation is estimated at a substantial R10m per megawatt, which would be available at the time of closure as a fund to pay for the rehabilitation process. For a typical power station that is between R30bn and R40bn.

9. The duration of each power purchase agreement would be linked to the planned decommissioning date, but would be capped at 20 years. The reason for the cap is that additional years at the tail-end of the power purchase agreement contribute little to the achievable sales price, while power purchase agreements of longer than 20 years would lock the country in unnecessarily long, in light of the fact that in 20 years in all likelihood new solar photovoltaic and wind power, plus batteries, will be significantly cheaper than existing coal-fired power stations.

10. In terms of the bid conditions, staff and existing coal contracts would be maintained as before and would be transferred to the buyers. The purchase sum would be payable upfront in a lump sum. Those prospective buyers able to operate most efficiently would be able to bid highest and would win. That means whoever offers the highest lump-sum price for the power station with all its obligations plus the power purchase agreement would be the new owner.

11. One power station of category 1 could be sold first as a trial. After adjustments to the bid rules for lessons learnt, the remaining power stations could then be auctioned one at a time, in the ascending order of their remaining lifetime. No entity may own more than 20% of the overall electricity budget of roughly 200TWh a year, to prevent anticompetitive behaviour.

12. Category 2, Medupi and Kusile, would be sold in a package with higher tariffs, and resulting higher margins, to take into account the fact that enough capital must be raised through the sale to be able to pay back the associated loans on Eskom’s side. They would also be sold last, after full commissioning by Eskom. It is assumed that Eskom would finalise only units 1-4 of Kusile and scrap units 5 and 6, as it has recently been shown it will be cheaper not to complete than to finish them.

13. Eskom continues to own and operate the pumped storage and peaking plants plus the nuclear power station Koeberg, and otherwise to exist as before, being primarily responsible for planning, operating, expanding and balancing the grid.

14. As old power stations are decommissioned by their new owners at the end of the respective power station and power purchase agreement lifetime, new power plants are procured (also on long-term power purchase agreements) that are the lowest cost addition to the electricity at the time while keeping the security of supply at the accepted level. Based on present market conditions and also trends, this overwhelmingly would be solar PV and wind power, mixed with flexible power generators, demand-response and (in future) battery storage.

Cash injection for SA

The proceeds of the auctions would be a function of where the electricity tariff in the power purchase agreements is pegged. The lower the price, the lower the proceeds. The higher the predefined power purchase agreement tariff, the higher the proceeds from the auction. We have chosen to use moderate, but still cost-reflective, rather than subsidised electricity tariffs. The proposed tariffs per power station are sufficient to cover all operational expenses and would leave a margin whose present value over the lifetime, minus the present value of the funds set aside for rehabilitation, determines the achievable sales price.

In category 1 this margin is pegged at 20c/kWh, leading to power purchase agreement tariffs of between 54c/kWh and 72c/kWh, the variance resulting from the different coal costs per power station.

In category 2, Medupi and Kusile, the proposed contribution margin is 60c/kWh, to be able to achieve a sales price sufficient to repay the associated loans on Eskom side. At such margins and tariffs, the country could raise about R450bn from the series of auctions. This would extinguish all Eskom debt and leave some valuable cash to upgrade the grid and recapitalise the new Eskom.

Price and grid stability

A major benefit would be very stable, affordable and predictable electricity prices.

SA has long been beholden to Eskom’s inefficiency and poor governance. These have had to be paid for by the rate payer or taxpayer. It is a bit like trusting someone with a credit card and hoping they will be responsible: if the trust proves to have been misplaced, the only option is to grimace and pay. This pattern has recurred.

With a sold-off Eskom coal fleet, inefficiencies would lead to losses for new owners but not for the public.

The average electricity price is overwhelmingly driven by the cost of Eskom’s coal fleet. This is about 55c/kWh today. The grid (Eskom transmission and Eskom distribution), customer service, metering, billing and all overheads adds roughly another 30c/kWh, for a total of about 85c/kWh. Medupi and Kusile are costing significantly more than 100c/kWh. As they are completed, the average tariff will increase.

New solar photovoltaic and wind power stations cost only about 60c/kWh to 65c/kWh. If we embark on a least-cost expansion path, replacing old coal predominantly with solar PV and wind, the long-term electricity tariff in SA will stabilise at about 100c/kWh: 70c/kWh for generation and 30c/kWh for the grid and all other costs.

Our grid can easily accept an aggressive roll-out of variable renewable energy until at least 2030, given the current coal capacity installed. Between 2025 and 2050, as this winds down, we’d have to assess the state of international progress on electricity storage and dynamic grid management already developing internationally in grids dominated by variable renewable energy. If required, the country can then invest in storage capacity and/or generation capacity that fits well with renewables, like gas or regional hydro.

Government control of key economic assets

It is axiomatic in the prevailing policy discourse that the government should retain ownership or control over key economic assets, of which electricity is one. The present proposal leaves space for this to occur, in two ways:

• Control over the grid practically constitutes control over the electricity industry. It is a natural monopoly and Eskom would retain that control. The government can control where the grid goes, who it serves, who supplies electricity into it, how it is maintained and how it is built to serve broader objectives like the National Development Plan. The electrons travelling on the grid are similar to the cars travelling on the national road network. It isn’t necessary to own every car in order to control transport in the country. Electricity can be procured from independent power producers while retaining control over the electricity system in the country. This has been proven in many countries.

• Beyond this, there is every possibility that public sector entities like the Public Investment Corporation (PIC) could invest in the auctioned Eskom power stations either through equity or debt or a mix of both, and pay a specialised service provider to operate them on its behalf. They would in fact be exchanging a very open-ended and precarious Eskom bond for an equity investment in a long-term infrastructure asset with a very predictable, long-term return — a much better position to be in. While no entity may own more than 20% of the fleet, to ensure fair play, there are different public sector pension funds that might be interested, while it might also be possible to finance equity for the trade unions.

Effects

Taking this route, Eskom generation would cease to be an unbearable drag on the economy. Its sale would stabilise electricity prices, greatly improve liquidity in the country, and bolster our credit rating and leverage investment through a better economic outlook and certainty about the future electricity price. The energy-intensive mining and beneficiation sectors would benefit particularly. Treasury would be rid of a R350bn albatross around its neck and would be left with far lighter offtake guarantee for the electricity delivered to the grid operator (as it would be performance-based — “no electricity, no payment”).

The PIC could greatly lower the risk profile of its South African investments. Mismanagement of any of the coal power stations would lead to lower profits for the owner but would not affect the electricity price. The scope for corruption would have been curbed significantly.

Eskom would be able to concentrate on what it can do very well: design, build and maintain the grid, and operate the power system as a whole. That capability of Eskom is a national asset and could be leveraged to help electrify the continent. Eskom could become the “super grid company” of Africa and one of the largest in the world.

There is precedent for this: in China, grid and generation have been separated since 2002. The former State Power Corporation of China was divided into one grid company, responsible for building, maintaining and operating the grid, and several generation companies. The purpose was to create competition between the generators. The State Grid Corporation of China today is by far the largest utility in the world with almost 1-million employees, and now provides grid services to multiple countries outside China on concession.

In this proposal, rehabilitation of retiring stations would be fully funded and open to scrutiny. As new power came online, SA would gradually become (again) a country with some of the lowest electricity prices in the world, due to superior wind and solar resources, and would converge on a zero-carbon electricity sector.

At a macro level, government would retain control of the electricity sector, jobs would be safeguarded and we would be able to turn our attention to other challenges the country faces in its journey to greater prosperity and equality.

• The authors were appointed to the inaugural Ministerial Advisory Council on Energy. Dr Bischof-Niemz was the founding head of the Energy Centre at the Council for Scientific and Industrial Research and previously worked for Eskom on the Integrated Resource Plan. He is now head of global business development at Enertrag. Van den Berg is an advocate and former CEO of the South African Wind Energy Association who is now MD of Skrander.

Eskom to sign up IPPs, but at what cost?

GCX, Dustin Lawrence, 8 September, 2017

(Ed. note: Apologies for the late posting, but it is a good article and we ARE STILL WAITING for Eskom to sign the PPAs, and with David Nuke Mahlobo now at the helm, anything could happen!)

Eventually, Eskom has to sign….wait, what?! – These were my thoughts when reading about the Minister of Energy’s decision on the IPP/Eskom PPA signing impasse.

On the 1st of September 2017, the Minister of Energy, Mmamoloko Kubayi held a press conference to indicate that Eskom had until the end of October 2017 to sign all outstanding PPAs with REI4P preferred bidders from bid windows 3.5 and 4. With one caveat, all projects would need to renegotiate their prices to below R0.77/kWh. Hang on a second there, let us consider that again:

Winning bidders, in a globally acclaimed renewable energy auction, need to renegotiate their bid prices, 2 years after being selected as preferred bidders.

Is that even legal…? What signal does this send to future investors? When rating agencies talk about policy uncertainty, this would be a perfect example. Award a contract at a set price that has been guaranteed by the government for 20 years, then refuse to sign the PPA, later decide to sign the PPA’s but cap the prices across all generation types.

On the day of the announcement, not much was said about the price cap. Most of the statements released by renewable groups were positive in terms of policy direction. A set date for PPA contracts establishes a path towards job creation and local economic development. (After all, some local companies had to virtually shutter their businesses amongst the uncertainty created by Eskom not signing the PPA’s).

A few days later and several authors have voiced their concerns about the price cap. As ignorant as I am, I have some concerns of my own. Surely, effectively being forced to change the price at which you sell your product, 2 years after signing a contract at a set price (adjusted by inflation), has some serious implications for your business plan and to your investors’ return on investment.

Apart from this, the price cap also has not been adequately defined, at least in the minister’s statement. Is the cap of R0.77/kWh in 2015 Rands or in 2017 Rands? REI4P prices are adjusted annually by inflation and thus this could have a substantial effect. Regardless of this, based on the winning bid prices, some projects will end up being excluded. CSP and biogas projects in particular are expected to be affected as their prices are generally over R1.00/kWh. They are however more valuable in high demand times as they are dispatchable during these periods (as opposed to solar and wind).

Why R0.77/kWh? Although this is higher than the R0.62/kWh that Eskom previously stated would be their cut-off point, no explanation has been given to indicate as to how this figure was decided.

Can projects reduce their prices to below the cap?

Some projects are likely; Solar panel and wind turbine prices have reduced significantly in recent years due to technology advancements and supply. This would result in a reduction in initial set up costs and thus a reduction in total financing costs that could result in lower prices.

Others are potentially likely; Bidders have most likely already cut the profit margins significantly to ensure that they ended up being preferred bidders. Reducing revenue further would mean asking investors for reduction which is unlikely to happen. Again the, “but we agreed to x and now you want y” principle applies.

While others could definitely not; CSP and biogas will find it very hard and most likely impossible to reduce their prices any further than their agreed prices. The winning bids for these technologies were above R1.00/kWh.

What about Round 5, Coal IPP and Gas IPP?

All suspended for now, at least until the Integrated Energy Plan and Integrated Resource Plan has been updated. A decision on these rounds will be made after these are completed in February 2018.

Are we going to see something similar happen to these project in 2018? This will likely depend on the actions taken by the Projects affected by this latest decision.

In Conclusion:

While some projects may be able to reduce their prices with a small effect on their business plans, others will find it hard and in some cases impossible to match the minister’s price cap.

Renegotiating the contracted price cap is probably illegal, and in fact, at least one renewable organisation has obtained legal advice that it is. So litigation on this aspect is likely.

Government and by extension SOE’s have again become their own worst enemies. At the same time as providing policy clarity, they have again stoked investor mistrust by effectively breaching their contracts with IPPs.

Here is a link to the article

 

An alarming picture emerges as Eskom’s liquidity dries up

The reports states that without any further funding, Eskom will have approximately R1,2-billion of liquid assets at the end November 2017 against a target of R20-billion, and will move into a negative liquidity position of approximately R5-billion by end of January 2018. This figure assumes the successful draw-down of R2,2-billion from development finance institution (DFI) loans and R1,3-billion export credit agency (ECA) facilities.

The report further states that the qualified audit opinion in Eskom’s 2016/17 annual financial statements relating to irregular expenditure, governance issues and changes in leadership has had a negative impact on investor sentiment, which is affecting the volume of future funding, current drawdowns and liquidity position of Eskom…

Eskom’s financial position

The report indicates that at 30 September 2017 Eskom Group revenue of R95,5-billion was R3,75-billion lower than budget.

This was attributed to lower than budgeted electricity sales volumes, the capitalisation of pre-commissioning revenue at Medupi and Kusile, and revenue of R2,64-billion deemed uncollectible at the date of sale.

Eskom indicates that average demand from key industrial customers remains low, with no recovery in demand or sales. Average demand for these customers has declined further to approximately 8200 MW during the past quarter, from an average of 8500 MW in the first quarter of the financial year, mainly due to customers’ response to higher winter electricity tariffs.

Primary energy costs were underspent by R3,87-billion across all main categories of coal, OCGTs, IPPs and international purchases.

The group’s operating expenditure (excluding depreciation and amortisation) of R25,3-billion was R4,7-billion below budget, as a result of underspend on employee benefit costs and other operating expenses.

Group capital expenditure amounted to R24,2-billion for the period, which is substantially lower than the budget of R31,8-billion due to underspend mainly at Kusile, Medupi and other power delivery projects, partially due to phasing of expenditure. Much of the capital spend shortfall is however expected to be incurred by year end.

Poor governance – a core issue highlighted in the report

The report highlights that the audit qualification in Eskom’s 2016/17 financial statements relating to irregular expenditure, governance related issues and continuous changes in executive management has had a severe impact on Eskom’s ability to raise funding in the domestic and foreign markets and has also resulted in delays in drawdowns on existing facilities.

Eskom says this will have a negative impact on financial sustainability and its status as a going concern.

The report identifies that in order to improve both liquidity and execution of funding initiatives, it is critical that governance related issues and investigations are resolved, and that stability returns within Eskom’s board and executive management.

Investors indicate that they are heavily reliant on these issues being resolved before any firm commitments on funding will be made.

Rating agencies have also indicated their deep concerns regarding governance and leadership at Eskom, and are closely monitoring the execution of the funding initiatives. Any further downgrades would exacerbate the current situation and put at risk the execution of Eskom’s funding plan.

Note: This article is a collaboration between EE Publishers and Fin24.

Here is the link to the article

Zuma’s last ditch effort to ram through a nuclear power deal

M&G, Hartmut Winkler, 9 November, 2017

President Jacob Zuma’s term of office has been characterised by an absence of vision and associated initiatives. Zuma is instead known for his inaction and overt stalling tactics. Examples include delays in setting up the State Capture Commission of Inquiry, announcing a new board for the state broadcaster, and delaying the release of a report on the future of university fees.

His recent dramatic push to fast-track an expensive and highly controversial nuclear power station build is therefore very much out of character. But Zuma’s advocacy of the nuclear build needs to be understood in terms of another hallmark of his presidency – state capture. This expression refers to the systematic takeover of state institutions by presidential allies and the resulting exploitation of institutions for commercial advantage and profit by his benefactors.

It’s already become clear who is likely to benefit from South Africa pursuing the option to build nuclear power stations. The list includes the Gupta brothers and Zuma’s son Duduzane through their links to the Shiva uranium mine.

And then there’s Zuma himself. Speculation about why the president appears to be favouring a deal with Russian company Rosatom ranges from allegations of grand scale individual kickbacks to alleged commitments linked to funding for the African National Congress.

The controversy around the nuclear power option was precipitated three years ago when it emerged that the government had signed an agreement with Russia that paved the way for the use of Russian technology in planned new nuclear power stations. The problem was that there’d been a complete lack of due process – no costing, no public consultation, no proper proclamation and no competitive bidding. It was no surprise that the courts declared the awarding of the nuclear build to Russia illegal.

On top of this a very strong case has been mounted against South Africa pursuing nuclear power. Reasons include the fact that it can’t afford it, and doesn’t need nuclear in its energy mix.

Despite all of these developments, and the growing controversy and mounting opposition to the deal, Zuma appears determined to get it done before his term as president of the ANC ends in December. In the last of the reshuffles he appointed one of his closest allies, David Mahlobo, to the energy portfolio. This is generally seen as a last ditch attempt to roll out the nuclear build in the face of now massive opposition.

Reports suggest that this reshuffle was occasioned by Russian displeasure over what they see as a broken promise to award the building contract to Rosatom.

The energy minister’s next steps

Mahlobo appears to have devoted his first few weeks in office entirely to furthering the nuclear project. He has been active in the media declaring the nuclear build as a given – and necessary.

Mahlobo’s next steps are likely to be:

  • He is reported to be planning to release – in record time – a new energy plan. This, some suspect, will be biased towards nuclear.
  • Heightened public lobbying. This could include verbal attacks on nuclear critics as already initiated by the President.
  • The issuing of a request for proposals to build the nuclear plants to potential developers like Rosatom. Most observers expect the evaluation to favour Rosatom regardless of the merits of the other bidders.
  • Signing an agreement with Rosatom. This could mirror the USD$30 billion deal Russia signed with Egypt which, on the surface, will appear attractive because it would offer favourable terms such as annual interest of only 3% and the commencement of repayments after 13 years. But when scaling the 4.8 GW Egyptian agreement up to the 9.6 GW envisioned for South Africa, the total cost then already exceeds R1 trillion. Annual repayments from year 14 to year 35 then amount to about 5% of South Africa’s annual fiscus. Any cost overruns, which are common in many other nuclear builds, would vastly increase the debt further.

What’s changed

The global energy landscape has changed dramatically since South Africa first mooted the idea of supplementing its power mix with more nuclear. Major developments and changes include:

Not even government’s own recent energy plans have promoted nuclear.

A 2013 draft energy plan argued against immediate nuclear growth. (The plan was never formally adopted).

The last draft plan released in 2016 went as far as declaring new nuclear unnecessary until 2037.

Will it happen?

Nuclear plants are major long term investments, and these projects will not survive lengthy construction and operation periods without broad public support. There is definitely a lack of public support in South Africa.

The Zuma-Mahlobo work plan will face major opposition by other parties, civil society and even critics within the ruling party. Lengthy court challenges will query the validity of the energy plan process, the public consultation, the regulatory aspects, the site selection and the constitutionality of the entire process. Public protests highly effective in other spheres would now be directed against the nuclear build. The ruling party would probably abandon the scheme if it proves politically costly.

The danger is, however, that huge funds will have been wasted in coming to this realisation.

The stakes are high. Zuma’s efforts to promote this unpopular nuclear project are weakening him politically. Even party comrades perceived to be in his inner circle – like newly appointed Finance Minister Malusi Gigaba – recognise that going ahead with the programme at this stage would cripple the country economically. Repeated ministerial reshuffles to sideline his critics has further damaged Zuma’s standing in the ruling party and in broader society.

Hartmut Winkler, Professor of Physics, University of Johannesburg

This article was originally published on The Conversation. Read the original article.