Why South Africa's public finance watchdog failed its mandate on nuclear
South Africa’s Parliamentary Budget Office is a largely unknown but important institution. It was established in 2009 to provide technically credible, independent advice to members of parliament about public finance and economic issues.
Evidence from other countries suggests that the credibility and independence of such an office is only truly tested when it is asked to provide advice about a politically significant issue. South Africa’s Parliamentary Budget Office recently faced just such a test when it advised MPs on the country’s proposed procurement of nuclear energy. The nuclear plan has been estimated to cost as much as R1 trillion.
But an analysis shows that the office’s recent presentation and report to MPs was sorely lacking. It failed to produce a credible analysis of the likely total cost of the proposed nuclear programme or its impact on public finances.
Financial implications for future generations
In 2015 the office was asked by the then chair of the Standing Committee on Appropriations in Parliament, Paul Mashatile, to advise on the proposed nuclear procurement. He made it clear that the office’s primary focus had to be public finances:
Where are we going to get this money, the R1 trillion? We are dealing with questions of affordability…when all is said and done…and [not burdening] our children and grandchildren.
Mashatile’s position is compatible with the law. Appropriations committees are supposed to focus on public expenditure.
The Parliamentary Budget Office had 10 months to prepare its findings. Yet its final report was essentially a desktop summary of various other institutions' work. It compared the cost of producing a given unit of energy across different energy generating sources.
This itself is complex terrain. Some experts argue that nuclear is the cheapest of the low emission options. But that conclusion has been challenged. Either way, a public finance-oriented institution like the Parliamentary Budget Office is not well-placed to adjudicate on such issues.
Worse still, the office’s presentation and report were phrased in a way that allowed both proponents and opponents of nuclear to interpret the analysis as supporting their preferred conclusion. This has led some observers to incorrectly report that the office’s findings opposed the nuclear programme.
Besides vague statements about factors related to public finances, the office’s report contained no substantive analysis of electricity demand. It also did not have a total cost of the project or its affordability. MPs were left uninformed about the possible implications for public finances.
Credible, independent analysis needed
In other countries, analysis by parliamentary budget offices fulfils two functions. It informs MPs and provides citizens with a genuinely independent, trustworthy perspective on complex and contested public finance issues.
There’s a wide range of voices arguing different positions on nuclear in South Africa. Power utility Eskom, various nuclear power-related institutions and politicians in one faction of the governing ANC are arguing that nuclear is needed and affordable. On the other side, civil society organisations, opposition parties, renewable energy producers and independent energy experts argue vociferously that nuclear is undesirable, unnecessary and unfeasible.
(nuclear procurement will only be pursued at) a scale and pace the country can afford.
So the obvious question is: who will give ordinary South Africans a credible affordability analysis? A report by a competent, genuinely independent and non-partisan institution could have carried significant weight.
The Parliamentary Budget Office repeatedly asserted that affordability issues were not in the “mandate” from parliament’s Standing Committee on Appropriations. This is difficult to verify because the office does not publish research requests, final terms of reference or its reports and presentations. But it seems unlikely that the financial feasibility of nuclear was omitted from the terms of reference given the motivation articulated by Mashatile.
So what should the office have done?
What should have been done
First, it should have attempted as detailed a bottom-up costing of the nuclear programme as possible in the time available. This would include:
the likely costs of building power plants,
the associated costs of financing that investment,
nuclear waste disposal costs,
future decommissioning costs, and
insurance costs or liabilities that arise from adequately accounting for the risk of a nuclear disaster.
There are many international peer institutions the office could have called on. These include, for instance, the US’s Congressional Budget Office.
Nor did the office need to reinvent the wheel locally. The Department of Energy has produced a nuclear project costing and the National Treasury has also drafted one. Although the energy department’s costing is classified, all staff working with parliament recently underwent a state security agency clearance process. This means that, with the support of the relevant committees, the office’s staff could have obtained a copy.
Second, the estimated cost should have been used to assess the likely impact on public finances. It barely requires an analysis to show that, whether it costs R500 billion or R1.5 trillion, funding the proposed nuclear programme directly is unaffordable. Having briefly noted that, a public finance analysis would shift to considering the various public-private partnership and “vendor financing” models likely to be used instead.
These instruments have their uses. The problem is that they shift the risks and expenses to future years. That is when either consumers, government or both would have to start repaying the successful bidder. This potentially allows politicians to take bad decisions now and be long gone by the time the negative consequences become apparent. So an important aspect of the analysis would be assessing the financial implications for future time periods and future generations.
In doing this analysis, it is critical to account for what would happen if the power produced by nuclear plants is not needed for the foreseeable future - which I have argued current evidence suggests. The office should have requested energy demand forecasts from Eskom and the energy department.
These failures further denied South Africans and their elected representatives the opportunity to make a sound, well-informed judgement about the programme. It also raises the question of whether there is any purpose in having independent fiscal institutions if they demur when dealing with politically sensitive topics.
Sean Mfundza Muller previously worked for the Parliamentary Budget Office from July 2014 until his resignation in July 2016.