ATOMIC ENERGY CORPORATION OF SOUTH AFRICA LIMITED
OFFICE OF THE CHIEF EXECUTIVE OFFICER


AEC COMMENTS ON THE LATEST DRAFT NUCLEAR
ENERGY BILL OF 1999 (NEB 99)


1 OVERVIEW
The AEC has taken cognisance of the main intentions of the latest draft Nuclear Energy Bill, 1999 (NEB 99) as stipulated in an attached memorandum (page 66) to the Bill. In general, the AEC is comfortable with the broad aims of the new draft Bill but would like to indicate the following implications with respect to some of these aims:

1.1 Governance of nuclear issues to be put under control of the Minister of DME.
The AEC welcomes the legislative empowerment of the Minister in the draft Bill with respect to nuclear non-proliferation matters. However, the involvement of the Minister in day-to-day, non-sensitive nuclear matters, such as authority for the discarding of radioactive waste and storage of irradiated nuclear fuel from Safari research reactor (section 45 and 46 of the Bill) and the requirement of ministerial approval, according to section 13(3), for the transfer of nuclear technology outside the Republic (as, for example, is the case with the AEC/AFRA training programme), may handicap the daily operational activities of the AEC in these areas. Since the aim of the new Bill is clearly to put these issues with potential public sensitivities under the control of government, it is recommended that a specific transitory period be set in the Bill to allow for a smooth phasing-in of these new ministerial powers under a new Act.

It also appears as if the new powers of authority of the Minister, according to the draft Bill, has been extended to include the daily commercialisation activities of the AEC. Sections 13(1)a(i), 13(2)(e)and 14 call for ministerial approval with regard to JV-arrangements, exploitation of chemical or related products and for financing of new ventures via loans. The apparent curtailment of these decision-making powers to the AEC Board (the current Nuclear Energy Act, 1993 empowers the Board to act on these matters) may severely retard the commercialisation strategy of the AEC.

Specific recommendations on these issues to be considered for incorporation into the draft Bill are covered in an annexure to this document.

1.2 Reorganising the mandate and governing structures of the AEC in line with the recent DACST report on this matter.

The AEC welcomes this aim of the draft Bill. It is, however, not very clear to the AEC how the NEB 99 will facilitate the separation of the AEC into two separate autonomous entities, an institutional and commercial organisation, as is proposed in the recent White Paper on Energy Policy. A clear statement in this regard would be welcomed.

The latest draft Bill also declares in section 9, that the state will hold shares in the new Corporation based on the net value of assets of the AEC. However, due to former state-guaranteed loans for the AEC's strategic nuclear fuel plants (which have since been closed), large future D&D and nuclear waste liabilities as well as current pensioners' medical liabilities, the net asset value of the AEC will become a negative figure, should the full liabilities have to be provided for through provisions on the balance sheet. This fact makes the future separation of the AEC into two separate entities more evident to avoid the commercial division being labelled bankrupt from the outset. The principle to separate the commercial division first before encumbering it with historic liabilities that were not of its own doing, was followed carefully in the UK and should be considered here.

In terms of the governing structure of the AEC, it also appears as if no clear provision has been made in the NEB 99 for the delegation of powers from the Minister to the AEC Board of Directors. According to section 55(1) of the Bill, the Minister may apparently delegate any power and furthermore assign any function to the director-general of the Department of Minerals and Energy who may subdelegate in turn. Even if this is not the intention of the Bill, it could imply that the AEC Board of Directors become accountable to DME, with no line of delegated authority to the Minister. Clearly this will also hamstring the commercial endeavours of the AEC which rely on speedy decision-making in many day-to-day business areas. To enhance clarity on this issue, it is recommended that a clear statement, allowing delegation of authority from the Minister to the Board, be incorporated into the latest draft Bill before it is passed by Parliament.

1.3 Separation of the legislation that governs the AEC and the Council for Nuclear Safety (CNS).

The AEC supports this initiative.

2 KEY IMPLICATION OF THE NEW NUCLEAR ENERGY BILL
The AEC is of the opinion that the new draft Nuclear Energy Bill, 1999, adequately addresses issues of governance and accountability of nuclear sensitive and national matters. However, the main concern of the AEC is that the new ministerial powers have apparently also been superimposed on the commercial activities of the organisation. With respect to its commercial programme, the AEC would have welcomed firm delegations empowering the AEC to take rapid business decisions based on sound guidance from skilled Board members, rather than engaging in what could be a fairly cumbersome process to obtain commercial approval/authority from government. Mundane business activities such as the exploitation of nuclear-related (chemical) technology, formation of trade agreements and selling of commercial manufacturing rights should ideally be under control of a government-appointed Board of Directors who provides regular feedback to the Minister. A curtailment in these delegation powers of the AEC Board as is evident from sections 13 and 14 of the draft Bill, will cause a severe set-back in the commercial programme of the AEC.

3 RECOMMENDATIONS
The AEC would like to pose the following recommendations:

3.1 A clear statement, allowing delegation of powers from the Minister to the Board be incorporated, before the draft Bill is enacted. Alternatively, that an appropriate transitory period be set in the Bill, to allow for a smooth phasing-in of the new powers of the Minister under a new Act.

3.2 The Bill, through insertion of a specific statement, provide more clarity in terms of the future separation of the AEC's institutional and commercial activities as instructed within the White Paper on Energy Policy.

3.3 The current auditing procedure as stipulated by the current Energy Act of 1993, whereby externally audited financial reports are submitted to the auditor-general annually, be retained in the draft Bill.

3.4 In terms of the assigned role of national authority responsible for safeguards implementation, the draft Bill be brought more in line with international practice by allowing the Minister to appoint an organisation or agency in this capacity.

ACTING CHIEF EXECUTIVE OFFICER

ANNEXURE A

DETAIL IMPLICATIONS AND PROPOSED RECOMMENDATIONS BY THE AEC BASED ON AMENDMENTS WITHIN THE DRAFT NUCLEAR ENERGY BILL, 1999 (NEB 99)

1 The following issues within the NEB 99 warrant some attention:

1.1 Section 4: Incorporation of South African Nuclear Energy Corporation Limited

Issue

Note

(a) The NEB 99 provides for the formation and incorporation of the corporation as a public company within the meaning of the companies Act. The AEC's corporate name will also change to the South African Nuclear Energy Corporation Limited.

It is still unclear how the proposal within the White Paper on Energy to divide the AEC into two separate and independent organisations, one dealing with commercial activities and the other with institutional responsibilities, will be facilitated by the NEB 99. The NEB 99 is silent on this issue. It is recommended that the draft Bill provides some clarity on this issue.

1.2 Section 13: Ancillary powers and functions of Corporation

Issue

Note

(a) Section 13(2)(e)
The AEC may not commercially exploit any metal, chemical or related products without the permission of the Minister.

(b) Section 13(3)
According to the NEB 99, the written permission of the Minister is required in order to undertake the development, transfer or exploitation of nuclear or nuclear-related technology on behalf of or in collaboration with any person, institution, government or administration, in any country or territory outside the Republic (NEA 93 provided for approval by the AEC Board of Directors).

(c) Section 13(1)(a)(i)

In the NEB 99, the AEC may not establish a subsidiary company or in association with any person so establish a company, or acquire an interest in or control over a company without first obtaining approval of the Minister granted with the agreement of the Minister of Finance.

(d) Section 13(1)(q)

In the NEB 98, the AEC may not sell or make available for use, any patent, licence concession, right to manufacture or any similar right granting powers to use any information, expertise, process or technology which has been developed by the AEC or a subsidiary company without first obtaining the written permission of the Minister.

Ministerial approval authority to protect the non-proliferation of nuclear technology, may be appropriate but should not hamper the exploitation of proliferation insensitive or inappropriate commercial technology. In the latter case, this clause will retard speedy decision-making on new commercial develop-mental projects as has been demonstrated on a number of occasions.
(Surface fluorination in Belgium, Tridelta etc).

Furthermore, co-operation with the IAEA through regional Technical Co-operation Projects or through the AFRA program (currently 21 such projects exist between various South African institutions and African counterpart institutions), is administered by the AEC through a special Memorandum of Understanding with the IAEA. In all cases, only proliferation insensitive nuclear technology is involved and ministerial approval will make progress in this programme exceedingly difficult.

It is recommended that these powers be delegated to the AEC Board of Directors before the new Bill is enacted. Alternatively, a specific transition period should be set aside once the Bill has been enacted, to allow for the establishment of the necessary delegation powers.

The commercial strategy of the AEC entails the exploitation of technology and products through the formation of JV agreements or JV companies with international industrial partners and black empowerment groups in order to obtain market penetration, secure capital funds or obtain technology know-how, where required, for new chemical plants.

It is recommended that this authority be delegated to the AEC Board of Directors, within certain limits as prescribed by the Minister, before the new Energy Bill is enacted. Alternatively, a specific transition period should be set aside once the Bill has been enacted, to allow for the establishment of the necessary delegation powers.

Ministerial approval is probably valid in the case of those patents or proprietary rights that are clearly applicable to nuclear non-proliferation items. These items have already been clearly defined and gazetted through the Non-Proliferation of Weapons of Mass Destruction Act (Act 87 of 93). Ministerial approval for other commercial intellectual property rights, is inappropriate. During the 1997/98 financial year, intellectual property rights at the AEC have been, in the commercial area, protected through 70 patent renewals and 6 new successful registrations. Many of the commercial joint venture initiatives of the AEC with other local or foreign partners, require that some of these patents or rights of manufacturing or certain expertise be made available for exploitation within the JV agreement.

The approval authority of the Minister in these instances, as embodied in the new draft Bill, will result in an extremely cumbersome commercial decision-making process which scares off private business concerns and this needs to be amended. It is recommended that this authority be delegated to the AEC Board of Directors. Alternatively, it is proposed that a specific transition period be determined, once the Bill has been enacted, to allow for the establishment of the necessary delegation powers.

1.3 Section 14: Loans

Issue

Note

Section 14(1) of the NEB 99 declares that the corporation, with the written permission of the Minister granted with the agreement of the Minister of Finance, may raise loans to finance any expenditure that may be incurred by the Corporation.

The current NEA 93 declared this the specific responsibility of the Board of Directors of the AEC.

Due to cash flow shortfalls and capital fund needs for new commercial projects, short term loans are often required by the AEC on short notice. Experience has shown that to obtain the permission of two Ministers is a prolonged and cumbersome process.

Since the AEC is currently facing imminent needs in this regard, it is recommended that this authority be delegated to the Board of Directors of the AEC, within its limits as specified by the Minister, before the Bill is enacted. Alternatively, it is recommended that a specific transition period be determined, once the Bill has been enacted, to allow for the establishment of the necessary delegation powers.

1.4Section 26: Accounting and Auditing

Issue

Note

(a) Section 26(3) of the NEB 99 declares that the Corporation's accounting records and financial statements must be submitted to the Auditor-general for auditing. This procedure is not in line with the Companies Act, 1973.

The current NEA 93 declares that the Reporting of Public Entities Act, 1992 (Act no 93 of 1992) applies to the AEC. In terms of this Act, the appointment, duties and powers of auditors have been clearly defined. According to this Act, an external audit on the AEC is performed by auditors who are appointed by the Minister on recommendation of the Board of Directors and with the concurrence of the Auditor-General. Sub- sequent to the external audit, copies of the AEC's financial statements are sub-mitted to the Auditor-General's office annually and regular feed-back is received on the AEC's broad com-pliance with the Reporting of Public Entities Act of 1992. The Auditor-General's office, however, does not carry out a formal audit of the AEC.

Given the transparency of the current process, as well as the need for frequent interaction between the AEC and its appointed external auditor, it is recommended that this procedure be retained in the draft Bill.

1.5 Sections 45 and 46: Authority over the management and discarding of radioactive waste and storage of irradiated nuclear fuel

Issue
(a) According to sections 45 and 46 of the Bill, no person may, without the written permission of the Minister (in concurrence with the Minister of Environmental Affairs and Tourism and the Minister of Water Affairs and Forestry) discard radioactive waste or store irradiated nuclear fuel in any manner.

Note
The AEC disposes of low-level radioactive waste originating from the AEC as well as medical and industrial waste from local industries at Thabana, the waste disposal facility on the Pelindaba site, almost on a daily basis. The total estimated volume of solid radioactive waste at Thabana is 13 139m3. The AEC also regularly transports spent fuel from Safari to the dry retrievable pipe store on Thabana. Furthermore nuclear waste rom Koeberg is disposed of on a weekly basis at Vaalputs. All of these disposals are carried out under a safety licence from the CNS. Ministerial authorization for each such case would make this a very cumbersome activity.

This needs to be delegated before the new Bill is enacted. Alternatively, it is recommended that a specific transition period be determined, once the Bill has been enacted, to allow for the establishment of the necessary delegation powers.

1.6 Section 34: Authorisations required for acquisition or possession of, and certain activities relating to nuclear material, restricted material and nuclear-related equipment and material

Issue
(a) According to sections 34(1)h, 34(1)s, 34(1)t and 34(1)u written authorisation of the Minister is required for the use, disposal, or transport of any of the above-mentioned materials or equipment.

Note
As indicated in the note above, (paragraph 1.5) the AEC needs to move and dispose of radio-active waste and nuclear fuel materials frequently on site and somewhat less frequently off-site. It is recommended that the Minister's authorisation be granted before the Bill is enacted or, alternatively, that a specific transition period be set aside to allow for the establishment of the necessary delegation powers.


2 GENERAL COMMENTS ON CHAPTER III OF THE NEB 99: NUCLEAR NON-PROLIFERATION

2.1 The major concern with regards to this section of the Bill is the fact that Safeguards implementation has no longer been assigned to the AEC, as was the case in the previous draft Bill. Not only has it now been defined as an "institutional obligation" (page 4) with the Minister being responsible for institutional obligations (page 34), but according to the NEB 99, section 33(1), the Minister is now regarded as the national authority, responsible for the implementation of safeguards. This is not in line with the international trend, for in none of the member states of the IAEA has a Minister ever been appointed as "national authority". The national authority is usually associated in these states with a nuclear-related organisation or agency. According
to this Bill, the Minister will now be involved in many mundane day-to-day safeguards implementation matters as specified in sections 33(2) and 33(3). It is recommended that section 33(1) be changed in the sense that the Minister may appoint an organisation as the national authority.

2.2 According to sections 34(2) and 35(2) of the NEB 99, there is no obligation on the Minister to consult with any party in authorizing acquisitions/imports/exports of nuclear materials (to ensure that non-proliferation commitments are complied with) and in terms of section 44, the Minister has the power to acquire, lease or expropriate nuclear material. In addition, there is no obligation on the Minister to delegate safeguards to any other party. This will make the obligatory regular reporting to the IAEA, very difficult.

2.3 In the present NEA 93, the evaluation of patent applications is confined to the nuclear proliferation potential of the patent application. The new draft NEB 99, according to section 41(5), extends this "to the interests of security of the Republic" and involves the Minister of Defence - for a first time in a nuclear energy act. Not only may this lead to a duplication of expertise (mainly for a low frequency activity), but may create a negative perception on South Africa's nuclear intentions.

2.4 Section 33(5) of the NEB 99 states that all fees from time to time that are due to the IAEA must be paid by the Minister. This is an apparent change from the current arrangement with DACST which makes provision for the payment of the regular IAEA membership fees by the AEC and payment of the TCF-contributions by DACST.

ATOMIC ENERGY CORPORATION OF SOUTH AFRICA LIMITED

AEC COMMENTS ON THE LATEST DRAFT NUCLEAR
ENERGY BILL, 1999 (NEB 99)


1 MAIN OBJECTIVES OF THE NEB 99
The AEC has taken cognisance of the following main objectives of the latest draft Nuclear Energy Bill, 1999 as stipulated in the attached memorandum (page 66) to the Bill:

1.1 Reformulation of governance of the AEC to increase transparency and accountability.

1.2 Reorganisation of the AEC mandate by placing matters of sensitive and national nature under control of the Minister.

1.3 Reorganisation of the Board of Directors and Management to enable restructuring in line with the "Systems Wide Review of Public Sector Science, Engineering and Technology Institutions" of the Department of Arts, Culture, Science and Technology.

1.4 Separation of legislation that governs the AEC and the CNS.

2 PRACTICAL IMPLICATIONS FOR THE AEC
In general, the AEC is comfortable with the broad aims of the new draft Bill but would like to indicate the following implications with respect to two of these aims:

2.1 Ministerial control of matters of sensitive and national nature. This will imply ministerial authorization of the following actions:

· Daily operations involving transport, disposal and storage of radioactive waste [sections 45, 46 and 34].

· Conferring rights of usage of AEC developed technology to any person or organisation. This may impact on the AEC's technical supporting role to SA industry and also on its role in Africa under the AFRA agreement [sections 13(1) and 13(3)].

· Apart from sensitive matters, the ministerial control envisaged will also require the AEC to seek ministerial approval for the commercial exploitation of non-nuclear metals and chemicals or to render services for reward to any person or organisation [section 13(2)].

· The increased ministerial control may severely limit the decision-making powers of the AEC Board of Directors in commercial matters which generally require fast decisions, for example, the authority for financing of new ventures via loans or JV arrange-ments (the latter is also a limitation in the existing 1993 Nuclear Energy Act). [Sections 14(1) and 13(1)].

2.2 Reorganisation of the mandate of the Board of Directors and Manage-ment to enable restructuring of the AEC.

· The Bill makes provision for the Minister to delegate powers to the Director-General who may subdelegate in turn. There is, however, no provision for delegation of powers from the Minister to the Board of Directors. A direct line between the Minister and the Board of Directors is essential for effective decision-making in commercial ventures. [Secion 55(1)]

· Section 9 of the Bill states that the State will hold shares in the new Corporation based on the net asset value. It has to be pointed out that if all past liabilities are taken into account, the Corporation will be technically insolvent, which will have a negative influence on the commercial division. The principle to separate the commercial division first before encumbering it with historic liabilities was followed in the UK and should be considered here. In fact, it is not very clear to the AEC how the NEB 99 will facilitate the future separation of the AEC into two autonomous entities (institutional and commercial activities). [Section (9)].

3 RECOMMENDATIONS
The AEC would like to pose the following recommendations (details outlined in attached annexure A):

3.1 The delegation of powers from the Minister to the Board of Directors on a wide range of operational and commercial issues should be clarified before the Bill is enacted. Alternatively, that an appropriate transitionary period be set in the Bill to allow for the establishment of the necessary delegation powers.

3.2 The Bill, through insertion of a specific statement, to provide more clarity in terms of the future separation of the AEC's institutional and commercial activities as instructed within the White Paper on Energy Policy.

3.3 The current auditing procedure as stipulated by the current Energy Act of 1993, whereby externally audited financial reports are submitted to the Auditor-General annually, be retained in the draft Bill. [Section 26(3)].

3.4 In terms of the assigned role of national authority responsible for safeguards implementation, the draft Bill be brought more in line with international practice by allowing the Minister to appoint an organisation or agency in this capacity. [Section 33(1)].

ACTING CHIEF EXECUTIVE OFFICER