Annual Report 2010Design Specific/PBMR/Other...for 34.3 GWe and nuclear 1.8 GWe of its total...

Annual Report 2010

The PBMR pathway to reactor design has been extremely valuable. The company has developed a huge basis of design and analysis tools, methods, procedures and capabilities.

- PBMR Annual Report 2010

Contents

Preface 2

Report by the Chairman of the Board 9

Report by the CEO (Acting) 12

The Value of PBMR 17

Strategy 20

Performance on Key Initiatives 23

International Collaboration 32

Investment to Date 34

The Value of Incubating Nuclear Technology 37

Corporate Governance 42

Annual Financial Statements 52

Abbreviations 82

RP: 258/2010ISBN: 978-0-621-39759-8

1. Preface

Pebble Bed Modular Reactor (Pty) Limited (PBMR) Annual Report 2009/2010

Preface

This report is presented amid enormous challenges faced by the Pebble Bed Modular Reactor (Pty) Ltd (PBMR), a company that has been developing nuclear energy technology - based on a German licence - for the past decade.

The inability of the company and its shareholders to secure additional funding has led to drastic downsizing of the employee complement and cancellation or freezing of signifi cant technology development programmes, in an effort to maintain operations until March 2013.

Energy generation is one of the biggest challenges facing South Africa. The state utility, Eskom, supplies about 95% of South Africa’s electricity. Coal-fi red stations account for 34.3 GWe and nuclear 1.8 GWe of its total installed net capacity of 40.5 GWe (44.2 GWe gross). According to a recent report, Eskom coal-fi red power stations generate more than half of South Africa’s total carbon emissions and could face global regulatory threats, over and above any possible national emissions cap and/or carbon-pricing mechanism. Furthermore, the report notes that carbon taxing could be “fi nancially crippling” for the utility, but adds that “any carbon-related costs could be passed on to consumers in the form of higher electricity prices, and remedial measures would be required to address infl ationary pressures and social equity concerns”.

Eskom says the country needs 40 GWe of new generation by 2025, bringing its total capacity to 80 GWe. About half of the new capacity was intended to be nuclear, but this is now in doubt, since the 2008 cancellation of the tender for Nuclear 1, a 4 GWe capacity based on pressurized water reactor technology. The utility said it has decided “not to proceed with the proposed investment in the Nuclear 1 project due to the magnitude of the investment” required. Although the government has stated that nuclear was still part of the future energy generation mix, the details will only become clear once the government’s future energy generation plans have been fi nalised in the Integrated Resource Plan 2 (IRP2). The IRP2 is one of the nine work streams falling under government’s inter-ministerial committee (IMC), which includes Public Enterprises Minister Barbara Hogan, Energy Minister Dipuo Peters, Finance Minister Pravin Gordhan, Economic Development Minister Ebrahim Patel, as well as the Minister in the Presidency responsible for the National Planning Committee, Trevor Manuel.

In December 2009, the government informed the Board of Pebble Bed Modular Reactor (Pty) Ltd that it could no longer fund the company’s development of a modular, high-temperature, gas-cooled reactor (HTR) and the related pebble fuel. Initially, the company designed a 400 MWt helium-cooled, graphite-moderated reactor with a direct Brayton Cycle gas turbine generator to generate electricity for Eskom.

A new design at 200 MWt was started in 2009 which is less technologically challenging, while it also fi ts the US Department of Energy’s (DOE’s) requirements for a Generation IV reactor in their Next Generation Nuclear Plant (NGNP) programme. The 200 MWt PBMR can use standard “off-the-shelf” steam components, reducing timescales and cost and lowering technological risk relative to the PBMR 400 MWt Brayton cycle. Other potential process heat applications include synfuels production, oil production from Canadian tar sands, and water desalination.

At the beginning of 2010 it was announced that the consortium of Westinghouse Electricity Company, PBMR and Shaw had been selected as one of the two contenders for the next round: the design of a modular reactor. The main bidder (Westinghouse) has however withdrawn the team from participating in the programme.

Meanwhile, in December 2008, PBMR’s pilot fuel plant manufactured 9.6% enriched fuel particles, which were shipped to the US for testing at the Idaho National Laboratory. During tests, the PBMR fuel performed very well and was certifi ed to comply with all the specifi cations.

In August 2009, PBMR shipped 16 commercial-sized graphite spheres (containing approximately 12 000 9.6%-enriched fuel particles) to Russia for irradiation tests to demonstrate the fuel’s integrity under reactor conditions. The irradiation tests, which were to be conducted by the Institute of Nuclear Materials in Zarechny near Ekaterinburg, would be the fi nal step in the development of the fuel for the PBMR demonstration unit. Unfortunately, the funding dilemma of the company has stopped the irradiation tests.

History of the PBMR

Since 1993, Eskom (in collaboration with others for the last decade) has been developing pebble bed technology. From 1999 to 2009, the South African government, Westinghouse, Eskom and the Industrial Development Corporation (IDC) of South Africa invested R9 billion (about US$ 1.2 billion) in the project.

Currently, while Eskom holds all the shares, Westinghouse has some rights to the project and provides the main international link.

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Jul 1999. Pebble Bed Modular Reactor company

is established with Eskom and the IDC as

shareholders.

Oct 2000. PECO Energy merges with the US

company Unicom to form Exelon Corporation, one of largest electric utilities in the

US. The PBMR investment now resides with Exelon.

Aug 2005. PBMR’s partners sign a shareholders’

agreement setting out the framework within which

the project will be carried out. Eskom’s relationship with the project changes from technology catalyst to demonstration plant host and customer for

commercial units.

Aug 2008. PBMR moves a step closer to the construction of acommercial scale

power station at Koeberg near Cape Town with

the signing of a contract for the provision of

engineering; procurement; project; and construction

management (EPCM) services for the plant to

the joint venture company Murray & Roberts SNC-

Lavalin Nuclear (Pty) Ltd (MRSLN).

Sept 2009. In a fi rst for Africa, PBMR manufactures High Temperature

Reactor fuel spheres or “pebbles” containing 9.6% enriched

uranium. Sixteen of these graphite spheres are shipped to Russia for irradiation tests to demonstrate the fuel’s integrity under reactor

conditions.

Sept 2010. Government approved decision to

downscale operations and structures to a level where

available funding is suffi cient for operations and commitments till

March 2013.

Sept 1998. Pebble Bed Modular Reactor

is established as a project in Centurion,

funded by Eskom.

Aug 2000. The US electricity utility PECO

Energy agrees to invest in the development stage of the PBMR

project.

Mar 2005. Memorandum of Understanding (MOU)

signed between the Chinese (Chinergy Co. Ltd) and South African (PBMR) developers of inherently safe pebble

bed technology.

Oct 2006. The US Department of Energy awards an important contract to the PBMR consortium lead by Westinghouse worth

approximately US$3.5 million for the fi rst phase of engineering work for

the Next Generation Nuclear Plant (NGNP) at the Idaho National

Laboratory.

Feb 2009. The global fi nancial crisis and related impact on

funding prompts PBMR to consider near-term market opportunities based on customer

requirements to service both the electricity and process heat markets.

May 2010. Board accepts drastic reduction in the

size of PBMR to ensure the retention of intellectual property and the longer

term survival of the company.

Oct 1997. A Heads of Agreement (HOA) between

IST Holdings (Pty) Ltd and Eskom is signed to form a

Joint Technology Company (JTC) which would further develop the intellectual

property required to build and license PBMR power plants in South Africa and other parts of the world.

June 2000. Eskom lodges an application for an EIA

study with the Department of Environmental Affairs and Tourism; and an application for a nuclear license with the National Nuclear Regulator.

Aug 2004. Dr. Alistair Ruiters is appointed as Chairman of the Board

of Directors and Mr Jaco Kriek, Vice-president Mega Projects of the

IDC, is seconded to PBMR (Pty) Ltd to take over as

CEO.

Mar 2006. The US nuclear company

Westinghouse becomes an investor in PBMR, taking over the 15%

shareholding previously held by UK-government

owned BNFL. Westinghouse is wholly-

owned by BNFL.

Jan 2009. PBMR coated particles containing 9.6% enriched uranium

are shipped to the Oak Ridge National Laboratory in the United States for irradiation testing at the

Idaho National Laboratory.

Feb 2010. PBMR and Mitsubishi Heavy Industries Ltd (MHI) of Japan sign a

Memorandum of Understanding (MOU) to explore cooperation to enable the

construction of the fi rst PBMR reactor for a customer in either South Africa or abroad.

Jul 1995. The information technology company IST

is appointed by Eskom to perform the study defi nition and quotation for the fi rst two phases of the PBMR development project.

Jun 2000. The global nuclear company British Nuclear Fuels (BNFL) takes a share in the PBMR project, joining Eskom and the IDC as investors.

Jun 2003. The Department of Environmental Affairs

and Tourism (DEAT) issues a positive Record of

Decision (RoD) on the PBMR EIA study.

Nov 2005. The South African government approves signifi cant

funding for the development of the PBMR technology,

stating an aspiration to eventually produce

4000 MW to 5000 MW of power from pebble bed reactors in South Africa.

Dec 2008. PBMR’s Fuel Development Laboratories,

based at Pelindaba, in collaboration with and

under the nuclear licence of the South African Nuclear Energy Corporation (NECSA) – successfully manufactured coated particles which form the basis of high temperature reactor fuel containing 9.6%

enriched uranium.

Dec 2009. As a result of the cash-fl ow position of PBMR, the Board of Directors

contemplated a large-scale restructuring in an attempt to reduce

costs and extend the company’s operational life.

1993. Eskom starts investigating the PBMR

technology for potential application as a power source in South Africa,

as well as a viable South African export product.

Apr 2000. The South African Government gives approval

to Eskom to perform a detailed feasibility study

and Environmental Impact Assessment (EIA) on the

PBMR project.

Apr 2002. The US company Exelon

Generation notifi es PBMR that, due to a change in their strategic focus,

they would not be participating in the

PBMR project beyond the detailed feasibility

phase.

Sept 2005. PBMR introduces permanent employment contracts

for employees.

The key milestones in the development of the PBMR project are shown below:

Figure 1: PBMR key milestones

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Power Plant – Major Milestones

August 1997:• The fi rst internal User Requirement Specifi cation (URS) for a direct cycle power plant with vertical power conversion machines was established. This document set the fi rst technical and operability requirements and was followed by the Power Plant Development Specifi cation in December 1999 and eventually by the URS delivered by Eskom in December 2001.

February 1998:• A decision was made that an annular core geometry would be pursued. With the irradiation damage characteristics of graphite refl ector material still not well understood by the PBMR designers, it was decided that a fi xed central refl ector structure would not be considered as an option. This design yielded a reactor power level of 268 MWt with an electrical power output into the grid of 110 MWe.

November 1999:• A Safety Analysis Report (SAR) Rev 0 for the power plant was prepared and provided to the National Nuclear Regulator (NNR) for informal review, the focus being on the safety case route map.

August 2001:• The Detailed Feasibility Study based on the 268 MWt power plant was delivered. This report was prepared in conjunction with the Eskom Client Offi ce, BNFL, Exelon and the IDC.

October 2001:• A Techno-economic Optimisation study was launched in May 2001 that eventually lead to the decision to increase the thermal power output of the reactor to 302 MWt.

December 2001:• Eskom submitted a SAR Rev 1a to the NNR for review. This SAR revision was formally reviewed by the NNR with comments provided to PBMR over the period July to Sep of 2002.

November• 2001: A Maintainability Review was conducted by the US Electric Power Research Institute (EPRI). This report considered the PBMR power plant to be a practically designed plant with innovation where necessary but with conventional, proven equipment applications where possible. It stated that many maintenance problems and short-comings associated with systems and equipment have been considered and dealt with in the preliminary design phase.

April 2002:• The dynamic central column within the reactor was changed to a fi xed central column structure, the internal refuelling lines were placed outside the reactor pressure vessel and the number of refuelling points was reduced from 9 to 3. The reactor thermal power output was increased to 400M Wt. This formed the basis for the designs contracted with major suppliers.

August 2004:• The technical challenges experienced with the vertical layout of the turbo machines posed a risk to schedule and cost. It was decided to use conventional technology and equipment to mitigate technical risk and schedule.

The Pebble Bed Micro Model (PBMM) demonstrated • the operation of a closed, three shaft, pre-and inter-cooled Brayton cycle with a recuperator. This demonstration included start-up, stable steady state operation, load following and load rejection.

November 2004:• The construction of the Helium Test Facility (HTF) commenced at Pelindaba and the fi rst experimental tests were conducted in January 2007 to gain operational experience on important systems and equipment subject to high pressure and temperature under helium conditions.

September 2005:• The construction of the High Temperature Test Facility (HTTF) commenced at North- West University and testing started in August 2006. The last planned tests were completed in October 2009. The purpose of the HTTF was to improve and enhance understanding of, and to systematically isolate, the effects of certain pebble bed heat transfer and fl uid fl ow parameters.

August 2005:• The PBMR Suppliers Conference held in Pretoria was attended by 425 delegates from 16 countries that represented more than 120 international companies, institutions and media entities.

October 2006:• The HTR2006 international conference on high temperature gas-cooled reactor technology was held in Johannesburg and attended by international delegates representing nuclear organisations.

October 2006:• The NNR issued a Stop Work Order (SWO) on Eskom relating to PBMR long lead item procurement activities. After extensive improvement of PBMR and Eskom Client Offi ce processes to ensure compliance to regulatory guidelines, the SWO was lifted in January 2008.

June 2008:• A pre-feasibility study was completed for the US-DOE NGNP program. This study was based on a 400 MWt reactor coupled to an indirect steam cycle, but with the possibility to deliver process heat (co-generation) as well.

August 2008:• PBMR moves a step closer to the construction of a commercial scale power station at Koeberg near Cape Town with the signing of a contract for the provision of engineering, procurement, project and construction management (EPCM) services for

4


the plant to the joint venture company Murray & Roberts of South Africa and the Canadian fi rm SNC-Lavalin Nuclear (MRSLN).

September 2009:• A pre-feasibility study for a 200 MWt reactor linked to an indirect steam cycle was done, using the German HTR Modul design as basis.

November 2009:• A proposal was submitted to the US-DOE NGNP program to deliver a feasibility study based on two 200 MWt reactors linked to an indirect steam cycle with the possibility to deliver steam as well (co-generation). The participation in the NGNP progam ended with the withdrawal of Westinghouse the prime contractor of the consortium.

Below is a fairly comprehensive list of milestones for the PBMR Fuel Plant (PFP) including licensing, engineering and operations

2000:• Murray & Roberts (M&R) is appointed Engineering, Procurement, Construction Management (EPCM) for the PFP.

2000:• NECSA applied for authorisation in terms of the Environmental Conservation Act 1989 (Act 73 of 1989) for the establishment of a Fuel Manufacturing plant at

Pelindaba.

2001:• Nukem is appointed as technology vendor for core manufacturing processes except for the coater.

2001:• Nukem appoints ARPP as local partner.

2003: • UhDE is appointed as EPCM in the place of M&R

for the PFP.

2003:• Department of Environment issued a positive Record of Decision (RoD) in respect of the PFP.

2004: • Thermtron is appointed as technology provider

for the Advanced Coater Facility (ACF).

2005• : Concept Design baseline 1 released.

2006: • PBMR signed a Licensing Agreement with Nukem GmbH to become the direct Licensee of the German Fuel Plant technology.

June 2006:• Engagement with NNR starts.

Second Quarter 2006:• Fuel Division established in

PBMR.

July 2006:• PBMR application for Nuclear Installation License.

Third Quarter 2006:• Basic Design Baseline (BDB) 0 released.

December 2006:• Safety Assessments on BDB 0

released.

June 2007:• Safety Case Specifi cations formally issued to NNR.

First Quarter 2007:• Advanced Coater Facility commissioned.

August 2007: • Basic Design baseline 1 released.

December 2007: • Positive RoD issued by Minister of

Environmental Affairs and Tourism.

January 2008:• NNR Acceptance of PBMR Safety Case

Specifi cations.

March 2008:• NECSA apply for construction and cold commissioning licence for PFP.

June 2008:• PBMR Fuel Operation (PFO) formed

between PBMR and NECSA.

2009:• Reactor demand requirements changed due to

DPP200 (200 MWt gas-cooled reactor).

2009: • PBMR take over design responsibility from Nukem.

2010:• The incinerator forms part of the plant description

in the approved (as amended) ROD.

2010: • PFP Integrated Process for Engineering established.

The PBMR draws on well-proven German expertise and aims for a step change in safety, economics and proliferation resistance. The concept had been for a 400 MWt (165 MWe) helium-cooled and graphite-moderated reactor with a direct Brayton Cycle gas turbine generator. However, in 2009 plans changed to the more conventional steam cycle, and also a much smaller unit, delivering less power – 200 MWt (80 MWe) – but presenting fewer technological challenges.

Since the early 2009 redesign of the PBMR reactor, the

Fuel Plant Major Milestones

5


similarity between the South African and Chinese designs have increased, in that PBMR is now planning to use the conventional steam cycle, as in the initial Chinese HTR-PM units. Start-up of the fi rst Chinese HTR-PM is planned for about 2014. An initial agreement between PBMR (Pty) and Chinergy Co of Beijing was announced in March 2005. This agreement was for cooperation on the demonstration projects and subsequent commercialisation. In March 2009, a new agreement was signed between PBMR and Chinergy and the Institute of Nuclear and New Energy Technology (INET) at Tsinghua University near Beijing. The small operating HTR-10 research reactor at Tsinghua University is the basis of the 250 MWt (105 MWe) HTR-PM reactor, which also derives from the earlier German development. The HTR-PM contains one 210 MWe module consisting of twin reactor units driving a single steam turbine.

International Nuclear Developments

In March 2010, the International Conference on Access to Civil Nuclear Energy, held in Paris, was attended by inter alia Algeria, Egypt, Morocco, Nigeria, Namibia, Senegal, Tunisia and South Africa. All these countries, as well as Ghana and Libya, are interested in developing or, in the case of South Africa, expanding, nuclear power within the next two decades. Gérard Mestrallet, CEO of the French energy group GDF-Suez pointed out that a modern NPP programme required some form of government involvement or support, because “only governments can provide (long term) stability”.

French President Nicholas Sarkozy pointed out that the fact that civilian nuclear power required an initial investment of billions of euros followed by very low operating costs necessitated long-term funding at reasonable rates. Sarkozy pledged to push international fi nancial institutions to “eliminate the ostracism of nuclear energy in international fi nancing”. He said: “Civil nuclear energy is an economic choice . . . Frankly, I do not understand why international fi nancial institutions and development banks do not fi nance civil nuclear energy projects. The current situation means that countries are condemned to rely on more costly energy that causes greater pollution. I propose to change all this. The World Bank, the European Bank for Reconstruction and Development and the regional development banks must make a wholehearted commitment to fi nance such projects.”

He also questioned the reason why, currently, countries using nuclear energy could not obtain carbon credits through the Clean Development Mechanism, describing this situation as a “scandal” and blaming it on “outdated ideology”. These carbon credits could only be used to fi nance the other forms of decarbonised energy. As a consequence, developing countries’ investment choices were distorted. “We have a complete bias in investment

decisions, which impact on the poorest countries. Therefore, I propose that carbon dioxide credits be used to fi nance all forms of decarbonised energy under the new global architecture after 2013.

“The quasi-theological opposition between nuclear energy and renewable-energy sources is out of date,” he argued. “We need both. Of course, nuclear energy cannot reverse climate change on its own, but it will be necessary. It is a lie or an illusion to say otherwise.”

In February 2010, President Barack Obama pressed the start button on the fi rst new construction of nuclear reactors in the U.S. in 30 years, announcing US$8,3-billion in loan guarantees for the company building them. He said the loan guarantees to the energy giant, Southern Company, would help launch the fi rst wave of construction of new reactors as well as advance his energy and climate agenda.

“Even though we have not broken ground on a new nuclear plant in nearly 30 years, nuclear energy remains our largest source of fuel that produces no carbon emissions,” he said. “To meet our growing energy needs and prevent the worst consequences of climate change, we’ll need to increase our supply of nuclear power. It’s that simple.”

When US Secretary of Energy Steven Chu announced in March 2010 that the Westinghouse consortium which includes PBMR was one of the two selected for the conceptual design and planning work for the Next Generation Nuclear Plant (NGNP) in the United States, he stated that the programme would enable the US “to

Should PBMR survive the pending demise of its

technological leadership, expertise base and cutting

edge development programmes, South Africa could stay at the forefront

to secure its own clean energy future and develop its most lucrative, strategic export commodity to date.

It would also create a wide spectrum and large

number of direct and indirect job opportunities.

6


recapture the lead in the nuclear energy industry and lay the foundation for a stronger, cleaner, and more competitive economic future.” It is clear from this statement that the leading superpowers are preparing for a cleaner and safer energy future.

Post Balance Sheet Events

In December 2009 the Board of PBMR stated that expenses and commitments would be curtailed to meet the available cash resources while keeping the company solvent through the next fi nancial year. To achieve this goal, the Board contemplated a 75% retrenchment of PBMR employees to ensure suffi cient cash to March 2011, having made provision for commitments and closure costs.

As per the requirements of Section 189 of the Labour Relations Act, consultation with employees and organised labour started in February 2010. Meanwhile, the expected

fi nancial reprieve for PBMR following the US Department of Energy’s decision to award the Westinghouse/PBMR/Shaw/M-Tech consortium US$20 million on the Next Generation Nuclear Plant (NGNP) has not materialised. Westinghouse decided to withdraw the team from the March 2010 NGNP Funding Opportunity Announcement (FOA).

Following this, the Board, based on its fi duciary responsibility, approved a further reduction in employees to enable the intellectual property, assets and value of PBMR to be protected. The board presented a rationalisation strategy to government which would ensure that the company can continue as a going concern. Approval was received to rationalise operations and structures to a level where available funding is suffi cient for operations and commitments until March 2013 primarily to protect the value of the investment made to date.

A systematic process to ensure that the value created would be preserved in a retrievable manner for possible future use or for licensing to interested organisations would be implemented.

7

2. Report by the Chairman of the Board


Report by the Chairman of the Board

“I have no doubt that the value created through PBMR will play a major role in SA’s future nuclear energy development.”

I welcome the opportunity to report on the Board oversight of Pebble Bed Modular Reactor (Pty) Ltd (PBMR) for the past fi nancial year. It has been a challenging year, during which the Board and executive management have had to take some tough decisions for the sake of the company and the country.

Following the rapid expansion of PBMR over the past fi ve years, the Board endorsed a new business model in 2009. The market for a 400 MWt demonstration power plant (DPP 400) had dwindled, while new markets opened up for clean thermal applications in industry and mining. The priorities of the South African government also changed following the decisions of the 2007 Polokwane conference of the ruling party and the subsequent implementation by the newly elected President, Jacob Zuma. The President also appointed a new Minister of Public Enterprises, Ms Barbara Hogan, while the implementation of the new Nuclear Energy Policy gathered momentum. At the same time, the global economic turmoil gathered momentum, while Eskom’s rather large expansion costs forced a rethink of government funding and support of state-owned enterprises (SOEs).

The new (2009) PBMR business model addressed the aforementioned realities head on. It was already clear that the company could no longer expect Eskom to buy the DPP400 in the foreseeable future or exercise its letter of intent for follow-on units. At the same time, the market for nuclear-powered industrial heat sources is developing at a rapid pace. The new breed of high temperature reactors (HTRs), like PBMR, offers the world a safe, viable alternative to high emission carbon-fueled industrial heat sources. This could revolutionise the petrochemical, mineral benefi ciation and manufacturing industries. With this in mind, a new 200 MWt gas-cooled reactor (commonly known as DPP200) was being designed by PBMR. It could also meet the design criteria for the US Department of Energy’s next generation nuclear plant (NGNP) and it was being confi gured to produce either electricity or process heat.

As indicated in the previous PBMR annual report, the new business model is based on a risk sharing and funding strategy that is aligned to a sustainable and commercial enterprise. The aim is to collaborate and partner internationally to:

• Reduce technology and licensing risk• Secure the nuclear programme fi nancially• Share the programme with other nuclear partners in South Africa, i.e. Eskom, NECSA and the Department of Science and Technology (DST).• Qualify PBMR as a design authority for High Temperature Reactors (HTRs) and potentially for Pressurised Water Reactors (PWRs).

Since January 2009, severe cost cutting initiatives were implemented at PBMR, including the responsible and logical close out and archiving of the DPP400 direct Brayton Cycle design. The cost cutting was undertaken to allow the shareholder/investors time to explore the different funding options to sustain the company beyond April 2010. The government’s strategic support was confi rmed at a Board meeting held on 8 October 2009. The Deputy Minister of Public Enterprises (for the Minister) confi rmed that PBMR’s value created to date would be leveraged to establish it as the South African nuclear engineering company and design authority for high-temperature reactors and potentially pressurised water reactor technologies. However, it was noted in the address that the government could no longer fund the company; it would have to fi nd alternatives to survive.

9


Despite exhaustive efforts by the executive management of PBMR, no fi rm customers or new partners could be attracted within the past year, nor could new funding sources be obtained. This stark reality left the company with very few choices: • Close the company; or• Incorporate it in another entity; or• Reduce its size drastically while retaining as much Interllectual Property (IP), skill and know-how as possible.

In December 2009, the Board decided that it would ensure that expenditure and commitments of the company were curtailed to meet the available funding. One of the chosen options - a signifi cant down sizing of the company – was presented to employees and consulted on from February 2010.

Knowing full well that people are the greatest asset of the company, it was odious to proceed with a process of right-sizing that would ultimately retain about 25 percent of the 2009 employee complement. At the same time, the Board has had to ensure that functionality is retained, albeit without the services of a number of key executives and senior managers, as well as some talented and skilled professionals. However, the choice was between saving the company and allowing the fi nancial reality to run its course.

Meanwhile, the government has appointed an inter-ministerial task team to decide the future of the PBMR and has stated that it wants to ensure that valuable nuclear expertise and technology are not lost to SA, “and are retained for application in a possible future nuclear power generation programme,” according to the Department of Public Enterprises. The meeting of Cabinet to debate and fi nalise the future of PBMR took place in the second half of 2010 and approval was granted to rationalise operations and structures to a level where available funding is suffi cient for operations and commitments until March 2013.

It is almost impossible to see the aggregated value of the business, academic and technological impact of PBMR, due to its sheer size and diversity. The now defunct bursar programme – as an example - resulted in the establishment of a chair in Nuclear Engineering in South Africa, as well as a steady stream of qualifi ed nuclear engineers, post graduates and an enviable technology development programme. A viable nuclear support industry was emerging, while amazing advanced research programmes were underway at six national universities. Plans are being crafted to ensure that as much as possible is salvaged through project transfers to other entities and research establishments.

The Board remains committed to preserving the value created in PBMR through retaining the HTR technology development and intellectual property, as well as harnessing the skills and know-how for SA’s future nuclear energy development.

Over the past decade PBMR has faced many challenges. It is unfortunate that the current funding dilemma coincides with the opportunity to participate in the NGNP and the feasibility study for the Petroleum Technology Alliance (Canada) on extracting oil from tar sands. It is regrettable that the company had to shed such a high percentage of its highly skilled and capable workforce at the point where the reactor design had to be completed. It is a pity that the fuel irradiation programme , the PBMR technology programme at local universities and the bursar programme – amongst others - have had to be terminated.

The burning question is whether the company will be able to metamorphosise into something meaningful from this point? The question can be addressed internally by strong leadership and a clear vision that is pursued vigorously, but ultimately, the answer can only come in the form of strong government support, sustainable funding and a launch customer. Obviously, the preservation of value and the completion of the DPP200 design are the cornerstones of the quest for both funding and a customer, while the irradiation testing of the pebble fuel should be pursued as soon as funding is available.

During the year under review, Ms E Johnson and Mr SA Molepo resigned from the Board. Mr L Dlamini was appointed to the Board, while Mr Jaco Kriek resigned as CEO and executive director. On behalf of the Board, I would like to thank the members who resigned for their commitment and dedication and wish them well for the future, while I welcome Mr Dlamini and Dr A Tsela, Acting CEO, in their new positions.

The mettle of a good organisation is not tested in good times. I have no doubt that the value created through PBMR will play a major role in SA’s future nuclear energy development. We need steadfastness and drive to succeed under trying circumstances and resilience to survive.

Alistair RuitersCHAIRMAN OF THE BOARD

10

3. Report by the CEO (Acting)


Report by the CEO (Acting)

“The design capability in PBMR is the product of the company’s meticulous approach to studying, testing, and understanding the underlying principles of pebble bed reactor technology... ”

I would like to report on the activities, performance, challenges and highlights of the Pebble Bed Modular Reactor (Pty) Ltd (PBMR) during the fi nancial year 2009.

The year has been an ongoing challenge for PBMR and its stakeholders both internally and externally. Towards the end of 2008 when the world started to experience the fi nancial recession, it was clear that PBMR would not escape it unscathed. Subsequently, PBMR embarked on a strategic business review that culminated in a new business model. According to the new business model, PBMR would implement a cost and risk sharing model in future. One of the cornerstones would be fi nding a launch customer for the PBMR reactor and fuel, as well as a sustainable source of funding through shareholding. The company left no stone unturned to secure both, but could not achieve either goal before the end of the fi nancial year.

Nuclear Industry Outlook

It is worth noting that the global nuclear industry is expected to grow signifi cantly over the next decades. According to a report titled “Nuclear New Build Unveiled” compiled by international consultants Arthur D Little “nuclear power is undergoing a tremendous renaissance, with 61 units currently under construction and about 500 further reactors already under contract or planned within the next two decades”. South Africa cannot afford to stand by the wayside while the global nuclear industry gears itself for a reawakening since the last nuclear build of the early 1980’s.

Drastic Decrease in Government Funding

Early in 2009, when the business model change was approved by the Board, it became evident that the company would not receive further funding from government. Public Enterprises Minister Barbara Hogan explained in Parliament that government had been forced to make the “painful” decision to reduce cash injections to State-owned enterprises, such as the Pebble Bed Modular Reactor (PBMR), owing to the fact that government “no longer has pockets deep enough to fund it on the scale and length of time required”.

The PBMR executive management had already instituted a series of cost-cutting and cash conservation measures at the beginning of 2009 to ensure the short term survival of the company. However, despite the initiatives, by the third quarter it became evident that PBMR had to make serious decisions about its future. In December 2009, it was evident that large scale downsizing of the company could not be averted. The Board resolved to signifi cantly reduce the PBMR company’s cost structure by starting

600

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500

450

400

350

300

250

200

150

100

50

Total Construction

(<_5)Years to COD1 (5 - 10) (10 - 15) (> 15)

Contracted Site selected Intended0

562 61 61 106 334

Expected number of nuclear new build units (status June 2010)

1) COD = Commercial Operation DateSource: World Nuclear Association, Arthur D Little

Figure 2: Nuclear new build units

12


a consultation process with employees with regard to retrenchment. Subsequently, the consultation process started end of February 2010. The decrease in funding for the PBMR is happening against the backdrop of an expanding nuclear industry at a global scale.

Technology Programme Closure

One of the largest casualties of the company’s current cash crunch is its technology programme. Over the previous three years this PBMR programme had grown into one of the largest stimulants to scientifi c and engineering research in South Africa, currently with 19 Masters and 7 PhD students (directly sponsored by PBMR and subsequently transferred to NECSA) registered in various universities locally and abroad. The technology programme improved the international standing of the participating universities and also improved the standing of South African post-graduate researchers. Without exception, the participating universities stated that the programme meant new life to science and engineering faculties and boosted research output by a large margin. This is clearly illustrated by the long list of resulting publications. Not only did the research outputs increase dramatically, but in almost all cases the PBMR projects contracted to these universities also meant renewal of laboratories with new state-of-the-art equipment. This not only benefi ted the researchers and students directly involved in PBMR projects but also those researchers and students in other areas as diverse as Botany and Microbiology. (See PBMR Technology Development on page 24)

Value Preservation

PBMR will strive to preserve the value created thus far, despite the down-scaled operations. The design capability in PBMR is the product of the company’s meticulous approach to studying, testing, and understanding the underlying principles of pebble bed reactor technology, as well as the vast body of knowledge developed on the design of the DPP400. PBMR teams have developed all the necessary design codes, testing techniques and tools, knowledge of materials, capabilities in heat exchanger design and turbo-machinery, as well as reactor control systems, cooling gas purifi cation methods, piping, reactor fuel design and manufacture, and waste handling. (See Value of PBMR on p #)

Pebble Fuel Successes

The work on the Pelindaba-based PBMR fuel plant (PFP) progressed according to plan, although the designers had to modify the plant layout and throughput. This required an amendment of the record of decision (RoD) issued in 2003. The amendment of the RoD was approved by government in January 2010 and is valid for seven years

after the approval for production by the National Nuclear Regulator (NNR). During the course of 2009, the PFP project altered the PBMR project delivery strategy, taking over the day-to-day management of all supplier resources. This strategy proved to be very successful in reducing technical risk, as well as cost.

The PBMR Fuel Development Laboratories (FDL)demonstrated the successful development of a new particle size analyser (PSA) at Denel. The collaboration between PBMR, NECSA and Denel resulted in the development of a new particle size analyser (PSA) to replace the existing one procured from Seibersdorf (Austria) in 2001. The Seibersdorf PSA was imported and became very diffi cult and costly to maintain and support. The new PSA system will be used to measure the diameter and shape of the coated fuel kernels and the coated fuel particles at the FDL. The objective is to produce quality fuel with the right size and shape. This new PSA is 90% local content, meaning it was developed using expertise existing in South Africa (PBMR, NECSA and Denel).

Following quality control tests, the coated particles manufactured by the FDL and sent to the USA were found to be within specifi cation. The Oak Ridge National Laboratory (ORNL) performed preliminary leach tests on the particles to check for broken coatings. No defects were found. Further tests have ceased, due to PBMR’s funding constraints.

A few months after the FDL successfully manufactured high temperature reactor fuel containing 9,6% enriched uranium, they produced the fi rst 9,6% enriched test fuel spheres. It was the fi rst time that a country in the southern hemisphere successfully established the technology to manufacture high temperature reactor fuel. In September 2009, sixteen of these fuel spheres were shipped to Russia in a special container for irradiation testing. Unfortunately, the tests had to be cancelled at the last moment, due to the cost-cutting measures instituted by PBMR management.

Meanwhile, the fuel handling system (FHS) test set-up, including the FHS vessel and core unloading device (CUD), passed a pneumatic pressure test at the Helium Test Facility (HTF) at Pelindaba.

An agreement of principles was signed between NECSA (the South African nuclear energy corporation) and PBMR regarding PBMR Fuel Operations (Pty) Ltd (PFO), which is a framework for the co-operation on the manufacturing of pebble fuel, and which will form the basis of a future cooperation agreement. In view of the current fi nancial situation of PBMR, plans for the fuel plant have been shelved. The above-mentioned skills and expertise will be lost if the fuel programme is inactive for more than a year.

13


Skills Retention Strategies

Obviously, the Board and management have been exploring ways to retain as many of the scarce and critical skills of the company as possible. One avenue is to sell engineering skills and services to supplement its limited funds. Several organisations like Westinghouse, British Aerospace, NECSA and the Department of Energy have already benefi ted from this initiative.

Other initiatives that are being explored are the employment of certain skills in other institutions, like Eskom, universities and the Council for Scientifi c and Industrial Research (CSIR). Discussions with the Department of Higher Education have progressed well regarding the establishment of a nuclear research institute (in collaboration with the Department of Science and Technology) at a partnering university, while the University of Pretoria has also created a chair in nuclear engineering. The energy skills education training authority (SETA) is considering the creation of a school of nuclear technology.

PBMR had one of the most extensive bursar programmes in South African corporate history to develop the skills base required by a fully-fl edged nuclear industry. Since the beginning of 2009 no new bursaries have been allocated, while existing bursaries were transferred to NECSA, to ensure that the students are able to complete their studies.

Highlights

One of the highlights of the previous fi nancial year has been the anticipated qualifi cation of PBMR as a nuclear design authority (NDA) one of its strategic initiatives during the 2009 business planning cycle. The fi rst part of this project is to prepare and develop PBMR as an organisation to be authorised to design and engage the National Nuclear Regulator (NNR) directly on design activities. It was PBMR’s intention to apply to the NNR for an authorisation of a reference power plant and fuel design, followed by an application for a reference fuel plant design. These applications would be customer and site independent. In addition to the NNR authorisation, PBMR was developing the required capabilities to be recognised by the industry as an NDA. International standards from the IAEA and the US Department of Energy (DOE) provided guidance on the requirements to be an NDA. This capability “readiness” was also meant to support the proposal for PBMR’s participation in the NGNP project in the US.

PBMR also introduced a concise project in enterprise architecture (EA) to run concurrently with the NDA process to facilitate the NDA capabilities. The project scope consisted of well defi ned deliverables to create the core enterprise architecture capabilities within PBMR that were business appropriate and sustainable.

The company embarked on and completed a culture shaping project during the past fi nancial year. The aim of this process was to build a more commercial and operational mindset amongst employees; to develop a greater leadership capability and a high-performance culture that would strengthen organisational success. Participants, in leadership or specialists’ positions, were nominated by their management teams. Twenty employees were identifi ed from these groups to be trained as facilitators and tasked with cascading the training to the rest of the organisation.

The Generation IV International Forum (GIF) is a collaboration project between thirteen countries to promote the development of nuclear energy systems. PBMR represents South Africa as a signatory to the GIF in the materials sub-project of the very high temperature reactor (VHTR) system. The VHTR materials project management board meets twice a year and coordinates the exchange of materials-related research in the areas of graphite, metallic and ceramic structural materials for application in VHTRs.

PBMR will benefi t directly from this collaboration by utilising the results from the collaboration to assist in its own research and future product design and development improvements.

Over the years, reactor design standardisation has been the subject of several initiatives by nuclear vendors, regulators, and utilities, due to the safety and cost-related benefi ts. By participating in the World Nuclear University Forum on Reactor Design Harmonisation, PBMR remains up-to-date on the set of criteria that are used internationally for design authorisation. This is benefi cial to PBMR’s engagement with the South African National Nuclear Regulator (NNR) and the company’s plans to position itself as a nuclear design authority.

14


Awards

The Technology Programme resulted in several awards during 2009 from the Department of Trade and Industry (DTI):

First Prize: DTI 2009 Innovation Awards to Prof Walter • Focke and his team of the DST Carbon Chair at the University of Pretoria for their work on graphite for the PBMRRunner-up Prize: DTI 2009 Innovation Awards to Prof • Jan Neethling of the Nelson Mandela Metropolitan University for their work on the characterization of fuel for the PBMR.Prof Jan Neethling also received a DTI certifi cate of • achievement for the project, “Characterisation of PBMR coated fuel particles.”

PBMR is justifi ably happy for all of them!

I would like to congratulate all members of the executive management – who served the company in exemplary manner during the past fi nancial year. Their leadership under challenging circumstances kept the company functioning at all levels. I want to thank every employee who worked with diligence throughout the year to ensure that the company retains its leading edge. I would like to thank the Board and the Minister of Public Enterprises and her department who kept the fi re of hope burning and who actively supported management in its endeavours. I would like to also thank other stakeholders for their continued hope in PBMR even under these challenging conditions.

Dr Alex TselaCEO (Acting)

International Collaboration

The Korea Atomic Energy Research Institute (KAERI) visited PBMR in September 2009. The visit followed the joint workshop held in November 2008 between KAERI and PBMR, which identifi ed some areas of collaboration. The progress of collaboration was gauged and discussed, while further areas of collaboration were agreed.

In response to a visit by PBMR’s previous CEO, a high level delegation from the Algerian Atomic Energy Commission (Comena) visited PBMR in February 2009 to explore involvement in the fi eld of nuclear, including possible shareholding in PBMR technology to provide electricity and desalination for its population. Other areas of possible strategic partnerships are in the fi eld of capacity building and skills development, training, experimental facilities using a PBMR reactor, nuclear safety and the supply of purifi ed helium for PBMR. Dr M Derdour, Chairman of Comena, said, “We plan to build 1000 MWe of nuclear capacity by 2022 and 2400 MWe by 2027. Since this power is needed for both electricity generation and desalination, the pebble bed technology seems to be an extremely attractive option.”

On 1 December 2009, PBMR received certifi cation of successful core structure ceramics (CSC) following a design review by Westinghouse Electric Germany GmbH (WEG).

PBMR also received the fi nal PBMR CSC design review report which forms a part of the certifi cation to verify the completeness and consistency of the DPP400 CSC design. The design review was performed by specialists who were involved in the design, construction and commissioning of the AVR15 and THTR300 reactors in Germany. The certifi cation statement creates a platform for PBMR to engage with the NNR on licensing for the construction of the CSC and makes PBMR the world leader in the design of ceramic internals for pebble bed reactors. The achievement is the culmination of over 5 years of dedicated work.

15

4. The Value of PBMR


The Value of PBMR

What is the value of the reactor technology and the pebble fuel that has been developed by PBMR?

The company has licensed German technology that was developed in the 1980’s and has been developing the technology since 1999. The initial development was done by a small project team, but since 2006 the PBMR company received adequate funding to develop into a signifi cant player in the nuclear world. The surge in development led the company to believe that it could design, license, construct and operate a closed (Brayton) cycle, directly-coupled, gas-cooled, electricity generating demonstration plant before the end of its fi rst decade of existence.

The initial 400 MWt reactor was a very ambitious goal and required more development than anticipated. The additional work required more funding and the Government decided to curtail its investment in the project, while the company redesigned its project offering and its business plan. The new product is a 200 MWt gas-cooled reactor designed to produce process heat at 750°C, to be used as an industrial heat source or driving an indirectly coupled conventional steam generator to create electricity. This design is similar to the original Modul-design of the Germans and the current Chinese design.

Why did PBMR not build the original German design in the fi rst place? If the analogy of NASA may be used: no one would expect NASA to send astronauts to the moon using the original lunar module today. So much technology development has taken place since then and the risks of the original four years after the technology for a new launch vehicle and landing craft started, the programme is set to stop. The US space agency has already spent US$9bn on the Ares rocket and Orion crew capsule. That is the nature of high technology design – it has high risk and high reward.

The PBMR pathway to reactor design has been extremely valuable. The company has developed a huge basis of design and analysis tools, methods, procedures and capabilities. Although the design change has been costly, due to the hardware which had been manufactured, the value of the process has been captured. A vast body of knowledge about materials, heat exchanger design, turbo machinery, computational fl uid dynamics, thermal design, reactor control systems, helium purifi cation, piping, cooling, etc. has been built.

According to the designers of the Modul reactor, Germany invested €3.3bn (R31bn) over ten years to achieve the

level of competency developed by PBMR.

The fact that PBMR has not been able to show any working reactor within ten years is regarded as a failure by the detractors of the project. However, it has not been a failure in any sense. In fact, it has been regarded as a huge success by the nuclear world. The improvements over the initial German design have been remarkable and shared in international forums over the last decade. The full-scale test facilities corroborated the computational models developed for all the sub-systems, while the partnership with tertiary education institutions proved invaluable to solve perplexing issues.

Prof John Gittus, UK Royal Academy of Engineering Professor, believes it has cost PBMR “US$1bn to bring Modul up-to-date”, which leads him to believe that the initial investment in buying the licence is now worth US$1bn (R7,5bn). The original German designers agree with this fi gure. In addition, Prof Gittus argues that in the process, at least seven world-fi rsts that were achieved by the PBMR – universities partnership which clearly indicates the progress made in a relatively short time period:

1. Discovery of the diffusion mechanisms of Silver-110m (this mechanism has never been explained by the original German designers) at the Nelson Mandela Metropolitan University.

2. The ability to measure the strength of SiC (this is an important contribution as it now allows the measurement of a key parameter of the fuel’s specifi cations and will contribute to improved quality control processes during the manufacturing of the fuel) at the University of Pretoria.

3. The ability to spike sample fuel with silver (attempted by the original German designers and other countries with no success) achieved by the collaboration of the University of Pretoria and the CSIR.

4. Development of world-class high performance computing facility that allows atomic level computational simulations to be run at the University of Pretoria.

5. Removal of Carbon-14 by way of bacteriological remediation from the graphite nuclear waste. The project has been active with the University of Pretoria’s Department of Chemical Engineering. It is anticipated that this process can reduce the volume of graphite nuclear waste by the order of 90%.

6. In-reactor high temperature (greater than 1800°C) fi bre optic temperature measurement developed at the University of Stellenbosch, will enable PBMR to

17


measure core temperature at the high temperature and neutron fl ux conditions in the reactor during under normal reactor operating conditions.

7. Femtochemistry application in hydrogen storage technology is a current topic of investigation between PBMR, North-West University and CSIR.

Prof Gittus shows that studies have shown a strong correlation between research and wealth of a nation. In this regard, it is important to note that in three years, South African universities funded by the PBMR programme produced more than 150 published papers on PBMR-related research. The research standing of the company has facilitated its inclusion in every relevant nuclear organization where its inputs are valued and its reactor design capacity and pebble technology is highly regarded.

The huge strides made by the company as a whole, as well as in the fuel programme and reactor design capability have increased the value of PBMR pebble fuel considerably. The fuel manufacturing process is extremely exacting and complicated, yet PBMR has been able

to equal the German fuel. A major milestone was the approval of the amended record of decision to develop a fuel plant. The successful testing of the pebble fuel in the USA was overlooked by the last-minute termination of the irradiation testing in Russia.

German nuclear scientists have estimated that the development of the pebble fuel for their reactors cost €30 million per year over 10 years. The €300 million (R2,8bn) value has been extracted by South Africa, with the added advances in technology listed above. The fuel technology developed by PBMR can therefore be valued at R3bn.

The value of the technology developed to date, the impact on the local scientifi c and engineering professions and concomitant the academic revival at universities, as well as the capability to utilise South Africans to provide security of energy supply exceed the investment in PBMR by far. Likewise, the possible loss of the technology base, capabilities, skills and know how would be extremely costly if the current fi nancial constraints are not addressed appropriately.

18

5. Strategy


Strategy

This section refl ects PBMR’s vision, mission, values and brand promise which support the company’s long-term strategy.

VisionBringing the benefi ts of pebble power to humankind.

MissionTo provide environmentally friendly, accessible and market-driven nuclear energy systems.

Values• Safety and quality without compromising on standards• Customer and stakeholder-centric• Respect for people• Relentless pursuit of excellence• Partnering to create sustainable success

Brand Promise

Your future energy solution, today.

PBMR Applications

PBMR is developing technology for the following applications:

• To generate electricity. The higher temperature output will lead to more effi cient electrical plants. Furthermore the size and modular design of the PBMR is an affordable option for countries with smaller load demands or smaller electricity transmission grids where decentralized power generation is required with the fl exibility to expand as the load demand grows.

• To provide process heat. Non-polluting heat source for many industries (especially chemical and petrochemical industries) that require heat as part of their process.

• To provide high temperature steam for specialist applications such as enhanced oil extraction (EOE) employed in the oil sands of Alberta, Canada. Currently the steam for extraction is generated from fossil fuel, resulting in a signifi cant amount of carbon dioxide released into the atmosphere.

• To generate hydrogen. As the technology develops and higher temperatures become feasible, additional applications such as water-splitting to create hydrogen become possible.

• To provide potable water through desalination of sea water. High temperature reactors (HTR) also offer the capability to desalinate sea water utilizing their waste heat.

• To convert CO2 into clean fuel. High temperature reactors are currently the only clean energy sources that can convert waste CO2 to methanol. This technology can become crucial in the race to save life on our planet.

Notable Events In The Reporting Period

A number of notable events during the reporting period deserve specifi c mention.

The PBMR Board reviewed the company’s strategies • in May 2009 and approved a new business plan for the company.In • August 2009, the company, in consultation with DPE, prepared Medium Term Expenditure Framework (MTEF) submissions and in November 2009 PBMR was notifi ed that government is unable to provide fi scal support to the company.Since • January 2009, severe cost cutting initiatives were implemented including the responsible and logical close out and archiving of the Direct Brayton Cycle design, termed the DPP400.A cost cutting exercise was undertaken to allow the • Shareholder/Investors time to explore a number of funding options to sustain the company beyond April 2010. Government’s support was confi rmed at a Board • meeting held on 8 October 2009 where the Deputy Minister of Public Enterprises on behalf of the Minister, confi rmed that the value PBMR created to date will be leveraged to establish a South African nuclear engineering company and design authority for high-temperature reactors and potentially pressurized water reactor technologies. However, it was noted in the address that the Government could not be the sole funder of the company in the foreseeable future.

The options deliberated at a Board meeting on • 8 October 2009 were:

• Closure of the PBMR company; or • Incorporation into another entity; or • Retain PBMR company, but down size the number of employees to meet the

requirements of US DOE NGNP contract.

Between mid-October 2009 and November 2009, • the Investors met weekly to deliberate on the options taking account of a number of variations. Finally, it

20


was decided that a medium term (5 year) funding strategy would be devised which relies on no further funding from Government and the company making provision for closure costs.

In • November 2009, the PBMR together with Westinghouse and Shaw responded to the US DOE’s NGNP Funding Opportunity Announcement for conceptual design of the PBMR plant, which is a two reactor design.In • December 2009, the Board of Directors adopted the fi nancial policy which would ensure that the expenditure and commitments of the company are curtailed and funded by the available resources. The PBMR Board’s decision on 4 December 2009 can be summarised as:

• The Department of Public Enterprises appointed consultants in December 2009 to evaluate different options for the PBMR company and that a memorandum would be presented to Cabinet in 2010. In support of this independent review, the company was requested to delay the implementation of the PBMR Board resolution of 4 December 2009;

• On 10 December 2009 the PBMR CEO informed all PBMR employees of the potential rationalisation process, as per the mandate from the PBMR Board meeting on 4 December 2009, but indicated that there will be a delay based on the Minister of Public Enterprises’ request on 9 December 2009;

• After further extensive consultation with the Minister of Public Enterprises and based on a letter from the Minister supporting the rationalisation, all employees were informed on 18 February 2010 that the company will begin with the Board approved process which contemplates a large scale rationalisation;

The PBMR Board approved scenario of a 75% reduction in employees formed the base case for consultation with labour organisations and other employee representative forums.

PBMR Employment Equity Demographics and Management Structure

The graphs below show the equity demographics and the management structure of PBMR as at 31 March 2010.

Figure 3: Gender and employment equity profi les

• The budget for the fi nancial year ending 31 March 2011 or part thereof, should be funded from existing cash resources after provision is made for closure costs, assuming no further contributions from existing or new investors;

• Should PBMR secure a contract award from the United States (US) Department of Energy’s Next Generation Nuclear Power (NGNP) programme by early 2010, it would be considered to be a critical component of the success of PBMR , in view of the international credibility of the HTR technology, the PBMR company and the expected revenue of US$10 million in phase 1;

• Contemplate a signifi cant downsizing of the PBMR company;

• Three scenario’s were prepared in terms of the budget for the next fi nancial years versus the available cash fl ow (net of a provision for closure cost, with no further Investments) i.e. a budget that could be funded until 30 September 2010, secondly a budget until 31 May 2011 and fi nally a budget that could be funded until 30 September 2011;

• Commence with the section 189(3)A labour relations process, which is a 60-day consultation process with employees regarding the rationalisation of the PBMR company. The process was due to commence on 11 January 2010 and to

be concluded by 31 March 2010 to ensure that the monthly cash fl ow spent is signifi cantly reduced.

Male 47165%

Female25165%

White 41057%

African 23532%

Indian 487%

Coloured 29 4%

Figure 4: Management structure

African

500

400

300

200

100

0Coloured Indian White

Semi Skilled Skilled Tech Jnr Mngm Prof Qual Mid Mngmnt

Senior Management Top Management

21

6. Performance on Key Initiatives


Next Generation Nuclear Plant (NGNP)

The US DOE issued a funding opportunity announcement (FOA) in September 2009 for conceptual design activities to be performed on high-temperature gas reactors (HTGRs). The FOA referred to US$40 million being available for this phase of the NGNP with the expectation that two contracts would be awarded to consortiums proposing different designs. The Pebble Technology Team (PBMR, Westinghouse and Shaw) submitted a response to the FOA on the 16th November 2009 and was successful with its proposal. In February 2010, the United States DOE awarded the Pebble Team a US$20 million contract as a consortium. Westinghouse has subsequently decided not to continue with the NGNP phase 1 project and consequently withdrew the pebble team from the project because of the uncertainty in the status of the PBMR company going forward. This decision has serious consequences for PBMR since it results in a considerable loss in revenue.

Fuel qualifi cation

PBMR manufactured coated fuel particles at the Fuel Development Laboratory (FDL) at Pelindaba and sent them to the US for irradiation testing in January 2009. The particles have been tested by the Oak Ridge National Laboratory (ORNL) and found to be within specifi cation. Further testing is in progress in order to collect enough statistical evidence to show that the fuel manufactured by PBMR is of high quality. The objective of the fuel qualifi cation project is to provide adequate confi dence in the undertakings and the correctness of the information submitted to the National Nuclear Regulator (NNR) from which assurance is provided that the risk of fuel damage and subsequent radioactive releases will be minimised.

Spheres sent to Russia for irradiation testing

A few months after the FDL successfully manufactured high temperature reactor fuel, the company produced complete test fuel spheres. It is the fi rst time that the technology to manufacture high temperature reactor fuel has been established successfully in the southern hemisphere.

Sixteen of these fuel spheres were shipped to Russia in September 2009 for irradiation tests. These are the primary irradiation tests on PBMR’s fi rst laboratory fuel to assess the behaviour of the fuel under irradiation. The irradiation tests were scheduled to run over two or three years, but have subsequently been cancelled due to funding limitations.

Performance on Key Initiatives

Pressure test of complete Fuel Handling System (FHS)

The Helium Test Facility (HTF) construction team of PBMR and Westinghouse South Africa (WESA) is pleased to report that the fuel handling system (FHS) test set-up, including the FHS vessel and core unloading device (CUD), has passed a pneumatic pressure test. At the time of reaching the design pressure of the system, all components were still comfortably warmer than the minimum metal design temperatures with a reasonable margin, and the Accredited Inspection Authority (AIA) gave approval to continue the pressure tests.

PBMR participates in developing particle size analyser

The FDL demonstrated the successful development of a new particle size analyzer (PSA) at Denel. The collaboration between PBMR, NECSA and Denel resulted in the development of a new PSA to replace the existing one procured from Austria in 2001. This new PSA has a 90% local content.

Core Unloading Device (CUD) arrival at the Helium Test Facility

The CUD was delivered to the HTF in June 2009. The test unit, the fi nal component of the PBMR HTF at Pelindaba, is a component of the fuel handling system for the PBMR. This system is designed to continuously unload fuel pebbles from the reactor core, withdrawing those that are physically damaged and circulating re-useable pebbles back into the reactor core. Adding to this milestone, the CUD is local technology that was engineered by Vereeniging-based DCD-Dorbyl.

23


Technology Development

The PBMR technology programme has grown over the last three years into one of the largest stimulants of scientifi c and engineering research in the history of South Africa.

This programme has improved the international standing of the participating universities and also made a huge impact on the international standing of South African post-graduate researchers. Many of the universities participating have stated that the PBMR technology programme meant new life to science and engineering faculties and boosted research output by a large margin. According to a senior academic: “PBMR could not have come at a better time; (it has) largely saved the future of science in South Africa.” This is also illustrated by the long list of publications resulting from the programme.

Not only did the research outputs increase dramatically, but in almost all cases the PBMR projects contracted to these universities also meant renewal of laboratories with

new state-of-the-art equipment. This not only benefi ts the researchers and students directly involved on PBMR projects but also those in areas as diverse as Botany, Microbiology and Advanced Computer Science.

Rationale

The reactor and fuel technology licensed by PBMR from Germany was current in the 1980’s. PBMR has had to develop a huge body of knowledge on top of these designs to ensure that the local nuclear scientists and engineers fully understood the technology base and were able to improve the design, safety and effi ciency of the reactor and fuel. The company set aside a modest budget of R19 million in 2006 to kick start this process.

By late 2007 the fi rst formal long-term agreement was signed with the University of Pretoria. This was an important milestone in the development of PBMR and it was quickly followed by other agreements with other South African universities, i.e. North West University, Stellenbosch University, Nelson Mandela Metropolitan University and the University of Cape Town. Approval for similar agreements with the universities of the Western Cape, Free State, Johannesburg and the Witwatersrand was gained by late 2008.

However, all the above-mentioned agreements have been suspended, pending the outcome of the government’s decision on the future of PBMR. The agreement with the Dalton Nuclear Institute (University of Manchester) is also on hold pending the future of PBMR.

Focus Areas

The technology programme is widely viewed as one of the most successful industry/academic relationships in South Africa. Initially it was directed by the PBMR’s technology plan, but more recently by technology focus areas that are critical for PBMR’s technology base in the short to medium term. (See Figure 1)

The Focus Areas have engaged leading academics and post-graduate students at the various universities and institutions across South Africa, which has had a tremendous impact on the technological advancement of the PBMR fuel, waste minimisation, control and instrumentation in the reactor, as well as system safety. The programme produced cutting edge results to ensure the global leadership of PBMR in pebble based nuclear technology for the future.

Fuel optimisation

This is a critical component of the PBMR fuel programme that provides technical and scientifi c understanding at a very advanced level of pebble fuel behaviour under certain operational and accident conditions.

24


Fuel characterisation

This project is focused on developing an in-depth knowledge of the coated particles and fuel spheres that forms an integral part of the PBMR fuel characterisation programme. This knowledge will be used to understand the manufacturing process better to be able to predict the infl uence that parameter changes will have on the fi nal properties of the fuel.

Femto-chemistry

The objective of this project is to measure and understand the molecular and electronic structure of the silicon-carbide (SiC) diatomic molecule (or monomer), in order to understand the structure of SiC(s) and this research project will provide experimental support to the theoretical studies done at Pretoria University as part of the fuel characterisation programme.

One direct spin-off from this project is the application of femtochemistry in hydrogen storage technology. This is a current topic of investigation between PBMR, North-West University and the CSIR.

When Dr A Zewail received the Nobel Price in Chemistry in 1999 for the development of femtochemistry, numerous femtoscience laboratories were established all over Europe and the United States. In Southern Africa the only femtochemistry effort is at North-West University in collaboration with the CSIR. As a result of this PBMR project, both institutions were able to equip their laboratories with relevant state of the art equipment. The training and further involvement of scientists in the area of femtoscience will ensure that South Africa remains active in one of the most revolutionary scientifi c developments of the new century. The country can ill afford not to be involved at this forefront of chemistry research.

Silicon (Si) isotope

This project is focused on the effect that the Silicon (Si) Isotope composition may have on the integrity of the SiC layer at very high temperatures and transmutation due to irradiation.

This project already made a huge impact on the PBMR’s understanding of high temperature properties of the coated fuel particles. It was established that the phase transformation of SiC does not occur at temperatures below 2000°C, which is an important contribution to the safety case for PBMR fuel.

Due to this project, the collaboration between Nelson Mandela Metropolitan University and Linkoping University developed into a joint project on ceramics which in turn strengthens scientifi c collaboration between South Africa and Sweden.

The successful understanding of the infl uence of Si Isotope composition on nanostructures will benefi t the semi-conductor industry.

Silver migration

This focus area has contributed signifi cantly to the understanding of the previously unexplained diffusion of Silver-110m through the silicon carbide (SiC) layer which encapsulates the coated particles inside the pebble fuel. In the process, a number of world fi rsts were achieved:

- For over 30 years, the diffusion mechanisms of silver-110m could not be explained, but the problem is being solved by Prof Jan Neetlingh and his team at the Nelson Mandela Metropolitan University (NMMU).

- The ability to measure the strength of SiC is a key parameter of pebble fuel specifi cation that will contribute to improved quality control processes in the manufacturing process. This breakthrough was

PBMRTechnology Programme Focus Areas

AdvancedControl and

Instrumentation

WasteMinimisation

SystemSafety

Effi ciencyImprovement

Advanced Materials

Figure 5: Technology programme focus areas

GraphiteImprovement

FuelOptimisation

..

25


achieved by Prof G T van Rooyen at the University of Pretoria (UP).

- The original German designers and scientists from other countries have attempted unsuccessfully to spike sample fuel with silver to enable advanced studies and facilitate an understanding of the silver diffusion problem. The new spiking process developed by UP and CSIR will make a huge contribution to the eventual quality of PBMR fuel and gives PBMR an edge in fuel manufacturing.

- Funding from PBMR has contributed to the development of a world-class, high performance computing facility at UP. This facility is able to perform atomic level computational simulations that are verifi ed by experiments. This capability makes it one of the leading facilities in the world.

The successful completion of this project will ensure that PBMR can defend its safety case and can implement mitigating strategies to possibly increase the temperature envelope of the PBMR. The project emphasizes PBMR’s global leadership capabilities in high temperature reactor technology.

Graphite improvement

There are a number of projects all focusing on critical aspects of graphite used by the PBMR in its refl ector designs. The research focuses on local production of nuclear grade graphite from local raw materials; developing mass production techniques suitable for the manufacture of graphite components; optimisation of material properties; and the characterization of graphite responses in aggressive environments, like fi re.

The applications of this technology outside the nuclear industry include all other users of high-grade graphite.

Advanced materials

Present nuclear design codes stipulate a maximum sustained concrete temperature of 65°C. However, higher temperatures than this can be expected during accident scenarios, during radioactive storage, and during normal operation with more modern reactor designs such as the high temperature gas reactors or fusion reactors.

This project is aimed at developing a concrete that can withstand elevated temperatures for extended periods of time. Concrete that can withstand high temperatures without signifi cantly reduced performance could reduce the construction costs of the PBMR as well as the performance of the reactor cavity under accident conditions as well as the maintainability of the plant.

The technology can also be applied in radioactive waste storage and disposal as well as in industrial plants

(petrochemical) and airport runways. It benefi ts human capacity building (advanced degree professionals) by training professionals in nuclear-related concrete technology.

Advanced control and instrumentation

One of the programmes aims to develop a high temperature (greater than 1800°C) fi bre optic temperature measurement and deployment system. Such a temperature measurement systems will enable PBMR to measure core temperature at the high temperature and neutron fl ux conditions in the reactor during normal reactor operating conditions. It is important to note that this will make a huge contribution to the safety and reliability of the PBMR reactor as current measurement systems cannot measure at these high temperatures within the internal environment of a reactor core.

Applications outside of the nuclear industry include all high temperature applications where the environment is unfavourable to measurement sensors. Such applications include the petrochemical, mineral benefi ciation and steel industries.

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Nuclear waste minimisation

This project is focused on the removal of various nuclear fi ssion products from graphite. In the case of the PBMR graphite is used for the reactor refl ectors as well as in the pebble fuel. One of these products is carbon-14 (a radioactive isotope of carbon), a product that transmutes from nitrogen that is naturally present in the pores of both the graphite refl ector blocks, as well as from pebble fuel (due mainly to exposure to air). The project focuses on removal of carbon-14 by way of bacteriological remediation, where a specifi c mix of various (radiation-resistant) bacterial organisms is used to remove the carbon-14 from the graphite nuclear waste. The remaining nuclides in the waste can be removed by more traditional chemical means. The project has been active at the University of Pretoria’s Department of Chemical Engineering since late 2007 and has reached a point where there is a clear indication that the specifi c bacteria mix does in fact prefer to attach to carbon-14 over the natural occurring carbon-12.

As a result the project is also now an active participant in a European Union project called Carbowaste, which has some 29 participants form the European Union as well as South Africa, each focusing on a particular aspect of the radioactive graphite waste problem.

It should be noted that PBMR was invited by the Carbowaste team to participate. Over the last year the PBMR project has also grown to the extent that it now will be able to cooperate with similar activities at the Idaho State University (United States) where work is being done under a US DOE grant.

As a result of the project the University of Pretoria was able to re-equip two laboratories with highly advanced equipment that not only benefi ts this project but also provides a state-of-the-art training environment for chemical engineering and microbiology students, which has never been available before.

Reactor safety

All future nuclear reactor design concepts will require the use of passive pumps; natural circulation cooling systems as a mean of ensuring the integrity of the system under both operating, shut down and accident conditions, as well as quantitative reliability and safety analyses.

Based on the above premise PBMR is designing, building and testing a small-scale, a one-third scale and a full size natural circulation loop, particularly suitable for incorporation into the design of high temperature gas-cooled reactor systems.

Outside the nuclear industry there are many applications of this technology in the petro-chemical and mining industries. Normally, the heat extracted by a passive system (or an active one for that matter) would go to waste and be released into the atmosphere. However, this heat can be harnessed to enhance the effi ciency of the nuclear plant (which is the focus of another project).

Effi ciency improvement

The project focuses on the improvement in energy effi ciency of existing plant and the design of new plant for better heat recovery and utilization of waste streams. This is generally regarded as the way forward to reduce emissions and global warming. Some of the objectives of this project include:- Optimisation of PBMR waste heat streams using Stirling,

organic Rankine, and absorption cycles.- Optimisation of high temperature reactor technology

power and process heat cogeneration plant for pollution-free solid (coal) to liquid fuel and hydrogen production.

- Completely self-contained and stand alone long term spent fuel cooling and power generation storage facility.

This project will provide solutions to greatly enhance the already high effi ciency of the PBMR by using waste heat generated by the reactor, as well as the spent fuel holding tanks.

The applications of this technology outside the nuclear industry include the petro-chemical, mining, paper mill and related industries that generate large amounts of waste heat, like coal-fi red power stations.

Governance of the Technology Programme

Early in 2008, a formal technology management structure for the technology programme was introduced. It is managed by the PBMR technology management committee (TECMANCO) which was chaired by the chief technology offi cer. The PBMR technology oversight group (PTOG) that was put into place during November 2008 is made up of internationally renowned scientists and engineers. Current membership includes:

- Dr Heinz Nabielek (Germany/Austria, one of the original coated particle designers)

- Dr Johannes Fachinger (Germany, a key member of the European Union’s Carbowaste project)

- Dr Werner von Lensa (Germany)- Dr Wolfgang Hoffelner (Paul Scherer Insitute,

Switzerland)- Dr Dan Mears (Technology Insights, US)- Prof Kurt Kugeler (Aachen University and Jülich

Research Centre, Germany)

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- Dr Sue Ion (Formerly in BNFL, United Kingdom)

One of the important roles of the PTOG is to ensure that the PBMR technology programme stays in tune with general technology trends within the high temperature reactor design fi eld, including that of nuclear fuel.

The existence of the in-house management committee (TECMANCO) with oversight by the PTOG has contributed in a major way to a professional technology programme which remains focused on the areas that contribute directly to the business focus of PBMR.

Network of Expertise

The PBMR Network of Expertise is built on the premise that effi ciencies can only be developed when all the relevant universities and other research institutions function within a linked network. This network allows post-graduates from one university to complete part of their research work at another university. This allows PBMR to focus its support of universities on areas of proven capability at specifi c tertiary institutions. The network developed a collaborative partnership amongst the participating institutions. This has been benefi cial to the South African scientifi c and engineering community.

The PBMR Network of Expertise comprised:- University of Pretoria (Departments of Physics,

Chemistry, Materials Sciences, Chemical Engineering, Mechanical Engineering, Microbiology)

- North-West University (Department of Chemistry, Electrical & Electronic Engineering)

- Stellenbosch University (Departments of Mechanical Engineering, Electrical Engineering, Physics)

- Nelson Mandela Metropolitan University (Department of Physics, Electron Microscopy)

- NECSA- University of Cape Town (Departments of Mechanical

Engineering, Civil Engineering)- Institute for Trans-Uranic Materials (ITU) (Karlsruhe,

Germany)- iThemba LABS (Faure, South Africa)- CSIR (National Laser Centre) - European Union’s Framework 7 Programme

(Carbowaste project)- Linköping University (Sweden)- Jülich Research Centre (FZJ) (Jülich, Germany)- Oak Ridge National Laboratories (ORNL), (US)

In addition to the above institutions PBMR planned to enter into agreements with the following institutions (the terms have already been agreed):

- Dalton Nuclear Institute, University of Manchester (Manchester, United Kingdom)

- Idaho State University (Idaho, USA)

- University of Johannesburg (Department of Physics)- University of the Witwatersrand (Departments of

Physics and Chemistry)- University of the Western Cape (Department of

Physics)- University of the Free State (Department of Physics)

The following institutions were proposed as future partners (no agreement agreed to as yet):

- University of Zululand (Department of Microbiology)- Idaho National Laboratories (INL) (Idaho, US)- University of Nevada (US)

Benefi ts accruing to PBMR and Academia

As a result of the contracts between PBMR and various institutions, they were able to modernise and equip many laboratories with state-of-the-art equipment and facilities. These facilities and equipment, although primarily intended for use on PBMR’s projects, also are supporting research and training in areas like Microbiology, Geology, Botany, and areas of Chemistry, Physics, Materials Science and Engineering beyond the interests of PBMR. As a direct result of the engagement with universities they were able to access the National Research Foundation’s (NRF) THRIP funding. Should the PBMR programmes cease, this funding stream will be lost to universities as it is a prerequisite to demonstrate existing industrial funding to NRF.

Human Capacity Building

Over the past three years the PBMR technology programme contributed to the growth in the numbers of MSc and PhD graduates in South Africa. Students are funded by the universities (that receive funds under contracts to PBMR) and by PBMR’s own bursary scheme. These trained professionals that joined the company on completion of their research have been immediately benefi cial to the company, because of their ongoing work on PBMR projects.

Although a relatively young programme the PBMR technology programme’s engagement with universities already led to the following awards:

- First Prize: DTI 2009 Innovation Awards to Prof Walter Focke and his team of the DST Carbon Chair at the University of Pretoria for their work on graphite for the PBMR

- Runner-up Prize: DTI 2009 Innovation Awards to Prof Jan Neetlingh of the Nelson Mandela Metropolitan University for their work on fuel characterization of fuel for the PBMR

- Fullbright Scholarship to A Mokgalapa (Stellenbosch University) to further his studies at the University of Missouri, US

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- Skye Foundation Scholarship to H Badenhorst (University of Pretoria) to continue his research at the Oak Ridge National Laboratory (US)

- PhD student Jaco Olivier received the fi rst prize for the best PhD presentation at the Sanharp Postgraduate Conference, iThemba LABS, Cape Town, 23 – 25 August 2009.

- At the 2009 South African Institute of Physics conference in the following Nelson Mandela Metropolitan University physics students associated with PBMR and associated THRIP project received awards:

Samesh Naidoo – Honours Manuscript Prize Arno Janse van Vuuren – Honours Manuscript prize Justin Downey – Masters Poster Prize Jacques O’Connell – Masters Oral Presentation Prize Jaco Olivier – Best publication from an MSc Prize

A PBMR bursary scheme has been established and students are placed at universities that are aligned to PBMR research and development initiatives. This scheme is well supported by both students and universities and is proving very important in building capacity within the technology programme. The bursary scheme as at 31 March 2010 was as follows:

Undergraduate Students: PBMR has 29 bursars who are studying at different tertiary institutions.

Post-graduate Students: PBMR sponsors Research and Development (R&D) students linked to specifi c R&D initiatives at local universities. These 26 students are studying and involved in PBMR R&D programmes at the University of Pretoria, University of Stellenbosch, North-West University, University of the Western Cape and University of Cape Town. They are Masters Degree and PhD degree students.

Full-time students on PBMR PhD programme: PBMR sponsors 7 PhD students at both local and international universities linked to R&D initiatives within PBMR. Two students are studying at the Pennsylvania State University in the US, two are studying at the University of Pretoria, one at the University of Cape Town, and two at the University of Stellenbosch. Due to funding constraints, the bursary programme has now been transferred to NECSA.

Internships: The PBMR offers two year internship programme for young engineering and science graduates. They are designed specifi cally to provide interns with orientation about the company and the nuclear industry.

Engineering-in-training programme: PBMR had 6 newly graduated candidate engineers in 2009. This group consists of two African females and four African males. Each has a training plan and an appointed mentor. As an integral

0BlackMales

BlackFemales

Doctoral

Masters

Honours

Baccalaureans

WhiteMales

Race

WhiteFemales

5

10

15

20

25

30

35

40

45

50

Figure 6: Demographics of degrees in nuclear studies

part of their training programme they rotate through the different departments and external organisations to ensure they acquire the necessary engineering skills.

Scientists-in-training programme: PBMR has 7 Scientists-in-training who are allocated to different departments to gain the necessary experience. They are provided hands-on experience in the Fuel at NECSA and the universities of Pretoria and Nelson Mandela Metropolitan. They are also required to rotate through the business to acquire the necessary organisational understanding.

PBMR School of Nuclear Technology: PBMR has fortunately been able to secure a number of highly skilled engineers and scientists with vast nuclear experience who have agreed to hold off on retirement to contribute to the development of the both the project and the industry as a whole. The employees with vast nuclear skills and experience also participate in the Silver Parliament Programme designed to transfer their knowledge, skills and experience to younger or less experienced employees.

South African Nuclear Human and Research Programme (SANHARP): PBMR is very active in this Department of Science and Technology (DST) sponsored programme which is currently based at the National Research Foundation (NRF). There are 174 bursars currently registered on this programme of which PBMR has placed 4 students from this programme with PBMR and its R&D programme and placed fi ve students for vocational training.

Due to fi nancial constraints, the PBMR bursary scheme was transferred to NECSA.

The PBMR Technology Programme has gown into one of the largest and most effi cient programmes by any company in South Africa. It has fostered a surge of research and studies in nuclear science and engineering. The demographics of these degrees are:

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The future of projects

The technology development projects are intended to ensure PBMR’s capability to remain at the forefront of nuclear technology and to solve vexing scientifi c and engineering problems as they appear during design and development of the new reactor, fuel, and fuel plant.

Most of the research capabilities developed over the last three years are dependent on PBMR securing the required funding. The post-graduate researchers are probably the most sensitive to a funding shortfall and will be extremely diffi cult to replace once the PBMR Technology Programme has ceased. The value of the intellectual property developed to date exceeds R1 billion if calculated conservatively.

A number of projects in the planning stage are urgently required by the various design areas of PBMR. These include:

- The development of a simulation software solution to enable prediction of fuel performance under certain conditions. This has been in process at a very low activity level for two years now but needs to be elevated to full project status. If successful this will have a major impact on reducing costly irradiation testing at overseas test reactors.

- A study of alternative/improved layer materials for the fuel. This will greatly enhance the performance of the fuel under accident conditions.

- Various projects to study different manufacturing processes in order to enhance fuel quality.

- A study to develop a solution for the dimensional stability of the graphite refl ector elements. This will benefi t the life expectation of these elements having a major impact on the reactor’s life cycle costs.

- A full dust analysis and study to enhance the safety case of the PBMR.

- Development of non-metallic control rods.- A study of high temperature materials for use in high

temperature areas of the reactor.- The development of advanced (intelligent) control

systems. This will have a major impact on improving the already high safety characteristics of the PBMR even further.

- Various studies into the minimization of the PBMR’s nuclear waste.

- Various additional studies required to fully understand certain phenomena in gas-fl ow and heat transfer inside the reactor core.

- Elevating the low activity levels of the waste heat recovery project to full project status. This presents one of the most likely solutions to make productive use of the waste heat generated.

Obviously, it would be virtually impossible to continue with the PBMR Technology Programme beyond March 2010 without the necessary funding. This would have an impact on the company, the relevant research projects, the graduate and post-graduate students, the facilities and the institutions concerned.

Qualifi cation of PBMR as a nuclear design authority (NDA)

During the period under review, PBMR worked on qualifying the company as a nuclear design authority (NDA) as one of its strategic initiatives. The fi rst part of this project was to prepare and develop PBMR as an organisation to be authorised to design and engage the National Nuclear Regulator (NNR) directly on design activities. This NDA capability readiness project was launched in September 2009 and has assisted in fi nalising industry comments on a NNR position paper to introduce, for the fi rst time in South Africa this licensing process, through which a nuclear design organisation can obtain formal authorisation through engaging the regulator.

Enterprise Architecture (EA) project

The project scope consists of well defi ned deliverables for the development of the core enterprise architecture capabilities within PBMR that are business appropriate and sustainable. This project runs in parallel with PBMR`s NDA project to facilitate the NDA capabilities through enterprise architecture.

Localisation Workshop

The PBMR localisation workshop hosted by the Nuclear Industry Association of South Africa (NIASA) and held on 30 July 2009 was a success with capacity attendance of over 200 players from all areas of the nuclear industry. The keynote address, given by the Minister of Public Enterprises (DPE), Ms Barbara Hogan, reaffi rmed the South African government’s commitment to the country’s nuclear programme.

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7. International Collaboration


The Country Partner

PBMR has been engaged in discussions with the Ministry of Energy and Mines in Algeria, and the Commissionaire á l’Energie Atomique (COMENA) with regard to joint technology development initiatives. It is PBMR’s view that should Algeria become a country partner in the PBMR project, the country may take up shares in the shareholders’ agreement through the contribution of funds.

China

PBMR has signed a memorandum of understanding (MoU) in March 2009 with the Institute of Nuclear and New Energy Technology (INET) of Tsinghua University and Chinergy Co Ltd of China, which will result in a number of specifi c technology agreements to:

International Collaboration

share intellectual property; • create opportunities regarding the • commercialisation of the technology in the future, and to reinforce the supply chains in both countries. •

Global Network

South Africa is regarded as one of the most advanced countries in the development of the HTR technology and consequently PBMR plays a leading role in international forums such as:

Generation IV International Forum (GIF ) of 13 • participating nationsMulti-National Design Evaluation Panel (MDEPt) • which seeks to rationalize the nuclear licensing process amongst the regulators internationally. The South African NNR leads the working group for high temperature gas reactors consisting of the SA, US, UK and China;The International Atomic Energy Agency (IAEA) in • Vienna;International Project on Innovative Reactors and • Fuel Cycles (INPRO);High Temperature Reactor - Technological Network • (HTR-TN), a network of 18 European organisations that has been created to develop the technology for the next generation high temperature reactors. Development of design and quality codes and standards by the American Society of Mechanical Engineers (ASME).

The European programme with the lengthy name, End-user Requirements for industrial Process Heat Applications with Innovative Nuclear Reactors for Sustainable Energy Supply (EUROPAIRS) consists of several countries that are cooperating on a nuclear reactor programme similar to the US NGNP.

Within the space of a decade PBMR has become a globally respected nuclear company that could play a signifi cant role in the sustainable development of the South African economy.

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8. Investment to Date


Sources of Funding

Sources of investments in PBMR include the government of South Africa, Eskom, the Industrial Development Corporation (IDC), Westinghouse Electric Company and Excelon.

Investment to Date

The largest share was applied in the compensation of employees, (39% of the total R9 billion spent from 1999 to March 2010). PBMR employed highly qualifi ed scientists and engineers with scarce skills required by the nuclear industry. Most of the intellectual property (IP) of the company resides in the pool of people that PBMR managed to retain.

Expenditure on the DPP400 direct Brayton Cycle project amounted to R2.7 billion which accounts for 29% of the total R9 billion spent. The contracts related to the DPP400 have been responsibly closed out and a decision was taken to scrap the reactor equipment instead of warehousing it. The learning on the DPP400 has been banked and could be used in future should the country decide to revive the direct Brayton Cycle technology.

Funding for goods and services accounts for 13% of spending, while the pilot fuel plant (PFP) and other transfers account for 10% and 7% of spending, respectively. Financial Income over the period amounted to R189 million, which is 2% of the total spending. The funding has been applied in building the capabilities detailed below.

Nuclear Engineering

PBMR has created signifi cant capabilities in its quest to become a nuclear engineering and design authority and has gained particular experience in nuclear engineering in the fi eld of licensing, design for nuclear safety and plant design. The experience and skill to design at nuclear plant level under a licensing regime is the fi rst ever in South Africa. In this process, PBMR developed a sizeable people/skills capability that has enabled the in-house training of technical people (engineers, scientist, technicians) and the establishment of nuclear industry processes and systems. Original design engineering of nuclear reactors, a nuclear fuel plant, and the production capability for nuclear fuel (pebble fuel) have been developed, while capabilities to do nuclear licensing, and the manufacturing of nuclear components, as well as to integrate nuclear and conventional components have been created.

Nuclear Manufacturing Industry

It was recently announced that a local entity DCD Dorbyl will be partnering with a leading international nuclear company in creating advanced nuclear manufacturing capabilities. DCD Dorbyl was given a head start in nuclear manufacturing through its association with PBMR on nuclear component designs.

Figure 7: Investment sources to date

Exelon 1021%

Eskom HoldingLimited8179%

WestinghouseElectric Company LLC4505%

Industrial DevelopmentCorporation South Africa Limited4575%

South Africa Government7,42380%

EmployeesCompensation3,58139%

Investment Sources to Date (R‘million)

Figure 8: Spending to date

Good and Service1,24313%

Financial Cost/ (Income)1902%

DPP2,75829%

PFP98010%

Other Transfers6457%

Spending To Date (R‘million)

Spending to Date

The graph below illustrates how the funds were applied in the PBMR project .

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Due to the complex nature of the PBMR reactor and fuel development projects, many advanced activities (notably nuclear fuel) require university-based development.

A large body of new knowledge needs to be developed further and leveraged to support PBMR’s business strategies. These programmes are spread throughout the country in the University of North-West, University of Stellenbosch, University of Pretoria, Nelson Mandela Metropolitan University and the University of Cape Town.

Technology Transfer

The key principle to be adopted in the transfer of licensed technologies is to utilise local resources, which includes materials and skills. Such core and non-core competences have been fully developed and are available within PBMR, which has managed to absorb, localise and improve the HTR technology transferred from Germany. These advances emphasise that innovation is fundamental for economic growth, employment, equity and social development in South Africa.

PBMR Test Facilities

The development of test facilities is important in the nuclear industry as they provide the opportunity for researchers to correlate experimental information to theoretical design calculations to ensure that they conform to design specifi cations. PBMR has developed the following test facilities;

The High Temperature Test Facility (HTTF), which consists of the high temperature test unit (HTTU) and the high pressure test unit (HPTU), located at the North West University. These facilities are dedicated to the benchmarking of core thermal hydraulic software codes.

The Helium Test Facility (HTF) which was designed and constructed to provide a high temperature, high pressure helium environment and is located at the NECSA industrial complex at Pelindaba. This facility is primarily used for the functional testing of the main support systems of the PBMR Demonstration Power Plant (DPP) under non-nuclear conditions.

These facilities are unique in South Africa and are being used by researchers in the petrochemical and conventional energy industry for test and development purposes.

PBMR has successfully built a global nuclear supply chain, which includes reputable international suppliers, as well as signifi cant local suppliers that meet the uncompromisingly high standards of the NNR.

Nuclear Compliance and Assurance

The PBMR team has developed capabilities and knowledge within the broad spectrum of regulatory processes, including quality management to support licensing, nuclear engineering, nuclear safety and security, design assessment, construction license, operating license, operating experience, and supplier assurance.

Technology Development Programme

The PBMR Technology Programme has grown over the last three years into one of the largest stimulants to scientifi c and engineering research in South Africa. This invariably improved the international standing of not only those South African universities participating in this program but also made a huge impact on the standing of South African post-graduate researchers. Without exception many of the universities participating state that the PBMR Technology Programme meant new life to science and engineering faculties and boosted research output by a large margin. This is clearly illustrated by the long list of publications resulting from it. To date some 121 post-graduate degrees can be attributed to this programme as well as 150 scientifi c refereed publications.

A number of key skills and processes were developed, including:

The capability to perform strategic technology • management; A network of expertise; • Accelerated high level skills development;• Registering some 72 local and international patents.•

Fuel Design

The fuel design activities focus on developing an in-depth knowledge of the fuel components and materials. The expertise and knowledge gained includes understanding the manufacturing process and fuel performance in order to be able to predict the infl uence of parameter changes on the fi nal properties of the fuel. New fuel design techniques developed locally place PBMR at the forefront internationally in understanding the role of advanced materials in the performance properties of the fuel. This work is being performed in close collaboration with local universities, in particular the Nelson Mandela Metropolitan University and University of Pretoria, as well as scientifi c institutions such as the CSIR, Mintek and iThemba LABS.

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9. The Value of Incubating Nuclear Technology


The expenditure incurred in developing the PBMR has cre-ated value that can be used in the nuclear industry. Some aspects of the value for South Africa created within PBMR since 1999 are listed below:

• Nuclear engineering company: The establishment of a nuclear “vendor” company with the required infrastructure, design capability, software systems, safety culture, project management and nuclear licensing expertise to design, procure and deliver (through various suppliers and subcontractors) a nuclear reactor system.

• Nuclear design authority: PBMR (Pty) Ltd is the “design authority” for HTR plants.

• Fuel manufacturing: The ability to produce improved pebble fuel based on what was licensed from Germany is an essential part of the nuclear regulatory process for PBMR in South Africa. Of particular signifi cance is the establishment of the pebble fuel manufacturing facility at Pelindaba. The pebble fuel design is an essential component of the safety of the reactor as well as the most critical aspect of PBMR’s intellectual property. PBMR was the fi rst company in the world to deliver pebble fuel particles to the US Nuclear Laboratory at Oakridge for testing under the NGNP programme.

• South African technology hence industrialisation and localisation: The establishment of pebble bed reactor and fuel technology in South Africa creates the opportunity to build an industrial base and localised original equipment manufacturers (OEMs) that can export high value capital goods. This industrialisation process is not subject to technology transfer from other countries. Localisation will generate additional value in terms of job creation, skills development and the upgrading of the entire industrial infrastructure of South Africa.

• Skills development capability: The new nuclear skills that have been created in South Africa through bursary programmes, the establishment of university chairs and research programmes at four universities in the country have had a major impact on the development of nuclear scientists and engineers. PBMR has also established an in-house school of nuclear technology that will ensure the constant development of relevant capabilities. PBMR is an active member of the South African Nuclear Human Asset & Research Programme (SANHARP), an initiative of the Department of Science

The Value of Incubating Nuclear Technology

and Technology (DST) and actively supports its skills development initiatives.

• Technology development: PBMR has worked with several universities in South Africa to create leading edge technology programmes in several fi elds like:

- Carbon technology - Nuclear science and engineering

- Radioactive waste- Radiation protection and safety- Nuclear and radiation science- Nuclear materials- Modelling- Biosciences- Uranium chemistry

• Local and international services: The fact that

PBMR is a part of one of the selected consortia in the US government’s NGNP project, indicates the international regard for its engineering design services. Locally, PBMR can offer services to Eskom on the Koeberg plant life extension programme.

Corporate Social Responsibility (CSR)

What is necessary in order to implement nuclear CSR? Two years ago PBMR committed itself to apply the Global Reporting Initiative (GRI) guidelines for future reports. The Global Reporting Initiative (GRI) is a network-based organisation that has pioneered the development of the world’s most widely used sustainability reporting framework.

The GRI guidelines were not implemented, because the executive management was deeply involved in redefi ning the business case and re-engineering the product offering of PBMR in view of the company’s looming fi nancial unsustainability. Although no formal CSR process was launched due to funding constraints, PBMR realises that the concept of CSR envelops more than business ethics and corporate governance. The company subscribes to the view that all the activities in the company should be ordered and justifi ed in relation to the three basic ideals of CSR:

sustainability • stakeholder management• the triple bottom line (society, economy and • environment).

37


Sustainability

The sustainability of the PBMR company has hinged on the successful completion of a demonstration power plant (DPP) and the subsequent order of a signifi cant number of reactors by Eskom. Of course, the construction of the DPP depended on successful licensing, suffi cient funding and technology that delivered on promise. The social aspect of sourcing suffi cient skilled and qualifi ed scientists and engineers, while training others and building a world-class nuclear engineering company at the same time, were as important. The environmental impact of the envisaged plant at the Koeberg site, its operation, waste management and eventual decommissioning were of equal importance.

Although Eskom owns the licence for the technology, it did not continue to support the DPP nor to buy the fl eet of reactors as envisaged by the Minister of Public Enterprise and PBMR when it issued the letter of intent. When the energy and economic crunch hit South Africa in 2008, PBMR was knocked down by the Eskom decision to pursue coal rather than nuclear. It was clear that the immense investment required by Eskom to meet the country’s energy needs would drain the coffers of Government. PBMR was caught by the loss of its launch customer and the pending closure of its funding stream from government.

Desperate attempts to salvage the company, its intellectual property and technological edge in reactor design and fuel technology dominated the Board and

executive management agendas. A new business case and new product design were developed, while the previous DPP was closed down in a responsible way. When the government decided not to invest suffi cient funds in PBMR to continue operation, the company was already seeking new investors, partnerships and markets. It continued to honour its international working relations and its links to institutions, both locally and abroad. But there was not enough time or money to continue the discussions and, at the same time, remain a going concern.

The looming closure of the company has led to the stark reality: the PBMR company is no longer fi nancially sustainable in its present form.

Stakeholders

In 1999, Eskom obtained the right to access the HTR engineering database that includes details of the Siemens/Interatom HTR-Modul design. In 2000, Eskom, the Industrial Development Corporation of South Africa (IDC), British Nuclear Fuels (BNFL) and the US utility Exelon formed PBMR to build and market PBMR-based power plants. In April 2002 Exelon ended its investment in order to focus on its core business of power generation plant operations and power sales.

Although PBMR is a 100% owned subsidiary of Eskom Enterprises, the company forms part of an international cooperation that currently exists between Eskom Holdings Ltd, the Industrial Development Cooperation of South Africa Limited (IDC), Westinghouse Electric Company Limited and the government of the Republic of South Africa through its Department of Public Enterprises (DPE). A Co-operation Agreement entered into by the founding investors provides the legal framework of cooperation between the founder investors and PBMR and outlines each party’s rights and obligations.

A feasibility study and associated projects, completed towards the end of 2002 concluded that the technology was viable. It also concluded that PBMR power plants represented the lowest levelised cost option in 11 of 14 major markets analysed, while being competitive in the remaining three.

In May 2003, the government announced PBMR project was a ‘National Strategic Project’, due to the opportunities it provides in high-technology growth in South Africa, job creation, and for domestic and international sales. Since 2004, the South African government joined Eskom, IDC and BNFL, in allocating signifi cant funding to the project. In 2006, BNFL’s stake in the project was assigned to Westinghouse. The share transfer was part of BNFL’s restructuring process and the UK government’s decision to sell. (Westinghouse was previously wholly-owned by BNFL.)

Recent developments in the fi eld of nuclear regulation, such as a safety culture and a quality management system (QMS), should also be captured in the framework of CSR. The safety-related regulatory issues are a part of the type of governance that should be realised in cooperation with regulatory authorities and related organisations such as Eskom and NECSA. PBMR subscribes to a relationship between compliance management, corporate governance and CSR as shown below (Figure 9).

ComplianceManagement

Corporate Governance

CSR Practices

Figure 9: Relationship between CSR, governance and

compliance management

38


The biggest potential customer for the DPP200 (PBMR’s revised product offering) has been the US DOE’s NGNP programme. Unfortunately, the decision by Westinghouse not to continue has eliminated this potetial lifeline and opportunity.

Triple Bottom Line

Nuclear social responsibility means coping with the triple bottom line and driving the dialogue with stakeholders. The triple bottom line requires that a company like PBMR should perform not just for the economy/fi nance but also for the environment and society. The activities related to the triple bottom line should be well balanced.

Environmental Aspects:

One of the biggest environmental issues facing nuclear reactors is the management of nuclear waste. Spent pebbles from a PBMR facility would be stored on site for the operational life of the reactor, after which it could be safely deposited in a spent nuclear fuel facility like Vaalputs. However, the research conducted by the University of Pretoria indicated that microbial treatment of waste was possible. Unfortunately, the research programme has been terminated due to the PBMR funding constraints.

The ultimate energy generation by a PBMR facility would generate virtually no greenhouse gases with substantially smaller carbon footprint than coal, petroleum or natural gas. If the carbon footprint of manufacturing, as well as the BTU output of the other energy sources are taken into consideration, a considerable amount of carbon fuel energy generation is required to produce the machinery/equipment for ‘renewable energy sources’ for a relatively low effi ciency, when compared with nuclear. The pebble

Figure 11: Nuclear Engineering and the triple bottom line

In 2007, the government became the largest funding source of the PBMR and the Minister of Public Enterprise announced that Eskom would buy 24 units. However, Eskom had not committed to the purchase and when the energy challenge of January 2008 rocked industry and households in South Africa it became clear that Eskom was going to stick to its knitting to resolve the problem. The cancellation of the Nuclear 1 selection process and the concomitant announcement that two large coal fi red power stations were going to be built sounded the death knell for the envisaged PBMR fl eet of reactors. It also triggered the beginning of PBMR’s fi nancial woes.

Stakeholder meetings were held with all the agencies of government, including the relevant departments, as well as the PBMR shareholders. The Board reviewed executive management’s proposals and decided on the most likely scenarios. These were presented to government, while the company sought to pre-empt receiving a qualifi ed audit report by starting a process of voluntary employee retrenchments and cash retention.

For this purpose, the executive management should aim to pursue sustainable development in collaboration with society, which is placed at the centre of the administration strategy.

Figure 11 shows the relationship between PBMR nuclear engineering and the triple bottom line.

Figure 10: Stakeholders

Environmental AspectsSustainability of the natural • environmentReduction of greenhouse gases• Reduction in carbon footprint• Reduction in pollution•

Effective nuclear waste management•

Economic AspectsCost-effective • energy generationShareholder ROI• Customer • satisfactionEthical design, • development and business practicesTransparency and •

accountability

Social AspectsEducation • and training of employeesImprovement of • societal lifeProvision of clean • energyReduction in • energy and water consumptionNuclear safety in • operations and

containment

PBMR

Competitors

Employees

Customers

Suppliers

Investors

Government

NuclearRegular

Local Communities

39


Economic Aspects

The corporate governance function at PBMR meets all the requirements of the law and of its stakeholders. The business dealings and fi nancial commitments of the company have been ethical, transparent and accountable. The Board has been satisfi ed that no fruitless and wasteful expenditure has been incurred, while all the fi nancial obligations of the company have been met. The Board and executive management have taken the necessary steps to ensure that close-out of the company – should the need arise – is completed in a responsible manner with the necessary fi duciary diligence.

The design of the PBMR reactor and fuel has been pursued in a scientifi cally prudent and technologically sound manner, making use of the state-of-the-art computational methods and backed by thorough experimental tests. The wide ranging technology programme that provided the academic backbone for ongoing development was managed in a manner that spread the fi nancial burden and maximised the value for the institutions and the company.

In a December 2009 report issued by Prof John Gittus, “The Economic Value of the PBMR Company”, he calculated the value of PBMR to be over US$3bn (for a US$1bn total investment to date). The valuation fi gure includes intellectual property of around US$1bn. Gittus believes that PBMR provides an excellent return on investment for its investors, having completed an in-depth study. He also shows that the technology, once commercialised, would have an almost immediate positive impact on the quality of life of South Africans. This study echoes many of the fi ndings of Econometrics, reported in the 2009 Annual Report. Unfortunately, like all new reactor technologies, the development costs and timelines are large, therefore requiring sustained government support.

The modularity and factory-based manufacturing of PBMR reactors was designed to be a cost-effective design to enable smaller countries to make use of the clean energy benefi ts of nuclear. The inherent safety of the reactor and fuel added to the advantages to the end-users.

The initial cost of the PBMR reactor design and fuel development was borne mostly by the South African government. Due to its revised priorities, this could not be perpetuated and the company has been unable to secure a new launch customer and additional funding sources in the time available. Despite the positive economics of the overall project, it has faltered in the run up to its fi rst demonstration plant.

Conclusion

It will be unfortunate for the future of South Africa, for the academic benefi t of the local tertiary education institutions and for the nuclear industry, but the fi nancial sustainability of PBMR seems rather limited for the immediate future.

fuel also has an advantage over conventional spent nuclear fuel when the waste impact is considered. While detractors of nuclear waste do not even bother to differentiate between nuclear technologies, but merely concentrate on the dangers of radiation, they seen oblivious to the fact that coal is a larger source of radiation. As a general clarifi cation, gram for gram, coal ash released from a power plant delivers more radiation than nuclear waste shielded via water or dry cask storage. At issue is coal’s content of uranium and thorium, both radioactive elements. They occur in such trace amounts in natural, or “whole,” coal that they aren’t a problem. But when coal is burned into fl y ash, uranium and thorium are concentrated at up to 10 times their original levels in the remaining waste stream.

Fly ash uranium sometimes leaches into the soil and water surrounding a coal plant, affecting cropland and, in turn, food. People living within a “stack shadow”—the area within 0.8 to 1.6 kilometre radius of a coal plant’s smokestacks—might then ingest small amounts of radiation.

Social Aspects

The PBMR reactor and fuel is a Generation IV nuclear energy system, which means that it is designed to be even safer than conventional (Generation III) nuclear reactors. These smaller, modular reactors do not require the large volumes of water like their predecessors, and can be sited close to the requirement for energy, obviating the need for long transmission lines. The high temperature heat from the reactors can be used for area heating, fossil fuel benefi ciation, manufacturing, processing and desalination, as well as electricity generation.

PBMR has demonstrated the benevolent impact of a nuclear design authority on the tertiary education and scarce skills training in a country. The benefi ts derived from the research, new facilities and academic standing of the institutions, individuals and PBMR have been attested in this and previous reports. It has proven that South Africa’s nuclear reputation is respected globally.

The safety culture that developed in PBMR instilled the highest priority to this essential value in the mindset, processes and activities of the company. The meticulous testing, continuous computer modelling, and especially the commitment and diligence to complete the safety analysis report (SAR) to the required standards for the nuclear regulator, have permeated the company.

The volunteerism that developed in the company was illustrated in the services provided by the employees to distressed communities and individuals in need. At the same time, the PBMR outreach to schools, to foster the study of mathematics and science, have built bridges within the targeted communities.

40

10. Corporate Governance


The Board

Composition of the Board

The appointment of the Board of Directors is the responsibility of the company’s shareholder, which is in line with the provisions of the investor co-operation agreement between the shareholder and other joint venture parties that contribute to the funding of the company. This ensures adequate representation of the relevant funding parties on the company’s Board. It is structured in such a way that all members participate in the decision-making process with regard to strategy, planning, performance, allocation of resources, business ethics and communication with stakeholders. A key principle within the governance framework is to ensure that the Board is of appropriate size and composition, with the right skills and resources and also to ensure that there is an appropriate election and tenure procedure.

Board Committees

Committees of the Board include the Audit, Risk and Finance Committee, the Human Resources and Remuneration Committee, the Commercial Committee, the Technology Committee, the Project Delivery Committee and the Restructuring committee. The members of Board committees are selected based on the specifi c skill requirements of the respective committees to adequately fulfi l their duties.

Audit, Risk and Finance Committee

The Audit, Risk and Finance Committee is an important element of the Board’s system of monitoring and control. This committee considers the company’s risk management policy and strategy and reviews the integrity of the risk management process and signifi cant risks facing the company. It monitors compliance with relevant legislation and ensures an appropriate system of internal control is maintained to protect the company’s interests and assets. It reviews the activities and effectiveness of the internal audit function. It is also responsible for evaluating the independence, objectivity and effectiveness of the external auditors, and for reviewing accounting and auditing concerns identifi ed by internal and external audit. This committee reviews the accuracy, reliability and credibility of statutory fi nancial reporting and recommends the annual fi nancial statements and annual report of the company, as presented by management and reviewed by the external auditors, for approval by the Board. The head of the internal audit department and the external auditors have unrestricted access to the chairman of this committee and to the chairman of the Board.

Corporate Governance

Human Resources and Remuneration Committee

This committee is responsible for guiding the Board in establishing formal and transparent human resources and remuneration policies and strategies. The committee also plays an oversight role in ensuring compliance with relevant statutory requirements and makes recommendations to the Board on human resources related issues and priorities.

Commercial Committee

The Commercial Committee is responsible for ensuring the integrity of the company’s legal and commercial processes, such as adherence to applicable policies and procedures, applicable legislation and good commercial and ethical practice. The committee also needs to provide confi dence to the Board that appropriate mechanisms are in place to ensure that due process is followed in contracting with any third party.

Technology and Project Delivery Committee

In the year under review, the Technology and Project Delivery committees were merged to form one committee. In terms of technology oversight, the committee acts as a forum where new innovations, intellectual property and research and development issues can be discussed at length prior to making recommendations to the Board. It exercises oversight in respect of the company’s technology, innovation, and research and development projects which are not incorporated in the company’s existing project and engineering line functions. The committee also reviews the company’s major designs and product strategies from a technical perspective and exercises oversight on strategic technical, engineering and design matters for the power plant, process heat projects and the fuel plant. It develops and maintains Board level strategic position papers on design, engineering and technology matters and exercise oversight on technical aspects of the company’s intellectual property.

Regarding project delivery, the committee is responsible for considering key technical project, nuclear safety, occupational health and safety, environment and quality issues. This committee exercises oversight in respect of:

the projects of the company that are focused on the • power plant and the fuel plant;strategic support for licensing and permitting actions • of the PBMR and associated nuclear safety and environmental functions;

42


the overall occupational health and safety aspects of • the company operations; andthe overall quality assurance and quality control • functions of the company.

The committee also monitors and recommends actions relating to following specifi cs of the projects:

safety philosophy and safety culture;• employee and management capability;• engineering capability; and• self-assessment programmes (learning from • experience).

The committee also reviews and makes recommendations to the Board pertaining to:

nuclear licensing strategies to ensure consistency with • the safety aspects;

international nuclear safety events, issues, trends • and new initiatives, and their applicability to the company;the company’s potential nuclear and health • safety performance compared with international benchmarks;international and/or external safety assessments and • any recommended corrective actions and progress in achieving corrective actions;sensitivity to the environment;• national and international nuclear policies; and• any issue that would normally be presented to the • Board or a committee of the Board in terms of the potential impact on nuclear safety.

Restructuring Committee

During the year under review, the Board also formed a Restructuring Committee to oversee the process of rationalisation within the organisation.

43


1.

4.

7.

10.

2.

5.

8.

11.

3.

6.

9.

12.

The Board

44


1. DR A P RUITERS Chairman Independent Director PhD; BA (Hons); BA Current position held: Executive Chairman, Ehlobo Group, South Africa Other board positions: Ehlobo Advisory Services (Pty) Limited

2. Mr J M KRIEK Executive Director CA (SA); MCom (Financial Management); BCom (Hons); FCM (UK); AMP (INSEAD, France) Current position held: Chief Executive, Pebble Bed Modular Reactor (Pty) Limited Other board positions: Swellenfruit (Pty) Limited

3. DR A TSELA Executive Director PhD (Nuclear Physics); MSc (Theoretical Nuclear Physics); MBA; BSC (Maths and Physics) Current position held: General Manager: Nuclear Safety, Licensing and SHEQ: Pebble Bed Modular Reactor (Pty) Limited Appointed: 29 May 2008

4. MR G S GOUWS Non-executive Director BCom (Law); BCom (Hons); CA (SA); FCMA; AMP Current position held: Chief Financial Offi cer, Industrial Development Corporation of South Africa Limited (IDC) Other board positions: Antlantis Business Park (Pty) Ltd; The Export-Import Finance Corporation of South Africa (Pty) Ltd; Findevco (Pty) Ltd; Hernic Ferrochrome (Pty) Ltd; Impfi n (Pty) Ltd; Kindoc Nominees (Pty) Ltd; Konbel (Pty) Ltd; Konoil (Pty) Ltd; Kumba Iron Ore Limited

5. MS L MILNE Chief Financial Offi cer CA (SA); BCompt (Hons) Current position held: Chief Financial Offi cer, Pebble Bed Modular Reacroe (Pty) Ltd

6. MR P H READLE (United Kingdom citizen) Independent Director MSc; BSc (Hons); CDip AF; C Math FIMA Current position held: Consultant Other board positions: The University of Manchester, United Kingdom

7. DR R MATZIE (United States of America citizen) Non-executive Director PhD (Nuclear Engineering); MSc (Nuclear Engineering); BSc (Physics) Current position held: Senior Vice-president and Chief Technology Offi cer, Westinghouse Electric company LLC, USA Other board positions: Pittsburgh Regional Business Coalition for Homeland Security

8. MR C S NEETHLING Non-executive Director MA (Industrial Psychology); BA (Hons) (Psychology); BA (Psychology); AEP Current postion held: Consultant

9. MR R PEARCE (United States of America citizen) Non-executive Director MSc; BSc Engineering Current position held: Director of Global Business development, Westinghouse Electric Company LLC

10. DR R ADAM Non-executive Director PhD (Theoretical Physics); Master’s Theoretical Physics; Honours Theoretical Physics; BSc(Hons) (Chemistry) Current position held: Chief Executive Offi cer, NECSA Limited Other board positions: Nuclear Energy Corporation of South Africa (NECSA); NTP Radioisotopes (Pty) Limited; Arecsa Human Capital (Pty) Limited

11. DR X MKHWANAZI Independent Director PhD (Applied Physics); MSc (Applied Physics); BSc (Maths and Physics) Current position held: Chief Operating Offi cer, BHP Billiton Other board positions: BHP Billiton SA; Unisys Africa (Pty) Limited; Lerumo (Pty) Limited; Mozambique Aluminium Company (Pty) Limited; EB Steam (Pty) Limited

12. MR L DLAMINI Non-executive Director Global Executive Development Programme (GEDP) (GIBS), MBL, B.Comm. Current position held: General Manager – Corporate Strategy & Planning (Eskom Holdings) Other board positions: Chairman of Energy Working Group - NEPAD Appointed: 19 June 2009

45


Y indicates attendance

X indicates absence

* indicates that L Dlamini was not a member of this committee

Human Resources and Remuneration Committee

Director 25 May 09 7 Oct 09 2 Dec 09

Mr C S Neethling (Chairman)

Y Y Y

Mr J Kriek Y Y YMr P Readle Y X YMr R Pearce Y Y YMr G Gouws Y X Y

Mr L Dlamini * Y Y

Directors 29 May 09 22 Sep 09 (Special Board)

8 Oct 09 11 Nov 09 4 Dec 09 15 Feb 10 (Special Board)

26 Feb 10 26 Mar 10

Dr A Ruiters Y Y Y Y Y Y Y YMr J M Kriek Y Y Y Y Y Y X XMr C S Neethling Y X Y Y (TEL) Y Y Y YDr X Mkhwanazi X X Y X Y Y Y YDr R Adam X X Y Y Y Y X XMr PH Readle Y X X Y (TEL) Y Y X Y (TEL)Dr R Matzie Y X Y Y (TEL) Y Y Y Y (TEL)Ms L Milne Y Y Y Y Y Y X YMr R Pearce Y X Y Y (TEL) Y Y Y Y (TEL)M G S Gouws Y Y X Y Y Y Y YDr A Tsela Y Y Y X X Y Y YMr L Dlamini Y Y Y X Y Y Y X

Y indicates attendanceX Indicates absence with apologyTEL indicates attendance via teleconference


Mr G Gouws (Chairman)

Y X Y

Mr J Kriek Y Y YMs L Milne Y Y YMr P Readle Y X YMr R Pearce Y Y YMr C S Neethling Y Y Y

Y indicates attendanceX indicates absence

Audit, Risk and Finance Committee

Board Attendance

Mr GS GouwsChairman: Audit, Risk and Finance Committee

Mr C S Neethling Chairman: Human Resources and Remuneration Committee

46



X indicates absence


Mr P Readle (Chairman)

Y X Y

Mr J Kriek Y Y YMs L Milne Y Y YMr CS Neethling Y Y YMr R Pearce Y Y Y

Commercial Committee

Director 25 Feb 10

9 Mar 10

17 Mar 10

25 Mar 10

Mr C S Neethling (Chairman)

Y Y Y Y

Mr G Gouws Y Y X XDr R Adam Y Y Y XMs L Milne Y Y Y YMr M Ranko Y Y Y Y


X indicates absence

Restructuring Committee


X indicates absence


Dr R Matzie (Chairman)

Y Y Y

Mr P Readle Y X YMr R Pearce Y Y YDr A Tsela Y Y XDr R Adam Y Y XDr X Mkhwanazi X X Y

Technology and Project Delivery Committee

Executive Management Committee (Exco)Composition of the Executive Management Committee

The Executive Management Committee (Exco) is constituted to assist the chief executive offi cer (CEO) in acting for the Board in managing the business, subject to the statutory limits and the Board’s limitations on delegation of authority to the CEO.

Functions of ExcoExco assists the CEO to guide and control the overall direction of the business and acts as a channel of communication and coordination between business units. Exco focuses on key operational, management, strategy and policy issues facing the company and makes recommendations to the Board. This committee

is responsible for all the powers conferred upon the management by the Companies Act, the Public Finance Management Act, the Articles of Association and the Delegation of Authority approved by the Board from time to time.

Management committeesIn addition to PBMR’s Exco and Board committees, various management committee meetings are held to support and enhance the effectiveness of decision making within the company.

These management committees include:Procurement Committee• Employment Equity Committee• Workplace Forum Committee• Remuneration Committee• Job Grading Committee.•

Mr P Readle Chairman: Commercial Committee

Dr R MatzieChairman: Technology and Project Delivery Committee

Mr C S Neethling Chairman: Restructuring Committee

47


Jaco Kriek CA (SA); MCom (Financial Management); BCom (Hons); FCMA (UK); AMP (INSEAD, France)Chief Executive Offi cerTo lead PBMR strategically through the transition phases and beyond, thereby building investor confi dence and enhancing stakeholder value.

Gideon Greyvenstein DEng; MBLGeneral Manager: Plant EngineeringTo lead the Plant Engineering Operations Division strategically and operationally in ensuring the successful and timely design and delivery of the PBMR Power Plant to market requirements.

Louis Heyns PhD (Engineering); MBAGeneral Manager: ProjectsTo lead the PBMR Project Division to ensure effective project planning, budgeting and cost management for PBMR Power Plant and Fuel projects.

Johan Slabber DSc (Mechanical Engineering);PrEngChief Technology Offi cerTo lead the development of PBMR’s nuclear technology strategically, leverage on existing technologies and develop technical evolution strategies to secure the future technological competitiveness of PBMR.

Frans Monkwe MBAGeneral Manager: Corporate ServicesTo lead the management of PBMR’s assets and facilities in ensuring that PBMR’s information systems are effectively and effi ciently managed to meet business requirements and improve PBMR’s ability to manage and retain its knowledge as a competitive advantage.

Thabang Makubire MSc (Nuclear Physics)General Manager: PBMR WayTo lead the “PBMR Way” Strategy and Programme in ensuring an effective customer service culture exists within PBMR.

Daniel Mosito LLBGeneral Manager: Corporate Legal CounselTo lead the corporate Legal Counsel in ensuring PBMR’s compliance to all legal and statutory requirements (e.g. corporate, commercial, fi nancial and labour), protection of PBMR’s intellectual property and the sound corporate governance of PBMR.

Mercy Ranko BA (Hons) PsychologyGeneral Manager: Human ResourcesTo lead the Human Resources Division strategically in ensuring the successful management of PBMR’s human resources and building of capacity within the nuclear industry.

Lynette Milne CA (SA); BCompt (Hons)Chief Financial Offi cerTo lead PBMR strategically in ensuring the successful provision and management of sound fi nancial and commercial processing and control systems, facilities and asset management, integrated risk management, shareholder management, as well as to initiate and lead the strategic planning and management processes for PBMR.

Alex Tsela PhD (Nuclear Physics); MSc (Theoretical Nuclear Physics); MBA; BSc (Maths and Physics)General Manager: Nuclear Safety, Licensing and SHEQ, Acting CEOTo lead PBMR’s Nuclear Safety Division in ensuring effective nuclear safety and regulatory requirement compliance.

Executive Management Committee

48


Corporate Conduct

Ethics and integrity

PBMR is committed to the highest standards of ethical behaviour in all its actions and decisions, with due regard to the interests of all its stakeholders and the environment; and is actively cultivating a culture in which ethical conduct is promoted and embraced. This is realised through a code of ethical conduct, supported by relevant policies and procedures, which includes an economic crime prevention plan, and a company-wide ethics programme. Specifi c ethical matters that are being addressed include nepotism and non-adherence to company policies and procedures, and all relevant aspects of economic crime such as fraud, bribery and corruption. An ethics hotline exists which facilitates the reporting of unethical behaviour. Reported matters are duly considered and investigated. PBMR has also appointed an economic crime and ethics risk manager to assist in preventing economic crimes and creating an organisational culture which is ethical and intolerant to economic crime.

Disclosure and communication

PBMR continually strives to ensure that reporting and disclosure to stakeholders is relevant, transparent and effective. PBMR currently reports to its shareholders by means of the annual general meeting of the company. In addition to the annual report, the company also submits monthly and quarterly reports to the Department of Public Enterprises.

Combined assurance

The company is busy developing a combined assurance model that will provide a coordinated approach to all assurance activities. This model will also ensure that signifi cant risks facing the company are adequately addressed. Key role players include management; as well as internal assurance providers (such as risk management and compliance; internal audit; safety, health, environment and quality (SHEQ); legal; and nuclear safety) and external assurance providers.

Risk management

Enterprise risk management is in the process of being implemented within PBMR. The Board is accountable for the process of risk management and the system of internal control. These are reviewed regularly for effectiveness. Relevant policies and procedures are established and communicated across the company. The Board retains ultimate control through the fi nal review and adoption of key risk factors affecting the company. Risk management is an ongoing process and is focused on identifying,

assessing, managing and monitoring all known forms of risk across PBMR. The company has put systems in place to review the effi ciency and effectiveness of preventative and corrective controls. Strategic risks for PBMR as a whole have been assessed and reported on, and management is involved in a process of implementing and improving systems and procedures to ensure effective mechanisms are in place for identifying and monitoring risks internal and external to the company. Compliance is an important element of PBMR’s risk management approach, and dedicated resources assist the company to address compliance to relevant requirements. The evolving South African regulatory framework of relevance comprises legal and technical requirements in the form of codes and standards of various kinds. PBMR has developed a register that encapsulates the regulatory and legal framework within which the company operates. This register is used to ensure compliance with all relevant laws, regulations and other requirements. As a state-owned enterprise, PBMR and its Board are in support of the Department of Public Enterprises risk management framework and will be reporting as per the framework requirements. This will assist the department in effectively executing its oversight responsibility, while recognising the risk management responsibility and independence of the PBMR Board.

Public Finance Management Act (PFMA)

PBMR complies in all signifi cant respects with the provisions of the PFMA. Training is provided to employees to create awareness of - and provide guidance - regarding the application of the PFMA.

Losses through criminal conduct and irregular, fruitless and wasteful expenditureNo signifi cant fruitless and wasteful expenditure was incurred during the reporting period.

Internal audit

The PBMR Board is accountable for the company’s system of internal control, designed to provide reasonable assurance against material misstatement and losses. Management has the responsibility for maintaining a sound system of internal control and for reviewing its effectiveness. The internal audit function is responsible for assisting the Board and management in monitoring the effectiveness of the company’s system of internal control. It maintains sound practice by evaluating controls continuously to determine their effi ciency and effectiveness, and recommends corrective actions and suggested enhancements. The controls subject to evaluation encompass the information management environment, the reliability and integrity of fi nancial and operating information, the safeguarding of assets, and the effective and effi cient use of the company’s resources. The purpose, authority and responsibility of the internal audit function are formally documented in

49


the internal audit charter. A generally risk-based internal audit plan is used to direct the efforts and priorities of the internal audit function. The audit plan is regularly reviewed and updated as appropriate, to ensure responsiveness to changes in the business environment. Signifi cant fi ndings are reported to the Audit, Risk and Finance Committee and follow-up audits are conducted in areas where signifi cant internal control weaknesses are found. The internal audit function is fully supported by the Board and Audit, Risk and Finance Committee, and has full, unrestricted access to all organisational activities, records, property and employees. Internal audits are mainly conducted by an in-house internal audit function, and specifi c engagements are outsourced where required.

Safety, Health, Environment and Quality (SHEQ)

Legal fulfi lment of all statutes and regulations is germane to the company business of ensuring SHEQ compliance. SHEQ management systems are implemented throughout the company in accordance with the requirements of international and national regulatory requirements. These systems not only address requirements but also provide values for employee behaviour in creating a culture of “safety fi rst”. The commitment of the company’s executives ensures that the quality management system meets all requirements to maintain certifi cation under the ISO 9001:2000 standard. PBMR implements the environmental management requirements of ISO 14001:2004 and safety and health management requirements of OHSAS 18001:2007. As a core function of the corporate SHEQ department, quality audits are conducted to verify the ability of the company to meet customer and regulatory requirements and to determine the effectiveness of the quality management system. The audit programme was fully implemented, ensuring that every PBMR department was audited at least once during the year. A number of signifi cant management and technical processes were also audited. The results of these audits indicate that the quality management system is generally effective.

50

11. Annual Financial Statements

54

55

56-57

58

59

60

61

62-67

68-81

Page

53

54

55

56-57

58

59

60

61

62-67

68-81

52


Directors’ Responsibilities and Approval

The directors of Pebble Bed Modular Reactor (Pty) Ltd have pleasure in presenting the annual fi nancial statements for the year ended 31 March 2010.

In terms of the Companies Act of South Africa no 61 of 1973, and the Public Finance Management Act, 1999 (PFMA) as amended, the directors are required to maintain adequate accounting records and are responsible for the content and integrity of the annual fi nancial statements and related fi nancial information included in this report. It is their responsibility to ensure that the annual fi nancial statements fairly present the state of affairs of the company as at the end of the fi nancial year and the results of its operations and cash fl ows for the year then ended, in conformity with International Financial Reporting Standards (IFRS). The external auditors are engaged to express an independent opinion on the annual fi nancial statements.

The annual fi nancial statements comprise of the:statement of fi nancial position,• statement of comprehensive income,• statement of changes in equity, • statement of cash fl ows,• accounting policies, and• notes to the annual fi nancial statements.•

The reviews by the Chairman, the Chief Executive and the operational reports discuss the results of the operations for the year and those matters, which are material for an appreciation of the state of affairs and business of the company.

Supported by the Audit, Risk and Finance Committee, the directors are satisfi ed that the internal controls, systems and procedures in operation provide reasonable assurance that all assets are safeguarded, that transactions are properly executed and recorded, and that the possibility

of material loss or misstatement is minimised. The directors have reviewed the appropriateness of the accounting policies, and concluded that estimates and judgements are prudent. They are of the opinion that the annual fi nancial statements fairly present the state of affairs and business of the company at 31 March 2010 and of the surplus for the year to that date. The external auditors, who have unrestricted access to all records and information, as well as to the Audit, Risk and Finance Committee, concur with this statement.

In addition, the directors have also reviewed the cash fl ow forecast for the period ending 30 September 2011. To date the company has been funded by contributions made by investors (Eskom Enterprises Limited, Industrial Development Corporation of South Africa Limited, Westinghouse Electric Company LLC and the South African Government) to allow the company to pursue its objectives as stated under the general review.

The company received approval from Government to rationalise operations and structures to a level where available funding is suffi cient for operations and commitments till March 2013.

Accordingly the annual fi nancial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to fi nance future operations and that the realisation of assets and settlement of liabilities will occur in the ordinary course of business.

The annual fi nancial statements set out on pages 56 to 81, which have been prepared on the going concern basis, were approved by the board of directors on 2 September 2010 and were signed on its behalf by:

Dr A P Ruiters Dr A S TselaChairman Acting Chief Executive Offi cer

Ms C SinghCompany Secretary

Statement by the Company SecretaryDeclaration by the Company Secretary in respect of section 268G (D) of the Companies Act

The Company Secretary, Ms C Singh, certifi es that the company has lodged with the Registrar of Companies all suchreturns as are required for a private company in terms of the Companies Act, No 61 of 1973, as amended, and that allsuch returns are true, correct and up to date in respect of the fi nancial year reported upon.

53


Report of the Independent Auditors

To the Minister of Public Enterprises

Report on the Financial StatementsWe have audited the accompanying annual fi nancial statements of Pebble Bed Modular Reactor (Proprietary) Limited (PBMR), which comprise the directors’ report, the statement of fi nancial position at 31 March 2010, and the statement of comprehensive income, changes in equity and cash fl ow for the year then ended, and the notes to the fi nancial statements, which contain a summary of signifi cant accounting policies and other explanatory notes, as set out on pages 56 to 81.

Directors’ Responsibility for the Financial StatementsThe company’s directors who constitute the accounting authority for PBMR, are responsible for the preparation and fair presentation of these fi nancial statements in accordance with International Financial Reporting Standards and in the manner required by the Public Finance Management Act of South Africa and the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by mangement, as well as evaluating the overall presentation of the annual fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the fi nancial statements present fairly, in all material respects, the fi nancial position of Pebble Bed Modular Reactor (Proprietary) Limited at 31 March 2010 and its fi nancial performance and cash fl ows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Public Finance Management of South Africa and the Companies Act of South Africa.

Report to other legal and regulatory requirementsIn terms of the Public Audit Act of South Africa and General Notice 1570 of 2009, issued in Government Gazette No 32758 of 27 November 2009, we include below our fi ndings on compliance with laws and regulations and internal control.

Compliance with laws and regulationsOur audit of the annual fi nancial statements, described in our report on the fi nancial statements, did not reveal any material non-compliance with applicable laws and regulations relating to fi nancial matters, fi nancial management and related matters as required by Public Finance Management Act of South Africa (which includeds the relevent National Treasury Regulations) and the Companies Act of South Africa.

Internal ControlWe considered internal control relevant to our audit of the fi nancial statements, and the compliance with laws and regulations, but not for the purpose of expressing an opinion on the effectiveness of internal control. The matters reported in this report are limited to the defi ciencies identifi ed during our audit. Our opinion on the fi nancial statements, as expressed in our report on the fi nancial statements, is unmodifi ed.

KPMG Inc.

Director: AH JafferChartered Accountant (SA)Registered AuditorDirector2 September 2010

KPMG Cresent85 Empire Road

Parktown, 2193

54


Report of the Audit, Risk and Finance Committee

Report of the Audit, Risk and Finance Committee in terms of Treasury Regulations 27(1) (10) (b) and (c) of the Public Finance Management Act of 1999 and the South African Companies Act, 1973, as amended.

The Audit, Risk and Finance Committee reports that it has adopted appropriate formal terms of reference as its Audit, Risk and Finance Committee charter, has regulated its affairs in compliance with this charter, and has discharged all of its responsibilities contained therein.

In the conduct of its duties, the Audit, Risk and Finance Committee has, inter alia, reviewed the following:

The effectiveness of the internal control systems;• The effectiveness of the Internal Audit Department;• The risk areas of the company’s operations covered in • the scope of internal and external audits;The adequacy, reliability and accuracy of fi nancial • information provided by management and other users of such information;Accounting and auditing concerns identifi ed as a • result of internal and external audits;The company’s compliance with legal and regulatory • provisions;The activities of the Internal Audit Department, • including its annual work programme, co ordination with the external auditors, the reports of signifi cant investigations and the responses of management to specifi c recommendations; andThe independence and objectivity of the external • auditors.

The Audit, Risk and Finance Committee is of the opinion, based on the information and explanations given by management and the Internal Audit Department and discussions with the independent external auditors on the result of their audits, that the internal accounting controls are adequate to ensure that the fi nancial records may be relied upon for preparing the fi nancial statements, and accountability for assets and liabilities is maintained.

Nothing signifi cant has come to the attention of the Audit, Risk and Finance Committee to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.

The Audit, Risk and Finance Committee has evaluated the annual fi nancial statements of Pebble Bed Modular Reactor (Pty) Limited for the year ended 31 March 2010 and, based on the information provided to the Audit, Risk and Finance Committee, considers that it complies, in all material respects, with the requirements of the Companies Act, 61 of 1973, as amended, the Public Finance Management Act, 1 of 1999, as amended and the International Financial Reporting Standards. The Audit, Risk and Finance Committee concurs that the adoption of the going concern premise in the preparation of the annual fi nancial statements is appropriate. At their meeting held on 2 September 2010, the Audit, Risk and Finance Committee recommended the adoption of the annual fi nancial statements by the board of directors.

On behalf of the Audit, Risk and Finance Committee:

Mr GS Gouws

Chairman

55


Directors’ Report

The directors submit their report for the year ended 31 March 2010.

1. General Review

Main business and operations

At the core of Pebble Bed Modular Reactor (Proprietary) Limited’s (PBMR) mission is the primary long term goal to successfully commercialises pebble bed technology for the world’s energy market and to provide environmentally friendly, accessible and market driven nuclear energy systems. Refer to note 10 of this report relating to events subsequent to the year end date.

Financial results

The operating results and state of affairs of the company are fully set out in the attached annual fi nancial statements.

Year under review

The year under review is fully covered in the Chairman’s review and the Chief Executive Offi cer’s review. Details appear on pages 9 to 10 and 12 to 15 respectively.

2. Share Capital

The authorised and issued share capital of the company remained unchanged during the year under review. Details appear in note 8 to the annual fi nancial statements.

3. Dividends

No dividends were proposed or declared to shareholders during the year ended 31 March 2010 (R nil: 31 March 2009).

4. Directors

Biographical notes of the current directors and executive members are given on pages 44 and 45, and 48 respectively.Details of directors and executive members’ remuneration appear in note 23 to the annual fi nancial statements.

5. Changes in directorate

The following directors resigned during the fi nancial period under review:

Mr S A Molepo Non executive director 8 June 2009Ms E Johnson Non executive director 19 June 2009Mr J M Kriek Executive director: Chief Executive Offi cer 5 March 2010Mr P H Readle Non executive director 7 May 2010Ms L Milne Executive director: Chief Financial Offi cer 30 June 2010

The following director was appointed during the fi nancial period under review:

Mr L Dlamini Non executive director 19 June 2009

56


7. Holding company

The company is owned by Eskom Enterprises (Proprietary) Limited, incorporated in South Africa, which owns 100% of the company’s issued share capital. The ultimate holding company is Eskom Holdings Limited (incorporated in South Africa). Effective control is not excercised by Eskom Holdings Limited, but in terms of a co operation agreement between Eskom Holdings Limited (“Eskom”), the Industrial Development Corporation of South Africa Limited, Westinghouse Electric Company LLC and PBMR. Eskom has the right to appoint directors to PBMR, including the Chairman of the Board, and shall appoint directors nominated by the Industrial Development Corporation of South Africa Limited and Westinghouse Electric Company LLC.

8. Subsidiaries

Details of the company’s investment in principal subsidiaries are set out in note 4 to the annual fi nancial statements. Consolidated fi nancial statements have not been prepared as all the subsidiaries were dormant during the period under review.

9. International Financial Reporting Standards (IFRS)

PBMR’s fi nancial statements were prepared in terms of International Financial Reporting Standards. Consolidated fi nancial statements have not been prepared as all the subsidiaries were dormant during the year under review.

10. Events Subsequent to Balance Sheet Date

The company has not received funding for its operations and commitments from 1 April 2010 onwards. The board presented a rationalisation strategy to Government which will ensure that the company can continue as a going concern. Approval was received on 2 September 2010 to rationalise operations and structures to a level where available funding is suffi cient for operations and commitments till March 2013. Refer to page 7 of the Annual Report.

11. Auditors

KPMG Inc. will continue in offi ce in accordance with section 270(2) of the Companies Act no 61 of 1973 and the Public Finance Management Act of 1999, as amended.

6. Company Secretary and Registered Offi ce

The secretary of the company is Ms C Singh and her address and that of the registered offi ce are: Business address Pebble House 1279 Mike Crawford Avenue Centurion 0046

Postal address PO Box 9396 Centurion 0046

57


2010 2009Note R’000 R’000

ASSETS Non-current assets Property, plant and equipment 2 14,030 35,700 Intangible assets 3 336 5,241 Investments in subsidiaries * 4 - - Total non-current assets 14,366 40,941

Current assets Tax paid in advance 5 - 96 Other receivables 6 12,735 26,547 Cash and cash equivalents 7 542,882 710,881 Total current assets 555,617 737,524 Total assets 569,983 778,465

EQUITYCapital and reservesShare capital * 8 - - Retained earnings 183,949 179,339 Total equity 183,949 179,339

Non-current liabilities Provisions 9 5,685 181,455

Current liabilities Operating lease liability 695 7,987 Trade and other payables 10 83,505 376,823 Provisions 9 121,839 6,788 Contributions received in advance 22 174,310 26,073 Total current liabilities 380,349 417,671 Total liabilities 386,034 599,126 Total equity and liabilities 569,983 778,465

* Nominal amount

Statement of Financial Position

58


Statement of Comprehensive Income

2010 2009Note R’000 R’000

RevenueProfessional services 11 5,950 14,451

Cost of services rendered 12

(4,886)

(10,330)Gross profi t 1,064 4,121

Other incomeCapital contributions received 25 1,376,105 1,873,077Other income 13 3,940 1,235Finance income 14 47,429 102,501Profi t on sale of property, plant and equipment 505 - Total other income 1,427,979 1,976,813

Operational expensesDepreciation, amortisation and impairments 16 (27,110) (52,289)Research and development expenses (567,520) (1,073,508)Other administrative expenses 17 (719,676) (800,802)Loss on sale of property, plant and equipment (55) -Foreign exchange losses (109,750) (36,167)Total operational expenses (1,424,111) (1,962,766)

Operating profi t 15 4,932 18,168

Finance expenses 18 (322) (15,027)

Profi t before taxation 4,610 3,141Taxation 19 - 485Profi t for the year 4,610 3,626Other comprehensive income - -Total comprehensive income 4,610 3,626

Cost of sales

59


Statement of Changes in Equity

Share capital * Retained earnings Total equityR’000 R’000 R’000

Balance at 31 March 2008 - 175,713 175,713 Total comprehensive income for the year - 3,626 3,626

Total changes - 3,626 3,626

Balance at 31 March 2009 - 179,339 179,339 Total comprehensive income for the year - 4,610 4,610

Total changes - 4,610 4,610

Balance at 31 March 2010 - 183,949 183,949 Note 8

* Nominal amount

60


Statement of Cash Flows

2010 2009Note R’000 R’000

Cash fl ows from operating activitiesCash (applied to)/generated in operations 20 (253,604) 143,809Finance expenses 18 (322) (180)Income taxes refunded 21 96 2,346Foreign exchange losses (109,750) (36,167)Net cash (applied to)/generated from operating activities (363,580) 109,808

Cash fl ows from investing activitiesPurchase of property, plant and equipment 2 (392) (20,675)Finance income 14 47,429 102,501Purchase of intangible assets 3 (270) (9,858)Sale of property, plant and equipment 2 577 -Net cash generated from investing activities 47,344 71,968

Cash fl ows from fi nancing activitiesIncrease/(decrease) in contributions received in advance 148,237 (337,989)

Net decrease in cash and cash equivalents (167,999) (156,213)Cash and cash equivalents at the beginning of the year 710,881 867,094Cash and cash equivalents at the end of the year 7 542,882 710,881

61

Pebble Bed Modular Reactor (Pty) Limited (PBMR) Annual Report 2009/2010Notes to the Annual Financial Statements

For the Year ended 31 March 2010

1. ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these fi nancial statements are set out below. Unless otherwise stated, these policies have been consistently applied to all the years presented. The fi nancial statements are presented in South African Rands (“R”).

These fi nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), its interpretations adopted by the International Accounting Standards Board, the Companies Act 1973 and the Public Finance management Act of 1999 as amended. These fi nancial statements have been prepared on the historical cost basis, except for certain fi nancial instruments, such as trading liabilities and derivative fi nancial instruments which are stated at fair value and incorporate the principal accounting policies set out below.

The preparation of fi nancial statements that conform to IFRS, requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities at the balance sheet date and revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge at the time, actual amounts may ultimately be different from these estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are signifi cant to the fi nancial statements are disclosed in note 9.

These accounting policies are consistent with the previous period.

1.1 Fair values versus carrying amounts

Basis of Preparation

The fair values of fi nancial assets and liabilities have been determined for measurement and/or disclosure purposes based on the methods stated under the various fi nancial assets and liabilities notes below. In all instances the fair value amounts are equal to the carrying amounts as refl ected on the balance sheet.

1.2 Consolidation

Subsidiary undertakings, which are those companies in which the company, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, have not been consolidated due to the fact that all subsidiaries were dormant during the period of review.

1.3 Property, plant and equipment

The cost of an item of property, plant and equipment is recognised as an asset when:it is probable that future economic benefi ts associated with the item will fl ow to the company; and• the cost of the item can be measured reliably.•

Property, plant and equipment is initially measured at cost.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment (PPE) and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.

Property, plant and equipment is carried at revalued amount, being the fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

The revaluation surplus in equity related to a specifi c item of property, plant and equipment is transferred directly to retained earnings when the asset is derecognised.

Property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimated residual value.

62



The useful lives of items of property, plant and equipment have been assessed as follows:

Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses.

Item Useful lifeOffi ce furniture 6 yearsMotor vehicles 5 yearsOffi ce equipment 3 yearsComputer hardware 3 yearsComputer software 2 years

The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate.

The depreciation charge for each period is recognised in profi t or loss unless it is included in the carrying amount of another asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profi t or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

1.4 Intangible assets

An intangible asset is recognised when:it is probable that the expected future economic benefi ts that are attributable to the asset will fl ow to the • entity; andthe cost of the asset can be measured reliably.•

Computer software licensesCosts associated with the acquisition of computer software licenses, which are not directly related to the research and development activities of PBMR, are capitalised. These computer software licenses have a fi nite useful life and are amortised on a straight line basis over the periods of the expected benefi t.

No development expenditure was recognised as intangible assets during the reporting period.

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.The amortisation period and the amortisation method for intangible assets are reviewed every period end.Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows:

Item Useful lifeComputer software licenses 1 year

Research and development expenditure

Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred.

An intangible asset arising from development (or from the development phase of an internal project) is recognised when:

it is technically feasible to complete the asset so that it will be available for use or sale;• there is an intention to complete and use or sell it;• there is an ability to use or sell it;• it will generate probable future economic benefi ts;• there are available technical, fi nancial and other resources to complete the development and to use or sell • the asset; and the expenditure attributable to the asset during its development can be measured reliably. •

No development expenditure was recognised as intangible assets during the reporting period.

1.3 Property, plant and equipment (continued)

63



1.5 Investments in subsidiaries

Investments in subsidiaries are carried at cost.

1.6 Financial instruments

Initial recognition and measurement

Financial instruments are recognised initially when the company becomes a party to the contractual provisions of the instruments.

The company classifi es fi nancial instruments, or their component parts, on initial recognition as a fi nancial asset, a fi nancial liability or an equity instrument in accordance with the substance of the contractual arrangement.

Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classifi ed as available for sale fi nancial assets.

For fi nancial instruments which are not at fair value through profi t or loss, transaction costs are included in the initial measurement of the instrument.

Regular way purchases of fi nancial assets are accounted for at trade date.

Other receivables

All receivables are recognised at the amounts receivable as they are due for settlement at no more than 30 days from the date of recognition. Collectability of receivables are reviewed on an ongoing basis. Debts which are uncollectable are written off. A provision for doubtful debts is raised when some doubt as to collection exists.

Fair value

The fair value of other receivables is estimated as the present value of future cash fl ows, discounted at the market rate of interest at the reporting date.

Trade and other payables

These amounts represent liabilities for goods and services provided to PBMR prior to the end of the fi nancial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits held on call with banks and and investments in money market instruments.

Derivative fi nancial instruments

The company uses derivative fi nancial instruments to hedge its exposure to foreign exchange. It is company policy to hedge all foreign fi rm and ascertained commitments exceeding R 50 000. A fi rm and ascertained commitment exists once the successful supplier and PBMR have signed a contract and the amount, cash fl ow/s and payment date/s are determinable. The company does not hold or issue derivative fi nancial instruments for trading purposes. Derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative fi nancial instruments are initially recognised at cost. Subsequent to initial recognition, they are stated at fair value. Changes in the fair value of derivative fi nancial instruments are recognised in the surplus or defi cit as they arise. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged.

The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward market price for the residual maturity of the contract using a risk free interest rate (based on government bonds).

64



Hedging activities

Where a derivative fi nancial instrument is used to hedge economically the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the income statement.

1.6 Financial instruments (continued)

1.7 Tax

Current tax assets and liabilities

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

1.8 Inventory

Inventory is measured at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

The cost of inventory comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to their present location and condition.

When inventories are sold, the carrying amount of those inventory are recognised as an expense in the period in which the related revenue is recognised. The amount of any write down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write down or loss occurs. The amount of any reversal of any write down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

Fair value

The fair value of inventory is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profi t margin based on the effort required to complete and sell the inventories.

1.9 Share capital and equity

Ordinary shares are classifi ed as equity. Dividends on ordinary shares are recognised in equity in the period in which they are paid.

1.10 Employee benefi ts

Short term employee benefi ts

The cost of short term employee benefi ts, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non monetary benefi ts such as medical care), are recognised in the period in which the service is rendered and are not discounted.

The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non accumulating absences, when the absence occurs.

65



The expected cost of bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.

1.10 Employee benefi ts (continued)

Defi ned contribution plans

Payments to defi ned contribution retirement benefi t plans are charged as an expense as they fall due.

1.11 Provisions

Provisions are recognised when:the company has a present obligation as a result of a past event;• it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation; • anda reliable estimate can be made of the obligation.•

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation at the balance sheet date.

Decommissioning provision

A provision is raised for the estimated end of life decommissioning and waste management cost of the Fuel Development Laboratories. The estimated cost of decommissioning/decontamination and waste management cost at the end of the productive life of the laboratories is based on engineering estimates and reports from independent experts.

1.12 Income

Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for supplying of specialised nuclear engineering services in the normal course of business, net of trade discounts and volume rebates, and value added tax.

Finance income is recognised, in surplus or defi cits, using the effective interest rate method.

Receipts from contributing parties, being receipts of a capital nature, are recognised in the income statement. Such receipts in excess of the period under review’s requirements, are refl ected in the balance sheet as income received in advance and taken to the income statement during the period in which the expenses are funded.

Royalties are recognised on the accrual basis in accordance with the substance of the relevant agreements.

1.13 Turnover

Turnover comprises of specialised nuclear engineering services rendered to customers. Turnover is stated at the invoice amount and is exclusive of value added taxation.

1.14 Cost of sales

The related cost of providing services recognised as revenue in the current period is included in cost of sales.

66



1.15 Translation of foreign currencies

Foreign currency transactions

A foreign currency transaction is recorded, on initial recognition in Rands, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.At each balance sheet date:

foreign currency monetary items are translated using the closing rate;• non monetary items that are measured in terms of historical cost in a foreign currency are translated using the • exchange rate at the date of the transaction andnon monetary items that are measured at fair value in a foreign currency are translated using the exchange • rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous annual fi nancial statements are recognised in profi t or loss in the period in which they arise.

67



2. Property, plant and equipment

2010 2009

Cost Accumulated depreciation

Carrying value

Cost Accumulated depreciation

Carrying value

R’000 R’000 R’000 R’000 R’000 R’000

Offi ce furniture 14,690 (9,818) 4,872 14,690 (7,418) 7,272 Motor vehicles 371 (158) 213 318 (86) 232 Offi ce equipment 2,947 (1,873) 1,074 2,635 (928) 1,707 Computer hardware 50,461 (42,876) 7,585 50,838 (31,618) 19,220 Computer software 33,432 (33,146) 286 33,409 (26,140) 7,269 Total 101,901 (87,871) 14,030 101,890 (66,190) 35,700

Reconciliation of property, plant and equipment

Carrying value opening

balance

Additions Disposals Depreciation Carrying value closing

balanceR’000 R’000 R’000 R’000 R’000

2010

Offi ce furniture 7,272 - - (2,400) 4,872 Motor vehicles 232 53 - (72) 213 Offi ce equipment 1,707 312 - (945) 1,074 Computer hardware 19,220 4 (127) (11,512) 7,585 Computer software 7,269 23 - (7,006) 286 35,700 392 (127) (21,935) 14,030

Carrying value

opening balance

Additions Depreciation Carying value closing

balance

R’000 R’000 R’000 R’0002009

Offi ce furniture 9,207 133 (2,068) 7,272 Motor vehicles 202 85 (55) 232 Offi ce equipment 1,105 1,271 (669) 1,707 Computer hardware 27,294 5,636 (13,710) 19,220 Computer software 12,399 13,550 (18,680) 7,269 50,207 20,675 (35,182) 35,700

68



3. Intangible assets

2010 2009

Cost

R’000

Accumulated amortisation

R’000

Carrying valueR’000

Cost

R’000

Accumulated amortisation

R’000

Carrying valueR’000

Computer software licenses

31,342 (31,006) 336 31,071 (25,830) 5,241

Reconciliation of intangible assets

Carrying value

opening balance

Additions Amortisation Carrying value

closing balance

R’000 R’000 R’000 R’000

2010Computer software licenses 5,241 270 (5,175) 336

2009Computer software licenses 12,490 9,858 (17,107) 5,241

4. Investment in subsidiaries

Issued share

capital

% holding

2010

% holding

2009

Carrying amount

2010

Carrying amount

2009

R R

Pebble Bed Modular Reactor Plant (Pty) Ltd 100 100% 100% 100 100

Pebble Bed Modular Reactor Fuel (Pty) Ltd 100 100% 100% 100 100

Pebble Bed Modular Reactor Technology (Pty) Ltd 100 100% 100% 100 100

Nominal amount 300 300

2010 2009 R’000 R’000

5. Tax paid in advance

Current tax receivable - 96

69



Other receivables 2,441 10,421 Prepaid expenses 2,126 - Deposits paid 49 49 South African Revenue Services - (Value Added Tax) VAT 4,711 6,679 Foreign exchange contract asset 56 1,509 Accrued interest on cash deposits 3,352 7,889 12,735 26,547

Credit quality of other receivables

The credit quality of other receivables that are neither past nor due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:

Fair value of other receivables

Other receivables 12,735 26,547

Other receivables past due but not impaired

Other receivables which are less than three (3) months past due are not considered to be impaired. At 31 March 2010, R338 773 (2009: R21 796) were past due but not impaired.

The ageing of amounts past due but not impaired is as follows:

Three (3) months past due 339 22

The carrying amount of other receivables are denominated in the following currencies:

Rand 11,960 26,547 US Dollar 775 - 12,735 26,547

6. Other receivables

2010 2009R’000 R’000

70



7. Cash and cash equivalents

Cash on hand (2) - Bank balances and short term bank deposits 542,884 710,881 Cash and cash equivalents in the cash fl ow statement 542,882 710,881

Outstanding guarantee commitments:Surety - Investec Bank is holding this sum on behalf of PBMR at the disposal of Allan Gray for the lease agreement for the Pebble House building. 6,759 25,038

Surety - Investec Bank is holding this sum on behalf of PBMR at the disposal of Eskom Holdings Ltd for the electricity supply agreement for the Koeberg site. The guarantee was cancelled in December 2009.

- 760

Surety - Investec Bank is holding this sum on behalf of PBMR at the disposal of Momentum Property Investments (Pty) Ltd for the lease agreement of the Kernel Wing building. The guarantee will be cancelled in June 2010.

1,370 -

Total outstanding guarantees 8,129 25,798

The effective interest rate on short-term bank deposits was 7.57% (2009: 12.99%), these deposits have a maturity of between one (1) week and three (3) months.

8. Share capital

Authorised and issued 100 ordinary par value shares of R1 each 100 100

Reconciliation of number of shares issued: Amount in issue at beginning of year 100 100 Issue of shares - -

Amount in issue at end of year 100 100

Issued Ordinary par value shares * - -

* Nominal amount

2010 2009R’000 R’000

71



Restructuring provision:

No funding was allocated to PBMR from the National Revenue Fund for the fi nancial period ending 31 March 2011. Therefore, as a result of reduced available funding PBMR is unable to sustain its current structure. On 22 February 2010 PBMR issued a section 189(3) notice to all employees as required by the Labour Relations Act of 1995 when a large scale retrenchment of staff is contemplated.

Decommissioning provision:

The decommissioning provision is made for the estimated decommissioning/decontamination and waste management cost of the Fuel Development Laboratories (FDL). This provision has been discounted at 5.3% in 2009. The payment dates of total expected decommissioning/decontamination costs were expected to be between 2015 and 2025. Decommissioning will however commence during the next fi nancial year as part of the rationalisation of operations and therefore the provision is based on the estimated actual cost of decommissioning. Refer to note 27 for details on rationalisation.

Retention scheme provision:

PBMR’s ability to develop, maintain and exploit its intellectual property resides in the capabilities of a number of the company’s most critical human resources and as such the company has established a long term retention scheme. Capital contributions to the scheme ceased on 30 November 2009 due to the anticipated restructuring of the organisation. Retention scheme balances are paid to employees on retrenchment. Refer to note 27 for details on rationalisation.

9. Provisions

Reconciliation of provisions - 2010

Opening balance

R’000

Increase

R’000

Utilised during the

yearR’000

Reversed during the

yearR’000

Closing balance

R’000

Current liability

R’000

Non-current liability

R’000

Restructuring - 40,032 - - 40,032 40,032 -

Decommissioning 145,085 - - (92,187) 52,898 52,898 -

Leave pay 27,258 - (4,517) - 22,741 17,056 5,685

Retention scheme 15,900 1,691 (5,738) - 11,853 11,853 - 188,243 41,723 (10,255) (92,187) 127,524 121,839 5,685

2010 2009R’000 R’000

Non-current liabilities 5,685 181,455

Current liabilities 121,839 6,788

127,524 188,243

Opening balance

R’000

Increase

R’000

Utilised during the

yearR’000

Change in discount

factorR’000

Closing balance

R’000

Current liability

R’000

Non-current liability

R’000

Decommissioning 99,695 30,543 - 14,847 145,085 - 145,085

Leave pay 21,484 8,436 (2,662) - 27,258 3,377 23,881

Retention scheme 13,483 5,499 (3,082) - 15,900 3,411 12,489

134,662 44,478 (5,744) 14,847 188,243 6,788 181,455

Reconciliation of provisions - 2009

72



2010 2009R’000 R’000

10. Trade and other payables

Trade payables 60,965 80,100 Foreign exchange contract liability 1,245 72,275 Other accrued expenses 21,295 224,448 83,505 376,823

11. Revenue

Rendering of services - Foreign 4,655 14,451 Rendering of services - Local 1,295 - 5,950 14,451

12. Cost of sales

Rendering of services Cost of services rendered - Foreign 3,564 10,330 Cost of services rendered - Local 1,322 - 4,886 10,330

13. Other income

Reimbursement of conference expenditure - 40 Reimbursement of ESETA grants 3,052 1,182 Royalties (Flownex software) 13 - Other 875 13 3,940 1,235

14. Finance income

Short term bank deposits 47,429 102,501

15. Operating profi t

Operating profi t for the year is stated after accounting for the following:

Loss on sale of property, plant and equipment (55) - Profi t on sale of property, plant and equipment 505 - Depreciation, amortisation and impairments 16 27,110 52,289 Research and development 567,520 1,073,508 Other administrative expenses 17 719,676 800,802

16. Depreciation, amortisation and impairments

Depreciation on property, plant and equipment 2 21,935 35,182 Amortisation on intangible assets 3 5,175 17,107 27,110 52,289

73



17. Other administrative expenses

Remuneration 596,526 569,033 Professional fees - technical assistance and consulting 19,016 77,030 Professional fees - legal fees 1,805 3,429 Operating lease payments 19,360 27,164 Auditors remuneration 1,411 804 Other administrative expenditure 81,558 123,342 719,676 800,802

18. Finance expenses

Trade and other payables 322 180 Unwinding of discount factor on decommissioning provision - 14,847

322 15,027

19. Income tax expense

Major components of the tax expense

Current tax

Income tax refund - prior period - (485)

The income tax rate of remains unchanged at 28%.

The tax on the company’s surplus before tax equals the weighted average tax rate of 28% (2009:28%) applicable as follows:

Tax charge per statement of comprehensive income - (485) Net surplus before tax 4,610 3,141 Deduct capital contributions (656,374) (693,266) Add/(deduct): Net research and development capex (93,816) 385,903 Computed tax loss for the year (745,580) (304,222)

Deferred tax asset

No deferred tax asset was raised due to the uncertainty of the recoverability in future periods in respect of:• deductible temporary differences and • the carry forward of unused tax losses.

2010 2009R’000 R’000

74



2010 2009R’000 R’000

20. Cash (applied to)/generated from operations

Profi t before taxation 4,610 3,141 Adjustments for: Depreciation, amortisation and impairments 27,110 52,289 Loss on sale of property, plant and equipment 55 - Foreign exchange losses 109,750 36,167 Finance income (47,429) (102,501) Finance expenses 322 180 (Decrease)/increase in operating lease liability (7,292) 4,396 Increase in provisions (60,719) 53,581 Profi t on sale of property, plant and equipment (505) - Changes in working capital: Decrease in other receivables 13,812 61,060 (Decrease)/increase in trade and other payables (293,318) 35,496

(253,604) 143,809

21. Income taxes refunded

Balance at beginning of the year 96 1,957 Current tax for the year recognised in profi t or loss - 485 Balance at end of the year - (96) 96 2,346

22. Contributions received in advance

Calculated as follows: Shortfall on contributions received carried forward from the prior year 26,073 364,062 Contributions received during the current year Add/(Subtract):

1,524,342 1,535,077

Other income 3,940 1,235 Research and development expenditure net of (659,707) (1,042,966) decommissioning provision Other administrative expenses (719,676) (800,802) Additions to property, plant and equipment (392) (20,675) Additions to intangible assets (270) (9,858) Contributions received in advance during the current fi nancial year 174,310 26,073

Funding received from the contributing parties to ensure that the company can enter into commitments which are fully secured against funding provided, although the actual expense will only be incurred during subsequent periods.

23. Directors’ and executive managers’ remuneration

Non executive directorsChairman

Dr A P Ruiters 893 1,097

Other non executive directorsDr R M Adam 285 375Dr X Mkhwanazi 285 378Mr P H Readle 388 479Mr C S Neethling 388 446

Total fees 2,239 2,775

75



23. Directors’ and executive managers’ remuneration (continued)

Executive directors and managers

Basic salary

R’000

Expense allowances2

R’000

Leave Pay

R’000

Retention bonus

scheme5

R’000

Separation benefi ts7

R’000

Contribution to Pension,

Medical etcR’000

Total

R’000

2010Executive directorsMr JM Kriek 2,397 19 182 1,860 966 213 5,637 till 5 March 2010

Ms L Milne 1,955 13 - 339 - 157 2,464 Dr A S Tsela 1,900 - - - - - 1,900

Executive Managers1

Dr L J Heyns 2,171 5 - - - 62 2,238 Mr T K M Makubire 1,735 13 - 300 - 67 2,115 Dr G Greyvenstein 1,817 40 - - - 149 2,006 Mr F Monkwe 1,241 - 70 - 390 105 1,806 till 17 March 2010

Mr D O Mosito 1,166 4 92 - 395 175 1,832 till 16 March 2010

Ms M N Ranko 1,333 - - - - 63 1,396 Dr J F M Slabber 1,861 9 35 - - - 1,905 Total salaries 17,576 103 379 2,499 1,751 991 23,299

Basic salary

R’000

Expense allowances2

R’000

Short term incentive4

R’000

Retention bonus

scheme5

R’000

Sign-on bonus6

R’000

Contribution to Pension,

Medical etcR’000

Total

R’000

2009Executive directorsMr J M Kriek 2,508 27 716 427 - 213 3,891 Ms L Milne 1,908 10 296 - - 148 2,362 Dr A S Tsela 1,577 - - - 750 - 2,327 since 1 May 2008

Executive managers1

Dr L J Heyns 2,071 31 308 - - 55 2,465 Mr T K M Makubire 1,657 46 196 278 - 60 2,237 Dr G Greyvenstein 1,607 19 - - 91 104 1,821 since 1 June 2008

Mr F Monkwe 1,204 - 138 - - 107 1,449 Mr DO Mosito 1,150 5 138 - - 161 1,454 Dr A W Paterson3 1,271 36 216 - - 55 1,578 till 31 December 2008

Ms M N Ranko 1,241 14 146 - - 59 1,460 Dr J F M Slabber 1,876 21 246 - - - 2,143 Total salaries 18,070 209 2,400 705 841 962 23,187

Total fees and remuneration 2010 25,538 Total fees and remuneration 2009 25,962

76



23. Directors’ and executive managers’ remuneration (continued)

Notes

` 2010 2009

R’000 R’000

24. Commitments

Authorised operational expenditure

Contracted for at the balance sheet date but not recognised: To be incurred within one year• 9,276 1,478,272 To be incurred within two to fi ve years• - 92,697

9,276 1,570,969

The committed expenditure relates to various operational expenditure and will be fi nanced by available cash.

Operating leases

The following lease payments are due under the operating lease agreements:

Land and buildings To be incurred within one year • 16,758 25,460 To be incurred with in two to fi ve years • 7,185 38,908

23,943 64,368 Equipment

To be incurred within one year • - 192

1. Executive managers refers to the accounting offi cers who run the day-to-day operations of the business (per the Public Finance Management Act of 1999).

2. Expense allowances include foreign and local subsistence allowance. 3. Basic salary for Dr A W Paterson includes and amount of R103 933 for leave paid out on resignation. 4. The performance bonus scheme was implemented during 2007/2008. Payment in 2008/2009 was based on

performance for the period ending 31 March 2008. No performance bonuses were awarded for the fi nancial periods ending 31 March 2009 and 31 March 2010.

5 The long term retention scheme came into effect 1 December 2005 for the purpose to retain employees in

critical positions. Three payments were made up to 31 March 2010 respectively in December 2008, June 2009 and December 2009. Scheme balances are also paid out to employees whose employment is terminated due to operational reasons. The relevance of the scheme has been reviewed by the PBMR Board who has decided to discontinue capitalising the scheme from 1 December 2009 onwards.

6. Sign-on bonuses are agreed with individuals during the recruitment process depending on criticality of the

position to PBMR and the ability to recruit scarce skills. 7. Separation benefi ts include severance pay as per the Labour Relations Act of 1995, notice pay and other ex

gratia payments on termination of employment.

77



25. Related parties

Various transactions are entered into by the company with related parties. Unless specifi cally disclosed, these transactions occurred under terms that are no less favourable than those entered into with third parties.

The following is a summary of balances due at year-end and transactions with related parties during the year.

a. Related parties

Services and

goods sold R’000

Services and goods

acquired R’000

Other receivables

R’000

Trade and other payables R’000

2010Transactions and balances Eskom Holdings Limited and its subsidiaries 70 2,228 - - M-Tech Industrial (Pty) Ltd 12 21,006 13 211 Other investors/contributors 5,098 131,582 1,893 - Other government entities 1,604 61,551 475 610 6,784 216,367 2,381 821

2009Transactions and balances Eskom Holdings Limited and its subsidiaries - - 3 3 M-Tech Industrial (Pty) Ltd - 31,522 - - Other investors/contributors 4,053 166,995 - 4,340 Other government entities - 63,457 1 1,171 4,053 261,974 4 5,514

2010 2009 R’000 R’000

b. Compensation to directors and other key management For remuneration paid refer to note 23. 25,538 25,962

c. Capital contributions received

Capital contributions during the year were received from

South African government 1,737,750 1,750,000 Less: VAT on South African government contributions (213,408) (214,912) Total Contributions received 1,524,342 1,535,088 Plus: Contributions received in advance in the prior year 26,073 364,062 Less: Contributions received in advance (174,310) (26,073) Capital contributions per statement of comprehensive income 1,376,105 1,873,077

Total contributions received from date of incorporation South African government 8,374,423 6,636,673 Less: VAT on South African government contributions (954,753) (741,345) 7,419,670 5,895,328 Industrial Development Corporation of South Africa Ltd 457,250 457,250 Westinghouse Electric Company LLC 449,871 449,871 Eskom Holdings Limited 817,270 817,270 Exelon Generation Company LLC 101,835 101,835 Total historical capital contributions received to date 9,245,896 7,721,554

78



26. Risk management

2010 2009 R’000 R’000

Prepaid expenses 2,126 - Other receivables 2,441 10,421 Deposits paid 49 49 South African Revenue Services - VAT 4,711 6,679 Foreign exchange contract asset 56 1,509 Accrued interest on cash deposits 3,352 7,889 Cash and cash equivalents 542,882 710,881

555,617 737,428

The company has exposure to the following risks from its use of fi nancial instruments:Liquidity risk• Credit risk• Foreign exchange risk• Market risk•

The note presents information about the company’s exposure to each of the above risks, the company’s objectives, policies and procedures for measuring and managing risk, and the company’s management of capital. Further quantitative disclosure are included throughout these fi nancial statements.

The board of directors has overall responsibilty for the establishment and oversight of the company’s risk management framework. The board has established the Audit, Risk and Finance Committee, which is responsible for developing and monitoring the company’s risk management policies. The committee reports regularly to the board of directors on its activities.

The company’s risk management policies are established to identify and analyse the risks faced by the company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to refl ect changes in market conditions and the company’sactivities. The company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The company’s Audit, Risk and Finance Committee oversees how management monitors compliance with the company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the company. The company’s Audit, Risk and Finance Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk. The company manages interest rate risks by transacting with reputable fi nancial institutions at fl oating rates for current fi nancial instruments. Surplus funds are invested either at call or in short term fi xed deposits to ensure that suffi cient free cash fl ow is available to service supplier payments.

Liquidity risk

Liquidity risk is the risk that the company will not be able to meet its fi nancial obligations as they fall due. The company’s approach to managing liquidity is by compiling annual budgets to determine funding requirements and obtaining agreement from contributing parties to fund these budgets on an annual basis and then exercising strict controls over working capital requirements. The unutilised funding requirements are negotiated to provide funding for contingencies.

Credit risk

Credit risk is the risk of fi nancial loss to the company if a customer or counterparty to a fi nancial instrument fails to meet its contractual obligations, and arises principally from the company’s receivables from customers and investment securities.

Credit risk consists mainly of cash deposits, cash equivalents, derivative fi nancial instruments and trade debtors. The company only deposits cash with major banks with high quality credit standing and limits exposure to any one counter party.

Financial assets exposed to credit risk at year end were as follows:

79



26. Risk management (continued)

The company is exposed to two guarantees as surety for lease agreements. Refer to note 7 for additional details.

Foreign exchange risk

Management has set up a policy that requires the company to manage its foreign exchange risk against its functional currency. It is company policy to hedge all foreign fi rm ascertained commitments exceeding R 50 000. To manage foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, the company uses forward contracts, transacted with Eskom Holdings Limited Treasury Division. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

Foreign currency exposure at balance sheet date

31 March 2010 31 March 2009 EUR

‘000USD‘000

GBP‘000

EUR‘000

USD‘000

GBP‘000

JPY‘000

Trade receivables - 107 - - - - - Secured bank loans - - - - - - - Trade payables (2,359) (108) (2) (1,003) (2,097) (41) (1,497) Gross balance sheet exposure

(2,359) (1) (2) (1,003) (2,097) (41) (1,497)

Estimated forecast sales - - - - - - Estimated forecast purchases (491) (162) - (24,282) (17,124) (937) (27,039) Estimated gross exposure (491) (162) - (24,282) (17,124) (937) (27,039) Forward exchange contracts 7,455 - - 30,723 20,372 1,199 34,046 - (162) - - - - -

The following signifi cant exchange rates applied during the year:

Average rate 2010 2009

Currency Abbreviation R R

Euro EUR 10.992 12.386 United States Dollar USD 7.791 8.830 Great British Pound GBP 12.425 14.795 Japanes Yen JPY 12.020 11.236 Canadian Dollar CAD 7.109 7.769

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the company’s income or the value of its holdings of fi nancial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

80



27. Events subsequent to balance sheet date

The company has not received funding for its operations and commitments from 1 April 2010 onwards. The Board presented a rationalisation strategy to Government which will ensure that the company can continue as a going concern. Approval was received on 2 September 2010 to rationalise operations and structures to a level where available funding is suffi cient for operations and commitments till March 2013. Refer to page 7 of the annual report.

Cash and cash equevalents

A payment guarantee of R24 million was issued in August 2010 in favour of UTI South Africa (Pty) Ltd. The guarantee relates to the cost of transport of equipment from Spain to South Africa. The guarantee reduces with payments made. Final payment is expected to realise in October 2010.

81



ABBREVIATIONSCSIR Council for Scientifi c and Industrial Research

CUD Core Unloading Device

DOE Department of Energy

DPE Department of Public Enterprises

DST Department of Science and Technology

FDL Fuel Development Laboratories

FHS Fuel Handling System

GIF Generation IV International Forum

HTF Helium Test Facility

HTR High Temperature Reactor

HTTF High Temperature Test Facility

IDC Industrial Development Corporation

MWe Megawatt electric

MWt Megawatt thermal

NDA Nuclear Design Authority

NECSA Nuclear Energy Corporation of South Africa

NGNP Next Generation Nuclear Plant

NNR National Nuclear Regulator

PBMR Pebble Bed Modular Reactor

PFP Pilot Fuel Plant

R&D Research and Development

SOE State Owned Entity

VHTR Very High Temperature Reactor

WEC Westinghouse electric Company

82


For the Year ended 31 March 2010Notes

Annual Report 2010Design Specific/PBMR/Other...for 34.3 GWe and nuclear 1.8 GWe of its total...

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Transcript of Annual Report 2010Design Specific/PBMR/Other...for 34.3 GWe and nuclear 1.8 GWe of its total...