The ratings impact of the nuclear energy development programme with Russia, which South Africa committed to this week, will be felt after about five years, according to agency Standard & Poor’s (S&P).
Konrad Reuss, the managing director of S&P in Johannesburg, said the nuclear development programme was not a ratings driver at this point.
“The main impact [financially and otherwise] would be outside of the normal rating horizon, which is about five years,” he said, noting there were still many uncertainties as to how this deal would unfold and be implemented.
S&P’s credit rating for South Africa stands at BBB, Moody’s Investors Service rates the sovereign debt at Baa1 and Fitch puts the country at BBB+.
In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the creditworthiness of a government, and thus has a big impact on the country’s borrowing costs.
South Africa faces a ballooning current account deficit and the nuclear development is likely to inflate the shortfall.
The deal may result in state-owned nuclear company Rosatom building reactors in South Africa at sites including Cape St Francis, Koeberg and the Northern Cape, according to recent reports.
If the project goes ahead, Russian VVER reactors with capacity of 9 600 megawatts could be installed at an estimated cost of R650 billion.
Rosatom director-general Sergey Kirienko said the deal would result in orders worth at least $10bn (R111.5bn) flowing to local companies.
Goolam Ballim, the chief economist at Standard Bank, said the nuclear energy programme would come at an enormous cost and on the face of it, “it could compromise the [government’s] fiscal standing”.
He was also of the view that rating agencies were unlikely to start factoring it into their ratings at this stage. “Declaration of commitment towards procurement will feature in South Africa’s budget account and it would be on those findings that the rating agencies and the society will be able to gauge the government’s intent and estimation of the impact and cost of the nuclear energy programme,” he said.
The decision would be made through government position papers as well as the Budget process, which would represent a substantially formal function of the project.
“Given South African political history, one is fearful that where there is smoke there may be some flourishing fire. But it is a bit premature to overreact at this point,” Ballim said.
The processes will include a detailed procurement schedule, cabinet approval and complete political backing up.
The Treasury said in February last year that a R300bn nuclear programme was in the final stages of study. Although the details of this massive nuclear development are still sketchy, Energy Minister Tina Joemat-Pettersson said the development of nuclear power was an important driver for the national economic growth.
Rosatom, the Russian State Atomic Energy Corporation and South Africa said in a joint statement earlier this week that the intergovernmental agreement on strategic partnership and co-operation in nuclear energy and industry had been signed on the margins of the 58th session of the general conference of the International Atomic Energy Agency in Vienna, which runs until Friday.
Reuss was not the only analyst who found the details of the announcement too sketchy to act on. Azar Jammine, the chief economist at Econometrix, said that it was difficult to analyse the impact of the deal because it lacked details.
“We do not know how much it is going to cost, what the terms of the loan are,” Jammine said.
Melita Steele, the senior climate and energy campaign manager for Greenpeace, said nuclear power was nothing but a dead-end.
Steele added that the deal took the country a step closer to the construction of new nuclear reactors, but Russia’s ability to deliver on the deal it had offered remained untested and its ability to provide finance to markets like South Africa remained in serious doubt.