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Cablegate: South Africa Reassesses Its Energy Policy

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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #3507/01 2770542
ZNR UUUUU ZZH
R 040542Z OCT 07
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 2142
INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0667
RUEHRL/AMEMBASSY BERLIN 0544
RUEHBY/AMEMBASSY CANBERRA 0551
RUEHLO/AMEMBASSY LONDON 1321
RUEHMO/AMEMBASSY MOSCOW 0673
RUEHOT/AMEMBASSY OTTAWA 0507
RUEHFR/AMEMBASSY PARIS 1176
RUEHTN/AMCONSUL CAPE TOWN 4928
RUEHDU/AMCONSUL DURBAN 9243
RUEHJO/AMCONSUL JOHANNESBURG 7570

UNCLAS SECTION 01 OF 03 PRETORIA 003507

SIPDIS

SENSITIVE
SIPDIS

STATE PLEASE PASS USAID
STATE PLEASE PASS USGS
DEPT FOR AF/S, EEB/ESC, EEB/CBA
DOE FOR SPERL, PERSON, BIENAWSKI, PARKER, SCOTT, CLAPPER

E.O. 12958: N/A
TAGS: ENRG EPET EMIN EINV EIND ETRD SF
SUBJECT: South Africa Reassesses its Energy Policy

REF: A) Pretoria 3012
B) Pretoria 3447

PRETORIA 00003507 001.2 OF 003


1. (SBU) SUMMARY: South Africa convened a two-day Energy Summit
September 24-25 to engage with stakeholders in order to reassess its
energy policy as set forth in the white paper on energy adopted in
1998. Noting the likelihood that key assumptions may have changed
since that time, representatives of the SAG Department of Minerals
and Energy (DME) debated the nation's policies on electricity,
nuclear power, energy security, renewable energy and other aspects
of energy policy. There was broad consensus on the special role of
the state, given South Africa's status as a "developmental state"
and commitment to the provision of affordable energy services to its
population. The Minister reaffirmed the SAG's intent to consider
enrichment of nuclear fuel and processing of spent fuel as
delineated in its draft nuclear energy policy, but stressed the
SAG's commitment to nuclear non-proliferation. End Summary.

-----------------------------------------
Energy Summit - Aiming at Improved Access
-----------------------------------------

2. (SBU) The SAG Department of Minerals and Energy (DME) organized
a September 24-25 Energy Summit in Johannesburg to foster
stakeholder debate on the theme of "Energy Security for Sustainable
and Shared Economic Growth for All." Deputy President Phumzile
Miama-Ngcuka opened the Energy Summit with a pre-recorded message
highlighting South Africa's special challenge as a developing
country reliant on significant energy imports, with the objective of
improving access to basic energy needs to its people. (Comment: The
Deputy President was leading a delegation to Beijing. End Comment.)


3. (SBU) Minister of Energy Buyelwa Sonjica applauded the start of
extensive stakeholder consultation aimed at finding ways to
streamline efficacy of energy policy and to identify policy gaps
that may have developed over time. Sonjica provided details on some
specific initiatives, such as increasing nuclear power in the energy
mix and implementing incentives to encourage renewable energy and
energy efficiency. The Minister attended the two full days of the
summit, stressing that she was there to listen to stakeholders.

4. (SBU) Department of Energy Director General Sandile Nogxino used
his speech to highlight key considerations for the SAG's
reassessment of energy policy:

-- Increase access to affordable energy, with the goal of universal
access by 2012;

-- Improve energy governance, building on creation of the National
Energy Regulator of South Africa (NERSA) as an independent
authority;

-- Stimulate economic development, competition, and "cost reflective
pricing";

-- Manage environmental consequences, given that SA's electricity is
currently 92 percent reliant on burning coal.

Nogxino emphasized that the importance of energy security had grown
since 1998, noting that oil prices had increased from $10 to over
$80 per barrel. The Department of Transportation Director General
Mpoumi Mpofu emphasized the importance of greater coordination
between energy and transportation planning.

------------------------------------------
Boost and Diversify Electricity Generation
------------------------------------------

5. (SBU) Both Department of Energy and Public Enterprise
representatives outlined the SAG's plans to double existing 42,000
MW of installed capacity by 2027, by adding 20,000 MW of nuclear and
20,000 MW of other conventional sources. The SAG now targets 30
percent provision by Independent Power Producers (IPP) and many

PRETORIA 00003507 002.2 OF 003


speakers applauded the recent award to an AES-led consortium as
preferred bidder for the first IPP projects totaling 1,000 MW. At
the time of the 1998 policy review, the SAG planned to unbundle and
liberalize state-owned electricity company Eskom, as well as
encourage IPP's, in a then environment of excess capacity. Since
then, the SAG has been unsuccessful in providing incentives and a
stable investment environment and now South Africa faces a shortfall
in electricity capacity and reserve margin (the latter now less than
8 percent). The SAG has chosen state-owned Eskom to develop
state-owned power projects and to serve as the single buyer of
electricity for the grid.

-------------------
Nuclear Power Quest
-------------------

6. (SBU) Minister Sonjica emphasized in her speeches the target of
a growing role for nuclear power in South Africa's energy mix as set
forth in the recent nuclear energy policy (Ref A). Eskom will
designate Westinghouse or Areva of France to construct 4,000 MW over
the near-term, followed by an incremental 16,000 MW targeted by
2027. Sonjica stressed that a key aspect of the recent draft
nuclear energy policy is that South Africa must benefit from its
uranium reserves and be able to assure security of supply, including
developing new Pebble Bed Modulator Reactor technology as a part of
its long-term new build. Therefore, South Africa intends to
maintain the option of developing low-grade enrichment of uranium
and re-processing of spent fuel, while still maintaining all its
non-proliferation obligations (Ref B). In a separate session
focused on safety and safeguards, SAG experts on non-proliferation
(including Department of Foreign Affairs Deputy Director General
Abdul Minty) and the domestic nuclear regulator emphasized SA's
commitment to non-proliferation and safety, while stressing South
Africa's right to consider uranium enrichment.

----------------------------------
Aim to Implement National Modeling
----------------------------------

7. (SBU) One of the main themes of the Energy Summit was the desire
to incorporate comprehensive modeling into planning efforts, drawing
linkages with other sectors such as transport and public
enterprises. In a separate meeting, Department of Energy Deputy
Director General Nhlanhla Gumede expressed to Resource/Energy
Officer great interest in cooperating with the U.S. Energy
Information Agency (EIA) in adapting appropriate modeling
approaches, building from his participation in the April 2007 visit
to Washington D.C. As an immediate outcome of the visit, he
arranged for EIA Deputy Administrator Susan Holt to address the
summit, sharing U.S. best practices and experience with the National
Energy Model (NEMS) approach. She cautioned that NEMS was
specifically developed for the U.S. energy market, but noted that
Canada had successfully adapted it.

-------------------------------
Comment - the Role of the State
-------------------------------

8. (SBU) A recurrent theme at the Energy Summit was grappling with
the role of the State. There seemed to be broad consensus that the
SAG bears a special responsibility as a "developmental state" to
intervene in the sector to assure universal affordable access to
energy for its population. Labor played a prominent role at the
summit, always expressing skepticism about the ability of capitalism
and market forces to deliver this goal. At one pause in the session
focused on the role of the State, a number of labor representatives,
all clad in dark leather jackets, and accompanied by the Energy
Director General, broke out in spontaneous songs of solidarity. In
the wake of increased concerns about energy security and perceived
failed attempts at privatization and liberalization around the globe
(read: California), the SAG now aims to maintain Eskom as national
champion for electricity generation and single buyer, but intends to
develop almost one-third of the market as alternative independent
power producers to augment competition and diversification. AES'

PRETORIA 00003507 003.2 OF 003


Black Economic Empowerment (BEE) partner Mbane Power stated that
South Africa still did not exhibit a "welcoming environment" and
stated that investors faced high risk and uncertainty in looking at
the South African market.

BOST

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