Even more alarming is that Nene testified that in 2015 at a meeting in Ufa, his counterpart, Russian minister of finance, Anton Siluinov, as well as his deputy, Sergei Shatalov, had said they were unaware of any apparent “nuclear deal” between the two countries.
The two Russian ministers had also admitted they had “no real idea of what it was about and were not involved in discussions” a revelation, said Nene, that had surprised him “because, if I were to sign anything that had financial commitments from the Russian government, I would have expected my counterparts to not only be aware but to play a role.”
In his explosive testimony to the Zondo Commission, Nene, set out how president Jacob Zuma’s nuclear procurement dream for the country would have been the largest public investment programme in South African history and one of the largest public sector investments ever undertaken internationally.
It would have, Nene testified, had profound material consequences for South Africans for decades to come.
He recounted how in 2015 he had been part of a South African delegation that had attended the annual diplomatic summit of heads of state or governments of the BRICS member states summit that had taken place from 8-9 July in Ufa, Russia.
On 8 July Nene and other Cabinet ministers, including minister of energy, Tina Joemat-Pettersson, had attended a briefing with then President Zuma. Nene, had, he said, intended to brief Zuma on the summit “and his forthcoming one-on-one meeting with President Putin of Russia”.
“Mr Zuma proceeded to discuss the issue of nuclear procurement in South Africa. In essence Mr Zuma wanted to know what progress the minister of energy and I had made on the nuclear deal as Cabinet had directed us to prepare a memorandum on, amongst others, the financial implications and funding model of the nuclear programme,” Nene told the commission.
Nene said he had indicated that without the details of the proposed financing of the project no memorandum could be finalised.
During this meeting, said Nene, Zuma had criticised him for not finalising the financial aspects of the proposed nuclear deal with Russia. Zuma had said he had not been “happy that I was not doing what I was supposed to have done a long time ago so that he could have something to present when he meets President Putin for their one-on-one meeting”.
However, former Minister of Energy, Tina Joemat-Pettersson, had drafted a “mere one page” letter ready for Nene’s consideration and signature.
“It was a letter addressed to Russian authorities. I cannot remember the exact detail of this letter, but I recall that it was essentially providing a form of guarantee to the Russian government on the nuclear programme if the Russian government were to finance it.”
He said although Joemat-Pettersson’s memorandum had been couched in the form of a letter, Nene had been reluctant to sign it as “my signature would have resulted in a binding financial commitment by the South African government. I said to Ms Joemat-Pettersson that I would not append my signature but if she wants to sign it, she must go ahead alone but I cautioned that whatever she ultimately signs should not have any financial commitments”.
Joemat-Pettersson had insisted that the decision had to be a joint one from both the ministers of energy and finance.
“She was not satisfied with my response but agreed to revise the letter,” said Nene.
Afterwards, at a dinner with officials and colleagues, Nene had mentioned his refusal to sign the letter presented to him by Joemat-Petterssson.
“About an hour later Ms Joemat-Pettersson brought a revised letter to me. I recall reading it and concluding that the fiscal and financial implications remained. I rejected the letter again.”
Joemat-Pettersson, said Nene, had been concerned about “what she should say to Mr Zuma given my stern refusal to sign. I told her that I don’t know what she should say but I would not sign without seeing and approving the funding model as duly required by the Cabinet and without the necessary processes being followed for such a big project. She left and I was not presented with any further version of the letter”.
Nene said it was as a result of his refusal to sign the letter that he had been viewed as “the person standing in the way of the nuclear deal”.
“I was accused of insubordination, not only by the president but by some of my colleagues. I recall that the attitude of my colleagues, particularly the minister of international relations minister Maite Nkoana-Mashabane and the minister of state security minister David Mahlobo was hostile. They wanted me to sign and felt that it was not right that the issues on the nuclear deal had not been finalised.”
His colleagues, said Nene, had failed to understand the implications of his signature on the document – “that is, concurrence in my capacity as minister of finance to commitments which would have been binding on the South African government”.
“As the minister of finance I was responsible for ensuring the secure, accountable, transparent, sound, effective and efficient management of the country’s public finances, sovereign debt and the economy. Section 66 of the Public Finance Management Act (PFMA) provides that only the minister of finance may enter into a transaction that binds or may bind the National Revenue Fund (ie the fiscus) to any future financial commitment.”
Nene said he had told Zuma that he could not sign the letter without having first interrogated the financial and fiscal implications and proposed funding model.
“This was in line with my statutory mandate as well as the recent Cabinet decision of ensuring sound management not only of the government’s finances but also those of the institutions governed by the PFMA.”
At the time Nene had been a member of the South African government delegation that attended the meetings but kicked off the trip in Moscow, where he attended the BRICS Finance Ministers’ and Central Bank Governors’ Meeting and the First Meeting of The Board of Governors of the New Development Bank
Nene set out to the commission that the Department of Energy had provided Treasury with a draft feasibility study for the nuclear programme in December 2013.
“Upon review of the Treasury’s analysis of the draft feasibility study, it became apparent to me that regardless of the underlying policy rationale to develop nuclear energy capacity, the costs associated with it are astronomical.”
Preparations for the implementation of a nuclear build programme had begun in 2011 with the Cabinet approval and subsequent promulgation of the Integrated Resource Plan (IRP2010) which provided for nuclear power to contribute an additional 9.6GW to the energy mix by 2030, with the first new plant coming online in 2023.
In November 2011, Cabinet had established the National Nuclear Energy Executive Committee (NNEECC) as the political structure that would oversee the nuclear programme. At its inception the committee was chaired by the then deputy president Kgalema Motlhanthe.
Later Zuma had become the chair of this committee and in 2014, this had been transformed into the Energy Security Cabinet Sub-committee, which was led by Zuma and had included the then Minister of Energy Ben Martins.
The Energy Security Cabinet Sub-committee, said Nene, had been supported by a Nuclear Energy Technical Committee headed by Department of Energy. Beneath this were a variety of technical committees drawn from different departments.
“For instance, the Corporate Finance and Procurement sub work group, where the Treasury officials participated, had Treasury and Department of Public Enterprises chairs,” said Nene.
The Department of Energy had provided Treasury with a draft feasibility study for the nuclear programme in December 2013.
But, said Nene, upon review of the Treasury’s analysis of the draft feasibility study, “it became apparent to me that regardless of the underlying policy rationale to develop nuclear energy capacity, the costs associated with it are astronomical.”
The envisaged 9.6GW nuclear new build programme would have constituted the largest public investment programme in South African history, and, relative to the size of the South African economy, would have been one of the largest public sector investments ever undertaken internationally, he said.
The total investment required would have had material consequences for Eskom’s and the country’s foreign and domestic debt, fiscal and financial position, the balance of payment and sovereign balance sheet for decades to come, as well as investment grading, which would have had implications for all South Africans, said Nene.
“I was also very concerned that the recovery of nuclear build cost through the tariff would have profound consequences for the economy and South African users of electricity.”
This point had become much clearer for him he said “in the face of mounting resistance to electronic tolling in Gauteng. The ‘user pays principle’ was being turned on its head. Construction costs that had originally been meant to be recovered through tariffs were being paid for from general tax revenue with deleterious consequences for public policy and fiscal management”.
In addition, there would have been large risks associated with the nuclear build programme as global experience had indicated that “the large upfront capital investment, long construction period and the complexity of nuclear projects means that nuclear power projects are especially sensitive to construction risks arising from delays and disruptions, cost overruns or increases in financing costs”.
If these risks materialised, “the increased costs are locked into the cost of electricity for the lifetime of the project. Therefore, the proposed nuclear programme was not only scrutinised by the stakeholders involved but it was questioned by the public whose funds were going to be used to finance it”.
This meant that it was critical that Treasury carefully study the feasibility and fiscal affordability of the proposed nuclear project and that the funding model “was central to the determination of affordability”.
“In other words, key issues were the fiscal affordability of the funding or guarantees to secure borrowing that would be required to finance the project and the impact on the economy of the electricity tariff required to repay the debt used to finance the project. In the light of the legal obligations of my position, I would ultimately have to approve the funding model based on its viability.”
On 22 September 2014 the then new minister of energy, Joemat-Pettersson, had announced that Russia and South Africa had signed an intergovernmental framework agreement which had laid the foundation for nuclear programme procurement.
On 10 June 2015 Joemat-Pettersson had tabled in Parliament five inter-governmental nuclear co-operation agreements that had been concluded with the Russian Federation, France and the People’s Republic of China, the United States of America (USA) and South Korea in Parliament for approval.
“On the same day, Cabinet took a decision that, amongst others, required the minister of energy, in consultation with the minister of finance and the NNEECC, as a matter of urgency, to present a memorandum to Cabinet dealing with the financial implications, proposed funding model, risk mitigation strategies for the nuclear new build programme and the contributions by countries as contained in the Inter-Governmental Agreements.”
It was shortly after this that the annual diplomatic summit of heads of state or governments of the BRICS member states summit took place from 8-9 July 2015 in Ufa, Russia and at which Nene was summoned to meet Zuma ahead of his meeting with Putin.
Nene had been a member of the South African government delegation that attended the meetings.
“I however first started in Moscow, Russia on 7 July 2015 where I attended the BRICS Finance Ministers’ and Central Bank Governors’ Meeting and the First Meeting of The Board of Governors of the New Development Bank (NDB).”
Accompanying Nene on the trip were Treasury director general, Lungisa Fuzile who had returned to South Africa after attending all the meetings that took place in Moscow where the founding documents of the BRICS bank had been ratified and the bank was formally established.
“I continued to Ufa with the DDG Ms Mmakgoshi Phetla-Lekhethe, who proceeded with the delegation to Ufa and Mr Marlon Geswint, the Chief of Staff,” said Nene.
In Ufa Nene, together with other ministers, had attended a briefing meeting with Zuma on 8 July 2015 with the intention of briefing him on the summit and his one-on-one meeting with Putin.
“Mr Zuma proceeded to discuss the issue of nuclear procurement in South Africa. In essence Mr Zuma wanted to know what progress the Minister of Energy and I had made on the nuclear deal as Cabinet had directed us to prepare a memorandum on, amongst others, the financial implications and funding model of the nuclear programme.”
Nene testified that the had told Zuma in the meeting that he could not sign the letter without first having interrogated the financial and fiscal implications and proposed funding model.
“This was in line with my statutory mandate as well as the recent Cabinet decision of ensuring sound management not only of the government’s finances but also those of the institutions governed by the PFMA.”
Following the later tabling of the “co-operation agreements” in Parliament, Nene said he had been repeatedly asked through parliamentary questions and the media whether the Treasury had been consulted on the financing options for the nuclear build programme and its fiscal and financial feasibility prior to these agreements being concluded.
“Generally, I responded to such questions, by indicating that nuclear would be a substantial financial commitment and that government was undertaking a careful and thorough analysis of financing options and considering the costs, benefits and risks of building additional nuclear power stations to ensure the affordability and long-term sustainability of the fiscus and financial soundness of the state-owned entity tasked with undertaking such a programme.”
He said he knew from Zuma’s “treatment of me in Russia that he was very unhappy with my refusal to sign the draft letter”.
This was later confirmed to him in a conversation with the deputy minister of finance, Mcebisi Jonas, after his (Nene’s) return from Russia.
“I received a call from Mr Jonas about two weeks after returning from Russia. I remember that it was the day of an ANC lekgotla held towards the end of July 2015. He told me that he had been called to a meeting with Mr Zuma in which Mr Zuma expressed dissatisfaction with me, particularly the stance that I took on the nuclear procurement process in Ufa and my refusal to sign the draft letter presented by Ms Joemat-Pettersson. This confirmed what I already knew.”
After this Nene had convened the director-general and a team of relevant senior Treasury officials and had instructed them to establish a joint task team with officials from the Department of Energy.
“The joint task team was to be responsible for undertaking the required detailed technical work and preparing a technical report for submission to Cabinet on the financial implications, funding model and risk and mitigation strategies related to the proposed 9.6 GW nuclear new build programme, as had been instructed by Cabinet. “
In September 2015 the team provided Nene with a preliminary report on the fiscal and financial implications, funding models and risk mitigation for the nuclear new build programme. The report had set out the key considerations in respect of the programme; funding models and key risks; modelling of the fiscal implications and conclusions and recommendations.
“In essence the conclusion was that even under optimistic assumptions regarding the cost of the programme, that did not allow for the sorts of significant cost overruns seen on the Medupi and Kusile projects, and moderate economic growth assumptions of 2-3%, the government debt levels would grow exponentially. This would be absolutely fiscally unsustainable.”
As a means of moderating the risks, the Treasury team had recommended spreading the construction over a longer period of time, maintaining flexibility by not entering into any legally-binding commitments beyond two units of nuclear power stations upfront and making stop-go decisions based on an assessment of the progress in implementation, the economic environment, fiscal position and affordability.
“I was advised that this approach was discussed between the officials of the Treasury and the Department of Energy and that while the latter were originally determined to motivate for the purchase of 9.6 GW, they were ultimately persuaded to accept the phased procurement. “
The Treasury team had recommended the provision of R200-million for a feasibility study for preparatory work that would allow for a more thorough consideration of the costs, risks and benefits, said Nene.
On 8 December 2015 Zuma had met “with all the Cabinet members whose portfolios were relevant to the nuclear deal”.
“We met at the presidential guest house, Mahlamba Ndlopfu, in Pretoria. The meeting was initially scheduled for 3pm but I was later advised that the meeting would take place an hour later. When I arrived at the venue just before 4pm, I discovered that a consultation had taken place between Mr Zuma and my Cabinet colleagues, including state security minister David Mahlobo, international relations minister Maite Nkoana-Mashabane, public enterprises minister Lynne Brown and energy minister Tina Joemat–Pettersson to the exclusion of me and my team from Treasury.”
Nene said he had attended the meeting accompanied by Fuzile, DDG Michael Sachs and then DDG Dondo Mogajane.
“We proceeded to gather in a boardroom for the nuclear committee meeting, which I had originally been requested to attend. Nothing was said about the consultation that had just taken place. Initially I entered the meeting without my officials, as it was a ministerial meeting, but when I noticed that the minister of energy had included officials from the Department of Energy, I requested the Treasury officials to participate in the meeting,” said Nene.
The officials who had been present from the Department of Energy had presented the proposed nuclear programme to the president and other ministers.
“The presentation did not reflect the input from Treasury regarding the concerns with the feasibility of the programme and the possible scaled approach. Instead the energy officials presented a procurement plan based on the production of 9.6 GW of nuclear energy. The department’s assumptions were extremely optimistic with respect to the assumed construction cost and exchange rate implications resulting in a much lower cost for the programme than was realistic. In addition, there was no consideration of the fiscal implications under different economic scenarios,” said Nene
The presentation, he said, had assumed an exchange rate of R10/$ (USD), whereas the exchange rate assumed by the Treasury was between R12 and R14 to the dollar. (On that day the exchange rate was R14.57 to the dollar.)
“Put in simply, failing to show the committee a scenario depicting the rate at which the rand was exchanged for the dollar on that day meant that the committee was presented with a 40% understatement of the cost of nuclear. So, if the price of 9.6 GW was US$100-billion, the understatement was US$40bn (or some R560-billion). This was a truly gross material understatement of the project. While it could have been possible to argue that the rand could regain its strength, it is instructive that the rand is trading at around R14 this week.”
After the presentation Zuma had asked Nene if he had anything to say in response.
“I pointed out that the concerns of Treasury were not included in the presentation. In particular I noted that the assumptions in relation to the exchange rate were optimistic and that there was still no funding model accompanying the presentation.”
Nene testified that he didn’t believe “that there was any point in saying more and resisting any further”.
“I suggested that the officials from the Departments of Energy and Treasury finalise the presentation for the Cabinet meeting the next day. I requested my director general at the time, Mr Lungisa Fuzile, to give his input. Mr Fuzile expressed serious concerns, at length, regarding the cost implications of the proposal and the failure by the Department of Energy to phase the construction over a longer period of time.”
The meeting had concluded with a decision to proceed with the nuclear programme proposal by the Department of Energy despite the contrary views of the Treasury, said Nene.
“In fact the president made an off-the-cuff remark that Treasury would not ‘do to us what you did with PetroSA’. The following day was a Cabinet meeting and this proposal was to be placed before Cabinet for adoption. “
Nene said that after the meeting with the Zuma he and some of the officials had gone to the Sheraton Hotel for coffee.
“We were astounded at what had taken place at Mahlamba-Ndlopfu, given the magnitude of the nuclear build programme. The proposed nuclear build programme would eclipse even the Strategic Defence Procurement Packages (the arms deal) in terms of its financial implications.”
The arms deal had been initiated before the PFMA had come into effect, said Nene “yet even without its prescripts the Treasury played a central role in developing affordability reports, advising the Cabinet on economic, fiscal and financial impact and risks of the procurement, and monitoring and evaluating the budgetary implications of the envisaged procurement package”.
While at the Sheraton Hotel Nene said he had read an online newspaper report indicating that he would be fired “and Mr Des Van Rooyen would replace me. Again I did not pay much regard to the reports”.
At the meeting with the president the following morning 9 December 2015, Nene said he had informed Zuma of the documents that would be tabled at the Cabinet meeting.
“Of particular importance was to appraise the president of the budget allocations for the next year. As this was the last Cabinet meeting of the year, Cabinet needed to adopt the Budget recommendations so that preparations could be undertaken over the vacation period. The president did not raise with me his intention to remove me from office.”
The Cabinet meeting had started at 8:30am and the outcome of this meeting, on the nuclear issue, was that Cabinet had decided that the Department of Energy would issue a Request for Proposals for the nuclear build programme, with the final funding model to be informed by the responses received to the request.
The meeting ended at around 5.30pm that day and Nene was on his way home when he had received a call from Zuma’s office informing him that the president wished to see him.
“I immediately turned back to the Union Buildings,” said Nene
“I arrived at the Union Buildings at about 6pm or 6.15pm. When I arrived I was required to wait in the waiting room for a short while. Ms Lakela Kaunda was in the waiting room. We greeted but nothing further passed between us. After a short while the president emerged and ushered me into his office.”
The president then broached the subject of the establishment of the African Regional Centre of the new BRICS Development Bank.
“The president then said ‘You would remember that when we were discussing the establishment of the Africa Regional Centre I had said that we would have to deploy a senior, high-ranking individual to that position?’ I confirmed that I recalled the president saying that.”
Zuma, speaking in Zulu, had told Nene that “(w)e discussed this matter with the top six and we agreed that we should put you there”.
He had inquired as to when this decision was to take effect and Zuma had informed Nene that he would be making an announcement “shortly”.
“I thanked the president for having provided me the opportunity to serve the country as minister of finance. We shook hands and I left. The entire meeting lasted two or three minutes. “
Zuma, said Nene, had made “no mention of any other reason for my removal”.
“I did not ask the President for reasons for this decision as I did not think it would be appropriate. That was the first and last time we ever spoke about the position at the BRICS bank.”
Nene said it had been obvious that the “deployment” to the BRICS bank had been “a fabrication”.
“I say so because the president had no authority to offer me a position or to deploy me to a position in the BRICS Bank, nor could such an appointment be considered at that stage, at least without due process, which also involves other member countries.”
In any event, said Nene, he had already held the position of governor at BRICS, “a position more senior than that to which I was being ‘deployed’.”
“Needless to say, the offer did not materialise and the position remained vacant until I returned as Minister of Finance and was appointed the current holder of that position.”
After his meeting with Zuma, Nene had made contact “with several people via SMS and telephone calls regarding what had just happened”.
“Later on, I met the then DG at my official residence and I encouraged him to continue to keep the Treasury team together and to motivate it even in the face of what had happened. I repeated the same in the morning of the following day when I visited the Treasury to clear my office and to say my goodbyes to the rest of the Treasury staff.” DM
Read Nene’s full statement to the Zondo Commission