The South African Nuclear Energy Corporation (Necsa) suffered cumulative losses of R257.781-million in the 2016/17 and 2017/18 financial years and is expected to announce an even greater loss of R294.265-million in 2018/19, resulting in cumulative losses over the three-year period of R552.046-million.

The dire financial position of the State-owned enterprise was outlined in a Necsa board document, dated April 18, 2019, of which Engineering News has had sight. Titled ‘Necsa Turnaround Strategy’, the document reveals that the financial situation was so bad that Necsa had to liquidate some of its financial assets in both 2017/18 and 2018/19 in order to obtain the funds it needed to meet its operational expenses. The document proposed a radical refocusing and restructuring of the corporation.

The document, which proposes far-reaching changes to the structure and size of the organisation, was signed by former chairperson Dr Rob Adam and former acting CEO Don Robertson, who have both since departed Necsa. Adam resigned at the end of June and Robertson also left last month when his contract expired.

However, Necsa says the document has since been withdrawn. “[T]he Necsa Board is seized with the financial sustainability of the organisation and we are doing our utmost to ensurte that we come up with a way forward that is viable from the point of view of pursuing our mandate,” assures Necsa board member Pulane Tshabalala-Kingston.

What did the now withdrawn document say? It started by explaining the background to the current crisis: in November 2016, a Cabinet resolution expanded Necsa’s responsibilities, to meet the requirements of the then planned major expansion in the country’s nuclear power capacity, without increasing its grant to meet the additional costs it would incur. Necsa was to be responsible for the re-creation of a nuclear fuel cycle in South Africa, as well as for a proposed new multipurpose reactor. The corporation’s subsidiary company, Pelchem, which has an independent board, would have been essential for the nuclear fuel cycle, while its Pelindaba Enterprises division was expected to be an important manufacturer of nuclear-certified components.

These expectations resulted in Necsa expanding its capabilities and increasing its highly skilled staff complement, which greatly increased its salary bill. The corporation (including subsidiary companies NTP Radioisotopes and Pelchem) currently has a workforce of about 2 000, with a total salary budget of some R800-million a year, which, the board has concluded, is unaffordable. There may have to be about 400 retrenchments, the document states.

The board concluded that the significant delay imposed on any new nuclear power plant programme meant that all the programmes undertaken by the corporation to support the previously planned new nuclear build had become irrelevant. Given this significantly changed situation, and given that Necsa’s mandate includes undertaking radiation sciences and technology research and development, the board proposed that the corporation be reorientated into a research and technology development (R&TD) institution.

However, in addition, the restructured Necsa would continue to maintain itself as a radioisotope centre of excellence, and ensure its continued provision of key support services for its subsidiary NTP, a major global producer of the Molybdenum-99 medical radioisotope. These support services include irradiating target plates in the Safari-1 research reactor.

Pelchem is a speciality (hydrogen fluoride) chemical producer, and has never been profitable. Although the losses it suffers are not directly reflected in Necsa’s own financial statements, Pelchem cannot pay for the services rendered to it by Necsa. The Necsa board concluded that, with the ending of plans to re-create a local nuclear fuel cycle, there was no longer a strategic need to maintain Pelchem. Turning it into a viable commercial business would require the investment of some R60-million in modernising its plants, and it would face international competition, including from China.

While Necsa should maintain its fluorine chemistry capability, this could be achieved by transferring some of Pelchem’s facilities to the proposed R&TD division. The rest of Pelchem might have had to be closed (and subject to decontamination and decommissioning – D&D – funded from the State’s D&D grant).

Necsa division Pelindaba Enterprises was to have played an important role in the proposed nuclear new-build programme, and Nuclear Manufacturing is one of its business units. The others are Business Development, Industrial Manufacturing (mainly machining of components), Flosep (making two products – Drykeep, which extracts moisture from oil in transformers, and air filters) and Project Consulting Services.

The document shows that Pelindaba Enterprises made a loss every year from 2011 to 2018. Nuclear Manufacturing sold more than half its output to just one customer, in the form of Eskom, and had only a limited order book after 2019/20. Industrial Manufacturing had no order book at all, and the services it rendered to Necsa could be outsourced.

As for Flosep, the board stated that its customer base was shrinking, it needed a R2-million capital investment, it faced strong competition and it used existing technology, while Necsa now had limited expertise in these technologies. The board proposed that Industrial Manufacturing and Flosep be closed and that Nuclear Manufacturing be sold (whether partly or wholly, the document does not say). Overall, Necsa should sell or close Pelindaba Enterprises.

Should the restructuring, as outlined in the document, have gone ahead, the resulting Necsa would have comprised a head office, a Nuclear Research and Technology Institute (NRTI, including the Safari-1 reactor), Nuclear Liabilities Management (NLM – responsible for waste and for D&D activities), the CFO division, the COO division (including the legal, human resources, communications and knowledge management departments) and Nuclear Site Services (including infrastructure, utilities, security, licensing and safeguards). The subsidiary company, NTP Radioisotopes, would have been retained.

The NRTI’s activities would have included developing new products for NTP, and NTP would have helped fund the NRTI. The remaining funding for the NRTI would have come from the State grant. NLM would have been largely funded from the State’s D&D grant, but it would also have been paid by NTP to handle the latter’s waste.

The board also suggested that all Necsa and subsidiary activities be concentrated in one location on the large (more than 2 300 ha) Pelindaba site, significantly reducing the area requiring high security and also allowing the area designated as a National Key Point to be greatly reduced, permitting buildings at Pelindaba but now outside the new, smaller, security perimeter, to be rented out.