Nuclear company denies privatisation claims

Nuclear Energy Corporation of SA (Necsa) subsidiary NTP Radioisotopes yesterday denied press reports that plans are afoot to privatise the company and hand over control of its Safari-1 nuclear research reactor to US company Lantheus Medical Imaging (LMI).

NTP is the world’s leading producer of nuclear medical isotopes for the treatment of cancer and exports to more than 60 countries. Necsa is the parent company and is one of the few state-owned companies that is profitable and well-run.

“We would like to set the record straight and let the South African public know in very clear terms that these allegations are completely false,” says Dr Namane Magau, NTP chairperson. “There has been absolutely no offer made by LMI to purchase NTP, and the mere suggestion of such is quite frankly ridiculous.”

Magau was one of the Necsa board members removed by energy minister Jeff Radebe and now appears to have been reappointed to the NTP board.

Moneyweb previously reported on the circumstances surrounding the suspension by Radebe of the entire Necsa board on the grounds of ‘defiance and ineptitude’. The suspended board members include former chairman Dr Kelvin Kemm, CEO Phumzile Tshelane, and director Pamela Bosman.

Read: Axed Necsa board blames resistance of ‘privatisation by stealth’ for dismissal

Magau says the suggestion that any state-owned asset such as NTP could arbitrarily be disposed of by a minister is either poorly informed or deliberately misleading.

However, suspended CEO Tshelane disputes this. “This statement is complete nonsense. I was called into the minister’s office in March this year and I was asked what I thought about selling 60% of NTP to the Americans. I made my views very clear on this – that NTP is a national treasure and should not be sold. Dr Magau was not in that meeting so what would she know?”

Kemm says the NTP statement is disingenuous, as no one in NTP was privy to the privatisation talks with the minister. “The only people who were privy to this discussion were the minister, myself and Phumzile Tshelane. It was quite clear to us that an offer from LMI was either made or being prepared. I was later contacted by the minister and asked what training could LMI provide us. I said ‘nothing’. We are the world experts in the production of medical isotopes. We did not need help from the Americans.”

R800m in lost sales due to ‘fake’ shutdown?

The suspended board members accuse the minister of orchestrating a governance crisis so he could remove members of the Necsa board opposed to the sale of NTP. The first sign of this was the eight-month shutdown of the medical production unit over minor safety infractions that ordinarily would warrant a shutdown of a day or two. Production only recommenced last month. NTP was generating R3.5 million a day from the export of isotopes and other product sales, so the eight-month shutdown may have cost the company more than R800 million in lost sales.

“The shutdown was ordered by the National Nuclear Regulator (NNR) and while we supported the regulator’s defence of public safety, it was ridiculously overdone. Shutting down a reactor for months because some staff were not signing safety forms correctly?” says Kemm. “The shutdown was beyond our control, but it severely damaged a fantastic and expanding business so that the blame could be pinned on myself and my fellow directors.”

The suspended board members are seeking to overturn the minister’s dismissal on the grounds that he has overstepped his legal powers. They say his reasons for the dismissals are either false or easily refuted. The case will be heard in the Pretoria High Court in January.

The National Education, Health and Allied Workers’ Union (Nehawu), which is the majority union at Necsa and NTP, weighed in on the controversy with a statement of its own. “[We are] disgusted by the widely reported allegations in the media that the minister of energy, Mr Jeff Radebe, disbanded the previous Necsa board in order to facilitate the sale of 60% of NTP to LMI, an NTP customer, for an improper financial motive. As Nehawu, we call on the minister to take the public and Necsa group employees into his confidence to confirm or deny these allegations.

“We would like to make it categorically clear that if these allegations are true we stand opposed to the privatisation of one of the few profit-making SOCs [state-owned companies] with R1.3 billion in revenue, bringing foreign revenue and paying millions in tax, which also has a serious potential to grow fivefold from where it is currently.

“At this stage, we will not venture to comment on the merits or demerits of the disbandment of the previous board nor on the suspension of the group CEO because the matter is currently before the courts. However, the manner and haste with which this was done give credence to these allegations. We see no sense whatsoever in disbanding the board and thus creating a governance crisis when the board was left with three months of its term.”

Nehawu also objected to the appointment of Dr Rob Adam as chairperson, given his attempts to retrench 250 workers when previously occupying the role of CEO in 2012.

In her statement on behalf of NTP, Magau says “during our unfortunate unplanned and extended shutdown, LMI and many other representatives of leading pharmaceutical and imaging equipment companies and organisations around the world approached NTP to express their concern, and to offer their support. As custodians of the NTP business, we are extremely grateful for all of our customers and business partners’ engagement and continued investment in the success of our company, particularly as we have now re-started production albeit at a greatly reduced capacity. This support and encouragement from our customers, and from global industry bodies, should not be wilfully misinterpreted to mean anything else.”

Russia vs the US

There is another aspect to this story that has not escaped the attention of those in the energy industry: NTP may be a nuclear pawn in a geopolitical battle involving the US and Russia. Kemm had signed a memorandum of understanding with Russian nuclear medicine company Rusatom Healthcare during the Brics summit in Johannesburg in July. Parent company Rosatom is planning to build small-scale research reactors across central and East Africa and was keen to employ Necsa’s skills in building these facilities and training its staff. There had been discussions over plans to build two small dedicated reactors for Necsa to expand its medical isotope production.

“The Americans realised they were losing influence in Africa and suddenly an American company appears as a potential strategic partner for Necsa. Make of that what you will,” says Kemm.

LMI is a publicly listed US radiopharmaceutical company, and one of NTP’s largest and oldest clients. After the meeting with Radebe in March, Necsa was informed that LMI should be given access to the NTP production facilities at Pelindaba.

“What was odd was the LMI representatives arrived with a team from the International Atomic Energy Agency during one of its scheduled visits,” says Tshelane. “We were instructed by the ministry to give them access to our production facilities. They were sent to supposedly provide us with training and organisational management. We told the minister we don’t need them. We are the world leaders and they are just one of our customers.”

NTP’s response

The following additional comment was received from NTP in response to questions posed by Moneyweb.

NTP Radioisotopes SOC Ltd is actually a group of nuclear technology companies (our own subsidiaries include radiopharmaceutical distributor AEC-Amersham SOC Ltd, and logistics company NTP Logistics SOC Ltd). NTP, in turn, is a wholly-owned subsidiary of Necsa, which is also a state-owned enterprise, and which falls under the Department/Ministry of Energy.

NTP was incorporated as a separate company in 2003 (from the old Atomic Energy Corporation, which was later replaced by Necsa), and has its own board. The chairperson of the NTP board is Dr Namane Magau, and the NTP Group Managing Director is Mrs Tina Eboka.

NTP is audited separately from Necsa (and we are extremely proud of our long-standing clean audit record), although NTP’s financial results and other performance data are published with other subsidiaries in Necsa’s annual report (while these documents are quite dry, they do explain the Necsa group and NTP group structure quite well). It is indeed the NTP Group that obtained a clean audit report previously and received an award from the Auditor-general, not Necsa.

What is key to take out from this is that although Necsa is NTP’s immediate shareholder, and we work from the same site at Pelindaba, our operations and management are separate – although of course there are areas where they intersect. For example, Necsa is the owner and licence holder for the Safari-1 research reactor where NTP produces its reactor-based medical radioisotopes; but it is NTP staff who operate the radiochemical production facility and NTP money that finances the bulk of Safari-1’s operations. In turn, NTP pays Necsa a substantial fee every year including dividends, which comprises a large portion of Necsa’s own income. NTP is the largest revenue earner in the Necsa group. Within this, Necsa does not ‘manage’ NTP per se, but can participate more strongly in certain issues, as was seen during the NTP shutdown from November last year.

While Necsa has several representatives on the NTP board, there is no reciprocal relationship with NTP on Necsa’s board or executive. This is just to make it clear that NTP does not participate in Necsa’s board or management decisions, and Necsa does not consult us about their business. Necsa’s primary interest for the last several years seems to have focused largely on the now-shuttered new build partnership proposed with Rosatom, which both Dr Kemm and Mr Tshelane promoted very prominently. The reactor technology that NTP uses to generate isotopes is not the same as the technology used in a nuclear power station.

Before I specifically answer some of the questions you sent to [new CEO] Don Robertson, I should point out that what happened after November last year was unprecedented in NTP’s history, and saw Necsa appointing its own interim management team at NTP while NTP’s senior executives were placed on special leave. The NTP Group MD, Mrs Tina Eboka, was put on special leave from November 2017 to July 2018, and Necsa executive Thabo Tselane was appointed as the acting MD. NTP’s processing plant was shut down for almost the entire time, except for a brief attempt to restart in late February 2018, which was halted when another safety incident occurred. This was fairly widely covered in the press at the time.

Your questions (which in fact relate mostly to NTP):

1. How long was the shutdown of Necsa in 2017/18 and what effect did that have on income and profits?

Necsa was not shut down at all. What was shut down were the radioisotope processing facilities (‘hot cells’) at NTP. The Necsa interim management team attempted a restart at the end of February 2018 with little success, and while they managed a limited number of production runs at that time, the facility was shut down again by the NNR in late May after another safety incident. This meant that NTP was effectively shut down for over a year, which resulted in a substantial loss of revenue. While specific numbers will only be known closer to the end of January, it is almost certain that NTP will struggle to break even in this financial year.

2. Why did it take so long to get back into operations for what [you] understand was a relatively minor safety (admin) issue?

The shutdown was ordered by the National Nuclear Regulator in November 2017 because of an incorrectly calibrated hydrogen monitor in one of the hot cells. While this sounds like a minor issue, and there was no immediate safety risk, the NNR ordered the shutdown because they were concerned about an erosion of the plant’s safety culture and of course in nuclear, safety absolutely comes first. NTP expected the matter to be resolved within a week or two, but this was interrupted by the removal of several key NTP executives and the appointment of the Necsa interim management team. The NTP radiochemical plant is an extremely complex environment to operate and the Necsa team were not familiar with NTP’s operations and were not able to successfully return the plant to service. I am aware that shortly before the restart in November 2018, Necsa issued statements to the press indicating that the delays were only administrative and related to signatures being in the wrong place, but I can confidently say that was not the case, and the NNR was exceptionally efficient and focused on all of our safety. What did take place was that Necsa management also introduced a number of additional internal administrative requirements, which caused significant delays in the submission of NTP’s paperwork to the NNR. These delays were ultimately resolved after the Minister intervened and appointed his deputy to have oversight of the NTP board. From our perspective, the appointment of the deputy minister was solely to expedite NTP’s safe return to service, and there were absolutely no ulterior motives.

3. The removal of the former top management has raised concerns that Necsa is being prepared for privatisation/sale/restructuring. Is there anything to this, and if so, when can we expect an announcement?

We are not aware of any attempt to privatise Necsa, however as above, NTP is not informed of Necsa’s decisions. We can confirm however that there is no preparation whatsoever for the privatisation or sale of NTP. Both the NTP board and the current Necsa board stand by the statement issued yesterday by the chairperson of the NTP board.

4. What would be the benefit of a sale/privatisation of Necsa given its world leading position in the production and distribution of medical isotopes?

Again, we should refer here to NTP and not to Necsa, as they are not the same thing. Given NTP’s key role in the production and distribution of medical radioisotopes, one might equally ask how NTP would have possibly benefitted from the construction of two ‘smaller’ Rosatom reactors, when (in normal production times) we were already one of the world’s largest producers – and where the Mo-99 [Molybdenum-99, the world’s most important medical diagnostic radioisotope precursor] market is capped (you can read OECD reports on this; the Mo-99 market is extremely stable in terms of demand, and unlikely to grow substantially in the near to medium term. However, with the Safari-1 reactor still having a lifespan of another 20 years, as was reported by the new Necsa chair Dr Rob Adam in the media, it may prove prudent at some appropriate point in time and within the country’s affordability framework, for Necsa and South Africa to consider replacing the existing research reactor with another one, or even with newer technologies to continue producing Mo-99.

In terms of your specific telephonic questions to me:

I cannot speak directly for the Necsa board or the ministry of energy, however, I can confirm that they were shown the statement that was issued by NTP before it was distributed to the media. And they supported it fully.

I do not have any idea what Phumzile Tshelane or Dr Kemm discussed with the minister in March. This is best referred to the ministry for comment.

We are not aware of any attempt to privatise NTP, nor are we aware of any supposed objections raised by the Necsa board.

It is not odd at all for NTP to issue its own statement, nor is it misleading. Perhaps you did not have a clear understanding of NTP’s operations and structure, which I hope I have explained in more detail above.

Arno P Van Haght

Independent Advisor to NTP Executive Committee