Atomic Energy Corporation

Review

Review Team
K Bharath-Ram
A Eberhard
M Myers
F Sellschop
R Webster 

Final Report
 January 1997

CONTENTS

1. INTRODUCTION

1. Context of study
2. Terms of Reference
3. A changing mandate for the Atomic Energy Corporation
4. A framework for analysing current operations at the AEC

2. IDENTIFICATION OF CORE COMPETENCIES

1. Radiation and nuclear processes including nuclear waste
2. Fluorination of chemicals and surfaces
3. Laser Isotope enrichment
4. Capabilities which are not part of the core competencies

3. PERFORMANCE ASSESSMENT OF CORE COMPETENCIES

1. Radiation and nuclear processes including nuclear waste
2. Fluorination of chemicals and surfaces
3. Laser isotope enrichment

4. RESOURCE ALLOCATION

1. Historical trends in grant and sales income
2. Resource allocation analysis for 1997/8
3. Safari economics
4. Commercialisation programmes
5. Future income
6. Resource allocation summary

5. COMMERCIALISATION POLICY

1. Overview
2. AEC Commercialisation Model
3. Performance assessment
4. Chemicals
5. Radiation
6. Mechanical and systems
7. Pelindaba Technology Products
8. AEC Subsidiaries
9. Unfair competition
10. Commercialisation performance related to the AEC 2000 Plus Plan
11. Summary

6. ASSESSMENT BY END-USERS

7. MANAGEMENT OF THE INSTITUTION

1. Efficiency and Effectiveness
2. Economy
3. Quality Assurance
4. AEC benchmarking
5. Strategic management
6. Capacity to provide leadership

8. EQUITY AND REDRESS

1. Current situation
2. Summary

9. ENERGY SECTOR SPECIFIC ISSUES

1. Policy shifts in the Energy Sector
2. The role of nuclear energy
3. The AEC’s Nuclear Fuel Chain
4. The Conversion Plant
5. Enrichment and MLIS
6. Closure of the Beva Fuel Fabrication Plant
7. Decommisioning and Decontamination
8. Radio-active Waste Management
9. IAEA Relationships
10. Administration of Safeguards (and imports/exports)

10. GOVERNANCE, OWNERSHIP AND INSTITUTIONAL FRAMEWORKS

1. AEC Mandate
2. The Corporate Board
3. Reporting to government
4. Governance systems at the core competence cluster level
5. Ownership of Assets
6. Legislation on subsidiaries and operations beyond the borders of SA

11. ALIGNMENT WITH OBJECTIVES OF THE NATIONAL SYSTEM OF INNOVATION

12. MAIN FINDINGS AND RECOMMENDATIONS

1. Overall
2. Governance, mandate and structure
3. The Core AEC
4. AEC Technology
5. Core competencies
6. Resource allocation
7. Commercialisation
8. Management
9. Equity and Redress
10. Contribution to the National System of Innovation
11. The way forward

PREFACE

Public policy debate on nuclear issues is often controversial and sometimes deficient in access to, and use of, relevant and accurate information and analysis. Recent press articles reflect a perennial perception that the nuclear industry is being dismantled in order to prevent black people from participating and contributing to the industry. The dismantling, according to this perception, has a racial purpose, and not a logic based on economic, developmental, environmental, or energy planning criteria.

This report will show that the opposite is true. There are persuasive economic and technological reasons for redefining the mandate of the Atomic Energy Corporation and transforming its operations in order to maximise the contribution to the National System of Innovation and to the economy in general. This report aims to provide a sound basis for policy making around the AEC. The analysis is based on facts and seeks to draw conclusions and recommendations consistent with, and supportive of, overall policy objectives of government.

DISCLAIMER

Team members reside and work in different countries and in different parts of the country. While all members saw drafts of the report and were able to provide comments, we were unable to convene again as a team to agree on the final wording before the final deadline for submission. Accordingly, individual members may not concur fully with precise phrasing. Importantly, however, all team members support the key recommendations.

1. INTRODUCTION

1. Context of study

The Department of Arts, Culture, Science and Technology (DACST) is undertaking a review of science and technology institutions as part of the process of developing a National System of Innovation. The review focuses on the producers of new intellectual property and organisations with a high S&T content. A key aim is to optimise investment in R&D by identifying and linking core technology competencies to national goals, both social and economic. An assessment will be made of whether core activities are appropriate, whether they are adequately resourced, and whether institutions measure up to international standards.

The Atomic Energy Corporation (AEC) is one of the institutions covered by the DACST review. The reports on the different institutions will then be subject to a system-wide review which will identify any gaps that may exist in the overall S&T sector; examine whether the current structures and systems of governance are appropriate; review the policy for commercialisation and technology transfer; and make restructuring recommendations.

The DACST review of the AEC is taking place within a context of policy reform not only in the Science and Technology arena, but also in the Energy sector. The Department of Minerals and Energy draft White Paper indicates that energy policy is being directed away from the previous concerns of energy security and is now geared towards meeting economic objectives of improved efficiency and competitiveness, social objectives of increased access, and environmental objectives of sustainability. The draft Energy White Paper recommends an investigation into the role of the AEC and suggests that the DACST review will fulfil this need.

At the same time government is investigating the restructuring of state assets. Government has signed a National Framework Agreement with the union movement setting out a protocol for approaching these issues. The Department of Public Enterprises is implementing the NFA through establishing a series of industry task groups, including an Energy Sectorial Task Team which will look at energy sector institutions, including the AEC.

The Chairman of the Board of the AEC has also instituted a review of the AEC to clarify its mission and to focus its operations.

The above initiatives indicate an urgency in clarifying the potential role of the AEC in relation to:

• the National System of Innovation;
• the Energy Sector;
• the NFA and restructuring of state assets; and
• the new Board of the AEC’s desire to provide leadership and effective governance.

This review will be a resource for all of these initiatives. The inter-Ministerial Committee on Science and Technology, chaired by the Deputy President, is potentially a powerful integrating mechanism for these different initiatives and concerns.

2. Terms of Reference

The generic terms of reference for the DACST reviews cover 21 specific issues and are summarised under the following headings:

• Performance assessment
• Resource allocation
• Market spread and sustainability
• Equity and redress
• Governance, ownership, institutional frameworks and mandate
• Alignment with strategic NSI objectives

There are also supplementary terms of reference for each SETI. For the AEC these are to review and assess:

• the performance of the AEC in its role as the national nuclear authority, including a review of all ‘government activities’;
• the AEC’s rationale, performance and future strategy for its commercial activities;
• the AEC’s commercialisation strategy in the light of the White Paper on S&T policy on avoidance of unfair competition between the public and private sectors in technology development;
• the AEC’s strengths and weaknesses within the context of its current transformation process (as delineated in the AEC 2000 Plus Plan).

The Review Team has also been asked to contribute to the parallel review of ‘National Facilities’, by preparing a written report reflecting the relevant terms of reference and covering the performance of:

• the Safari Reactor; and
• the AEC Whole Body Counter Facility.

The team has also looked at the AEC nuclear library which is considered by the AEC as a national facility.

3. A changing mandate for the Atomic Energy Corporation

History

The existing facilities and technological capabilities of the AEC originate from two main past programmes. Firstly, in the 1960s the National Nuclear Research Centre was established at Pelindaba with a broad spectrum of R&D activities in nuclear science and technology, including the Safari research reactor. Previously, in 1948, the South African Atomic Energy Board (AEB) had been established by an Act of Parliament to exercise control over the production of, and trade in, uranium. This Act was amended in 1959 to make provision for research, development and utilisation of nuclear technology.

Secondly, a large programme of uranium conversion, enrichment and fuel fabrication was initiated in the 1970s. In 1970, the Uranium Enrichment Corporation (UCOR) was established. Later, in 1985, together with the Nuclear Development Corporation (NUCOR), it was incorporated into the Atomic Energy Corporation (the AEC, formerly the AEB). The primary mandate of the AEC (and its former subsidiary companies) in the 1970s and 1980s was to develop an indigenous nuclear fuel cycle for powering nuclear power plants and for providing material for nuclear weapons. The AEC’s mandate was shaped within a context of an apartheid political economy confronted with internal resistance and constrained by international sanctions. Its operations were characterised by secrecy and an absence of public scrutiny. It was also favoured with generous public resources. It had a mission to fulfil; technology had to be developed; local production established; and costs were of secondary importance. The government would pay for what was required.

The AEC was able to produce high-enriched uranium for nuclear weapons, and low-enriched uranium for fabrication into nuclear fuel, which partially provided for Koeberg’s needs (from 1988 to 1996). But at what cost? How easily will the corporation be able to shake off its reputation of deception with regard to its role in South Africa’s nuclear weapons programme? And what kind of science and technology culture has developed within the AEC? How useful a resource is it for meeting the innovation and development needs of South Africa now? Which areas of science and technology could be regarded as a national asset in need of nurturing and strengthening? How successfully can scientists and technologists trained in an environment of "technology-push", with relatively unconstrained budgets, learn the discipline of "market-pull". These questions will be explored further in this report.

AEC 2000 Plus Plan

The unbanning of the ANC, the move to democracy, the dismantling of South Africa’s nuclear weapons in 1990 and the progressive lifting of sanctions, radically altered the operating environment of the AEC. The AEC’s 2000 Plus Plan, first adopted by the AEC Board in 1990, and updated annually since, tried to indicate a new direction. The original plan recognised that the AEC would no longer be regarded as a national strategic institution, would not be funded by the state at the same levels as in the past and would have to be a commercially-minded organisation with diversified products and services. Yet the original plan still envisaged the AEC as a one-stop nuclear fuel service and assumed that the AEC would be required to supply Koeberg’s fuel, that further nuclear power plants would be built in South Africa (as from 2010) and that there would be a marked international growth in nuclear fuel demand after 1995 which would provide market opportunities for the AEC.

After 1990, the AEC set out to commercialise and diversify its operations in order to reduce its dependence on state funding. The discipline of economic cost-benefit analysis soon revealed the non-viability of many of the AEC’s operations: the AEC’s reactor concept, the Tokoloshe fusion work and many other programmes have now been abandoned; their enrichment technology has been shown to be less than novel and hopelessly uneconomic – leading to the closure of the Y and Z plants (the cavernous production hall of the latter with its countless vortex separators, perhaps more than any other AEC venture, embodying their "can do" rather than "should do" operation, but admittedly driven by a government political mandate); and many other production units and ventures have been closed (including its fuel fabrication BEVA plant). And the costs continue – tens of millions needing to be spent on decommissioning and decontaminating the Y and Z plants, not surprisingly further contributing to the poor public image of the AEC. While the AEC has made significant structural and management changes, the above history emphasizes the need to examine rigorously current and future AEC plans.

By 1995 the AEC was no longer publicly aiming to provide "an integrated front and back-end nuclear reactor and fuel cycle service". Key corporate objectives became the reduction of dependence on state subsidies, completion of the commercial transition of the AEC, establishment of a long-term commercially viable nuclear fuels business, industrialisation of the AEC’s core competencies and capabilities, networking, and contribution to national reconstruction and development. By 1997, corporate objectives had been redefined as contributing towards South Africa’s industrial development and competitiveness; the development and maintenance of nuclear technologies for future commercial exploitation; the management of nuclear-related institutional activities and international relations to contribute to the socio-economic upliftment of disadvantaged communities.

With the key links in its nuclear fuel chain now broken, the AEC is giving more prominence to its role as a national nuclear authority, and to its contribution to technology development.

Since 1996, the AEC has also explicitly identified its three core competencies as being radiation technology, fluorination technology, and molecular laser isotope separation (MLIS), although in the course of this review the decision was taken to close the MLIS programme. It also claims specialised key capabilities in mechanical systems.

The vision and mission statements were changed in 1990, 1994, 1997 and again in 1998, after interaction with the Review Team. Currently their vision statement reads:

"Within the AEC, we are committed to be recognised as the leading organisation that creates national prosperity through the utilisation of nuclear and related technology.
"We aim to become two distinct but interdependent divisions, one that will strive to become a publicly listed company and the other to perform identified responsibilities on behalf of the state."

Their mission statement reads:

"To develop, commercialise and operate a portfolio of profitable business opportunities within the AEC’s core competencies of fluorination and radiation technology with the support of the mechanical and systems engineering capability.
"As the national nuclear authority, to cost-effectively perform identified institutional functions in the nuclear field on behalf of the state."

Their strategic planning now rests on the following principles:

• The targeted and continued reduction of state-dependency.
• The transformation of the AEC’s main product lines away from the strategic nuclear fuel business to commercialising industrial products through the redirection of its core competencies.
• The proper definition and clarification with Government of the AEC’s institutional responsibilities.
• The alignment of the organisation structure with the AEC’s evolving strategy of eventually becoming a publicly listed company alongside a government-supported division.
  (AEC 2000 Plus Strategic Plan Revision for 1998/9 plus 4 years – Document KOB930/Stratplan/1999).

4. A framework for analysing current operations at the AEC

The new government has inherited an organisation with impressive facilities: a 2380 ha property, 120 buildings with a usable floor area of 365 000 m², and superb research facilities, laboratories, workshops, manufacturing and production units. Although many staff members have been retrenched over the past 10 years, the AEC still employs about 2000 people, many of them highly skilled scientists, engineers and technicians. There is a serious concern that the skills base is ageing and is not being reproduced, however, as in other countries, this can be addressed later by remedial recruitment once a new and stable operating base has been established. A number of core competencies and capabilities may have been developed in the AEC and there is no doubt that many of its technological developments are unique in the country. The AEC also has an advanced capability of integrated systems engineering and the ability to design and build pilot, demonstration and production facilities. Everything about the AEC is big – its property, equipment, staff and strategic plans. But so too are its costs and debts.

What is the essence of the AEC? How do we begin to analyse it? First, the AEC maintains some core nuclear energy operations: the conversion plant (uranium oxide to uranium hexafluoride) at Valindaba (its closure was announced during the course of the review); decommissioning and decontamination of the Y and Z and Beva plants, radioactive waste management at Thabana Hill, Pelindaba, and the Vaalputs National Waste Repository; operation of the SAFARI reactor and associated facilities at Pelindaba; a large technology development programme in a new uranium enrichment scheme (Molecular Laser Isotope Separation – MLIS – however, its closure was also announced during the course of the review) and a number of institutional responsibilities such as participation in IAEA technical activities and NPT and Safeguards obligations.

Second, the AEC is fast diversifying and commercialising spin-off and related technologies such as radiation services, fluorination and chemical conversion processes and a number of mechanical and engineering capabilities.

Third, some mature technologies have been clustered into the Pelindaba Technology Products division and subsidiary companies.

The following AEC organisational diagram distinguishes these different functions:

When analysing state support for the AEC, it is useful to consider these three broad categories: first, its institutional programme comprising nuclear fuel related commitments and technology development - where a level of continuous state support may be warranted; second, commercial development where initial state support is offered for a limited period only, and is declining; and, third, its business and industrial operations where no state support is necessary, or appropriate. A complementary analytical framework would be an examination of the three claimed core competencies: radiation technology, fluorination technology and laser isotope separation. Both frameworks are used in this review.

As we embark on this analysis of the AEC, the Review Team is conscious that there is a feeling of disquiet in some quarters, particularly among those previously excluded from power and decision-making (indeed – no black staff were employed directly by the AEC prior to 1990 – black staff on the site were employed through a sub-contracted firm). There is a fear that the old establishment (coupled with external pressure from countries such as the USA to close some AEC operations) have an agenda to deprive the new South Africa of a "first world" science and technology capability. However, there is a greater danger: viz. that policy and resource decisions for the future could simply repeat the gross mistakes of government of the past. The thrust of this DACST review is that it scrutinises AEC’s current and potential technological capability in the context of government’s economic and social objectives and its ambitions to grow a coherent, directed National System of Innovation.

For many (including government ministries and the AEC’s new Board) there is an urgent need to clarify the mandate and mission of the AEC and to restructure its operations to provide transparency and focus.

This review will identify and evaluate the AEC’s core competencies and capabilities, the appropriateness of resource allocation, its commercialisation policy and record, the transfer of technology, management of the institution, commitment to equity and redress, sector-specific issues, ownership, governance and structure and alignment with the objectives of the NSI.

2. IDENTIFICATION OF CORE COMPETENCIES

The AEC has undertaken an extensive evaluation of the totality of their endeavours as part of their transformation programme (the 2000 Plus Plan). The objective was to identify where their best talents resided, the so-called "core competencies" on which future programmes and commercial activities could be built.

For the identification and the management of core competencies, the AEC have used the following set of criteria from Prahalad and Hamel (also used in the DACST Terms of Reference for this review). Core competencies:

• Provide the ability to create an international competitive edge;
• are sustainable;
• are hard to emulate, thus creating a barrier to entrance;
• are a multi-product application with perceived value-addition;
• attract investment from outside the organisation; and
• are the result of long-term strategic planning and investment.

Based on these criteria, the AEC identified three potential core competencies:

• Radiation and nuclear processes, including nuclear waste;
• fluorination of chemicals and surfaces; and
• laser isotope separation.

The AEC have since decided to discontinue their laser isotope separation work and thus, presumably, no longer claim it as a core competence.

1. Radiation and Nuclear processes including nuclear waste

The AEC’s Applied Radiation Technology (ART) group cites as its mission :

"To provide, develop and maintain, in a creative and innovative manner, the technology required to enhance the AEC’s Core Competency through appropriate application and training in the field of radiation for the development of quality products and services to match market and environmental demands as well as the national interest".

The list of facilities and specialist groups that are associated with this core competency is given as follows:

• Safari Research Reactor
  This is a 20MW pool type light water moderated reactor with a wide range of in-core and poolside irradiation positions, neutron beam lines, neutron diffraction and neutron radiography facilities, and a silicon single crystal irradiation facility
• MTR fuel facility
  Produces fuel elements for Safari as well as HEU targets for radioisotope production.
• Hot cell complex
  A modern hot cell facility, originally built for post-irradiation examination of PWR fuel. Presently used for production of commercial radioisotopes, particularly ⁹⁹Mo.
• Isotope centre
  Comprises laboratories and hot cells for commercial production and processing of medical and industrial isotopes, including tritium light sources.
• Decontamination facility
• Radioactive waste processing facility
• Thabana radioactive waste storage facility (at Pelindaba)
  Used for storage of AEC waste, including dry storage of Safari spent fuel. It is also a national facility for waste storage from medical and industrial users.
• Vaalputs waste disposal facility
  The national disposal site for low and medium active waste – presently mostly for waste from Koeberg Nuclear Power Station. It is also a potential site for the disposal of highly active waste and spent PWR fuel elements. This would, however, require substantial geological, environmental and other specialist studies before its suitability for highly active waste disposal can be confirmed.
• Van de Graaff accelerator
  This is a 3MV accelerator used sometimes for industrial applications.
• Gamma source irradiator
  An industrial Co-60 irradiator equipped for food irradiation and available for industrial irradiations.
• Actinide laboratory
  Laboratory equipped with glove boxes for research on actinide elements.
• Whole body counter
  Facility for national use at Pelindaba.
• Reactor theory group
  Specialising in reactor physics calculations, radiation shielding and criticality calculations.
• Nuclear instrumentation
• Radioanalytical group
  Measurement of radioactivity in the environment, mining and industrial products and biological samples. Analysis of materials by various radioanalytical techniques and certification of AEC’s isotope products.
• Radiochemical group
  Research on waste processing technology and radioisotope and radiopharmaceutical applications.
• Risk analysis group
  Risk evaluation of nuclear processes and facilities as input to safety analysis and licensing of activities.
• Radiological safety group

Safari Reactor

The above is a long list, but it is clear that the key facility must be seen to be the Safari reactor, with many of the other facilities/groups justified in their relation to the reactor. First commissioned in 1965, this Oak Ridge design materials research reactor is a reliable device and is undoubtedly well-run in a meticulous, responsible way. After being run on 45% enriched uranium, it is now being fed with HEU of 93%, inherited from the nuclear weapons programme (and now subject to comprehensive safeguards). There has been great pressure from the USA to convert the reactor to run on 20% enriched uranium, but in the absence of financial support for conversion to a new type and design of fuel, and the lower production efficiencies (for ⁹⁹Mo), the AEC is committed to utilisation of the HEU stockpile (equivalent to about 15 years operation). In practice, this route has the advantage of destroying the stocks of highly enriched uranium.

The main applications of the reactor are presently irradiation services, including the fission product ⁹⁹Mo, neutron transmutation doping of silicon single crystals for semi-conductors, coloration of semi-precious stones, isotope production and instrumental neutron activation analyses, neutron diffraction and neutron radiography.

Detailed usage data was provided by AEC staff. Analysis of these data for a sample 12 month period, July 1996 to June 1997, indicated the maximum available time as 3720 "reactor days". We define "reactor days" as the sum of days available for each of the in-reactor facilities or irradiation sites, 60% of which were used. Maintenance occupied 7,4%, while university usage was only 0,75%. The AEC argues that research and university usage could be much higher, but no evidence was presented of any substantial or quantified demand.

The main commercial use of the reactor is the production of ⁹⁹Mo and significant increases in income from external sales are forecast by the AEC. Over the 12 month period, 20% of reactor days were utilised for this purpose, with another 18% for ¹³¹I production. It should be noted that about half of the isotopes sold by the AEC are imported and merely encapsulated and packaged. Another potential use for Safari is neutron transmutation doping of silicon – and the AEC is currently undergoing quality certification for a potential large Japanese order. It previously undertook a test run for a German company, which did not lead to any subsequent orders. One must question the thoroughness of the market research undertaken in this field by the AEC and its apparent dependence on single potential clients.

The pneumatically accessed neutron irradiation facility RINGAS is used for neutron activation analysis. A large part of the use of this facility is to provide on-site needs, but there is substantial external demand.

Total irradiation time was 304,25 hours. Total available time was probably 1800 hours (300 days pa x 6 hours per diem). Thus usage was about 17%. This is a very conservative way in which to estimate the effectiveness of usage of this facility – one could well argue that there are in fact many more hours of available time than the 300 days x 6 hours per day formula. In the case of nuclear accelerators the normal available time per annum is taken as 6000 hours.

As regards the use of the two neutron diffraction facilities (the one for residual strain analysis, the other for (powder) diffraction) the situation appears, for the same 12 month sample period, to be as follows :

Combining the two facilities the total picture thus appears to be as follows:

There does not appear to have been any technikon or university usage during this period. The FRD has allocated R100 000 to modernise the software for the neutron diffractometer for use in conjunction with a new university-based X-ray diffractometer. This activity alone obviously cannot justify the large annual public subsidy for the overall facility.

As regards the neutron radiography facility, the usage analysis for the same sample period of one year gives the following :

Again, it is not evident that there has been any technikon or university usage during this sample period.

The AEC have institutional ties with Potchefstroom University (MSc in Reactor Science) and with the University of the North West (postgraduate training in Applied Radiation Science and Technology). However, the former programme has not produced more than 15 graduates in 10 years, and the latter is planned to commence in 1998. Further industry linkages are reported with the Steenkampskraal project, non-destructive testing, radioanalysis, and radiochemistry. The AEC management make the point that there is no compelling reason to produce a greater number of trained persons, as the current market need is being met.

Without resorting to further detailed analysis the impression gained is that the reactor and associated facilities are being sensibly used but are far from fully utilised. It seems unlikely that external income will ever fully cover the operating costs of the Safari and its associated facilities. A detailed financial analysis of the Safari’s operation is given in the Resource Allocation section.

Other nuclear facilities

The bulk (Cobalt gamma) irradiation facility is a truly nuclear activity and, if a detailed audit substantiates its profitability, warrants encouragement and continuation, and indeed privatisation.

The van de Graaff accelerator is another prime source of irradiation and a potential source of income. It was never mentioned in any of the presentations and from what was verbally intimated outside the meeting venues, is to all intents and purposes now little used. The cost attributed to this facility is R 0,6 million p.a. The data provided for the sample year, July 1996 up to and including June 1997, is 446 hours usage with an income of R91000. Available accelerator time is usually taken as ~ 6000 hours p a (24 x 365 = 8760 hours p a). Hence usage is 7% of available accelerator time. On the basis of these figures, the facility should be closed down in the knowledge that at least two other van de Graaff facilities in SA can meet whatever genuine demand there might be.

A comment is warranted on the Vaalputs facility. The team was not able to visit the site - yet some questions arise. The site is not licensed for high level waste and delivery of low and medium level waste from Eskom has been temporarily halted. Further analysis is included in the Sectoral Issues section of the report.

After this analysis of this specific core competence, what is the view of the Review Panel on whether Radiation and Nuclear processes, including nuclear waste, qualifies in terms of the criteria, for this recognition? The team is mindful of the criterion of an "international competitive edge" and interpret this to mean that there must be something (conceptually) unique about the local activity. We can in all good conscience not find any such innovative features. The fact that the reactor and hot cell facilities are well and conscientiously run and that consequent on the abortive nuclear bomb programme there is an abundant stock of HEU, does not automatically render distinction in an international sense. Even if we interpret competitiveness as "commercial" competitiveness, there is no evidence that the Safari is a financially viable and internationally competitive business, or that it could be in the future (see the analysis in the Resource Allocation section). The field of reactor irradiation and sample processing is well and competently handled (and in the opinion of the International member of the team, its operation ranks with the best in the world), hence it is a "proven capability", but does not qualify for the distinction which we believe is intended by the accolade of "core competence".

Hence the future of this area, that of the ART, viz. "Radiation and Nuclear Processes, including Nuclear Waste" should be addressed first of all by a thorough financial analysis of the realities. Decisions for continuation should be based on a clear identification of costs and benefits. Alternatives should also be thoroughly explored, including importation of critical radio-isotopes, and with the dearth of neutrons currently prevailing in Europe, partners in ownership of the Safari reactor itself, and its exploitation, should be actively sought.

National facility?

Although a parallel review is looking at the question of National Facilities, the Review Team was asked to contribute their views on the Safari Reactor and the AEC Whole Body Counting Facility. We also wish to comment on the National Nuclear Library.

National Facilities, in the sense that the concept has hitherto been advanced in SA, have been created for, or so recognised by, the user community, and only if such a community is of such a size as to justify the creation of a special venture, typically a major research facility. The (university research) user committee associated with each such Facility plays an important role in the affairs of the Facility. No Users Committee has ever been established for the Safari reactor by the AEC. It is understandable why they have not done so, since the user community (as opposed to the clients for its commercial products, which is a quite different matter) is so very small, making up less than 1% of reactor usage. The AEC argue that research and university usage could increase in the future – particularly as the AEC is no longer a secret organisation committed to national security and is now more open. However, in the seven year period since 1990, university usage has not grown to any significant extent. The Review Team requested evidence of the potential for increased research usage – but AEC management were able only to allude to expressions of interest from one university group. Even if university usage went up 300%, this would amount to about 2% of available time at Safari – which is surely still subcritically small.

The reactor is dominantly operated for AEC production purposes, and this is appropriate. To now declare it a National Facility would serve to give the impression that the physics and chemistry (university) groups in this country have a major (multi-million rand) facility added to their armamentarium of physical resources, when this is definitely not the case.

The Review Team cannot therefore support the view in the DACST White Paper that the Safari should be declared a National Facility, as currently defined. This conclusion is also supported by the DACST Review of National Facilities (October 1997), which says:

"Do not recognise as a NF and operate as a commercial enterprise if viable"

These conclusions therefore do not support the AEC’s continued arguments that the Safari should be subsidised by government because it makes a valuable national contribution.

The AEC Whole Body Counting Facility: This is an extremely modest facility and totally inappropriate to be considered as a National Facility. The AEC’s view is that "this facility should probably be seen as part of the AEC’s institutional programme than a separate national facility."

The AEC National Nuclear Library: This library acts as the repository for various reports and documents as, e.g., from the IAEA, in addition to its normal character as a library. There is no need for this to be considered as a National Facility . It should, as we presume it already does, network with the other libraries in SA so that it has access to literature resources from other centres, and that its holdings continue to be available to other parties through the existing inter-library loan scheme.

2. Fluorination of chemicals and surfaces

Special skills were acquired in the field of fluorine chemistry as a key part of the earlier uranium enrichment programme, much of which has since been abandoned. The raw material, fluorspar, occurs in abundance in SA. At the present time the AEC is the sole producer of HF and fluorine in SA. This field holds high prospects for commercialisation and is claimed to be a core competency area.

The main facilities and specialist groups are given as follows :

• HF production plant with capacity of 4000 tons / annum
• Fluorine production cells
• UF₆ production plant 1200 tons / annum
• Production plants for Na₂SiF₆ , HBF₄ , Na HF₂ , KBF₄
• SF₆ plant under construction
• Acetyl-6-naphthalene plant under construction as part of a joint venture with a SA company
• Fluorine compression plant to provide fluorine in cylinders
• Surface fluorination plant for polymer containers, fibres, etc
• Facilities on laboratory and pilot plant scale for developing TFE (tetra-fluoro-ethylene) production technology in plasma reactors
• Plasma processing of minerals
• Facilities on laboratory and pilot plant scale for developing mineral beneficiation technology in plasma reactors [zircon (ZrSiO₄) alumina]
• Facilities on laboratory and pilot scale for developing HF-based (dry and aqueous) beneficiation technology for zircon
• Facility for studying TFE polymerisation
• Laboratory facilities and pilot bays for process development of fluorinated organic and inorganic chemicals
• Surface fluorination technology development laboratory
• Polymer characterisation laboratory
• Analytical laboratory and on-line analytical systems support

There appears thus to be a formidable array of resources supported by a background of knowledge and skills based on experience in fluorine chemistry together with the evolving exploitation of plasma reactors. During laboratory visits there was clear evidence of well developed skills in the design, construction and commissioning of pilot plants. The claim of a core competence with a competitive edge is certainly true in the frame of reference of South Africa, indeed of Africa. It is not clear to what extent that claim can be made within an international frame of reference. It is important to establish precisely what the international view on this subject is - is this field one they are promoting themselves or perhaps even withdrawing from, because of potential environmental impacts, or for any other telling reasons.

Nevertheless there is a competence here which needs to be explored. Significant resources are being expended on R&D in this area (R25 to R45 million per annum), but these amounts appear realistic and are comparable to large local chemical companies, such as AECI and Sasol, which typically spend about R90 million per annum. It was stressed by many of those we interviewed that one cannot easily retread long-term career scientists and engineers into commercial leaders of high competence. One would need to be convinced that the market research that has been carried out is utterly professional, incisive and thorough. Experienced technical executives from industry told the Review Team that the majority of R&D projects fail for commercial reasons, usually because there is no competitive advantage in the new approach. It was therefore reassuring to hear the favourable comments from joint venture partners in the stakeholder meetings – these were companies that would provide an invaluable contribution in assessing markets and competition.

Similarly one would need to be convinced on the adequacy of the pilot-scale investigations. The Team recognise the inherent problems in scale-up and that new plants can take up to five years to reach design capacity. A number of new AEC projects are now in this phase. The leaders of these projects need to be real experts in fluorine chemicals, both technically and commercially. The AEC has yet to demonstrate that it can develop and run sizeable production processes which are internationally competitive, but from the site visits they clearly have a good foundation of pilot-scale chemical engineering expertise

3. Laser Isotope enrichment

The concept of exploiting well-parameterised molecular characteristics which are isotope-specific, is an established one, and a good one. But to go from bench top demonstration to industrial production is a formidable step – and internationally this has still to be done.

The AEC commenced work on molecular laser isotope separation (MLIS) 12 years ago. Dramatically, the Review Team was told during the course of the review that the decision had now been taken to terminate the MLIS programme. The analysis, below, is thus now of rather academic interest.

AEC facilities and specialist groups associated with laser isotope separation comprised:

• An MLIS characterisation laboratory where separation and other parameters were studied;
• a laser development and industrialisation facility for AEC-designed high power, high pulse rate CO₂ lasers. This included Raman cell technology for converting 10um CO₂ radiation to 16um as required for the MLIS process;
• a nearly complete "pilot plant" (construction now halted) for evaluating the techno-economics of the process;
• a flow dynamics laboratory for studying flow cooling of UF₆;
• a high resolution spectroscopy laboratory for UF₆;
• a process modelling group; and
• an optics laboratory.

The AEC’s advances in MLIS appeared to rest on a number of inherited capabilities, including aerodynamics expertise derived from the previous Vortex enrichment technology and a good understanding of UF₆ chemistry. They developed a unique flow cooling nozzle and were able to fabricate high quality, high frequency lasers.

During the visit of the Review Team, the AEC reported that laboratory-scale work, using time-of-flight spectroscopy and the off-line analysis of (bulk) UF₅ produced, indicated significant enrichment factors (5 to 14). However, independent analyses by international laboratories have now cast serious doubts on these results. It now transpires that the AEC have been unable to (consistently) achieve enrichment factors high enough for a viable process, or a single pass process, and yet have been investing many tens of millions of rand in this programme as well as commencing with the construction of a pilot facility.

The decision to terminate the AEC’s MLIS programme was precipitated by COGEMA (the French state-owned nuclear fuels company) withdrawing from its joint development agreement with the AEC. COGEMA joined the AEC’s MLIS project on a cost-sharing basis in 1996, investing about R30 million per annum (after the AEC had already invested more than R300 million). The pilot plant was nearly complete: experiments and a review were scheduled for 1998. The decision by COGEMA to withdraw prior to the results of the pilot-scale tests raises some important questions.

COGEMA’s involvement in MLIS should be placed in perspective. France’s ageing gas diffusion technology will be obsolete by 2010. It does not have access to advanced centrifuge technology and is thus exploring laser separation processes. However, it has invested much more in AVLIS (as has the USA which has spent more than $2 billion and is reputed to have approved a further $600 million for R&D on this technology). The investment of COGEMA in MLIS was thus fairly modest for this large state-owned company. Why did it decide not to wait a further year? The decision to pull out cannot only be explained by its larger commitment to AVLIS. It is also doubtful whether it can be explained through budget limitations. Yes, the revised cost estimates for MLIS for 1998 of R84 million were higher than those originally communicated to the team. Yet COGEMA’s share (even an enhanced share) is clearly within its means. An additional commitment of $5 to $10 million at this advanced stage of technology development was surely not enough for COGEMA to sink the project. The likely conclusion is that their independent auditing of experimental results and performance milestones seriously brought into doubt the potential viability of the technology. There may also be other reasons not known to the team.

COGEMA’s withdrawal has forced AEC management to reconsider their own involvement in this technology and they have now recommended to their Board that the MLIS programme be terminated.

The big lesson from this sad experience is that the AEC’s technology development and commercialisation programmes MUST be subject to independent scrutiny. The Review Team were told repeatedly by the AEC’s management that the MLIS programme had a tremendous future, that the technology was well developed and that future market potential was enormous. The AEC’s future ambitions in nuclear fuel hinged primarily on the MLIS work. But future plans and budgeting should be built not on hope, but on good science, and on thorough market research. The consequence again is a massive waste of public resources on a grandiose scheme. MLIS absorbed more public money annually than the DME spends on research on the entire energy sector. One wonders what might have happened if the French had not become partners and there had been no independent evaluation. Would the AEC still be arguing for large budget commitments to this programme?

4. Capabilities which are not part of the core competencies

The AEC has developed a number of capabilities in the fields of mechanical products, alloys and surface coatings. These cannot be classified as core competencies in terms of the criteria previously listed, but many of them are possibly unique in South Africa. Facilities and specialist groups in this area include:

• specialised fabrication of complex plant components
• high technology welding
• precision machining of complex or high volume components conforming to ISO9000 specifications
• spark and wire erosion facility
• mass manufacture of diesel injectors
• cold forging of high quality products
• high precision manufacturing facility, previously used for nuclear fuel elements under ISO 9001 requirements
• design, manufacture and maintenance of turbo machinery products
• vapour-deposited protective coatings
• specialised plating and electroforming facility
• design and manufacture of vortex tube based dust filtration equipment
• on-line vibration monitoring technology
• tube and profile manufacturing plant
• special alloy production facility and range of metallurgical services
• manufacturing facility for hollow-fibre membranes and specialist services in liquid and gas separation technology

Most of these capabilities were developed to support the special technology development and production facilities at Pelindaba and Valindaba. The capabilities were established because they were not easily contracted in. The AEC now has to decide which capabilities are still essential to support its ongoing technology development programme, which could provide a valued service to other customers, and which should now be closed down.

3. PERFORMANCE ASSESSMENT (BENCHMARKING) OF CORE COMPETENCIES

The previous section has included some evaluative comments on the three core competencies. The section below includes a more systematic evaluation or benchmarking of these. We have interpreted "core competency" as a mark of considerable distinction, taking seriously the injunction of an "international competitive edge".

1. Radiation and nuclear processes including nuclear waste

Competitive edge : There are some inherent advantages which the ART group enjoy : a good reactor, well-designed and well-constructed ; and access to a (large) in-house supply of HEU. The reactor is well-run, and the attendant services (such as the hot cell facilities) are well-conceived, albeit on a perhaps generous scale. They are also well-run. The nature of the use of the reactor is sensible and is similar to that of other research reactors in this general league. The Review Team was not able to identify any developments of great and unambiguous distinction in an international frame of reference. This does not imply that we did not recognise and appreciate the quality of the work done and the accumulation of skills and experience of the staff.
Sustainability : There is no reason, other than the harsh realities of finance, for the reactor operation not to be sustainable. We are assured that there is a stock of HEU enough for 10 to 15 years. We are assured that the regulatory authorities, who generally are not well-disposed to research reactors with very highly enriched fuel, have accepted the realities of the Safari case. There is always the question of the effective lifetime of a nuclear reactor, posing the issue of the accumulated radiation damage. An estimate of 15 years has been offered, but it is speculative and may be much longer than this. However, the large subsidy required to keep the Safari and its associated facilities going, might mean that financial non-viability renders their continued operation non-sustainable.
Emulation : Other research reactors, internationally, plus those planned, emulate what can be done with a device of this kind.
Multi-product application with perceived value-addition: The work done with research reactors is typically "multi-product" in character ; whether it is economically able to be run at break-even is currently debatable: a detailed audit and financial analysis is necessary to determine whether the reactor will add net value in the medium term. (See next section).
Outside investment: This is not a characteristic of such facilities, but in view of the low research usage of Safari, the continued large state subsidy to keep it running and the dearth of neutron facilities in Europe as a result of the closing of so many research reactors, every effort should be made to attract (paying) partners or even co-owners.

On balance, we must conclude that radiation and nuclear processes cannot be classified a core competency. However, in the view of the International member of the team, the AEC have a capability which ranks with the best in the world.

2. Fluorination of chemicals and surfaces

Competitive edge : The accumulated experience and knowledge-base, together with the existing plant, should provide a competitive edge, at least on the African scale.
Emulation : What currently exists is not easy to emulate, but we are ill-informed as to the international scene and current international policy regarding fluorine-based chemicals.
Multi-product application with perceived value-addition : Yes.
Outside investment : Should be possible on a substantial scale, some activities may be ready for full privatisation.
Strategic planning and investment : Yes .

This area may well comprise a core competency. Our main concerns are the adequacy of the market research undertaken, the adequacy of the pilot-scale investigations, and whether this field is appropriate to the nuclear-related mandate of the AEC.

3. Laser isotope enrichment

The recent decision of the AEC to terminate its MLIS programme removes any potential for the AEC to develop a core competence in this area.

4. RESOURCE ALLOCATION

1. Historical trends in grant and sales income

The cumulative state expenditure on the AEC is enormous. Van Horen (Counting the Social Costs. Elan and UCT Press: 1996) has calculated that between 1971 and 1995 the state allocated R21,7 billion (1995 rands) to the AEC. Since 1990/1, when the decision was taken on unilateral nuclear disarmament and to commercialise the AEC, a further R 3,6 billion (nominal) of public resources has been expended (some of this because of inherited liabilities).

The AEC derives income from two main sources: an annual parliamentary grant which is part of the Department of Minerals and Energy budget; and external income from the sale of services and products. Smaller amounts of investment income are also earned.

AEC Revenue (1991-1997) - R millions (nominal)

State support for AEC activities has declined over the years, but at a variable rate, while external income has increased steadily. In real terms, the government grant has been reduced by a factor of 4 over this period. At first glance, it might appear that reduced state dependency has been possible mainly because of increased net income from sales. However, a more detailed cost analysis reveals that the reduced requirement for state funds has mostly been a result of closing grandiose research and technology initiatives or uneconomic nuclear fuel cycle operations (such as the Z plant). As a consequence, large numbers of staff have been made redundant (down from over 8000 in 1987 to around 2000 today). The analysis below will show that there is still little evidence that increased sales have so far led to significant profits or net income. While there has been a move towards cost recovery, the AEC is still dependent on substantial public funding.

2. Resource allocation analysis for 1997/8

The AEC has provided more details for the current budget year on how government resources are allocated to their main programmes: viz. those activities which might require continuous state support (such as nuclear fuel related commitments and technology development); those which are aimed at commercialising technologies and products, and thus need state support for a limited period only; and finally the mature industrial programmes, where no state support is required. This analysis also provides greater clarity on the cost structure of various AEC operations.

Overall cost structure and resource allocation for 1997/8 (R – millions)

Direct costs are those directly associated with income-generating activities. Indirect costs include allocatable corporate overheads and management, although these are defined slightly differently in the various programmes. Indirect costs also include interest and depreciation. Not included are non-allocatable items such as a special contribution of R7,5 million to their pensioner’s medical aid (given the large-scale downsizing of staff) and non-recurrent Decommissioning and Decontamination activities (currently R21,7 million). Internal transfer income refers to income from the sale of services to other AEC divisions.

The two cost columns show a management and overhead cost of about 25%. This may seem high, but in practice it is at least comparable with a similar breakdown for the CSIR. External income has risen from about 20% of the total in 1991 to over 50% in 1997, but this still leaves the AEC highly dependent on government funding. To understand where this money is going, a more detailed analysis is required of funding allocated to the AEC’s government/institutional, and commercialisation programmes. The "government programme" is analysed first.

Government / Institutional programme budget 1997/8 – R millions

The government grant for Nuclear Fuel and Waste Services is allocated as follows: Nuclear Waste Management – R14,4 million; Environmental Services – R3,7 million; MTR – R0,3 million; DWR – R6,1 million, the Conversion Plant - R15,8 million (now due to be closed), and a number of other smaller amounts.

The government grant for Pelindaba Services and Site Utilities includes R13,8 for Risk Management. The Public and Government Affairs programme includes government support of R3,9 million for IAEA and AFRA programmes; R2,1 million for NPT work and R7,4 million for the Pelindaba Skills Institute. The large budget for the Pelindaba Site creates a serious problem for future transformation and commercialisation programmes. Extensive facilities have been inherited. A large percentage of the floor space of buildings is un- or under-utilised, even though the AEC rents space to a number of independent companies. And the under-utilisation of utilities and services creates significant dis-economies of scale. In many other countries, commercialised entities have been unable to cover the full costs of original nuclear sites and facilities and government has been forced to commit significant site subsidies. Future commercialisation and break-even scenarios for the AEC cannot ignore the ongoing costs which will be necessary to maintain and service the extensive Pelindaba and Valindaba sites.

The Technology Development programme includes the following government grants: Pelindaba Analytical Services – R2,9 million; Safari and radiation technology – R24,9 million; and R30,1 million for the MLIS programme. A total of R371,3 million (1996 values) has been spent on the MLIS programme thus far, and more will be required for decommissioning and redundancy payments, following the recent closure of this programme.

3. Safari economics

It is intriguing that such a large government grant is allocated to the Safari reactor and radiation services for technology development, given that mainly routine or commercial work is being done in this division. A more detailed financial analysis of the Safari Reactor and its associated operations is presented below:

Safari Reactor and Associated Facilities budgets 1997/8 – R millions

Source: Radiation Technology, Safari and Hot Cells – pers com. AEC staff;
PTP: NTP Business Summaries.

Further details of income and expenditure for the Radiation Technology group is given below. The largest generator of external income is radioanalysis. The costs of the van de Graaff (R600 000) are included in the reactor utilisation budget.

Radiation Technology budget 1997/8 – R millions

The cost structure for the Safari is shown below:

Safari budget 1997/8 – R millions

Only about half of the isotopes sold by the AEC are produced in the Safari (the rest are imported). The pricing formula for the isotopes produced in the Safari is not based on real costs. Rather, the price appears to be set at a level which is competitive with imports, and then a certain percentage of sales income is transferred as an internal AEC cost . As from 1998, the Hot Cell Complex will be incorporated into the ⁹⁹Mo business.

The main potential for increased income is ⁹⁹Mo, taking advantage of the existing inventory of highly enriched uranium (HEU) and the established in-house skills. There is also potential for income from the transmutation doping of silicon to phosphorus. The following table indicates the AEC’s projections for increased sales and net income (profits), and compares this with core operating costs for the Safari and the Radiation Technology group. The parliamentary grant is excluded.

Projected sales income and costs for Safari and Radiation Technology – R millions

Sales and income figures supplied to the Review Team by the AEC increased substantially over the review period. For example, projected nett income (profit) for ⁹⁹Mo is now double the figure previously given. It is clear from the above table that even if the AEC’s projections for large increases in sales income from ⁹⁹Mo and other isotopes, materialise – net income growth is modest and cannot substantially reduce the state subsidy. Even with the AEC’s best commercial projections, there is still a requirement for government funding of between R15 million and R25 million per annum.

On the basis of the above financial analysis, and our previous finding that very little research or technology development is being undertaken in this area, there is no sound rationale for the current level of subsidisation of the Safari by the South African government. No evidence has been presented to us that radio-isotopes currently supplied to the South African and African market by the AEC could not be imported at competitive prices. The closure of the Safari would undoubtedly have a devastating impact on the AEC, and there could be some ramifications for cooperative programmes with African countries. However, it is a legitimate and serious question as to whether the benefits derived from the Safari warrant an ongoing subsidy of nearly R25 million per annum. The AEC hold out little hope that any international partner would invest in Safari.

The above analysis points to the closure of the Safari. The continuation of any associated facilities and operations (such as radio-analysis and radio-chemistry) should be dependent on need and demand. An in-depth study should be initiated as a matter of urgency to determine the consequences and impacts of such a decision, including possible impacts on the IAEA AFRA programme.

4. Commercialisation programmes

Finally, in this section, we examine the budgeted income and expenditure for the AEC’s commercially directed and industrialisation programmes.

Commercial programme budget 1997/8 – R millions

PTP budget 1997/8 – R millions (including allocatable overheads)

All operations reveal a loss (with the small exception of NTP). A slightly different picture emerges if allocatable overheads are removed. Pelchem, Pelmech and PTS remain non-profitable, while slightly higher profits are possible for NTP and Pelrad. Once again, government needs to make informed judgements as to whether it wishes to invest in technology development in these areas as opposed to other technology development areas. It is also of concern that the mature technologies in the PTP programme are mostly turning in a loss. Overseas nuclear establishments have experienced similar losses during the period of extreme rationalisation and diversification on the way to full commercialisation or privatisation.

5. Future income

The AEC forecasts significant growth in external sales but anticipates continued but diminishing reliance on state grants.

Projected AEC revenue (1998-2002) – R millions

Source: AEC 2000 Plus Strategic Plan

6. Resource allocation summary

The resource allocation and accounting system of the AEC is labyrinthine and mirrors the lack of clarity of mission and focus in the organisation. Government has not been in a position to independently and rationally assess the AEC’s budget. Only recently is the AEC beginning to produce internal accounts which allocate overheads to its core programme areas. The above analysis begins to show the true cost of these activities, although a more detailed forensic audit is required to properly evaluate whether costs are being appropriately allocated.

There is a clear need both for a more transparent accounting for resource allocation in the AEC and for the evolution of a more coherent funding strategy from government. It is clearly inappropriate that the Department of Minerals and Energy is funding non-energy related functions and where state support is justified this should rather be funded by the Department of Trade and Industry. The DME might also wish to assess more rigorously its funding commitment to radiation services and facilities (R24,9 million). Of great concern must also be the hugely expensive Pelindaba site where a great deal of the costs of Technical Services appear not to be recoverable from project income, as has been the case for nuclear sites in other countries aiming at commercialisation.

Are government funds focused on core competencies? Of an annual government grant of R242,6 in 1997/8, R30,1 million was spent on MLIS, R36,9 million on the commercial development of chemical processes, and R4,1 million on the commercial development of radiation processes. A further R24,9 million was spent on the Safari – much of this a subsidy to commercial production rather than technology development. With MLIS now closed down, the resource allocation decision facing the national Science and Technology establishment is whether and/or how it should fund or support the AEC’s technology development work in fluorine chemicals and related areas? At a minimum, any requests for such funds should be evaluated on an equivalent and transparent basis and compete with any other requests for technology development support.

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