) project: lessons on management practices, policies and...

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A case study of the Pebble Bed Modular Reactor (PBMR) project: Lessons on

management practices, policies and principles and their effect on the project’s failure

A Research Report

presented to

The Graduate School of Business

University of Cape Town

In partial fulfilment

of the requirements for the

Masters of Business Administration Degree

by

Johannes Henri Holtzhausen

December 2011

Supervised by: Prof. Eric Wood

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Management Practises at PBMR December 2011

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PLAGIARISM DECLARATION

I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend that it is

one’s own.

I have used a recognised convention for citation and referencing. Each significant

contribution and quotation from the works of other people has been attributed, cited and

referenced.

I certify that this submission is my own work.

I have not allowed and will not allow anyone to copy this essay with the intention of passing

it off as his or her own work

Johannes Henri Holtzhausen

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A case study of the Pebble Bed Modular Reactor (PBMR) project: Lessons on

management practices, policies and principles and their effect on the project’s failure

ABSTRACT

This case study examines the management practices employed throughout the life of the

South African Pebble Bed Modular Reactor (PBMR) project from its inception in 1999

through to government pulling the plug on the project in 2010. The PBMR project is a

technologically innovative nuclear mega-project, based on an original German technology

transferred to South Africa in the 1990s. The project did not manage to achieve its goal of

being ‘the first Company to successfully commercialize the pebble bed technology’. In total,

R9.244 billion was invested in the project, and today, there is little left to show for it.

This case study offers a collection of insights into the vast complexities, risks and

uncertainties that go hand in hand with the management of mega-projects. Specifically, the

case explores factors such as decision making and the effect thereof on the manageability of

the project as a whole; the importance of stakeholder management, support and expectations;

and lastly the case explores some of the dynamics of senior management accountability and

the unpredictable and precarious circumstances in which these senior managers often have to

do their jobs.

Keywords: Mega-Projects, Technology Development, Nuclear, Decision Making,

Stakeholder Management, Project Management, Manageability, Management Accountability.

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TABLE OF CONTENTS

List of Figures and Tables ........................................................................................................ vi

List of Figures ...................................................................................................................... vi

List of Tables ........................................................................................................................ vi

Glossary of Terms ................................................................................................................... vii

Acknowledgement .................................................................................................................... ix

1 Introduction ....................................................................................................................... 1

1.1 Case Theme, Purpose and Learning Objectives ......................................................... 1

1.2 Scope and limitations of the management issues to be investigated .......................... 2

1.3 The PBMR project ..................................................................................................... 3

1.4 Assumptions, Ethics and Objectivity ......................................................................... 3

2 Literature review ............................................................................................................... 4

2.1 Innovation ................................................................................................................... 4

2.1.1 Technological Innovation .................................................................................... 5

2.1.2 Innovation Management ...................................................................................... 5

2.2 Mega-Projects ............................................................................................................. 7

2.2.1 Definition and Characteristics ............................................................................. 7

2.2.2 Poor performance, Failures and the Mega-project Paradox ................................ 8

2.2.3 Management of Mega-Projects – a Mega-Challenge ........................................ 10

2.2.4 Manageability of mega-projects ........................................................................ 11

2.2.5 Project Management .......................................................................................... 13

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2.3 Nuclear Projects ....................................................................................................... 14

2.3.1 The Nuclear Industry – a Contextual Overview ................................................ 15

2.3.2 The role and future of nuclear power in today’s world ..................................... 16

2.3.3 Nuclear Issues under contention ....................................................................... 17

2.3.4 Nuclear Projects – A Socially Complex Environment ...................................... 19

2.3.5 Economics of Nuclear Projects ......................................................................... 20

2.4 Conclusion ................................................................................................................ 24

3 Research methodology .................................................................................................... 26

3.1 Type of research and research design ...................................................................... 26

3.2 Limitations of this type of research .......................................................................... 27

3.3 Data sources, reliability, collection and analysis ..................................................... 27

4 The Case Study ................................................................................................................ 29

PBMR (Pty) Ltd. History and Development ....................................................................... 29

The PBMR technology ........................................................................................................ 30

Mega-Projects – A mega-challenge .................................................................................... 32

The Nuclear Renaissance .................................................................................................... 33

South Africa - Socio Economic conditions and Political History ....................................... 34

Political support ................................................................................................................... 35

The PBMR’s only Client ..................................................................................................... 37

Strategic Decisions .............................................................................................................. 38

Technical Scope Creep ........................................................................................................ 39

The Growth Phase - Building a new Organization ............................................................. 43

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Organizational Structures .................................................................................................... 44

Fixing the culture ................................................................................................................ 45

Developing the necessary skills .......................................................................................... 46

Troubles with the Regulator – Stop-Work Order ................................................................ 46

Missing deadlines and a dwindling public support ............................................................. 48

The beginning of the end ..................................................................................................... 50

The possibility of a new beginning ..................................................................................... 50

What if? ............................................................................................................................... 53

Exhibits ................................................................................................................................ 54

5 The Instructors Guide ...................................................................................................... 64

Case Summary ..................................................................................................................... 64

Learning (pedagogical) Objectives ..................................................................................... 65

Suggested Assignment Questions ....................................................................................... 65

Suggested Discussion Questions ......................................................................................... 66

Concluding the Session ....................................................................................................... 77

6 Bibliography .................................................................................................................... 78

6.1 Books, Journals, Articles and Webpages ................................................................. 78

6.2 Interviews ................................................................................................................. 86

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LIST OF FIGURES AND TABLES

List of Figures

Figure 1: Learning, Knowledge and Innovation (Bessant, 2003) ........................................ 7

Figure 2: World electricity production breakdown by source (WNA, 2011b) ................. 16

Figure 3: Fuel and Energy Comparison (Hecht, 2008) ....................................................... 17

List of Tables

No tables used

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GLOSSARY OF TERMS

Acronym Description

BNFL British Nuclear Fuels Limited

CEO Chief Executive Officer

CFO Chief Financial Officer

CARMA Carbon Monitoring for Action

DoE Department of Energy

DPE Department of Public Enterprises

DPP Demonstration Power Plant

EIA Environmental Impact Assessment

EOE Enhanced Oil Extraction

EPR European Pressurized Reactor

EPCM Engineering Procurement and Construction Management

GIF Generation IV International Forum

GSB Graduate School of Business

GWe Giga-Watt electric

HTR High Temperature Reactors

HTR-TN High Temperature Reactor Technological Network

IAEA International Atomic Energy Agency

IDC Industrial Development Corporation

IMEC International Program in the Management of Engineering and Construction

INES International Nuclear Events Scale

Inpro Innovative Reactors and Fuel Cycles

IP Intellectual Property

IRP Integrated Resource Plan

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KWe Kilowatt-hour

LEP Large-scale Engineering Projects

MDEP Multi-National Design Evaluation Panel

MIT Massachusetts Institute of Technology

MWe Mega-Watt electric

NGNP Next Generation Nuclear Project

Niasa Nuclear Industry Association of South Africa

NNR National Nuclear Regulator

NPT Non-proliferation Treaty

OECD Organization for Economic Cooperation and Development

PBMR Pebble Bed Modular Reactor

PMI Project Management Institute

PNE Peaceful Nuclear Explosives

PWR Pressurized Water Reactor

SA South Africa

SWO Stop-Work Order

US United States (of America)

WACC Weighted Average Cost of Capital

WNA World Nuclear Association

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ACKNOWLEDGEMENT

I dedicate this research report to my wife, Jolandi, for her endless support, understanding and

forgiveness. Without her none of this would have been possible. Thank you for everything.

I’d like to give a special mention to my parents who brought me up to believe that I can

achieve greatness and to my grandfather without whom I would not be the man I am today.

May he rest in peace.

I would like to thank Professor Eric Wood - my supervisor, for his dedication, direction, input

and countless reviews. It has not only been a pleasure working with him, but I truly believe

the quality of this case would not have been what it is without him.

Lastly I would like to thank Jaco Kriek, former CEO of PBMR, for his invaluable input,

honesty and refreshingly frank reflection on a period which I know firsthand was particularly

hard on him. Without him, this case would not have been possible, and his experience would

potentially have been lost to the world.

This report is not confidential and may be used by the UCT Graduate School of Business,

subject to permission by the author(s).

Johannes Henri Holtzhausen prepared this case under the supervision of Prof Eric Wood as the basis for class

discussion rather than to illustrate either effective or ineffective handling of a management situation.

Copyright © 2011 by the author(s). No part of this publication may be reproduced, stored in a retrieval system,

used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying,

recording, or otherwise – without the permission of the author(s).

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1 INTRODUCTION

“As we look from the past to the future of the field of project management, one

of our great challenges is the largely untapped opportunity for transforming

our projects’ performance. We have yet to discern how to extract and

disseminate management lessons as we move from project to project”

- Cooper, Lyneis, and Bryant (2002, p. 213)

Patrick Rich, Chairman of the International Program in the Management of Engineering and

Construction (IMEC) research program, believes that ”we are on the threshold of an

explosion in large projects – in number, size and diversity” (Miller & Lessard, 2001, p.xvii).

He might have made this statement ten years ago, but the fundamental drivers of such an

explosion - namely the development and diversification of new technologies, the relentless

search for energy sources, raw materials and huge infrastructure requirements, are still at play

today.

Plenty has been written about the execution of mega project, yet despite the expected future

increase in the number of mega-projects, little has been written on their management (Miller

& Lessard, 2001). Perhaps, as Cooper, Lyneis, and Bryant (2002, p.213) believe, it is because

even though we have become quite adapt at learning from project failures and success on a

technological level, managers, executives and researchers in project management have “yet to

learn how to learn’. Or perhaps it is because of manager’s belief that every project is different

with little if any management practices being transferable from one to next. Or simply that no

one takes the time to learn from past projects, rather moving straight from the one to the next.

Either way, failure to learn from past projects, and particularly past failure, could lead to a

repeat of past troubles in planned future projects (Taylor & Ford, 2008).

1.1 Case Theme, Purpose and Learning Objectives

The Pebble Bed Modular Reactor (PBMR) case study, presented in this document, attempts to

address the shortcomings and opportunities presented above - to learn from the failure of the

PBMR nuclear project in South Africa and to try to disseminate management lessons that can

hopefully be applied for the benefit of future projects of this kind. The case is focused entirely

on the management processes, practices and principles applied by senior management and

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executives in the execution of the PBMR project taking cognisance of the important

stakeholder interactions, decisions and circumstances in which these were carried out.

The case focuses on three major learning areas, namely the decision making processes and

consequences within mega projects and their impact on the manageability of the project as a

whole; the importance of stakeholder management; and lastly the case explores some of the

dynamics of senior management accountability and the unpredictable circumstances under

which these senior managers often have to manage these projects.

The aim is to explore and deepen our understanding of the management practises that were

applied in the project and how they influenced the eventual outcome of the project. In the

words of Flyvbjerg, Bruzelius, and Rothengatter (2003), although the author wants to subject

the PBMR project case to critical scrutiny, the “...objectives are not to criticise it, even where

it has underperformed, but to learn constructively from experience by identifying lessons that

may prove useful in improving future decisions regarding mega-projects.”

1.2 Scope and limitations of the management issues to be investigated

This case study is not limited to any particular area of management practice, but focuses on

the management practices, processes and principles applied within the context of the vast

risks, complexities and uncertainties associated with the management of such a

technologically innovative mega- nuclear project. In addition, no project of this nature can

truly be divorced from the political and socio-economic environment in which it is managed.

Therefore the case study is also focus on the particular challenges and nuances of executing

such a project within a South African context – being a developing economy, but with a

nuclear past, operating the only nuclear power reactor on the African continent.

Although the PBMR is an innovative nuclear project, the engineering specifics regarding

first-of-a-kind nuclear technology development and the social complexities that go with it,

will as far as possible be treated as part of the contextual framework within which the project

operated – contributing only in risk, complexity and uncertainty, with the hope that the

learning form the case study will not only be indicative of nuclear projects, but to mega-

projects in general.

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1.3 The PBMR project

The PBMR project is a technologically innovative mega- nuclear project. Not only is the

technology first-of-a-kind but the project is also a first for South Africa as a whole. Between

1999 and 2009, R9.244 billion was invested in the project of which R7.4 billion had

effectively been paid by the South African tax payer (Hogan, 2010). While not questioning

the enormity of this sum of money, it still pales in comparison to some of the other mega-

projects taken on by South Africa in recent years – such as Transnet’s R15 billion New

Multiproduct Pipeline Project between Durban and Johannesburg (Creamer, 2010), or the

R120 billion price tag for each of the Medupi and Kusile coal fired power stations currently

being built in Limpopo and Mpumalanga (Bond & Ndlovu, 2010; Hancock, 2011). The

PBMR project has since been stopped by the South African government and much debate

now surrounds the question of whether this was a long overdue decision with the PBMR

being nothing more than the pet project of a few scientists, or whether the South African

government has in fact done the people of south Africa a disservice, and squandered a

potentially attractive and lucrative opportunity.

1.4 Assumptions, Ethics and Objectivity

This case study is proposed on the premise that the management practices utilized in the

PBMR project influenced the final outcome, either through management shortcomings

limiting the probably of success on the project or management excellence having given the

project a greater probability of success than would otherwise have been the case.

Another assumption under which this case is be performed is that there are in fact

commonalities between different mega-projects from which general managerial lessons and

understandings can be extracted, and that even if these were transferable from one project to

another that the true causal mechanisms can be identified from within the myriad of unique

situational circumstances and reactions.

Lastly, having personally worked at the PBMR project between 2007 and 2010, the author

was privy to the conditions under which the management team operated, and had direct

experience working under them. It is possible therefore, that this could influence the author’s

ability to be objective in performing this case study. The question of objectivity as well as

other limitations associated with the type of research performed will be addressed in section

3.2.

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2 LITERATURE REVIEW

2.1 Innovation

“...the path to the innovation profit bank is ... littered with the bodies of firms

that did not innovate...”

– Allan Afuah, author of Innovation Management: Strategies, Implementation and Profits

(Afuah, 2003, p. 1)

If you believe the modern literature on innovation, both popular and academic, one could be

forgiven for assuming the world is heading for imminent disaster. Statements such as the

quote above, or “In today’s dynamic and challenging world, organisations face a stark

challenge – change or perish” (DK, 2009, p. 5) or even “Change is a pre-requisite for

survival amongst individual human beings and even more so in the organizations which they

create and in which they work” (Bessant, 2003, p. 1), litter the first pages or back covers of

many books on the subject. As much as literature is aligned in the need and imperative for

innovation to the success of a company (Afuah, 2003; Bessant, 2003; Dodgson, Gann, &

Salter, 2008; Drucker, 2002; Hansen & Birkinshaw, 2007; Tidd, Bessant, & Pavitt, 2005), it

also seems skewed in its definition of the term, each offering up its own slant on a concept

that even though not universally defined, is broadly and loosely used.

According to the Oxford dictionary, the word ‘innovation’ is derived from the Latin word

innivare which stems from in - ‘into’ and novus – “new”, and essentially means ‘to renew or

change’. From a business perspective, innovation refers to the use of new technological and

market knowledge to offer a product or service that customers will want (Afuah, 2003).

Innovation can broadly be classified either in terms of a changed offering or degree of novelty

with regard to a product, service, process or market (Bessant, 2003; Dodgson, Gann, & Salter,

2008; Tidd, Bessant, & Pavitt, 2005). In this way, innovation enables organizations not only

to offer its customers better value and to be competitive but also for the organization to cope

with its rapidly changing socio-economic environment (Tidd et al., 2005).

The concept of innovation is often either focused on ‘breakthrough’ changes, discounting the

value of incremental change, or on the concept of ‘invention’ which refers to the product

dimension of innovation, rather than the process dimension of creating, selecting and

implementing that idea (Bessant, 2003). Innovation is actually, generally characterized by

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gradual incremental movements forward with a sequence of little cumulative improvements,

rather than with one great leap. That’s not to say that these ‘great leaps’ do not occur, in fact

general patterns suggest that occasional breakthroughs exist, but that these are then followed

by long periods of incremental development and improvement, and that business success then

comes from the ability to be able to exploit these periods (Bessant, 2003).

Literature seems to be unanimous in suggesting that obtaining success from innovation is not

as much as a result of a revolutionary or game changing idea, but rather as a result of the right

idea, being implemented in the right way and at the right time.

2.1.1 Technological Innovation

Technological innovation refers specifically to the innovation of technology – that is,

replicable artefacts with a particular application as well as the knowledge that enables them to

be developed and used (Dodgson et al., 2008). Dodgson et al., stress that technological

innovation introduces a range of additional issues – specifically complexity, uncertainty and

risk, which compound the challenges in managing it. They argue however, that it is exactly

this added difficulty in managing technological innovation that provides such a source of

competitive advantage for an organisation that does manage to get it right.

According to Dodgson et al., (2008), complexity associated with technological innovation

stems from its emergent properties and typical composition of interdependent component

systems. Risk on the other hand is influenced by technical, business or market uncertainties,

particularly in the extent to which the innovation’s outcome is unpredictable, costly and

appropriable. This, coupled with intellectual property issues and the frequently high costs

associated with technological innovation, puts those in charge of managing it under severe

pressure to deliver.

2.1.2 Innovation Management

The challenges facing innovation differ across nations, industries, firms and even product

classes. The management of innovation is thus inherently both difficult and risky and will

require a different set of management skills from those needed for everyday business

administration (Hansen & Birkinshaw, 2007; Tidd, Bessant, & Pavitt, 2005).

Given this large array of differences, can one then advocate a ‘best practice’ of innovation

management? In fact Hansen and Birkinshaw (2007) suggest that there is no universal

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solution for managing innovation. Instead they argue that if an organization take an ‘end-to-

end’ view of the innovation lifecycle and focus rather on the areas in which they are weak

than on those that they are strong, that they then stand the best chance of delivering on the

innovation promise. This concept of an ‘innovation lifecycle’ seems to be popular in literature

with the only difference being; into how many phases it is split and how they are labelled.

Whether one applies Tidd, Bessant and Pavitt’s phases of scanning, strategy, resourcing,

implementation, learning and re-innovation (Tidd, Bessant, & Pavitt, 2005) or Hansen and

Birkinshaw’s idea generation, selection, development and diffusion (Hansen & Birkinshaw,

2007) doesn’t seem to matter as much as that one appreciates the different challenges and

skills required to adequately manage each.

By contrast, (Tidd, Bessant, & Pavitt, 2005) argue that the process of innovation management

is in fact generic. They acknowledge that technological, organizational or market-specific

factors, will affect the choice of processes used. But in essence argue that through the right set

of processes and structures that successful – or at least improved, innovation management is

possible across the board.

Bessant, in his book High Involvement Innovation (2003), provides a different view on the

key aspect of innovation management, namely that learning and knowledge management is

what drives successful innovation management. Drucker (2002, p. 95) seems to concur with

this view in saying “innovation is the work of knowing rather than doing”. According to

Bessant, knowledge is the fuel for innovation, and innovation in turn offers learning that feeds

back again into knowledge - as illustrated in Figure 1, thus effectively creating a system of

knowledge creation and renewal within a firm. His argument thus centres around focusing on

the management of learning and knowledge and on an organization’s need to become good at

learning, and occasionally forgetting, as a key to the successful management of the innovation

process.

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Figure 1: Learning, Knowledge and Innovation (Bessant, 2003)

Allan Afuah, from the University of Michigan, instead argues that in fact none of the above

are definitive in ensuring success. Instead he argues that failure in innovation management is

not so much as a result of the innovation strategies employed, but as a result of poor

implementation. He argues that it takes an appropriate organizational structure with the right

people to implement any strategy effectively, and thus to succeed in managing innovation

(Afuah, 2003).

Acknowledging that innovation in and of itself deserves management attention and that

gaining a sound understanding of the nuances and intricacies that make it unique seems to be

half the innovation management battle won. For the rest it comes down to tailoring

management practices to the given situation, providing a learning and knowledge driven

culture, ensuring you have the best team in place to ensure all of this will be adequately

implemented and lastly accepting that for reasons beyond your control failure is still a

possibility despite all of your best efforts.

2.2 Mega-Projects

Mega-projects and innovation, although conceptually very different, seem to have some

interesting commonalities. Both are hugely risky and complex and often have to be managed

under a cloud of uncertainty with vast amounts of money - or even whole firms’ livelihood,

potentially riding on its success.

2.2.1 Definition and Characteristics

Mega-projects – sometimes referred to a Large-scale Engineering Projects (LEP), are

distinguished from traditional projects in that they are large – in terms of scale, costs and

Knowledge

InnovationLearning

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duration, complexity and often involve multitude partners and stakeholders (Van Marrewijk,

2005). Priemus, Flyvbjerg, & van Wee (2008) talks about the six C’s that generally

characterize mega-projects, namely that they are colossal in size and scope, captivating

because of size, engineering achievement and aesthetic design, costly, controversial,

technically and socially complex leading to increased risk and uncertainty and that they

usually involve issues of control between key stakeholders. These projects can range from

large construction projects such as nuclear reactors or tunnels, to development and production

of aircraft, naval vessels, missiles and satellites or even large software programs such as those

used in aircraft control centres, telephone switching or air defence systems (Graham, 2000).

(Priemus, Flyvbjerg, & van Wee, 2008) assert that mega-projects are often technological tour

de force with an innovative and not infrequently, experimental character. And that in addition

to the technical complexities that come with such cutting edge technology, mega-projects are

often also faced with the social complexity that comes with potentially wavering public

support and political decision processes. To complicate matters further, the mixture of

partners each with its own objective, issues concerning the control and commitment of each

of these partners and the typical sub-contracting elements add a further dimension to the

complexity of these projects (Van Marrewijk, 2005)

2.2.2 Poor performance, Failures and the Mega-project Paradox

The complexity and scale of mega-projects has been increasing over the last few decades

(Baccarini, 1996; Miller & Lessard, 2001), to the extent that in 1999 more than 1500 large

engineering projects - each worth over US$1 billion, were at some stage of financing or

construction in the world (Conway Data, 1999 as cited in Miller & Lessard, 2001). This

growth in mega-project development is occurring despite the fact that mega-projects seem to

have a dismal track record when it comes to staying within schedule and budget, something

which brings the adequacy of public policy related to these expensive projects into serious

question (Flyvbjerg, Holm, & Buhl, 2003; Van Marrewijk, 2005).

Mega-projects experience frequent delays and cost overruns (Evans, 2005; Flyvbjerg,

Bruzelius, & Rothengatter, 2003; Flyvbjerg, Holm, & Buhl, 2003; Graham, 2000; Leijten,

2009; Priemus, Flyvbjerg, & van Wee, 2008), and are very susceptible to failure (Taylor &

Ford, 2008). Examples of such outcomes are not difficult to come by and include the Channel

Tunnel connecting Great Britain and France - approximately US$10 billion over budget and

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two years late, Boston Central Artery Project - approximately US$10 billion over budget and

seven years late, the U.S. Department of Energy’s National Ignition Facility - approximately

US$1 billion and six years late and Europe’s first European Pressurized Reactor (EPR)

nuclear power plant, the Olkiluoto 3 in Finland – currently approximately US$2 billion over

budget and 3 years behind schedule (Taylor & Ford, 2008). In South Africa, the picture looks

much the same with Transnet’ New Multiproduct Pipeline Project between Durban and

Johannesburg – forecast to be R2.7 billion over budget and already several years late

(Creamer, 2010) and Eskom’s Medupi and Kusile coal fired power stations – forecast to be

R45 billion and R40 billion over budget respectively (Hancock, 2011), to name but few.

Isolated and unforeseen circumstances are often cited by project promoters and decision

makers as the reason for projects underperformance, suggesting that such underperformance

is the exception rather than the rule (Flyvbjerg, Holm, & Buhl, 2003; Reilly & Brown, 2004).

However, in a 2003 study, based on 258 large infrastructure projects completed between 1927

and 1998 - ranging from US$1.5 million to US$8.5 billion per project, Flyvbjerg, Holm, &

Buhl, (2003) were able to statistically prove that cost underestimation and escalation have in

fact been the norm in mega- infrastructure projects. They found that 9 out of 10 projects -

across all types and regions, experienced costs escalation, with actual costs on average 28%

higher than originally forecast. Miller & Lessard, (2001) seem to think that it is actually

worse and claim that cost overruns are typically in the range of 30 to 700 percent. In addition

the study found no evidence existed that this pattern was improving overtime with escalation

today being the same in magnitude as 10, 30 or 70 years ago.

Factors contributing to the poor performance of mega-projects are harder to predict than the

fact that they do overrun. The 2003 study by Flyvbjerg, Holm, & Buhl (2003) found that the

causes of escalations typically differed from project to project - ranging from changed safety

requirements, environmental protests and lobbying to natural disaster. They also found that

cost escalations had not improved over time. Reilly & Brown (2004) cite a 2001 international

study by Reilly and Thomas, this time covering 1400 projects, in suggesting that in between

30 and 50 percent of these projects, deficient management was the probable cause. Other

reasons for failure have been identified in literature and include overestimation of benefits

(Evans, 2005), lack of knowledge transfer between projects (Cooper et al., 2002), project

complexity (Baccarini, 1996; de Bruijn & Leijten, 2008; Gidado, 1996; Leijten, 2009),

rework (Cooper et al., 2002; Gidado, 1996; Taylor & Ford, 2008), schedule pressure (Napal,

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Park, & Son, 2006), government policies, management transitions (Reilly & Brown, 2004)

and general unexpected events experienced during installation (Leijten, 2009). On the other

hand, Miller & Lessard (2001) found that the front-end engineering of institutional

arrangements and strategic systems have a greater impact on the success or failure of mega-

projects than these more tangible aspects of project engineering and management.

By contrast, the fact that mega projects are internationally and generationally plagued by

consistent cost and schedule overruns has led some to believe that it is mostly attributable to a

lack of realism in cost estimates and that the widespread underestimations of costs are in fact

intentional (Evans, 2005; Flyvbjerg, Bruzelius, & Rothengatter, 2003; Flyvbjerg, Holm, &

Buhl, 2003). They claim that inadequate deliberation about risk, lack of accountability in the

decision-making process, strong incentives for underestimation and weak disincentives for

escalation have taught project promoters that underestimation pays off – i.e. that the use

misinformation in tactical power games work in getting projects approved and built. They

even go as far as saying “... megaprojects often come draped in a politics of mistrust ... [cost

estimates] are highly, systematically and significantly deceptive” (Flyvbjerg, Bruzelius, &

Rothengatter, 2003, p. 20).

Whatever the reason, the consequences of mega-project failures or overruns are far reaching.

Adam Smith eloquently explains in his book The Wealth of Nations (as cited in Taylor &

Ford, 2008), “in every such project... there must always be some diminution in what would

otherwise have been the productive funds of society”. The failure or overruns of these mega-

projects not only result in their much-touted positive development effects not materializing,

but also in severe economic consequences for project stakeholders and society at large

(Evans, 2005; Flyvbjerg, Holm, & Buhl, 2003; Taylor & Ford, 2008; Van Marrewijk, 2005).

In fact, Flyvberg et al. claim the scale of today’s mega-projects can be so large that their

failure can lead to the collapse of firms and even governments.

2.2.3 Management of Mega-Projects – a Mega-Challenge

Project management is not a new science. It has its origins in the early twentieth century and

even operates under an established professional body – the Project Management Institute

(PMI), with over 150,000 members in 150 countries (Evans, 2005). Knowledge and methods

– such as the Critical Paths, Gantt charts, Work Breakdown Structures and ever more

sophisticated project management software, have been developed through decades of mega-

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project development and implementation experience (Evans, 2005; Leijten, 2009). Yet, even

though project management techniques are seemingly improving, the track record of these

projects is not. Contrary to received ideas, the use of classic project management tools is not

the only factor in the success of mega-projects, rather the organization, segmentation of

responsibilities and the methods of management are much larger determinants of project

success (Evans, 2005; Jolivet & Navarre, 1996). This, together with the fact that effective

management is estimated to be able to save between 10 and 30 percent on the cost and

duration of these projects (Graham, 2000), points to a real need for better management of

mega-project in general (Reilly & Brown, 2004).

2.2.4 Manageability of mega-projects

One of the reasons for the pitfalls in the implementation of mega-projects is the so-called

‘unmanageability’ typical of these projects (de Bruijn & Leijten, 2008; Leijten, 2009;

Priemus, Flyvbjerg, & van Wee, 2008). Both de Bruijn and Leijten as well as Priemus et al.,

claim that unmanageability of mega-projects result from the technical complexities – the

extent of technical uncertainty, and social complexities - the extent to which there is

disagreement between the parties involved regarding its desirability and design, of the project

and its environment. On the other hand, they argue that if projects are easily manageable then

there is the risk that they are less rich and innovative as to their substance, suggesting that

unmanageability is an unavoidable characteristic of truly innovative mega-projects. Some of

the measures suggested by de Bruijn and Leijten – and others, for improving the technical and

social complexity, and by extension the manageability of mega projects include:

Use proven technology – reduces uncertainty and complexity resulting in less rework

and improved predictability (de Bruijn & Leijten, 2008; Priemus, Flyvbjerg, & van

Wee, 2008; Taylor & Ford, 2008)

Use designs that are more robust, divisible and have loose coupling – reduces the

chance of unforeseen developments, results in a shorter critical path and reduced

interdependencies, feedback loops and ripple effects (de Bruijn & Leijten, 2008;

Leijten, 2009; Taylor & Ford, 2008)

Incorporate multi-functionality – reduces the risk of total project failure due to

broader potential applications and demand, (de Bruijn & Leijten, 2008)

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Incremental implementation (as opposed to radical) – provides learning possibility,

reduces total risk and provides the option of halting or adjusting the project if

necessary (de Bruijn & Leijten, 2008; Priemus, Flyvbjerg, & van Wee, 2008)

Setting realistic project deadlines – removes undue schedule pressure and provides

sufficient buffers to allows for rework and feedback effects to be dealt with effectively

(Flyvbjerg, Holm, & Buhl, 2003; Graham, 2000; Leijten, 2009; Priemus, Flyvbjerg, &

van Wee, 2008; Reilly & Brown, 2004; Taylor & Ford, 2008)

Incentivisation and risk sharing – reduces social complexity through improved

autonomy and accountability (Flyvbjerg, Holm, & Buhl, 2003; Leijten, 2009)

Improved expertise and project learning – reduces rework and improves management

and decision makers ability to deal with complexities (Cooper et al., 2002; Flyvbjerg,

Holm, & Buhl, 2003; Leijten, 2009; Taylor & Ford, 2008)

Effective governance, stakeholder management and communication structures –

Reduces social complexity through improved principle-agency problems, stakeholder

commitment, participation, transparency and trust (Bahl, Bennett, & Mangalorkar,

2003; Flyvbjerg, Bruzelius, & Rothengatter, 2003; Flyvbjerg, Holm, & Buhl, 2003;

Miller & Lessard, 2001; Rogers, 2011; Van Marrewijk, 2005)

On the other hand, Leijten (2009) argues that one of the major causes of unmanageability of

mega-projects results from the uncertainty associated with the information gap that decision

makers are faced with. This information gap is predominantly due to the unpredictability -

past information not being a reliable guide for the future, or complexity – information exists

but is not available to decision makers (referred to as information asymmetry), or a lack of

technical expertise needed to interpret the information available (Baccarini, 1996; Galbraith,

1977; Leijten, 2009). He suggests that the information gap can either be closed by increasing

the availability of information to decision makers or by reducing the amount of information

required (Leijten, 2009). Decreasing the amount of information required effectively means

scaling down the ambition of the project – either through increased robustness, reduced

functionality, extended budgets and/or time schedules. Since this is either politically

unacceptable, or would erode the project’s attractiveness to key stakeholders (Leijten, 2009),

the most commonly used alternative is to increase the amount of information available.

However, this often does not result in improved manageability, and can even detract from it,

particularly if information asymmetry exists and/or decision makers lack the necessary

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expertise. Leijten (2009) suggests that although these could be solved by increasing key

expertise or outsourcing decision making authority, that the downscaling of ambitions might

deserve some more credit, as it may have the greatest positive impact on the chances of

success.

2.2.5 Project Management

As discussed above, the world of mega projects is a highly risky and complex one, played out

under nearly constant public scrutiny, and mired by deception and power games (Flyvbjerg,

Bruzelius, & Rothengatter, 2003). Dynamics constantly change over time (Priemus,

Flyvbjerg, & van Wee, 2008) and things hardly turn out as planned. Broadly speaking, the

unmanageability of these projects is perceived as a major obstacle to success (de Bruijn &

Leijten, 2008). Add to this the fact that stress, urgency and unforeseen difficulties play a large

role in the life of mega-project managers (Miller & Lessard, 2001) and it is not difficult to

understand why management deficiency is estimated to contribute to between 30 and 50

percent of all mega-project failures (Reilly & Brown, 2004).

Given the poor track record and seemingly low manageability of technologically innovative

mega-projects, can a set of management principles be advocated for the improved

management of these projects? Jolivet & Navarre (1996) argue that each project is inherently

unique and must likewise be managed by a set of unique management practices, systems and

organizational processes. They argue that the real challenge is in identifying the management

systems which are most suitable for the management of the specific situation faced by the

project. Cooper et al., (2002) disagree and suggest that the belief that every project is different

is in fact ‘misguided’. They argue that although each project does in fact face certain unique

characteristics, that there are patterns and commonalities that can be identified from these

projects and used by managers to learn from past success and failure. According to Cooper et

al. (2002), there are three structures that underline the dynamics of all these projects, namely;

the rework cycle, feedback or ripple effects on productivity and work quality and knock-on

effects from upstream phases to downstream phases. Taylor & Ford (2008), concur with this

view and state that large projects are particularly susceptible to these dynamics as well as to

scheduling pressures. They argue that adequate management of these factors can improve the

chances of project success and help avoid or mitigate tipping point dynamics – a tipping point

being a set of conditions that separate two different modes, that when reached can change

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everything at once (often used to explain the critical mass phenomena in riots) (Taylor &

Ford, 2008).

Further, there seems to be a consensus that some of the typical project management tools in

use on ‘normal’ projects can – and should, be used to good effect on mega projects (Bahl et

al., 2003; Cooper et al., 2002; Evans, 2005; Reilly & Brown, 2004). Provided that they are

supplemented by particular focus and practices aimed at dealing with the unique nuances and

characteristics of mega-projects, particularly with regard to managing rework, feedback and

other project dynamics (Cooper et al., 2002; Graham, 2000; Priemus, Flyvbjerg, & van Wee,

2008; Taylor & Ford, 2008), risk management – both technical and social (Bahl, Bennett, &

Mangalorkar, 2003; de Bruijn & Leijten, 2008; Miller & Lessard, 2001; Priemus, Flyvbjerg,

& van Wee, 2008; Reilly & Brown, 2004; Rogers, 2011), communication and change

management (Bahl, Bennett, & Mangalorkar, 2003), stakeholder management (Miller &

Lessard, 2001; Rogers, 2011; Van Marrewijk, 2005) project structure and integration (Bahl,

Bennett, & Mangalorkar, 2003; Graham, 2000; Jolivet & Navarre, 1996; Miller & Floricel,

2001), cost estimation (Flyvbjerg, Bruzelius, & Rothengatter, 2003; Flyvbjerg, Holm, &

Buhl, 2003; Reilly & Brown, 2004) and governance (Bahl, Bennett, & Mangalorkar, 2003;

Flyvbjerg, Bruzelius, & Rothengatter, 2003; Miller & Lessard, 2001; Rogers, 2011; Van

Marrewijk, 2005).

As stated earlier, Jolivet & Navarre (1996) believe the difference between success and failure

in the, admittedly complex, world of mega-projects seems to come down to managerial rather

than technical deficiencies. The recently completed three year, US$2 billion, Saudi-Aramco

Haradh gas pipeline serves as a case in point. Despite facing technical challenges such as

being built deep in the desert, 10km from the nearest road, the project still managed to be

completed six months ahead of schedule and 27% under budget (Evans, 2005). This winner of

the 2004 PMI project of the year award serves as a sterling example and target for all future

mega-projects in that these projects are not inherently doomed to poor performance, and that

effective management can in fact lead to success.

2.3 Nuclear Projects

Nuclear projects are not unlike most other mega-project in term of their complexity, risk,

large capital requirements and typically long project schedules (Deutch, Kadak, Kazimi, &

Moniz, 2009; Harding, 2007; Holt, Sotkiewicz, & Berg, 2010; Macfarlane, 2010; Owen,

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2011; Taylor & Ford, 2008; WNA, 2008). However, there are some unique contextual

characteristics and complexities that are worth pointing out.

2.3.1 The Nuclear Industry – a Contextual Overview

Nuclear power has been at the forefront of public debate on energy for decades, often on a

knife’s edge between public acceptance and disrepute (Ahearne, 2010). Yet, since the

beginning of the 21st century, nuclear power has seen a ‘renaissance’ of sort, driven by a

recognised need for a more carbon conscious future, volatile fossil fuel prices, concerns over

energy security, major expansion of per capita use of electricity in eastern developing

countries, and a general consensus that nuclear power might just be the only sustainable

option in terms of base-load electricity for the future (Ahearne, 2010; Deutch, Kadak, Kazimi,

& Moniz, 2009; Harding, 2007; Holt, Sotkiewicz, & Berg, 2010; Ion, 2010; Macfarlane,

2010; Owen, 2011; WNA, 2008). Even environmentalists such as Patrick Moore formally of

Greenpeace - once an avid anti-nuclear activist, have started pushing nuclear power as a ready

solution (Moore, 2006).

Overview and History

Nuclear electricity generation technology harnesses energy – in the form of heat, generated

from the splitting of certain elements such as Uranium or Plutonium. The technology was

developed in the 1940s with the first commercial nuclear power reactor starting operation in

the early 1950s. As of February 2011 the World Nuclear Association claims that there are

over 440 commercial reactors operating in 30 countries (WNA, 2011b) with a total capacity

of 376,511 MWe (WNA, 2011c). Nuclear power contributes 14% of the world’s base-load

power (EIA, 2007) - refer to Figure 2 for a breakdown of total world electricity supply

generation sources. In addition, 140 ships and submarines worldwide are powered by nuclear

reactors and 56 countries operate a total of about 250 research reactors (WNA, 2011b).

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Figure 2: World electricity production breakdown by source (WNA, 2011b)

2.3.2 The role and future of nuclear power in today’s world

According to Yury Sokolov, deputy director general of the International Atomic Energy

Agency (IAEA), “... global energy imbalance means that roughly 1.6 billion people live

without access to electricity” (Sokolov, 2008, p. 1). Nuclear thus not only offers tremendous

opportunities for developed countries to offset carbon dioxide emissions (Deutch et al., 2009;

Harding, 2007; Holt et al., 2010; Moore, 2006; Owen, 2011) - since 2006 alone, nuclear has

displaced over 3904 million tons of carbon dioxide that would otherwise have been emitted

into the atmosphere (Macfarlane, 2010) – see Figure 3 for a fuel and energy comparison, but

also increased electricity supply and even desalination services for developing countries

(Ahearne, 2010; McKenzie, 2011).

The IAEA claims that 66 nuclear power reactors are currently under construction (IAEA,

2011a) and that “a growing number of countries are expressing interest in introducing nuclear

power” (IAEA, 2008). So, even though costs pose a significant barrier to nuclear project

development for many countries in a post (or mid) recession time where most countries face

severe economic hardships and seemingly more pressing issues than reduction in carbon

emissions, it is still considered a viable and attractive option for the worlds energy needs of

today.

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Figure 3: Fuel and Energy Comparison (Hecht, 2008)

None the less, the Japanese Fukushima Daiichi nuclear incident of 11 March 2011 serves as a

sobering reminder of some of the safety issues facing nuclear projects. However, with the

nuclear industry being so susceptible to public opinion, the key concern to the nuclear

renascence today will be how the public, and by extension, policy makers react to the recent

event at Fukushima nuclear power station as well as other issues under contention.

2.3.3 Nuclear Issues under contention

Nuclear power projects, unlike most other energy sources, face the possibility of severe

consequences in the unlikely event of a major accident or possible security breach. This

makes nuclear power unique in terms of the issues, particularly safety and security, which are

frequently associated with this technology (Ahearne, 2010; Macfarlane, 2010). Generally, the

three most contentious issues regarding nuclear power production include the management of

nuclear waste, the safety of nuclear reactors to humans and the environment and security

issues regarding nuclear proliferation.

The management of nuclear waste is probably one of the most hotly contested issues

surrounding the use of the technology, and one on which the progress has not been positive

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and remains largely unresolved – as neither of the two current option, geological repositories

and reprocessing of spent fuel are considered to be permanent solutions (Ahearne, 2010;

Deutch et al., 2009; Holt et al., 2010). In addition, Deutch et al. (2009), stress that the US

government, as an example, still has no plan for its high-level waste. According to the IAEA,

in 2008 the world had accumulated nearly 6 million cubic meters of nuclear waste (IAEA,

2010). Although some countries have repositories for low and intermediate nuclear waste,

none have opened any high-level waste disposal facilities for the 360 000 cubic meters of

high-level waste which is currently remaining in cooling pools and dry storage casks at the

power facilities (Ahearne, 2010; Macfarlane, 2010). The nuclear industry as a whole, together

with national government and regulatory bodies, thus have to come up with a more

sustainable solution for the management of its waste.

An often quoted saying is ‘a nuclear accident somewhere, is a nuclear accident everywhere’

(Ahearne, 2010). This rings particularly true in the aftermath following the Fukushima

nuclear meltdown in March this year. Nuclear safety is another factor that will greatly affect

the future growth of nuclear energy (Ahearne, 2010). Radiation leaks from nuclear power

plants are lethal in high enough dosages, and even at lower dosages, can have serious long

term health consequences including the risk of cancer. However, According to the WNA there

have only been three major nuclear accidents (Chernobyl, Three Mile Island and Fukushima)

in the history of civil nuclear power – out of 14,500 cumulative reactor-years. In addition

severe nuclear accident have, between 1969 and 2000, only been responsible for a total of 31

direct fatalities – all resulting from the Chernobyl incident. According to an IAEA report on

the Fukushima incident “...no health effects have been reported in any person as a result of

radiation exposure from the nuclear accident” (IAEA, 2011, p. 3). This is quite phenomenal

given that this incident resulted from a 9.0 magnitude earthquake and tsunami – the fifth

largest in recorded history and which moved the entire island a total of 2.4 meters (Diep,

2011). The low number of fatalities associated with nuclear reactor incidents is especially

significant when compared with over 1,000 fatalities due to natural gas, 18,000 coal, and

30,000 hydro electric facility fatalities in the same period (WNA, 2011d), or the between

750,000 and 850,000 estimated road fatalities in 1999 alone (Jacobs & Aeron-Thomas, 1999).

Even if you take the three workers that died from other causes at the facility (WNN, 2011), it

still pales in comparison to the total 15,731 confirmed dead as a result of the earthquake

(NPA, 2011). These low figures are mostly attributable to the high levels of safety

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requirements imposed on the industry, including high levels of design redundancies

(Macfarlane, 2010).

No matter the direct number of casualties, the Fukushima Daiichi nuclear incident will still

have severe safety, social and environmental consequences. It is the only other nuclear

incident, besides Chernobyl, that has been classified as a 7 (out of 7) on the IAEA

International Nuclear Events Scale (INES) - indicating an accident causing widespread

contamination with serious health and environmental effects (Three Mile Island was only a 5)

(WNA, 2011d).

Lastly, the issue of security in terms of proliferation threat of nuclear reactors is also pertinent

(Ahearne, 2010). The international community still associates the term ‘nuclear’ with atomic

bombs and although nuclear reactors themselves pose little proliferation threat, the front and

back-end of the nuclear fuel cycle is considered more vulnerable to the threat of proliferation

(Nuclear Energy Study Group, 2005 as cited in Ahearne, 2010; Harding, 2007). Concerns

over terrorist attacks where nuclear power facilities are targeted, or where nuclear waste is

used as a chemical weapon to release radioactivity is also of concern. As is the fact that some

countries, such as Iran, that are considering nuclear energy, are not considered stable resulting

in international concerns about the potential of these countries to slip form nuclear energy

programs into those of nuclear weapons (Ahearne, 2010; Macfarlane, 2010).

2.3.4 Nuclear Projects – A Socially Complex Environment

As a result of the similarities with most other mega-projects, best-practice regarding project

management practices employed on other mega-projects are equily applicable to nuclear

projects (Taylor & Ford, 2008). However, nuclear projects do have some unique

characteristics - particularly social complexities, that have to factored in. What makes nuclear

projects unique, besides certain specific project lifecycle risks, is the rigorous regulatory

environment and consistent public scrutiny that these projects have to operate under. Both of

these significantly increase the risk and complexity of these projects and if not managed

properly, can lead to serious delays or even eventual failure of the project as a whole (WNA,

2008).

The nuclear regulatory environment is extremely rigorous requiring compliance to levels far

beyond any other industry. Although different countries have different regulatory frameworks

(Owen, 2011), most require several licenses including reactor design certification, site

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approval and licensing for construction, operation, life extension and waste management. To

complicate things further, significant regulatory uncertainty can exist depending on the skills

and experience of the project organization and the regulator. James E Rogers, Chief Executive

Officer (CEO) of Duke Energy (Rogers, 2011, p. 36), concurs with this complication in

stating that “regulatory uncertainty complicates business decision making. This is

particularly true for utilities, whose investment decisions are based on time horizons of 20 to

60 years”. Global trend in regulatory bodies or commissions are to establish frameworks that

provide for the pre-approval or certification of the nuclear site and reactor design (Harding,

2007). This moves the majority of potential issues and risks – including design, technical and

regulatory risk, to the pre-construction phase which goes someway to mitigating regulatory

risk. Standardization of design and international collaboration on harmonizing international

regulatory framework can also assist in this. This however, is not possible without strong

government support and bilateral relationships (WNA, 2008).

Lastly, nuclear projects are under constant scrutiny from the general public, and certain

groups in particular. Public and government support is not a foregone conclusion with the

World Nuclear Association director of trade and transport Serge Gorlin going as far as stating

that “the threat that hangs over nuclear is that governments will change colour and decide

not to pursue a nuclear programme” (Mckenzie, 2011). Continues government commitment,

especially cross party buy-in could go some way to mitigating the risks associated with

changes in government’s stance on nuclear energy. The industry’s strong track record, and

continues improvements in the safety of nuclear reactor designs go some way toward

addressing public perception, although uncontrollable events such as those in Japan can set

this back significantly. Nuclear companies thus have to continuously be aware of and promote

public perception in order to ensure their longevity. Goverments not only create and affirm

necessary policies and respond to public interest arround various of the issues surrounding

nuclear projects, but they can also greatly assist in the development of nuclear technology and

the industry at large by creating more favourable condition for investment through the use of

vehicles such as first-of-a-kind incentives, loan guarantees or tax breaks (Harding, 2007; Holt

et al., 2010; Owen, 2011; WNA, 2008).

2.3.5 Economics of Nuclear Projects

An important factor in deciding on financing any nuclear projects is the economic viability of

such an undertaking. Existing well operated nuclear power plants have proven to be a

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profitable and competitive source of electricity (Owen, 2011; Sokolov, 2008). However, when

considering new construction the competitiveness of nuclear projects is not so obvious and

calculating costs and future revenue estimates are difficult and uncertain (Deutch et al., 2009;

Harding, 2007; Holt et al., 2010; Owen, 2011; WNA, 2005). The main factors that influence

economic competitiveness of a nuclear project are the capital costs, financing costs, demand,

cost of alternate energy supplies, the degree of government support and the extent to which

externalities are internalized (Harding, 2007; Owen, 2011; Sokolov, 2008; WNA, 2005).

The capital costs associated with the development of nuclear projects can be very high

(WNA, 2005). Costs per KWh (Kilowatt-hour) are estimated at between 9 and 12 cents

(Harding, 2007), with the cost of one of the modern reactors - specifically the AREVA (a

French nuclear engineering company) designed EPR, being estimated to be as high as US$6.5

billion dollars (Macfarlane, 2008). This is between one and a half and two times more

expensive than coal and three to four times more expensive than combined cycle gas turbine

plants (Deutch, Kadak, Kazimi, & Moniz, 2009; Owen, 2011) – although comparable costs

are much closer when carbon-capture technology is included (Owen, 2011). In addition,

nuclear projects take on average 6.8 years to complete (Macfarlane, 2010) and the majority of

costs are driven by up-front capital costs, associated with plant construction and licensing,

accounting for between 60% and 70% of the total project lifecycle costs (Owen, 2011;

Sokolov, 2008). This is very high when concidering that the other 30 to 40 percent is spread

over 40 years – the life of most nuclear projects (although this can be extended to 60 years

provided that the necessary license is obtained). In contrast to the cost of natural gas

electricity plants - that are mostly driven by the cost of fuel, the cost of Uranium required to

fuel a nuclear reactor – although different for different reactor designs (Harding, 2007), only

accounts for between 5 and 15% of total nuclear generated electricity (Deutch, Kadak,

Kazimi, & Moniz, 2009; Sokolov, 2008), resulting in relatively low marginal cost of

production. This does not only make nuclear power the cheapest form of electricity for

existing plants in most Organization for Economic Cooperation and Development (OECD)

countries (Owen, 2011) but also far less surceptable to volatility in Uranium prices.

The current trend in nuclear project development surrounding uncertainties in costs

estimations as well as a record of budget and schedule overruns (Ahearne, 2010; Holt,

Sotkiewicz, & Berg, 2010; Owen, 2011), is also disconcerting – although also applicable to

other large engineering projects (Harding, 2007; Taylor & Ford, 2008). The estimated cost of

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construction had increase at a rate of around 15% per annum between 2003 and 2009

(Deutch, Kadak, Kazimi, & Moniz, 2009) and historical, costs of construction in the United

States exceeded original estimates by between 200 and 400 percent on average (Kessides,

2009). The global economic boom experienced in this time resulting in increases in material

costs and interest rates and upward price pressure from supply and demand imbalances for the

limited skilled workers and vendors capable of producing some of the equipment needed –

currently only a single facility, Japan Steel Works, can cast large forgings for reactor pressure

vessels in the world (Harding, 2007; Hultman, Koomey, & Kammen, 2007; Schneider &

Froggatt, 2007). New regulatory requirements as well as public controversy have also been

found to have resulted in higher development costs (Deutch, Kadak, Kazimi, & Moniz, 2009;

Taylor & Ford, 2008).

According to a 2009 Massecussets Institute of Technology (MIT) report on the future of

nuclear, capital costs and construction time reduction are plausable but have as of yet not

materialized or been proven (Deutch, Kadak, Kazimi, & Moniz, 2009). A recent IAEA report

on the issues facing nuclear power today (IAEA, 2009) concluded that costs could potentially

be reduced through economies of scale. They claim that the majority of costs are associated

with reactor design, licensing, regulation, and operation and are independent of reactor size.

Therefore larger reactors would have lower per kilowatt costs than smaller reactors.

On the other hand, Macfarlane (2010) - member of the US Energy Department’s Blue Ribbon

Commission on America’s Nuclear Future, argues that these large reactors require large,

sophisticated electrical infrastructure which many developing markets looking to potentially

go nuclear do not have. Instead she argues that smaller reactors might actually help in

achieving economies of scale. Because of the lower costs, there would be a larger potential

market resulting in the production and operation of many more units. In addition, these

smaller reactors would have less specific grid requirements, again making them viable for a

larger range of markets (Owen, 2011). Economies of scale can also be achieved through the

design of reactors with improved thermal efficiencies thus extending their application to other

high temperature industrial uses other than electricity generation. All of these characteristics

are however not possessed by currently operating reactor designs with only some of the

generation III+ and VI reactors – which are still in development, promising to deliver on them

(Owen, 2011). Further cost reduction through the use of a single site for multiple reactors or

standardized and innovative designs that allow for prefabrication or modularization, more

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balanced supply chain and improved international regulatory agreements are all further

avenues of possible cost reduction (Harding, 2007; Sokolov, 2008).

One significant factor crucial in the determination of capital costs – particularly for

technologies with long construction schedules such as of nuclear projects is the Weighted

Average Cost of Capital (WACC) applied to these projects (Ahearne, 2010; Owen, 2011).

The above mentioned MIT report (Deutch, Kadak, Kazimi, & Moniz, 2009) found that the

average WACC applied to nuclear projects in 2003 was 10% in comparison to 7.8% applied

to coal or new gas plants. The WNA estimate it to be even higher claiming it to be between 3

and 5 percent higher (WNA, 2008). This risk premium, generally applied as a result of higher

perceived risks, uncertainties and a lack of trust in cost estimates, has a significant impact on

the competitiveness of nuclear projects (Owen, 2011). The MIT report further claims that at

the costs of fossil at the time and without carbon penalization, new nuclear projects were

simply not economically competitive at this premium. However, they stress that if the risk

premium can be eliminated, nuclear project will become competitive even without carbon

emission charges.

The price of coal-fired power plants on the other hand are heavily dependent on the price of

coal, a comoditiy that has been particularly volatile over the last few years. However, the

price of coal and other fossil fuels are not the only factor to be considered in evaluating

possible alternatives. The extent to which externatities become internalized will also affect the

competitiveness of both technologies - as these costs can then ligitamitly be included in the

financial analysis as they represent a true cost to the investor (Owen, 2011). In general

externalities such as nuclear waste management and plant decommisioning are already priced

into the cost of nuclear power (WNA, 2008). However, if taxes, emission charges or cap-and-

trade approaches were to start being levied agains heavy emitting technologies - thereby

internalizing some of these costs, and with between $10 and $30 dollars per tonne expected in

the near future, the relative competitiveness of nuclear projects would improve (Ahearne,

2010; Harding, 2007; Owen, 2011). In fact Deutch et.al, estimate that the competitiveness of

nuclear could increase by as much as 10 to 20 percent (Deutch, Kadak, Kazimi, & Moniz,

2009). In addition carbon credits, which can be earned through the reduction or extraction of

carbon emission was traded in Europe at between 19 and 24 Euro per ton of carbon dioxide in

2008 (Sokolov, 2008) which provides another potential revenue stream for organizations

making use of nuclear power over other ‘dirtier’ technologies.

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The economic competitiveness of nuclear power projects seem to thus not be a forgone

conclusion. Current designs often rely on externalities such as carbon taxes or other charges

to be impossed on conventional fossil fuel alternatives in order for new build nuclear reactors

to be competitive. However, if the posibilities for improved cost efficiency in next generation

nuclear designs can be materialized, and if nuclear projects can be managed to both budget

and schedule, then the case for the economic viability of nuclear power might become more

inherent.

2.4 Conclusion

Literature suggests that management of innovation - let alone technological innovation, is

highly risky, complex and uncertain and that it requires a different set of management

practices to everyday business management. Literature also suggests that the management of

mega-projects – let alone technologically innovative mega-projects, is also highly risky,

uncertain and complex, but adds that it often occurs under nearly constant public scrutiny, and

is often mired by deception and power games. And finally, literature further suggests that

nuclear projects – let alone technologically innovative mega- nuclear projects, are in and of

themselves highly complex and risky, but in addition are also faced with a myriad of other

social complexities.

The complications and poor track record often associated with projects of this nature often

little doubt of the imperative for better management practices in the areas of project

management, risk management, change and communication management, stakeholder

management and governance being developed or employed. Literature seems abound with

different theories and practices that according to each specific author is ‘key’ or

‘fundamental’ to the management of either innovation, technology development, mega-

projects or nuclear projects - albeit in isolation. However, there does not seem to be a

universally accepted approach to what constitutes good management practice when all of

these are present at the same time. Even the notion that one approach can be generally applied

to all projects is hotly contested. Furthermore, unlike with innovation or mega-projects there

seems to be very little work, dedicated specifically to the management of nuclear projects. In

fact, if you search for ‘management of nuclear projects’ in either academic databases or on

Google scholar your search result tends to return with very little fruitful information, never

mind any direct hits.

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The opportunity to study the case of the South African PBMR project thus presents an

excellent academic opportunity to start addressing some of these gaps. In particular it gives an

opportunity to learn from the successes and failures of a project that spans the length of these

different fields in being a technologically innovative mega-nuclear project.

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3 RESEARCH METHODOLOGY

3.1 Type of research and research design

This research project takes the form of a teaching case study aimed at business, project,

political sciences or engineering management graduates. A case study is a descriptive,

detailed and intensive investigation and analysis, concerned with the dynamics, complexities

and environment – or setting, of a particular individual, unit, organization, community, social

policy, event or decision (Bryman & Bell, 2007; Eisenhardt, 1989; Lindegger, 2006; Roberts,

2001). For this particular case study, a predominantly qualitative research strategy was used,

and thus tends to be inductive in nature with regard to the relationship between the theory and

research (Bryman & Bell, 2007).

Teaching case studies allow students to understand the complexities inherent to situations and

decisions in the ‘real world’ and are used in class rooms as metaphors for more general

business problems (Roberts, 2001). In order to achieve this, the case study has to be written

with sufficient background and contextual information for the student to be able to gain a

sufficient grasp of the problem, situation or decision at hand, to be able to draw conclusions

with regard to the topic on which the case focuses and to determine the extent to which the

finding can be generalised to the broader business environment (Leedy & Ormrod, 2005;

Roberts, 2001). Teaching case studies also typically make use of a protagonist who is a

central character in the case and with whom the student can relate (Roberts, 2001).

According to Bryman and Bell (2007) the common association of case studies as being a

qualitative research methodology is in fact incorrect. They argue that case studies can in fact

employ several qualitative and quantitative research methods such as participant observation,

semi-structured interviews or documentary data reviews to name but a few. They argue that

case studies are distinguished rather by the fact that the particular case is the subject of

interest in and of itself and that the researcher is concerned with elucidating the unique

features of that case – as opposed to generating statements indicative regardless of time and

place. Therefore a case study is defined as an ideographic research approach in that the object

of the case is an individual entity rather than a member of a larger population (Bryman &

Bell, 2007; Lindegger, 2006).

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Although the case study approach to research has its limitations (see section 3.2 for details of

these) it does have the advantage of often being useful in allowing new ideas and hypotheses

to emerge from the findings that may then be more rigorously tested by other research

methods in the future (Lindegger, 2006). In addition, because they allow for several

qualitative and quantitative research methods to be used together, they avoid the potential

drawback of being too reliant on one single approach (Bryman & Bell, 2007).

3.2 Limitations of this type of research

Literature seems to suggest that there are three main limitations of the case study approach to

research. The first potential limitation of this method which seems to be most widely

emphasized is that of its external validity – or generalizability (Bryman & Bell, 2007; Cooper

et al., 2002; Lindegger, 2006; Rogers, 2011). In other words, can the findings from one case,

with its own unique contextual and background influences, be transferred or applied more

generally to other cases? This is somewhat mitigated by - as Bryman and Bell (2007, p. 64)

point out, the fact that “it is not the purpose of this research design to generalise to other

cases or to populations beyond this case”.

The second potential drawback of this type of research design regards the ability to extract

and test the causal links from the myriad of contextual and situational influences at play

within the particular case (Cooper et al., 2002; Lindegger, 2006). Even if these links could be

accurately extracted there is still the risk that some important and causal factors might fall

outside the boundaries of the case (a case study is often limited to a certain duration or series

of events) and may therefore be missed during the analysis of the case.

Lastly, the recollections of interviewees are often the only source of some data, the validity of

some of the information itself may be called into question (Lindegger, 2006). Practically, this

type of research can also have its limitations in that access to the necessary organization,

information and/or people might be limited for proprietary, geographic or time reasons, which

often results in this type of research being very time consuming (Bryman & Bell, 2007).

3.3 Data sources, reliability, collection and analysis

The data used in this case falls broadly into two categories. The first is contextual information

related to the management of innovation, mega-projects and nuclear projects in general. The

second category relates to the information pertaining particularly to the PBMR project, its

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setting, its stakeholders, the decisions that were made, the management practices that were

implemented and the resulting outcome of, and interplay between these.

According to Bryman and Bell, (2007) there are four main data collection methods associated

with qualitative research, namely, participant observation, focus groups, language-based

approaches, qualitative interviewing, and the collection and qualitative analysis of texts and

documents. This research predominantly used the latter two of these methods, focusing on

both primary and secondary sources.

Primary sources include email correspondence and unstructured interviews with the

protagonist, Jaco Kriek, the CEO of the project between June 2004 and March 2010. The

unstructured style of interview allowed for exploratory research, without presupposition or

expectations being imposed by the interviewer on the respondent. Jaco Kriek pledged his full

support and willingness to participate in this research. In addition, Jaco Kriek compiled a

lessons learned document detailing some of his thoughts and lessons with regard to the

management of the PBMR project, which he made available to the author for the purposes of

this case study and which also formed part of the primary data analysed.

Where ever possible, Jaco’s views were corroborated or countered using publically available,

secondary sources data – such as television interviews, news reports, etc. This has been done

to remove respondent bias from the research as far as possible.

Finally, desktop analysis was also performed on secondary sources and included, where

appropriate data from both other researchers – where available, and organizations - including

publically available information such as the PBMR website, annual reports and publications,

news and magazine articles, governmental reports or any other relevant sources. This data

was used to ensure – at least as far as possible, that bias – both from the respondent and the

author, were removed from the case. This is particularly important given the authors prior

involvement with the PBMR Company.

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4 THE CASE STUDY

Jaco Kriek was sitting in his favourite coffee shop, Doppio Zero in Centurion, enjoying a

relaxing lunch. It had been a little over six months since he had resigned as CEO of PBMR

(Pty) Ltd, and his sabbatical had done him well. The date was the 17th of September 2010, and

he pulled out a copy of the local business newspaper - the Business Day. The headline read

“Hogan ends Pebble Bed Reactor Project”1.

The article read ... “Public Enterprises Minister Barbara Hogan drew the final curtain

yesterday on SA’s bid to be a leader in nuclear technology when she announced the closure of

the pebble bed modular reactor (PBMR)...” and already the thoughts started racing through

his head. He couldn’t help but wonder what explanation Barbara Hogan was going to provide

for government’s withdrawal? Would he be the convenient scapegoat? What would people

think?

Jaco read on ... “Other reasons cited by Ms Hogan for the Cabinet’s decision were that the

PBMR had not been able to secure an anchor customer or another investment partner...” The

irony in Ms Hogan’s reasoning brought a wry smile to his face.

PBMR (Pty) Ltd. History and Development

After starting off as a research project within the legal structures of Eskom2, South Africa’s

state owned electricity utility, the Pebble Bed Modular Reactor (Pty) Limited, was established

in 1999 as a small nuclear engineering company with barely 100 employees. The first

chairman of the Board, the Chief Executive Officer (CEO), the Chief Financial Officer (CFO)

and most managerial staff were seconded from Eskom. By 2008, PBMR had grown into “one

of the largest nuclear reactor design and engineering companies in the world”3 employing

some 800 people at its head-office in Centurion.

The IDC was the first to invest in the PBMR Company when it was establishment as a

subsidiary of Eskom in July 1999. Then in 2000 British Nuclear Fuels Limited (BNFL) also

1 Ensor, L. (2010). Hogan ends pebble bed reactor project. Business Day Online. Retrieved December 4, 2011, from http://www.businessday.co.za/articles/Content.aspx?id=121307. 2 Eskom is also the 5th largest utility in the world. Kadak, A.C. (2005) ‘A future for nuclear energy: pebble bed reactors’, Int. J. Critical Infrastructures, Vol. 1, No. 4, pp.330–345. 3sourced from the PBMR website (http://www.pbmr.com/index.asp?Content=129)

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became an investor, followed by the US energy utility PECO. However, following the merger

of PECO and Unicom, PECO’s share was transferred to the newly formed Exelon. Exelon

agreed to pilot the PBMR through the safety regulatory process in the USA but in April 2002

pulled out of the project, stating changes in their strategic focus4 as the reason. Later, in

March 2006, Westinghouse became shareholders in the PBMR project, taking over the

BNFL5 share.

A co-operation agreement6 entered into by the founding investors provided the legal

framework between the investors and PBMR and outlined each party’s rights and obligations.

No shareholders agreement ever became effective. Although a shareholders’ agreement was

signed in August 2005 the agreement never came into effect as a result of certain conditions

not being satisfied – largely due to delays7 from the Department of Public Enterprises (DPE),

and eventually lapsed on the 30th of June 2006.

The company’s goal was to be “the first organisation that successfully commercialises pebble

bed technology for the world’s energy market.”8 If it had been successful it would have been

the first time that South Africa had designed, licensed and built its own nuclear reactor.

The PBMR technology

The PBMR technology forms part of the family of helium-cooled, High Temperature

Reactors (HTR). The technology is based on a German concept9 developed between the early

1950s and 1989 when the Germans eventually decided to pull the plug on the programme10.

4 According to an article in the Nuclear Monitor (Kraft, D. (2002). Exelon Pulls out of Pebble-Bed Project. Nuclear Monitor, 1-8.), company officials Exelon did not see reactor development as part of its core business strategy, and would instead focus more on power marketing, production and distribution. However, an article in the Nuclear Engineering International online magazine (Thomas, S. (2009, April 1). PBMR: Hot or Not. Nuclear Engineering International. Retrieved from http://www.neimagazine.com/story.asp?storyCode=2052590.), seems to suggest that this withdrawal had something to do with questions raised by the US National Regulatory Commission (the US nuclear regulator) regarding safety issues with the PBMR technology. 5 Westinghouse was a wholly-owned subsidiary of BNFL at the time and was later sold to Toshiba along with the PBMR share. 6 This agreement is not available in the public domain 7 It has been suggested that Alec Erwin had plans for restructuring all the South African state owned enterprises and wanted the PBMR project to fit into this framework before signing off on the agreement. 8 Quoted from the Directors Report in the PBMR 2008 Annual Report (PBMR. (2008). PBMR (pty) Ltd. Annual Report 2008 (pp. 1-90). Retrieved from http://www.pbmr.co.za/index.asp?Content=236.) 9 Refer to Exhibit A for a detailed history of the early technology development in Germany 10 This decision seems to be mostly attributable to the changing political support in Germany at the time. As Regis Matzie, the former Senior Vice-President of Westinghouse explained: “You have to appreciate the

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Other than being an HTR, the PBMR is mostly characterised by its unique fuel pebbles -

silicon carbide-coated, 9.6% enriched uranium dioxide particles encased in graphite spheres

of 60 mm diameter. The PBMR Company was one of only three institutions at the time,

including the Massachusetts Institute of Technology (MIT) in America and the Tsinghau

University in China, working on the development of pebble bed technology.

Unlike most nuclear reactor designs11 in use today that generate between 600MWe (Mega-

Watt electric) and 1600MWe, the PBMR configuration was designed to generate between

80MWe and 165MWe depending on the specific configuration chosen, and was modular by

design enabling plants to be built with multiple units. The PBMR technology’s smaller,

modular configuration and higher temperature ranges makes it suitable for a host of markets

and application for which larger reactors are not suitable. In addition the technology is

claimed to be both intrinsically safe and more thermally efficient than that of conventional

Pressurized Water Reactors (PWRs). Yet despite this and other potential benefits12, the

PBMR technology was still in its infancy and needed to overcome some serious technical

challenges – particularly those relating to material considerations13, in order for it to be

licensable.

Although the general consensus from the nuclear industry was that the technology was viable,

there were some detractors. Among them, Steve Thomas, professor of energy policy at

Greenwich University, and Dr Rainer Moorman, of the German Jülich Research Centre, who

claimed that the Pebble Bed technology was not safe at the high temperatures for which it was

being designed14. These claims were refuted by the international nuclear community as being

based on nothing other than opinion, conjecture and some other strangely racists arguments15.

political environment at the time. Chernobyl had just happened, and the German public and government had become very anti-nuclear.” – Quoted from McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287. 11 These consist mostly of Pressurized Water Reactors (PWR) although many other families of reactors also exist. 12 Refer to Exhibit B for a list of these benefits as well potential target markets for the technology 13 Ion, S. (2010). The worldʼs nuclear future – built on material success. Contemporary Physics, 51(4), 349-364. doi: 10.1080/00107514.2010.487326. 14 Koster, A. (2009, May). Pebble Bed Reactor - Safety in Perspective. Nuclear Engineering International, 22-24. 15 Gregory Murphy as cited in Hecht, M. (2008, November). The Nuclear Power Revolution: Modular High-Temperature Reactors Can Change the World. EIR Science & Technology, 46-53.

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Mega-Projects – A mega-challenge

Mega-projects – sometimes referred to as Large-scale Engineering Projects (LEP), are

distinguished from traditional projects in that they are generally colossal in size and scope,

captivating because of physical proportions, engineering achievement and aesthetic design,

costly, controversial, technically and socially complex, all of which can lead to increased risk

and uncertainty. Mega-projects are often technological tour de force with an innovative and

not infrequently, experimental character16 and usually involve multiple partners and issues of

control between key stakeholders. In addition to the technical complexities that come with

such cutting edge technology, mega-projects are often also faced with the social complexity

that comes with potentially wavering public support and political decision processes.

The complexity and scale of mega-projects has been increasing over the last few decades17, to

the extent that in 1999 more than 1500 large engineering projects - each worth over US$1

billion, were at some stage of financing or construction in the world18. Projects of this

magnitude are always done with government support of some kind and require the necessary

political intent, regulatory framework and support to succeed. This growth in mega-project

development is occurring despite the fact that mega-projects seem to have a dismal track

record when it comes to staying within schedule and budget, something which brings the

adequacy of public policy related to these expensive projects into serious question.

Mega-projects experience frequent delays and cost overruns, and are very susceptible to

failure. Examples of such projects are not difficult to come by and include the Channel

Tunnel connecting Great Britain and France - approximately US$10 billion over budget and

two years late, Boston Central Artery Project - approximately US$10 billion over budget and

seven years late, the U.S. Department of Energy’s National Ignition Facility - approximately

US$1 billion and six years late and Europe’s first European Pressurized Reactor (EPR)

nuclear power plant, the Olkiluoto 3 in Finland – currently approximately US$2 billion over

budget and 3 years behind schedule.

16 Priemus, H, Flyvbjerg, B, & Wee, B van. (2008). Decision-Making on Mega-Projects: Cost-Benefit Analysis, Planning and Innovation. (K. Button, Ed.). Cheltenham, UK: Edward Elgar Publishing, Inc. 17 Baccarini, D. (1996). The concept of project complexity - a review. International Journal of Project Management, 14(4), 201-204. 18 Conway Data, 1999 as cited in Miller, R., & Lessard, D. R. (2001). The Strategic Management of Large Engineering Projects: Shaping Institutions, Risks and Governance (1st ed., p. 259). Massachusetts: The Massachusetts Institute of Technology Press.

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Nuclear mega-projects face an additional challenge in that they also have to be developed

under the most strenuous regulatory requirements of any industry and typically contribute

extensively to project costs and scheduling delays. Nuclear Regulators play a fundamental

and central role in exercising regulatory control over the safety of all nuclear technology

developments and operation.

The Nuclear Renaissance

Nuclear electricity generation technology harnesses energy – in the form of heat, generated

from the splitting of certain elements such as Uranium or Plutonium. The technology was

developed in the 1940s with the first commercial nuclear power reactor starting operation in

the early 1950s. By 2008 there were over 400 commercial reactors operating in 30 countries

with a total capacity of 376,511 MWe. Nuclear power contributes 14% of the world’s base-

load power. In addition, 140 ships and submarines worldwide are powered by nuclear reactors

and 56 countries operate a total of about 250 research reactors19.

Nuclear power has been at the forefront of public debate on energy for decades, often on a

knife’s edge between public acceptance and disapproval. Since the beginning of the 21st

century, nuclear power has seen a ‘renaissance’ of sort, driven by a recognised need for a

more carbon conscious future, volatile fossil fuel prices, concerns over energy security, major

expansion of per capita use of electricity in developing countries, and a general consensus that

nuclear power might just be the only sustainable option in terms of base-load electricity for

the future. Even environmentalists such as Patrick Moore20 started pushing nuclear power as a

ready solution. None the less, nuclear incidents such as the Chernobyl and Three Mile Island

accidents serves as a sobering reminder of some of the safety issues facing nuclear projects.

South Africa has a rich, albeit somewhat controversial nuclear history21. Other than operating

Koeberg - the only nuclear power plant on the African continent as well as the Safari research

reactor in Pretoria, it also had its days of experimenting with weapons and enrichment

programmes. South Africa, was however, also the first country in the world to voluntarily

give up all its weapon and enrichment facilities as part of the non-proliferation treaties, and

19 All figures obtained from the World Nuclear Association website (www.world-nuclear.org) 20 Patrick Moore was once an avid anti-nuclear activist with Greenpeace, but now goes around the world advocating for Nuclear power as a potential solution to the global worming crisis. 21 See Exhibit E for a more detailed account of South Africa’s nuclear history.

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today enjoys the position as the world leader in radio-nuclide isotopes production used in

cancer treatment across the globe22. However, at the time the PBMR project was started,

South Africa had not undertaken a large nuclear program of any kind for over 15 years.

South Africa’s ability to bring pebble bed technology into commercial use had been called

into question:

“Against a background of failed attempts in Germany, the US and Britain to

commercialise HTR technology, Eskom, a newcomer to nuclear plant design, may

have difficulties in succeeding”23

While the technology was deemed feasible the advisability of pursuing the project was

questioned even within government, “the economic feasibility is questionable for a start-up

venture, if no cognisance is taken of the socio- and macroeconomic benefits”24

South Africa - Socio Economic conditions and Political History

South Africa regained democracy in 1994 with the fall of the apartheid government. Although

this was a peaceful transition, it none-the-less resulted in large scale changes in leadership

across both government and state owned structures. Besides vast levels of inequality, the

apartheid government had also left behind an economy focused on the needs of a small

portion of the population and very dependent on the exploitation of natural resources and a

strong military sector.

The new leadership, besides being ill equipped and experienced for the task, also hadn’t

appreciated the importance of capital investment in infrastructure development for the local

economy. As a result much of the funds available to the government since 1994 were spent on

housing development, education and social relief. Competition for capital expenditure was

fierce during this time. Projects had to compete for funding against many other strategic

22 Campbell, K. (2011). SA marks twentieth anniversary of move from nuclear weapons to nonproliferation. Engineering News Online. Retrieved August 21, 2011, from http://www.engineeringnews.co.za/article/sa-marks-twentieth-anniversary-of-move-from-nuclear-weapons-to-non-proliferation-2011-07-08. 23 Thomas and Auf der Heyde, 2002 as cited McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287. 24 According to the National Treasury Budget Report Vote 9: Public Enterprises, 2006 Estimate of National Expenditure. (2006). Corporate Finance (pp. 165-188). Retrieved from http://www.treasury.gov.za/documents/national budget/2006/ene/Vote 9 Public Enterprises.pdf.

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national objectives such as housing, healthcare, transportation infrastructure projects such as

road and rail and even the 2010 FIFA world cup stadium build program.

Eskom, South Africa’s state owned and only electricity utility faced significant challenges

during this post 1994, transitional period. By the turn of the 21st century, no new electricity

generation infrastructure had been created for 20 years despite escalating electricity demand.

South Africa was faced by an electricity demand bursting at the seams of Eskom’s supply

capabilities.25 In addition, much of the expertise required to build new power stations having

been lost in the interim.

Political support

Given its high level of uncertainty, the scale, costs and duration the PBMR programme

required clear and strong political, strategic and financial support from key players. It was

only in the end of 2003 when the project came close to being cancelled26 altogether that the

government got fully involved in the project. Former president Thabo Mbeki personally

stepped in and decided that the project should proceed and should become “fully funded”

with the help of the government. Mr Mbeki asked Alec Erwin, then Minister of Trade and

Industry27, to get involved in the project and in February 2004 Jaco Kriek was requested by

Minister Alec Erwin, to participate in a government task team to review the options for the

PBMR. In May 2004 Jaco was asked by Alec Erwin to take over as the CEO of PBMR28.

While Thabo Mbeki and Alec Erwin were in office, the project seemed to enjoy strong

political support. As Regis Matzie29 explained, “...we had strong support from Thabo Mbeki

and Alec Erwin, who had a vision that this could place SA on the map and allow them to build

25 South Africa found itself in the middle of an electricity crisis which eventually lead to rolling national blackouts in 2005 and 2008. Refer to Patel, S. (2008). Whistling in the dark: Inside South Africa’s power crisis. Power Magazine Online. Retrieved December 1, 2011, from http://www.powermag.com/business/Whistling-in-the-dark-Inside-South-Africas-power-crisis_1488.html. 26 This was due to Eskom wanting to withdraw from the PBMR project, refer to the next section – The PBMR’s only client, for further details 27 Alec Erwin later became Minister of Department of Public Enterprises (DPE) 28 Jaco Kriek was initially seconded from IDC until December 2005 when he was appointed in a full time capacity. 29 Regis Matzie is a former Senior Vice-President and Chief Technology Officer of Westinghouse and represented Westinghouse on the PBMR board and Chairman of the technology and project delivery committee.

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capacity here [in South Africa]”30. Ms Phumzile Mlambo-Ngcuka, former Deputy President

of South Africa corroborated this support stating that President Thabo Mbeki took a very

active interest in the project and that South Africa is treating the “very ambitious, but very

important Pebble Bed Modular reactor project with a great deal of seriousness”31.

Thabo Mbeki’s motivation for supporting the PBMR project appears to have been his dream

of an ‘African Renaissance’32. The PBMR appears to have been viewed as a ‘Presidential

Project’ by anti-nuclear activist, Dominique Gilbert, Executive member of the Coalition

Against Nuclear Energy (South Africa):

“The country's [South Africa’s] nuclear agenda is now widely touted as a Presidential

Project of Thabo Mbeki and a handful of powerful and all the more autocratic

Ministers facing the end of their term of office amidst growing dissent from their own

ranks and hell-bent on establishing what they see as scientific prestige to the black-

ruled tip of Africa.” 33

However, even though Government took over responsibility for the project, doubts were

expressed by various cabinet members, trade union organisations and environmental groups

about the advisability of the project within the other priorities of the government and the

general antipathy towards nuclear technology at the time. Jaco reflected on the state of

political support for the project within the ruling party:

“What we didn’t realize was that there were only a few people within the ANC that

supported the project. People were forced into supporting the project, and this created

some resentment towards us. We should have done more to get broader political

leadership on board,”34

30 McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287. 31 Quoted from Ferreira, T. (2005). Planning Reactors for Africa. Information System on Occupational Exposure. Retrieved December 1, 2011, from www.isoe-network.net/index.php/component/.../224-isoenews8.html. 32 According to Terry Wynn, member of the European Parliament from 1989 to 2006 and chair of the Forum for the Future of Nuclear Energy as expressed on his website (http://www.terrywynn.com/Nuclear/South%20Africa.htm) 33 Gilbert, D. (2008). Nuclear Expansion From South Africa into the Rest of Africa. Nuclear Monitor, (No. 673), 4-6. 34 Jaco Kriek, ex-CEO of PBMR, interviewed on Thursday 03 November 2011

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This situation was exacerbated by government’s relative inexperience in dealing with projects

of this nature. Jaco suggested that:

“Government really didn’t know what they were getting themselves into when they took

over the PBMR Company in 2004... there was a lack of understanding of the required

support for a new nuclear technology development ... In retrospect, if the government is

not ready, in terms of the support and understanding of what is required, then don’t

even try something like this. You need strong government support, and you need a

government that understands what they are getting themselves into. No reactor in the

world is designed without government funding, not even the new Westinghouse AP1000

or the Areva EPR.”35

The PBMR’s only Client

Eskom initiated the PBMR Project, and brought the PBMR technology to South Africa. They

attracted investors like the IDC and BNFL to the project. “It was originally envisaged that

Eskom would be the PBMR's anchor customer, with a possible purchase of up to 24 reactors

as part of the country's expansion of its electricity generation capacity”36. The first

demonstration plant would also have been located on Eskom’s Koeberg nuclear site.

Despite the seemingly reassuring early acts of support, Eskom became reluctant to be

involved in the project. The major change seemed to come in 2002 when Exelon withdrew as

an investor. As a result, a concerned Eskom board asked independent auditors to assess the

project's financial viability and - as confidential documents reveal, the auditors advised the

utility to ditch the PBMR project37. Jan de Beer, then Eskom CEO, wanted to pull out of the

PBMR project, and in December 2003 the Eskom board voted to do just that38. However, in

February 2004, in a meeting between Eskom, the IDC, and Government, Eskom were

35 Jaco Kriek, ex-CEO of PBMR, interviewed on Thursday 03 November 2011 36 Hogan, B. (2010a). Address by the Minister of Public Enterprises, Barbara Hogan, To the Nation Assembly, on the Pebble Bed Modular Reactor. Pretoria. Retrieved from http://www.dpe.gov.za/news-971 37 According to a Carte Blanche programme aired on 8 June 2008 - Fasher, B. (2008). Carte Blanche - Pebble Bed. M-net. Retrieved from http://beta.mnet.co.za/carteblanche/Article.aspx?Id=3516&ShowId=1. 38 According to Steve Lennon - the Eskom Managing Director for Corporate Services at the time, this decision was related to a similar (to the reason for Exelon’s withdrawal) shift in strategic focus: “it’s no longer part of our business model to develop new technologies” – McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287

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pressured by President Mbeki to remain involved in the PBMR project as the eventual client

with government taking over as project sponsor. Even though Eskom agreed, their support for

the project never seems to have recovered39. Jaco explained the predicament:

“Eskom had a total lack of interest in supporting PBMR after December 2003, yet they

still had to be the customer and nuclear license applicant for the PBMR demonstration

plant... the project was doomed with no sponsor... It was only later during 2008 that it

became clear how much Eskom top management resisted the participation in PBMR.”40

Strategic Decisions

Due to the reluctance of Eskom to be a committed customer as well as their own funding

constraints, the decision was made to fund the entire development, construction and delivery

of the first Demonstration Power Plant (DPP) on its own balance sheet41. This decision was

contrary to the norm for nuclear technology development and plant construction adopted by

existing nuclear vendors around the world where the client funds the construction and

commissioning costs42.

This decision had two major effects on the project as a whole. Firstly, it resulted in the PBMR

Company having to carry the enormous cost of the capital expenditure required to construct

the DPP on its balance sheet – making it harder to motivate for additional funding as a result

of the much larger amount of funding required.

Finally, because of the need for large procurement, finance and human resource departments

as well as the Engineering Procurement and Construction Management (EPCM) contractors

required to construct a nuclear power plant, the PBMR Company became a large and

cumbersome organization that was expensive and time consuming to organize and manage.

39 (Thomas, S. (2009, April 1). PBMR: Hot or Not. Nuclear Engineering International. Retrieved from http://www.neimagazine.com/story.asp?storyCode=2052590.) 40 Jaco Kriek, ex-CEO of PBMR, interviewed on Thursday 03 November 2011 41 This decision seems to have been made as a result of pressure from government to handle the financial risk of the project. According to Alec Erwin “...it was a financial risk for Eskom and that's why we moved it off the Eskom balance sheet ... for government it has all the risks of any large scale development project. Those risks mitigate over time as partners come in...” – As quoted from Carte Blanche programme aired on 8 June 2008, Fasher, B. (2008). Carte Blanche - Pebble Bed. M-net. Retrieved from http://beta.mnet.co.za/carteblanche/Article.aspx?Id=3516&ShowId=1. 42 Examples include the development of the new Westinghouse AP1000, Areva EPR nuclear plants or the US Department of Energy (DoE) Next Generation Nuclear Project (NGNP) – all innovative nuclear technology development projects.

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Technical Scope Creep

As a result of commercial requirements requested by Eskom and other stakeholders, the

decision43 was made that the DPP – initially intended as a ‘proof of concept’, would become

the ‘first of a fleet’ and would be commercially operated from the beginning. This placed

tremendous upward pressure on the reactor size44 as well as the power conversion

technology45 used.

The original concept as of February 1998 was for a 268MWt configuration. Then in October

2001 this was ramped up to 310MWt and eventually the technical team conceived a plant that

could deliver the maximum possible power output of 400MWt. The output was determined

by the maximum reactor size that could be manufactured by the most advanced international

nuclear manufacturers. This design, dubbed the DDP400, would also make use of a direct

cycle46 power conversion technology – something that no one in the world had successfully

licensed or operated at this scale.

The decision to go with the DPP400 design was approved by the PBMR Board on 27 May

2004 – the very last board meeting before Jaco Kriek joined as CEO. On arrival as CEO, Jaco

was assured by Johan Slabber47 that they would be licensed and ready for construction by

2007. Jaco Kriek elaborated:

“A lot of People [like Dave Nicholls48 and Johan Slabber] were so passionate about

it, they underestimated the risks involved, the challenges of building any nuclear

plant, never mind a first-of-a-kind ... I think there was both ignorance and passion...

they were either misleading us or dreaming... They were pushing the envelope of

43 Jaco Kriek: “the decision to go with the direct cycle was made based on the wishes of Eskom and the other shareholders.” – Interview, November 03 2011 44 The reactor size determines the amount of electric power that can be generated by the plant. 45 The power conversion technology is used to transfer heat generated in the reactor to electricity. The major commercial concern with the choice of this technology comes down to the differences in conversion efficiency with which the heat can be converted to electricity. Especially since this is the source of major losses in thermal energy. 46 This power conversion technology is also referred to as the Brayton Cycle and uses the helium gas that runs through the reactor to drive the turbine directly. The major advantage of this technology is that is gains efficiency by eliminating the steam cycle of indirect power conversion cycles. It can operate at efficiencies of up to 48%, more than double that of an indirect cycle. 47 Johan Slabber was one of the original founders of the PBMR project and was Chief Technology Officer at PBMR. 48 Dave Nicholls was CEO of the PBMR Company until 2004

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technological boundaries – lots of them, and we were trying to do everything at the

same time... they thought it’s not good enough if it’s not a challenge... so they took on

possibly the most difficult challenge of any. They wanted to build the best thing on this

planet. They ended up having loads of fun [trying to solve these challenges], but with

hindsight it was probably just impossible in the timeframe allowed and the available

funding.”49

This decision – particularly regarding the direct cycle technology, which was largely driven

by Dieter Matzner50, Dave Nicholls and Johan Slabber was not unanimously supported by all

within the PBMR Company. Jaco explained:

“Back then Dave Nicholls and Dieter Matzner had the real weight in the technology

decision making ... we did not have the right technical leaders for when decisions had

to be made ... However, there were a lot of conflicting arguments about the choice of

the power conversion cycle ... The continuous argument about the choice of

configuration always created a divide within PBMR technical staff and with the

Eskom Client Office”51

The decision also caused many technical, licensing and manufacturing challenges in addition

to the challenges already faced on the German design52. Although the PBMR DPP400 design

allegedly53 fixed many of these problems, it created many more technical (and licensing)

challenges, including (but not limited to) the stability of the central column, material

49 Jaco Kriek, ex-CEO of PBMR, interviewed on Thursday 03 November 2011 50 Dieter Matzner was Managing Director: Plant Engineering of the PBMR until 2008. 51 Jaco Kriek, ex-CEO of PBMR, interviewed on Thursday 03 November 2011 52 According to Steve Thomas, the original German design had some technical challenges of its own: “Clearly there were technical problems, in the five years from going critical to being closed, it generated next to no electricity and had numerous problems” - McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287. 53 As an example, one such issue was the fact that some of the pebbles had broken in the German reactor. However, according to Jaco Kriek “we have changed the design so that in our reactor you don’t have any components ... moving components ... that can break the pebbles” – As quoted from Carte Blanche programme aired on 8 June 2008, Fasher, B. (2008). Carte Blanche - Pebble Bed. M-net. Retrieved from http://beta.mnet.co.za/carteblanche/Article.aspx?Id=3516&ShowId=1.

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characteristics at the high operating temperatures54, as well as the effect and characteristics of

dust generated within the system.

However, not all key stakeholders seem to have been aware of or fully appreciated the level

of technological innovation, novelty and risks that were involved in the DPP400 design. As

Alec Erwin stressed on Carte Blanche on 8th of June 2008 when defending his confidence in

the project:

"I mean look, this has been assessed by international scientists and all sorts of other

people. The risks are understood and known... it's not experimental. The technology

has been operated in Germany for a number of years. It is not experimental".

South Africa’s heavy engineering sector was also relatively weak and had no experience in

manufacturing the type of systems required for the PBMR designs – particularly within the

nuclear regulatory environment. This resulted in lots of systems having to be manufactured

overseas and imported, resulting in higher costs, as well as difficulties in meeting

government’s localization objectives. Even experienced international manufacturers - such as

ENSA and Mitsubishi Heavy Industries that were awarded contracts for the design and

manufacturing of some of the more difficult parts, ran into severe technical difficulties.

Many of these challenges seemed to have been known at the time when these decisions were

made yet there appears to have been a reluctance to talk about them.

“I think there was a fear to share some of the technical challenges ... people were

withholding information ... there were gaps in the design, but no one came forward

with it. People were too protective of the technology.... You always got the feeling that

they would never bring a technical issue to EXCO in fear of scaring people away from

supporting their technology... Gideon Greyvenstein55 had a much more transparent

approach... Maybe if Gideon had been there earlier it would have made a difference

in the end – but it was too late.”56

54 The 400MWt design operated at temperatures of around 950 degrees Celsius as opposed to 750 degrees typical of a 200MWt configuration. 55 Gideon Greyvenstein was appointed General Manager: Engineering in 2008 56 Jaco Kriek, ex-CEO of PBMR, interviewed on Thursday 03 November 2011

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Even Regis Matzie, the Westinghouse representative and chairman of the board’s technical

committee remained silent about the risks and technical difficulties that they would face with

this configuration. When PBMR did a full review of the technology configuration in 2008,

Jaco was shown a 30 year old report by an ex-Westinghouse employee - on the original

German design that highlighted all of the technical issues that they would face. Yet

Westinghouse had sat on the report without disclosing any of its details. Westinghouse may

also have had another agenda. It was competing with the leading French nuclear company

Areva for lucrative contracts to supply South Africa with light water reactors as part of South

Africa’s so called new build programme57 and stood to receive the rights to the PBMR

Intellectual Property (IP) in the event that South Africa stopped developing it. Jaco explained:

“with Westinghouse as a shareholder and the chairman of the board’s technical

committee, we had heavily relied on them as technical nuclear experts.... you would

have thought that that would be our fall-back [against being deceived]... yes, maybe

we got lulled into a false sense of security ... The role of Westinghouse was in

retrospect, very disappointing ... Westinghouse contributed little to assist with the

strategic and technology decisions of PBMR ...many questions could be asked about

Westinghouse’s motives... They were not committed financially to the project, so they

were just too happy to sit back and watch as everything unfolded. They had no

exposure to the risk”58.

Australian Nuclear Science and Technology Organisation CEO, Adi Paterson59 said he

believed the programme “should have had a more conservative design baseline” 60. Paterson

further stated:

“With the benefit of hindsight the Chinese approach61 seems more conservative and

achievable. I do believe that the SA design62 could have been achieved but that would

have required a committed client and funding for the lifecycle of the project.”

57 This forms part of Eskom’s bigger new build programme with plans to build up to 20GW new nuclear generation capacity in the next 20 years. 58 Jaco Kriek, ex-CEO of PBMR, interviewed on Thursday 03 November 2011 59 He was previously a Deputy Director General at the Department of Science and Technology and a PBMR board member from May 2007 to December 2008 60 Quoted from the McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287.

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The Growth Phase - Building a new Organization

Jaco’s first order of business after taking over the CEO was to secure more stable funding for

the project. This, he managed to achieve by November 2005, with the approval of a R6 billion

funding grant63 from the South African government as part of the government’s medium term

expenditure framework which secured funds for three years64. The funds were approved under

two conditions, namely, that PBMR needed to attract additional private investment and find

an international client to which they could supply plants once the technology had been

developed.

In addition to having to design the PBMR technology, develop a viable business model for

long term sustainability, facilitate the negotiations between Eskom, Government, IDC and

Westinghouse, finalise the shareholder's agreement and maintaining stakeholder relations at

senior level, locally and internationally, Jaco was also responsible for building the company

and putting proper structures and systems in place at PBMR.

The policies and procedures in place at the time were entirely modelled on the legacy Eskom

systems that were designed for a massive, state owned utility, and were excessively

cumbersome and resource intensive to implement. In 2004, the PBMR organization was still a

small research project with around 100 people working on it – all on monthly contracts with

no surety of where the next month’s pay was going to come from. As Jaco recalls;

“The corporate structures and systems, and lack of corporate governance were not

adequate for a stand-alone nuclear company... we had to fix up and build an

61 The Chinese approach involved designing and building a much smaller 10MWt indirect cycle demonstration reactor as a test bed for validation of fundamentals of reactor performance and safety. Construction on the HTR-10 as it is called started in 2000 with operation and testing in 2003. Based on this reactor a larger plant called the HTR-PM consisting of two 200MWe pebble bed reactor has been approved with construction started in September 2008 Yuliang, S. (2011). HTR-PM Project Status and Test Program. Fuel. INET/ Tsinghua University. Retrieved from http://cleantechnica.com/2008/07/03/chinas-second-pebble-bed-reactor-steam-plant-worlds-third-commercial-htgr/. 62 Regis Matzie provided a possible explanation for the more ambitious approach: “South Africans have had an attitude of innovation, developed over the apartheid years – a confidence that they could develop technology like this and take it to the market” - McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287. 63 Intended to cover 30% of the R18 billion estimated at the time for delivering the DPP400 64 According to Shadow Minister of Public Enterprises, Manie van Dyk these allocations should have been reviewed annually pending satisfactory progress. Yet despite the fact that there was no evidence of progress these funds kept being transferred. - McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287.

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organization with sufficient systems, processes and procedures within a nuclear safety

culture while at the same time designing, licensing, marketing, manufacturing

components and ultimately constructing the PBMR demonstration plant”65

In September 2005, the first full time employee contracts were issued. This would signal the

start of tremendous growth within the organization. From a company of around 100

temporary employees in 2005, the company reached a peak in 2008 of over 1000 full time and

contract employees. The PBMR Company became a “nuclear vendor company” with the

purpose of designing and delivering a nuclear power plant. The establishment of the

corporate infrastructure within the legal, regulatory and practical requirements of a “nuclear

vendor” became a very large undertaking in its own right and far outstripped the effort and

cost conceived by the initial project team.

Organizational Structures

As a result of the chosen strategic offering of a full turnkey project for the delivery of the

PBMR DPP400 to Eskom as well as promised start of construction to be as early as 2007, the

organization was forced to grow very big, very quickly in order to gear up for going to site.

This included placing orders for and funding items with long lead times66; appointing

engineering, procurement, construction and management (EPCM) contractors67, and carrying

the full cost and risk of these appointments and contracts. In addition they hired large

numbers of people for the procurement, finance and human resource departments in order to

be able to deal with all the requirement of buying supplies, hiring workers etc. Jaco

commented:

“Lots of effort went into building the organization that would have perhaps been better

spent on designing the reactor, finding willing clients, and building support within key

65 Quoted from an interview with Jaco Kriek on 3rd of November 2011 66 These items included the reactor pressure vessel manufactured in Spain (cost of R268-million), the helium turbine manufactured by Japan's Mitsubishi Heavy Industries (cost of R503-million) and the carbon reflector blocks from Germany’s SGL Carbon (cost of R256.8-million). 67 A major EPCM contract was placed with Murray & Roberts SNC-Lavalin Nuclear (Pty) Ltd. (MRSLN) to the value of approximately R1.9 billion.

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stakeholder groups. The growth in the size of PBMR Company was too fast and the

scale and complexity of the project became unsustainable”68

Fixing the culture

Jaco and his management team also expended a lot of effort trying to develop a healthy

culture within the organization. At the time there were many silos – particularly between the

old and the new staff, management and technical staff, as well as within the technical

departments. Jaco explained on particular issue faced:

“...There were very strong personalities, almost dictator-like guys in the Company,

many of whom were seen as key technical people - they were almost seen as

irreplaceable, until they messed with the regulator... [In addition] The organization

became very diverse, with people from across the world and from all sorts of

backgrounds in one organization... We needed to create one, unique culture. A PBMR

culture with an improved safety culture, communication, tolerance, and transparency

regarding ones abilities to raise concerns – especially where they influenced the

design”

A culture of blame and non-delivery had plagued the organization. This culture was so

evident that even people outside the organization noticed it. As Dr James Larkin69

commented, “There is not a culture of accountability. There weren't people being kicked in

the ass, there weren't people who were... you know: they missed a deadline - no

consequence.”

Many initiatives were put in place to try and eradicate these negative cultural traits and build

a unified, proactive culture. These included safety and diversity training, cultural workshops,

visual management and even performance workshops presented by the international firm

Senn Delaney at a cost R10 million.

68 Quoted from an interview with Jaco Kriek on 3rd of November 2011 69 Director: Radiation & Health Physics Units, Wits University interviewed on 31 October 2010 by Carte Blanche

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Developing the necessary skills

The PBMR organization also had to develop and attract the necessary skills to design, analyse

and build the PBMR technology. They hired experts from all over the world, both as

permanent employees and on contracts. PBMR also launched a significant training and

development programme through many universities to educate a cadre of young professionals

who could become nuclear scientists, engineers, technicians and operators. Jaco reflected on

some of the successes and failures in this regard:

“...the lack of skills was only a temporary problem. Over the years we had become

experts. Not only were we teamed up with just about every major university in the

country, but our employees were speaking at major conferences around the world ... In

the end I think we had the skills ... we were very sophisticated in analysis, our

fundamental mistakes came in the design, the process of licensing and the relationship

with Eskom.”70

Troubles with the Regulator – Stop-Work Order

In South Africa, the National Nuclear Regulator (NNR)71 was “...a newly-founded regulatory

body with no experience of licensing a reactor, much less a first-of-a-kind design”72, “the

regulator wasn’t ready”73 to license such a new technology.

With the regulatory procedures in place at the time Eskom - as the eventual client of the first

PBMR plant, was appointed as the Nuclear License applicant rather than the PBMR

Company. This licensing framework was again contradictory to most international licensing

frameworks used74. As a result, PBMR had to relay all licensing related documentation and

70 Quoted from an interview with Jaco Kriek on 3rd of November 2011 71 The NNR is established and governed in terms of the National Nuclear Regulator Act, Act 47 of 1999. For more information refer to the NNR website (www.nnr.co.za). Despite South Africa’s nuclear history, the NNR had not been involved in the licensing of the construction of the Koeberg nuclear power station located in Cape Town, and now only maintains the operation and maintenance licenses of the reactor - a Pressurized Water Reactor (PWR) design which is extensively licensed and used worldwide. 72 Steve Thoma, Professor of Energy Policy, PSIRU, Business School, University of Greenwich as quoted from Thomas, S. (2009, April 1). PBMR: Hot or Not. Nuclear Engineering International. Retrieved from http://www.neimagazine.com/story.asp?storyCode=2052590. 73 Regis Matzie as quoted in the McKune, C. (2010). Pebble bed modular reactor demonstration plant is funded but not constructed. South African Journal of Science, 106(5/6), 5-7. doi: 10.4102/sajs.v106i5/6.287. 74 In general, the design is licensed separately from the construction and operation license. An engineering design company functioning as a design authority will usually directly license the design with the client or

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communication through Eskom which would first review and approve everything before

submitting it to the NNR. In fact, PBMR staff were not allowed to communicate directly with

the regulator – not even for clarification on licensing issues. This resulted in a breakdown in

communication and added significantly to the uncertainty of the licensing process causing

severe delays and many issues. Jaco explained, the situation:

“we couldn’t speak directly with the regulator and Eskom didn’t always realize how

far we were ... It was never going to work with Eskom as the middle man ... they were

reluctant to be involved and it became apparent during the course of the project that

both Eskom and the NNR were also seriously under-staffed and under-funded. ... this

led to serious frustrations and delays within the PBMR design team”75

Besides the resulting uncertainties and communication difficulties there also seemed to have

been a lack of respect from certain PBMR personnel for the licensing process. At the same

time the PBMR personnel on the whole - with some notable exceptions, had no previous

experience in dealing with a nuclear regulator and the stringent requirements that are

imposed. The design engineers that had formerly operated in the Armscor environment in

particular were unaccustomed to these procedures. Jaco explained:

“They thought they could just build it and then test it later. But nuclear doesn’t work

like that, it’s not like the military industry, the regulator would never allow it ... our

guys felt they could just carry on... I also think there was not enough respect for the

regulator... our guys were in a hurry, they wanted to push things... ”

Due to the very long lead times for the manufacture of the large nuclear components and the

limited available manufacturing capacity internationally as a result of the ‘nuclear

renaissance’, PBMR decided to commence with the early manufacture of some of the

components despite the fact that a nuclear licence had not been awarded by the NNR. Part of

the regulatory requirements state that the NNR shall be given the opportunity for inspection

during manufacturing of nuclear safety related equipment.

operator of the actual nuclear plant then applying for a construction and operating license based on the already licensed design. 75 Quoted from an interview with Jaco Kriek on 3rd of November 2011

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However, PBMR never afforded the regulator this opportunity which led to a breach of

procedures and resulted in a Stop-Work Order (SWO) from the NNR being issued in October

200676. It would not be till January 2008, after extensive improvement of PBMR and Eskom

Client Office processes to ensure compliance to regulatory guidelines that the SWO would be

lifted. The long delay was mostly due to the fact that despite the October 2006 SWO, Dieter

ordered the continuation of manufacturing - again without following due procedure resulting

in a second SWO77. This second breach, in the end cost Dieter his job. Jaco reflected on this

period:

“The first stop-work order can partly be attributed to the bad communication... there

were no proper guidelines from the regulator regarding when and where they wanted to

be involved in the process ...Manufacturing of nuclear components started too soon ...

the design was not sufficiently mature and we didn’t yet have the full support of the

NNR or the design and manufacturing code...with hindsight, it was a good thing for all

of us. It’s to be expected to make mistakes, and everyone made mistakes and learned

from them, especially regarding where we stood with the regulator ... it helped us

mature a lot... The second work stop order however looked intentional. I’m not sure of

it, but it looked that way. And this time all hell broke loose... they didn’t realize that the

regulator actually sat just below God.”78

Missing deadlines and a dwindling public support

There is a tendency for mega-projects to be ‘over-sold’ in an attempt to garner support and

obtain project approval. The PBMR project was no exception. As Jaco Kriek explained, “the

management team and specifically [Dave Nicholls] the PBMR CEO from 1999 to 2004,

created huge expectations within Government”79 regarding the PBMR technology, the state

76 Neither Eskom as the license applicant, nor the NNR disclosed the SWO. News of the SWO seemed to have been leaked out with the first reference emerging from a Nucleonics Week article published on June 7th 2007. Neither Eskom nor PBMR wanted to comment, each refereeing questions to the other – Gosling, M. (2007). Safety snag hits nuke reactor plans. IOL.co.za. Retrieved December 1, 2011, from http://www.iol.co.za/news/south-africa/safety-snag-hits-nuke-reactor-plans-1.358065?ot=inmsa.ArticlePrintPageLayout.ot. 77 No reports seem to be available in the media on this second SWO. 78 Quoted from an interview with Jaco Kriek on 3rd of November 2011 79 Jaco Kriek as quoted for the November 2011 interview

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of maturity and progress of the design and licensing efforts as well as the schedule and cost

requirements. Regis Matzie commented on the early schedule estimations:

“This was an unrealistic schedule for a new technology in a country that had never

developed and licensed a nuclear plant from the start. The technology wasn't ready;

the regulator [NNR] wasn't ready, and PBMR was still in the process of building a

company.”

In 1998, estimates were put forward that it would take five years to build the first

demonstration plant at R2 billion – that would mean the first reactor would be ready by 2003.

In 2004 when Jaco came on, that had shifted to 2007, and by 2008 estimates were for

completion by 2015 at a cost of R21.9 billion. Jaco maintains that the problem was not really

that they were that far over budget or schedule, but that the original forecasts were just so far

from realistic. Jaco explained:

"In the early years, it was a bit of thumb sucking I guess, because as a company and

as a country we didn't necessarily know what awaited us, in terms of licensing the new

technology - a first of a kind technology... the complexity of the project, both

technically and in terms of licensing, was underestimated and not at all appreciated

"80

This inability to meet the milestones and expectations created by the project would result in

many problems as many stakeholders, particularly the South African public; government and

potential shareholders started to lose confidence in the projects, and called in to question the

company’s integrity81 and ability to deliver anything at all. This also created a general

reluctance to invest in the project and made it very difficult to build pride and trust amongst

the South African people, and this was vital, particularly in the already fickle public

perception of nuclear energy. Jaco explained:

80 Quoted from an interview with Jaco Kriek on 3rd of November 2011 81 Martin Welz, editor of Noseweek Magazine: "The initial information we get suggests really large scale dishonesty in terms of communication with the public. And that immediately in our field of business raises the question: Why?' Why are they attempting to mislead the public? And then again, who is profiting?” – As quoted from Carte Blanche programme aired on 8 June 2008, Fasher, B. (2008). Carte Blanche - Pebble Bed. M-net. Retrieved from http://beta.mnet.co.za/carteblanche/Article.aspx?Id=3516&ShowId=1.

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“You can only get public pride with progress. If we could put down a reactor, then it

would give South Africans something to be proud of... we tried to influence public

perception... we used high profile people on radio and TV, we worked through

universities. I even had the idea of bringing Patrick Moore to South Africa to build the

image of Nuclear. But even with that, we were always hitting our head against the

whole nuclear thing. Lots of people are sceptical, and especially so given South Africa’s

nuclear past.”82

The beginning of the end

By 2008, PBMR had not yet been able to secure any further investment from either

government or shareholders. They were also not yet even close to ready to start construction

as they had still not been able to obtain the necessary nuclear license from the NNR. 2008

also saw the onslaught of the greatest economic recession in generations as well as major

change in the political leadership of South Africa.

On the 22nd of September of that year, Thabo Mbeki, and all his supporters – including Alec

Erwin, were ousted from government. Now, not only did PBMR have to compete for funding

in the midst of a major economic crisis but they had also lost both of their main supporters in

government. It very quickly became clear from Government and Eskom, that Eskom was now

unwilling to be a customer for PBMR. This placed a huge question mark over the future of

the commercialisation of the PBMR project.

The possibility of a new beginning

It was clear that the company needed to change its offering and strategy. With Eskom no

longer a customer, and the Next Generation Nuclear Project (NGNP)83 being the only source

of potential funding, they decided in May 2009 to go after the process heat market instead. In

order to meet the requirements and needs of the process heat market, as well as reducing the

technical and licensing risk, they decided to go back to a 200 MWt indirect cycle technology

82 Quoted from an interview with Jaco Kriek on 3rd of November 2011 83 The NGNP is an American government (DoE) programme called the Next Generation Nuclear Plant. PBMR, together with a consortium consisting of Shaw and Westinghouse won a contract worth US$20 million in March 2010.

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configuration84. The new strategy would also involve changing the company structures and

offering into that of only a nuclear engineering design company. In order to achieve this they

entered into negotiations with the NNR to change the licensing framework and enable them to

act as design authority and directly apply for the nuclear design license.

Apart from the product offering, PBMR also had to downsize the company. With the new

strategy, they did not need all the people and overheads, and they were also faced with a

serious lack of funds from investors. The restructuring - which required almost 750 people to

be laid off, attracted serious resistance from several trade unions and needed approval from

the DPE. Various presentations starting in June 2009 were made to Minister Hogan, then

Minister of Public Enterprises, to propose the new strategy, including downsizing the

company and attracting new investors.

Additionally the PMBR Company was on a serious drive to attract new investors in the

project. As it became more and more likely that government would pull the plug finding new

investors became even more important. Many investors – both existing and new, had

indicated their interest in the project and willingness to invest further, but were hesitating to

get involved with no signed shareholders agreement. Jaco reflected on some of the

frustrations in trying to get the shareholders agreement past the DPE:

“Barbara Hogan seemed unwilling to make any decisions ...but then maybe she also

did not have the necessary clout within government. In the end, 5 years went by

without managing to get the DPE to sign the shareholders agreement... without a

shareholder’s agreement, no existing or new investors wanted to put a cent into the

project....”85

Unfortunately the shareholders agreement was never signed and the decision to accept the

new strategy was eventually only made by the DPE in September 2010 - 15 months after the

new strategy was put forward for approval, when it was too late to implement. By then the

84 This is also referred to as a Rankine Cycle and makes use of the heat generated in the reactor to create steam which in turn in turn drives the turbine. It is a widely used power conversion technology. 85 Quoted from an interview with Jaco Kriek on 3rd of November 2011

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PBMR company had effectively run out of funds86, and even the NGNP contract that had

been awarded in March 2010, was withdrawn as a result.

Although Barbara Hogan had claimed that “Government is not in a position to further fund

[the project] on the scale it was done before” as early as the 15th of April 201087, it was only

on the 16th of September 2010 that she officially announced88 in parliament that

“Government, after careful deliberation, analysis and review, and mindful of the fiscal

constraints in these hard economic times, has had to make a decision to no longer invest in

this [PBMR] project”.

The reasons for this decision were made “against the following sobering realities:

The PBMR has not been able to secure an anchor customer, or another investment

partner

Further investment in the project could well be in excess of an additional ZAR30

billion

The project has been consistently missing deadlines, with the construction of the first

demonstration model delayed further and further into the future.

The opportunity afforded to PBMR to participate in the USA’s Next Generation

Nuclear Plant (NGNP) programme as part of the Westinghouse consortium was lost

in May this year when Westinghouse withdrew from the programme.

Should South Africa embark on a nuclear build programme in the near future, it will

not be using Pebble Bed Technology, which is a Generation IV Nuclear Technology

(i.e. technologies that are still primarily in the Research and Design Phase) but would

have to consider options in Generations II and III.

Finally, the severity of the current economic downturn, and the strains that it has

placed on the fiscus, as well as the nature and scale of Government’s current

developmental priorities, has forced Government to reprioritise its spending

86 This 15 month delay resulted in the PMBR Company having to pay labour costs for all 900 employees for a year while only around 200 were needed to implement the new strategy effectively shaving 3 years of the time that the funds could have lasted the required staff compliment. 87 Hogan, B. (2010b). Minister for Public Enterprises Media Briefing before Budget Speech. Parliamentary Monitoring Group. Retrieved from http://www.pmg.org.za/briefing/20100415-minister-public-enterprises-media-briefing-budget-speech. 88 Hogan, B. (2010a). Address by the Minister of Public Enterprises, Barbara Hogan, To the Nation Assembly, on the Pebble Bed Modular Reactor. Pretoria. Retrieved from http://www.dpe.gov.za/news-971

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obligations and therefore, of necessity, to make certain tough decisions. This being

one of them.”

This resulted in the PBMR project being “placed in a ‘care and maintenance mode' to protect

the intellectual property (IP) and the assets in PBMR”89. In the end, the project was reduced

to its current form with only nine staff members remaining on the project.

What if?

Jaco’s wry smile lingered. Perhaps it was not surprising that Barbara Hogan had failed to

mention the DPE’s dithering. He couldn’t help speculating, as he had done so many times

before, what could have been achieved if the DPE had not kept them on a string for so long,

effectively blocking any chance they had of getting new investors or pursuing the new

strategy so necessary to keep the NGNP contract and get new customers on board. If they had

signed the shareholders agreement and approved the new strategy sooner...

89 Quoted from Barbara Hogan’s speech to parliament.

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Exhibits

Exhibit A The PBMR technology’s early History

The following presents a chronological account of the early history90 of the PBMR

technology:

Late 1950s: The late Prof Robert Schulten started the development of the pebble bed reactor.

Schulten is recognized as the “father” of pebble bed technology. Spent a number of years

with BB Company (today ABB).

Early 1960s: Schulten and his team started the design of the AVR experimental reactor.

Schulten appointed as Head of FZJ (Forschungzentrum Jülich), a major research centre in

Jülich.

1963 – 1965: Construction and commissioning of AVR in Jülich. The AVR runs very

successfully for 22 years until 1989.

Early 1970s: Schulten and team start work on development of a 300MWe commercial

reactor, the THTR, based on research and operational results of AVR. A consortium known

as Hochtemperatur Reaktorbau (HRB) was formed between several of German utilities, to

build the THTR. The THTR was a first-of-its-kind production plant intended to demonstrate

the viability a different subsystem hardware designs, with specific emphasis on plant

availability and maintainability

1978: Start construction of THTR.

Later 70s: KWU (Siemens) starts design and development of Module reactor as a

commercial reactor, also based on pebble bed technology.

1985/1986: German Government orders ABB and Siemens to co-operate on pebble bed

technology. The company HTR (Hochtemperatur Reaktoren) is established with 50/50

shareholding between ABB and Siemens. All German pebble bed IP (intellectual property)

vests in HTR.

90 According to the PBMR website (http://www.pbmr.co.za/index.asp?Content=184)

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1986: THTR commissioned, starts generation of electrical power into German grid. The

Chernobyl disaster strikes in Russia, and the green movements in Germany demand closure of

all nuclear power stations in Germany.

1989: After only 3 years of operation, THTR is shut down. The AVR is also shut down.

Siemens Modul research development abandoned. This also signalled the end of

development work on pebble bed reactors in Germany.

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Exhibit B Benefits and Potential Markets for the PBMR technology.

The design was claimed to have several distinct advantages over conventional Pressurized

Water Reactors (PWRs) widely in use today – namely:

Smaller Modular design - The PBMRs smaller size reduces the burden on small and/or

developing countries - even opening up the market to large private companies, in that its

upfront capital costs would be more affordable and it would not require the large

sophisticated electrical grid networks required to handle the larger conventional reactors91. In

addition, its modular design allows for large parts of the plant to be pre-fabricated and

transported either by rail or barge, and for additional units to be added onto an existing plant

as demand increases.

Less water - The PBMR design requires much less water than larger plants making it suitable

for certain inland locations that would otherwise not have been viable for conventional

reactors92.

More applications - The PBMR would operate at higher temperatures and thermal

efficiencies resulting in more attractive economics as well as allowing the PBMR to find use

in other industrial process heat applications such as hydrogen production, water desalination,

petro-chemical applications, coal liquefaction, or oil-sands recovery93. The technology

allowed for a duel-configuration where one plant can be used for either electricity, process

heat or both, resulting in many commercial applications such as mines, aluminium smelters

and even refineries being able to address both their electricity and heat requirements from a

single plant.

Passive Safety - Due to the physics and design of the PBMR it is inherently safe – it shuts

down on its own with no human intervention. The reactor makes use predominantly of

passive safety systems rather than the add-on, active systems that have to be engineered onto

91 Macfarlane, A. (2010). Nuclear power: a panacea for future energy needs. Environment Magazine, 34-46.

And Hecht, M. (2008, November). The Nuclear Power Revolution: Modular High-Temperature Reactors Can Change the World. EIR Science & Technology, 46-53. 92 Because of the large amount of water required in conventional reactors, they generally have to be located at the coast. 93 Conventional nuclear designs do not operate at sufficient temperatures to allow its use for these applications.

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conventional reactors. Its smaller size also reduces the total quantity of radionuclide material

that could be released in the event of an accident.

Proliferation resistant - Because of the unique fuel pebbles and the low levels of enrichment

required, the PBMR design is also much more resistant to proliferation.

Potential target markets for the PBMR technology

The target markets between PBMR and conventional reactors differ. Conventional nuclear

reactors are only used to generate electricity whereas HTRs can be used forthe following

potential applications as well:

To generate electricity. The higher temperature output will lead to more efficient electrical

plants. Due to the fact that the electrical output of a PBMR reactor is smaller than

conventional reactors PBMRs would not compete with the large reactors but address different

markets and applications. 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 flexibility to expand as the

load demand grows.

To provide “process heat” – It is a non-polluting heat source for many industries (especially

chemical and petro-chemical industries) that require heat as part of their process. For

example it can replace the portion of the coal that is burnt by Sasol to generate heat and steam

in its process with non-polluting nuclear heat.

To provide high temperature steam for specialist applications such as “Enhanced Oil

Extraction” (EOE) employed in the oil sands of Alberta, Canada. Currently gas is burnt to

generate the steam which utilises one fossil fuel to extract another fossil fuel resulting in a

significant amount of carbon dioxide release into the atmosphere.

To generate hydrogen - as the technology develops and higher temperatures become feasible,

additional applications such as water-splitting to create oxygen and hydrogen become

possible. This is currently the only technology available that can provide future clean (CO2

free) transportation fuel.

Water desalination - PBMR had entered into discussions with the Department of Water

Affairs on this subject.

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Exhibit C Funding and Expenditure94

The following graph presents the total funding income and breakdown per investor on the

PBMR project.

The graph below indicates how the total funds allocated to the project were used.

94 These figures were obtained from the 2009/2010 PBMR annual report. To get a copy of the report go to the following link http://www.pbmr.com/index.asp?Content=250

South African Government, 7 423, 80%

Industrial Development Corporation, 457, 5%

Westinghouse Electric

Company LLC, 450, 5%

Eskom Holdings Limited, 817,

9%

Exelon, 102, 1%

Investment Source to Date (R'million)

Employees Compensation, 3,581 , 38%

Goods and Services, 1,243 ,

13%

Financial Costs, 190 , 2%

Deponstration Power Plant, 2 758 , 29%

Pilot Feul Plant, 980 , 11%

Other Transfers, 645 , 7%

Spending to Date (R'million)

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Exhibit D PBMR Timeline and Major Milestones

Sep 1998PBMR is established as a project in Centurion, funded by Eskom.

Jul 1999PBMR company is

stablished with Eskom and the IDC as shareholders.

Jun 2000BNFL becomes a

shareholder in the PBMR project

Aug 2000The US electricity utility PECO Energy becomes a

shareholder.

Oct 2001The design configuration is changed from 268MWt to

310Mwt

Apr 2002The US company Exelon withdraws as shareholder.

Dec 2003Eskom board vote to

withdraw from the project

Feb 2004SA Government take over responsibility for the PBMR

from Eskom

May 2004The design configuration is changed a second time to

400MWt

Aug 2004Mr Jaco Kriek is seconded to PBMR (Pty) Ltd to take

over as CEO.

Aug 2005First draft of the

shareholders’ agreement is signed ‐ not effective

pending certain conditions

Sep 2005PBMR introduces

permanent employment contracts for employees.

Nov 2005The South African

government approves R7.4 billion in funding

Mar 2006Westinghouse becomes an

investor in PBMR, previously held by BNFL.

Jun 2006Shareholders agreement lapses ‐ conditions not met

in time

Oct 2006The NNR places a Work Stop Order on the PBMR project for a breach in

procedures

Oct 2006The PBMR consortium lead by Westinghouse wins

contract for the first phase of the NGNP

Aug 2008PBMR signs an EPCM contract to Murray &

Roberts SNCLavalin Nuclear (Pty) Ltd (MRSLN).

Sep 2008Thabo Mbeki and his

supporters are ousted from the Government

Nov 2009SA Governmnet announces it is going to stop funding

the project

Mar 2010The PBMR consortium win the contract for the Phase 2

of the NGNP contract

Mar 2010Jaco Kriek resigns as CEO

May 2010Board accepts new strategy in an attempt to ensure

survival

Sep 2010Government approved decision to downscale

operations

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Exhibit E Jaco Kriek’s Background and Experience

Jaco Kriek, a finance Master form the University of Johannesburg joined the Industrial

Development Corporation (IDC) in February 1992 after having spent the first 5 years of his

career at KPMG. In 2000, Jaco was appointed Executive Vice President of the IDC and

played a key role in initiating Projects, business development and the re-engineering of the

IDC approach on projects, specifically related to project finance. In the position of Executive

Vice President, Jaco was responsible for all large Agricultural, Mining & Minerals,

Infrastructure, Chemicals, Oil and Gas projects.

During his time at the IDC, Jaco completed the Advanced Management Programme at

INSEAD, and was involved in several IDC projects such as the French AFIS criminal

fingerprint system for the South African Police Service, the Mozal Aluminium Smelter95,

Mossgas96, Iscor and Kumba. Jaco even assisted Prof. Ben Esty in writing the Mozal case

study for the Harvard Business School97.

95 Total Mozal smelter Project Investment totaledUS$2 billion 96 This was the proposed name given to a potential merger with Sasol and Engen 97 Jaco also lectured the Mozal Case Study at Harvard Business School to MBA students on an annual basis for 5 years from 2000 to 2004

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Exhibit F An overview of the nuclear industry in South Africa

South Africa has enjoyed a long and industrious history of nuclear development. Admittedly,

this history is marred by an era of nuclear weaponry development, however, South Africa was

also the first country in the world to voluntarily dismantle its nuclear weapons program as

part of the Non-proliferation Treaty (NPT), a move that has greatly restored trust in South

Africa as a peaceful nuclear development country. South Africa currently operates the only

nuclear power plant in Africa, the 1800MWe Koeberg reactor located in Cape Town, is also

the global market leader in the supply of radioisotopes for medical applications produced in

the Safari 1 research reactor in Pelindaba.

South Africa’s Nuclear History98

South Africa’s nuclear industry can be traced back to 1945 with the setup of the Uranium

Committee in response to requests from London and Washington regarding the supply of

uranium for their nuclear weapon programs. In 1961 South Africa established its first nuclear

research centre in Pelindaba that would also later house the countries first nuclear reactor –

the 20 Mega Watt Safari 1 reactor (the original design employed 93% highly enriched

uranium but was recently modified to use fuel enriched to only 19.5% - under the

internationally regarded safe enrichment level of 20%, below which its application is useless

for weaponry).

South Africa also designed and operated its own enrichment facility on the Pelindaba campus,

using enrichment techniques locally developed towards the end of the 1960s. At a time South

Africa actually operated two enrichment facilities, one low enrichment plant used to provide

fuel for the Koeberg nuclear reactor and the other producing highly enriched fuel to sustain

the Safari 1 and weaponry programs. The first highly enriched uranium was produced in

January 1987. However, South Africa subsequently closed the enrichment facility in 1990 as

part of the NPT.

98 Source: Campbell, K. (2011). SA marks twentieth anniversary of move from nuclear weapons to nonproliferation. Engineering News Online. Retrieved August 21, 2011, from http://www.engineeringnews.co.za/article/sa-marks-twentieth-anniversary-of-move-from-nuclear-weapons-to-non-proliferation-2011-07-08.

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South Africa started research in nuclear explosives in 1971 with a program that examined the

possibility of using Peaceful Nuclear Explosives (PNEs) in mining and construction projects.

At the time, the US and then Soviet Union were also exploring similar programmes with

Soviet Union actually using these PNEs on several industrial projects. The 1970s saw South

Africa under increasing isolation and international pressure as a result of its apartheid policies

and being faced with an increasing dangerous strategic situation. This resulting in 1976

highlighting the first full-scale nuclear device tests – although without any enriched uranium,

and the adoption of a formal nuclear weaponry program in 1977. 1977 also saw South Africa

develop an underground nuclear weapons test chamber at Vastrap in the Kalahari which was

eventually abandoned after intense international pressure. South Africa was however not

deterred and continued with the program resulting in the first nuclear weapon being produced

in 1982. In total the country produced six fully functional nuclear weapons before the

program was terminated and the weapons eventually dismantled by June 1991 under the

instruction of then president FW de Klerk, and South Africa officially joining the NPT in July

of the same year.

Koeberg, the only commercial nuclear power reactor currently in South Africa, started

operation in 1984 and runs to this day. The 1800MWe Pressurised Water Reactor (PWR) was

built be Framastome (now Areva) and is owned and operated by Eskom, the South African

state owned Utility. The decision to build the reactor, over conventional coal fired power

plants popular at the time was largely due to the inefficiencies of transporting coal the long

distances from the coal mines of Mapumalanga in the north east of the country.

South Africa’s nuclear energy future

According to the Carbon Monitoring for Action (CARMA) database, a part of the

Confronting Climate Change Initiative at the Washington-based Center for Global

Development, as cited in Grant (2007), Eskom was the second-highest carbon dioxide-

emitting power company in the world in 2007 emitting 214-million tons of carbon dioxide per

year. South Africa ranks eighth on the list of countries for the emissions produced by their

power sectors and is home to seven of the world’s top-30 carbon emitters. And this was

before the commissioning of two of the world’s largest coal fired power plants due to come

online in Limpopo and Mpumalanga in the near future. Currently nuclear power provides

around only 5% of the 40.5GWe total electricity production in South Africa, yet is one of the

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only viable sources of ‘clean’ base load energy with renewable such as wind and solar

currently only appropriate for supplementary electricity generation. However several plans

have been announced over the last five years to extend this as much as 25% by 2025. This is

in line with the general move of the South African government to curb carbon dioxide

emissions and break its current over reliance on coal as a form of energy. According to Dr

Rob Adams, president of the Nuclear Industry Association of South Africa (Niasa)

“investment in nuclear power would not only ease South Africa’s energy shortage, but would

also allow for significant job creation”99, another item high on the South African governments

current social agenda.

In 2006 the Environmental Impact Assessment (EIAs) was initiated for the Thyspunt,

Bantamsklip, and Duynefontein sites. In early 2007 Eskom announced its initial plan for what

it called the Nuclear-1 programme. The plan was to construct 20GWe (Giga-Watt electric) of

new nuclear capacity on five sites. This would contribute half of total new generation capacity

planned for 2025. However, in the end of 2008, Eskom announced that it would be

withdrawing from the tendering process for the first new plant citing a lack of finances as the

eventual reason.

The South African government revived the drive for nuclear energy as part of the country’s

energy mix through its Integrated Resource Plan (IRP) that caters for the production of

9600MWe in new nuclear capacity by 2030. And despite the recent nuclear crisis at the

Fukishma nuclear reactor in Japan, Energy Minister Dipuo Peters recently confirmed South

Africa’s committed to integrating nuclear power into the electricity generation portfolio,

albeit a cautious one.

99 McKenzie, J. (2011). Nuclear could ease energy shortage, create jobs – Adam. Engineering News Online. Retrieved August 21, 2011, from http://www.engineeringnews.co.za/article/nuclear-programme-could-ease-energy-shortage-create-jobs-adams-2011-06-01

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5 THE INSTRUCTORS GUIDE

Case Summary

The Pebble Bed Modular Reactor (PBMR) project is a technologically innovative mega-

nuclear project, based on an original German technology and transferred to South Africa in

the 1990s. In total, R9.244 billion had been invested in the projects of which R7.4 billion had

effectively been paid by the South African tax payers1. The project has since been stopped by

the South African government and much debate now surrounds the question of whether this

was a long overdue decision with the PBMR being nothing more than the pet project, or

whether the South African government has in fact done the people of south Africa a

disservice, and squandered a potentially attractive and lucrative opportunity.

The case is centred around the protagonist, Jaco Kriek – CEO of the PBMR Company from

2004 to 2010 and explores the life of the project, from its inception in 1999 to the care-and-

maintenance mode which it entered in 2010. The case looks at various individuals, events,

decisions, stakeholder interactions and other factors that led to the project being severely over

budget and behind schedule, and the management team being unable to attract any additional

investors or customers for the project.

The PBMR case study attempts to add to the material currently available on the PBMR

nuclear project in South Africa and to try to disseminate management lessons that can

hopefully be applied for the benefit of future mega-projects in general. The case is focused

entirely on the management processes, practices and principles applied by senior management

and executives in the execution of the PBMR project taking cognisance of the important

stakeholder interactions, decisions and context in which these were carried out. The aim is to

explore and deepen our understanding of the management practises that were applied in the

project and how they influenced the eventual outcome of the project.

1 Hogan, B. (2010b). Address by the Minister of Public Enterprises, Barbara Hogan, To the Nation Assembly, on the Pebble Bed Modular Reactor. Pretoria. Retrieved from http://www.dpe.gov.za/news-971

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Learning (pedagogical) Objectives

The case focuses on three major learning objectives, namely decision making and the effect

thereof on the manageability of the project as a whole; the importance of stakeholder

management; and lastly the case explores some of the dynamics of senior management

accountability and the precarious circumstances under which these senior managers often

have to manage these projects.

Decision making within mega-projects - To illustrate the impact of decision making in

mega-projects, how an information gap, often faced by decision makers in technically

innovative mega-project, can lead to the wrong decisions made at the wrong time, and

contribute to the significant complexity, cost, risk and uncertainty of mega-projects. And how

this ultimately effects the degree of manageability of these project, often creating

organizational inertia and leading to severe budget and schedule over runs or even failure.

Stakeholder Support & Capability - To explore the importance of stakeholder management,

support and expectations and on ensuring that the political, social and economic environment

within which mega-projects are attempted are ready and capable of supporting such an

undertaking.

Managerial complexity and accountability - To explore the nature of accountability of

senior managers and illustrate how management of mega-projects are often accountable to

other parties that effectively limits the autonomy of these managers. In addition this case

attempts to explore complexities and uncertainties in which these managers operate, and

questions the skills and experience needed by senior management in order to deal with them

effectively.

Suggested Assignment Questions

1 If you were managing this project, which decisions would you have made differently, and

why?

2 Who are the different stakeholders in the PBMR project? How well informed are they

regarding the critical elements of the project and what implications does this have for

effective management of the project?

3 Is Jaco Kriek ultimately accountable for the failure of the project, and why?

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Suggested Discussion Questions

The following notes are intended to guide the instructor through the teaching of the case and

are intended for a single two hour class. The assignment questions need to have been made

available to the students prior to the lecture for review and assessment.

The teaching session should begin with the focal point of the case, recapping the situation in

which Jaco Kriek finds himself. Particularly, it should be emphasised that he resigned as CEO

six months prior to the case kickoff. And that he is now in a position to think back and reflect

on the case with more objectivity. But that he is still worried about how the outcome of the

project might have tarnished his name and what affect that might have on his career going

forward.

To start the case discussion off, the instructor needs to bring to the students attention to some

of the critical points/events in the case, as well as start painting the picture of the effect that

the various complexities and uncertainties at play have on decision making. The following

question should guide the students through this process.

1 What are the major, critical decisions that were made in this project, and what

impact did they have on its outcome? What factors contributed to these decisions

and what could have been done differently in each instance? (30 – 45 minutes)

The instructor should begin this discussion by getting the students to list some of the critical

decisions in the case and direct the students to explain the reasoning behind their choices –

i.e. why was this particular decision so critical. It may help listing these on the board as they

may come up in discussion later on during the session. Although one can argue for the

importance of many decisions within the case, the most pertinent should centre on the

technical configuration chosen (increments in size of the reactor, choice of direct versus

indirect power conversion etc), the decision to both design and build the first reactor and the

early manufacturing of components and EPCM contracting.

For each of these decisions the instructor should guide the class through discussing the

reasoning/situation that led to that particular decision, as well as the impact of the particular

decision on the eventual outcome of the project. The following may be some typical

responses:

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Technical configuration chosen - There are two decisions that are pertinent here. Both are

equally relevant, but can be grouped together for the sake of this discussion. The two

decisions are the continual increment in reactor size up to the eventual maximum of 400MWt,

and the second is the decision to use the direct cycle power conversion technology. (10 – 15

minutes)

Both of these decisions had several impacts on the project as a whole, and the instructor

should get the students to list these. They may include:

It severely increased the risk and complexity of the design. This not only complicated the

design process, but also the licensing process.

It resulted in the components required to build the reactor being so large and complicated

that even the world’s leading nuclear component manufacturers ran into difficulties during

design and manufacturing.

The continual changing and shifting of the scope resulted in several iterations of the

project plan having to be re-drafted, and many of the technical designs having to be re-

done.

It increased the time and capital required, adding to the perception that the project was

missing deadlines and severely over budget, as well as making it harder to find suitable

investors and clients.

It caused a divide within the organization, particularly within the technical departments.

There were several factors that led to, or influenced, these decisions being made and the

instructor should direct the students to listing and discussing some of them. They may

include:

Commercial pressure exerted from the client and other stakeholders to change the design2

and the initial demonstration power plant from a ‘proof of concept’ to a ‘first of fleet’.

An information gap - defined as a disconnect between the decision makers and the

required technical information required to make those decisions, existed within the

project. Information gaps result either from a lack of the required information all together,

from the technical staff having the information but it not being available to the decision

2 Commercially, the direct cycle is more efficient than an indirect cycle power conversion configuration and the larger reactor size result in a greater electric power output.

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makers, or the decision makers having access to the information but not having the

necessary skills or experience to know what decision to make with it. In this particular

case, arguments can be made for all three.

Technical staff wanting to challenge the boundaries of the technology and create

something new. This resulted in the technical staff continually pushing for the greatest

possible challenge, and not being forthcoming with information that might have resulted

in a less risky (and challenging) technological configuration.

Key players and decision makers all came from environments where they were not used to

the strenuous regulatory requirements and control. They were also used to operating in the

old apartheid era where the government was willing to support projects no matter what, or

for how long it was required.

Design and build the first reactor – This refers to the decision for PBMR to both design and

build the first demonstration power plant. This is contrary to most nuclear development

models worldwide where the nuclear engineering company – with the support of government,

designs and licenses the technology, and a different company then constructs and operates the

eventual nuclear plant. (10 – 15 minutes)

This decision had several impacts on the project as a whole, and the instructor should get the

students to list these. They may include:

It resulted in the PBMR Company having to carry the enormous cost of the capital

expenditure required to construct the DPP on its balance sheet – making it harder to

motivate for additional funding as a result of the much larger amount of funding required.

As a result of this decision, Eskom became the middle man in the licensing process.

However, with Eskom’s reluctance to be involved in the project as a whole, it created

many communication difficulties and frustrations. Also, an argument can be made that

Eskom was also not suitably qualified to undertake such a complex licensing process.

Because of the need for large procurement, finance and human resource departments as

well as the Engineering Procurement and Construction Management (EPCM) contractors

required to construct a nuclear power plant, the PBMR Company became a large and

cumbersome organization that was expensive and time consuming to organize and

manage.

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There seems to be one major factor that led to or influenced this decision being made and the

instructor should direct the students to discuss it in a little more detail. There may be other

factors, however the case only point to this one, namely:

Pressure was exerted from the DPE to take the construction costs of the reactor off the

Eskom balance sheet to reduce Eskom’s financial risks. This factor should prompt the

question of whether the PBMR company was actually better suited to carry such financial

risks on its balance sheet, particularly given the fact that it is a new start-up company as

opposed to Eskom which at the time was the world’s fifth largest electricity utility

company and was also a public enterprise enjoying essentially the same government

support.

Early manufacturing components and EPCM contracting – Again there are two decisions

that are pertinent here. Both are equally relevant, but can be grouped together for the sake of

this discussion. The first decision is the early manufacturing of large long-lead components,

including the reactor pressure vessel manufactured in Spain (cost of R268-million), the

helium turbine manufactured by Japan's Mitsubishi Heavy Industries (cost of R503-million)

and the carbon reflector blocks from Germany’s SGL Carbon (cost of R256.8-million). The

second is the decision to appoint Murray & Roberts SNC-Lavalin Nuclear (Pty) Ltd.

(MRSLN) as EPCM contractors to the value of approximately R1.9 billion. (10 – 15 minutes)

Both of these decisions had several impacts on the project as a whole, and the instructor

should get the students to list these. They may include:

In total, R2 758 million was spent on the DPP in its various configurations (See Exhibit 3,

Figure 2), without anything to show for it. This amounts to close to a third of the total

allocated project funds, and could have significantly extended the life of the project.

The decision to commence with early manufacturing eventually led to the placement of

the Stop-Work Order (SWO) by the NNR. This SWO could have been prevented if due

process had been followed; however the designs were in retrospect not mature enough to

continue with manufacturing.

These decisions committed the project financially to the design configuration and made it

very complex and costly to change the design later on.

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Again there were several factors that lead to, or influenced, these decisions being made and

the instructor should direct the students to listing and discussing some of them. They may

include:

There are very few manufacturers word wide that can manufacture the components

required for the PBMR design, and due to the international nuclear ‘renaissance’ these

manufacturers were in high demand.

Decision makers either underestimated or were misinformed of the actual maturity of the

PBMR design, as well as significant underestimation of the licensing process.

Decision makers were led to believe that the reactor would be ready for construction

much sooner than was actually the case. The long lead times for most of these

components as well as the need for the EPCM contractors to familiarize themselves with

the designs, both contributed to these contracts being placed early on.

Once the major decision have been discussed and understood, the instructor should spend a

little time prompting student to answer the question “Within the complexities and

uncertainties present at the time of making these decisions, do you think that the decision

makers acted rationally and within reason?” This discussion should focus on the fact that it is

often easy to criticize management’s decisions, particularly with the benefit of hindsight, but

that within the situation, the correct choice is it is not always that clear. (5 – 10 minutes)

If time permits, the instructor may want to ask the student what they would have done

differently and why. With each response, the instructor should provide counter arguments,

drawing the students to the circumstances and availability of information at the time, as well

as the likelihood of such a decision resulting in a different outcome for the project. (5 – 10

minutes)

2 Who are the different stakeholders in this project? What is the nature and extent of

their respective interests in the project, and which are most influential and why?

What implications might those have for the pressure they exert on it? (25 – 30

minutes)

The instructor should ask the class to list the different stakeholders in the project, and write

the list on the board as they are called out by the class. This list should include at least the

following stakeholders, South African Government (including the presidency), Department of

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Public Enterprises (DPE), Eskom, other Shareholders – list these individually (Westinghouse,

IDC), National Nuclear Regulator (NNR), PBMR staff and the public, Environmental and

Anti-nuclear activists and groups. One stakeholder which the class may not mention, but

which is of importance is the international nuclear industry at large.

As each stakeholder is mentioned and written down, the student should be directed to explain

the nature and extent of the interest and influence the particular stakeholder has in the project.

The following table presents a list of the various stakeholders together with an overview of

the nature and extent of their interest and influence in the project. (10-15 minutes)

Stakeholder Nature and extent of Interest and Influence

Government This includes Government at large, the ANC ruling party as well as

Thabo Mbeki himself. Government is ultimately responsible for this

project and for allocating tax revenue amongst this and other competing

projects. They are incredibly influential.

Department of Public

Enterprises (DOE)

This includes the department as large, Minister Alec Erwin, and

Minister Barbara Hogan. The DPE is responsible for the management

all public enterprises in South Africa. Again they are very influential,

but ultimately answer to government.

ESKOM Eskom initiated the project and contributed funds early on. However

since 2003 they have been reluctant to be involved in the project and

were pressured by the DPE and Government to stay on as a client. They

were also the license applicant for the PBMR technology. They are very

influential, but ultimately answer to the DPE.

Westinghouse Westinghouse were both shareholders and technical experts in the area

of nuclear design. They held the position of chair of the technical

committee on board level and were relied on to provide strategic and

technical guidance. They also blocked any competing nuclear vendor

from investing in the project due to potential conflict of interest. They

thus had significant influence over the project.

Industrial Development

Corporation (IDC)

The IDC are supporting shareholders in the PBMR project. Their

influence was limited.

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National Nuclear Regulator

(NNR)

The NNR are an independent body, mandated by law to license and

ensure the safe design an operation of nuclear plants in South Africa.

They would ultimately need to approve the nuclear license and are thus

very influential (as was shown by the SWO).

PBMR staff PBMR staff depends on the project for both their livelihood and

reputation. Although they are not very influential in decision making,

they have a large interest and impact on the project.

Public The Public would have been the eventual users of the electricity

produced, and are also the taxpayers footing the bill. The public would

also suffer any consequence of a nuclear accident (both directly, and

environmentally). They exert little influence on the project, particularly

within the socio-economic environment in South Africa, but are

significantly more influential in other countries where nuclear policy

play a larger part in political elections.

Environmental and Anti-

nuclear activists and groups

These groups are typically very interested in the project, but are

generally more ant-nuclear than anti-PBMR per se. They have moderate

influence in terms of swaying public and government opinion, as well as

delaying the Environmental Impact Assessments.

International Nuclear

Industry at large

This stakeholder has a particularly high interest in any nuclear projects.

This was particularly evident in the recent Japanese Fukushima Daiichi

nuclear incident of 11 March 2011. This incident not only affected

Japan, but it resulted in severe ripple effects in the nuclear industry

across the globe with many countries putting their nuclear plans on hold

as a result. Any incident on the PBMR plant would have caused the

same effects. This also includes Potential suppliers, and future clients

and operators of the technology. Although they have little direct

influence on the project, they do wield significant influence through

international bodies and government which in turn have influence on the

PBMR project.

Table 1: Stakeholder Interest and Influence

Once the instructor has discussed all of the stakeholders, as well as the nature and the extent

of their interest and influence he/she should get the class to decide on the three most

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important stakeholders in terms of impact that these stakeholders or individuals had over the

project and its eventual outcome. Although any may be chosen, there are four stakeholders

that had a particular impact in this case and the instructor should guide the discussion to

conclude on at least three of them. For each of the important stakeholders, the instructor

should get the students to discuss why this stakeholder is important and explore the nature of

their influence on the project through referring to specific examples in the case. (15-20

minutes)

The four most important stakeholders in terms of eventual impact on the project outcome are

as follows:

Thabo Mbeki (Government) – Students should reflect at least on; the link between the

PBMR project and Thabo Mbeki’s dream for an ‘African renaissance’; his role in getting

Alec Erwin involved in the project as well as getting the necessary government support

and funding; and, potentially the effect that his “personal support” had on alienating

others within government, particularly those opposed to Mbeki within the ANC political

party.

Alec Erwin (DPE) – Students should at least reflect on; his role of managing the project

within a wider portfolio; his ambition for revamping the entire power industry within

South Africa and the effect this had on the shareholders agreement not being signed; the

department’s influence on the project in taking 15 months to sign off on the company’s

new strategy in 2009/2011; the level of influence Barbara Hogan had over decision

making regarding the project; Barbara Hogan’s level of influence within government to

make decisions; as well as the departments power to eventually pull the plug on the

project.

Eskom – Students should at least reflect on; Eskom’s role in initiating the project and

bringing the PBMR technology to South Africa; their role as eventual customer –

particularly the impact that having a viable customer, and thus real source of future return

on investment would have had on attracting viable investors; that due to Eskom enjoying

a monopoly in South Africa with regard to electricity generation and supply, there would

be no local market for electricity generation if Eskom are not onboard; Eskom’s role in

exerting commercial pressure on the PBMR design and the eventual consequences

thereof; Eskom’s role as license applicant; or the fact that the DPP would have been

located on the Eskom owned Koeberg nuclear site.

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Westinghouse – Students should at least reflect on; Westinghouse’s role as shareholders

and members of the board; the reliance by PBMR on their technical and nuclear expertise;

their withholding of crucial technical information regarding the German design;

Westinghouse’s potential role in blocking other investors such as Areva; and the fact that

Westinghouse stand to gain the PBMR IP should South Africa no longer develop the

technology.

Throughout the discussions regarding the stakeholders of the project, the instructor should

focus the conversation on the complexity that the large array of stakeholders, and the

interplay between these stakeholders have on the PBMR project, and mega-projects in

general.

3 To what extent do you think stakeholder expectations were effectively managed on

the PBMR project? (15-20 minutes)

The instructor should start by asking who believes that the expectations were effectively

managed, and why. The instructor should counter these responses with valid counter

arguments to stir the debate within the class around this topic. The instructor should also give

opportunity to students who believe that the expectations were not adequately managed to

express their views and reasons for saying so. Where ever possible, the instructor should

direct the students to use specific consequences and examples from the case to support their

answers.

The instructor should guide the discussion around this question to explore the trade-off

between “over-selling” a project in terms of cost and schedule in order to get initial buy-in for

the project, and the eventual consequences of not delivering on these estimates. In this case

there are no right or wrong answers, but rather the intension is for the students to come to

grips with this dilemma and to grapple with some of the trade-offs that form part of this case.

Finally, the instructor should ask the students how they believe the stakeholder’s expectations

could have been better managed. For each response the student should be directed to explain

how their suggestion might have affected the particular stakeholder’s expectations and how

this may have changed the eventual outcome of the project. The instructor should provide

valid counter arguments where appropriate.

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4 Was Jaco Kriek ultimately to blame for the failure of the project, what could he have

done differently to prevent its failure, if anything and who is Jaco ultimately

accountable to? (35 – 45 minutes)

The instructor should pose the following three questions (or combinations thereof) to the class

for discussion before concluding the sessions.

Was Jaco ultimately responsible for the project’s failure? (15-25 minutes)

The instructor should start by asking for a show of hands of which students believe, “Yes, he

is to blame”, “No, the outcome of the project was a foregone conclusion when he took over

the reins in 2004” or “No, the project could still have been saved, but he is not to blame” The

instructor should then prompt the different students to provide the reasoning behind their

particular choice. Responses may typically include:

Yes, he is to blame - The instructor should prompt those student who voted for this answer to

give a reason for this response, and reflect on particular decisions, actions or event where

Jaco’s action (or non-action) either directly caused the failure of the project, or could have

contributed to its success. The instructor should ensure the student links the particular actions

referred to with the eventual impact of these actions and how they influenced the eventual

project outcome. The Lecturer should follow up by asking what the student believes Jaco

should have done differently. Again this should be explained by the student. For each

response, either the lecturer should propose valid counter arguments, or give the rest of the

class a chance to rebut the particular response, or accept the response and further discuss the

link between cause and effect. (5 – 10 minutes)

No, the outcome of the project was a foregone conclusion when he took over the reins in

2004 - The student should be directed to explain his/her answer and particularly point to

specific instances/event prior to Jaco’s arrival that shaped the eventual outcome. This should

be countered by questions to the class asking for suggestion of a possible course of action

Jaco could have taken to rectify the situation that was in place when he arrived, if any. The

instructor might at this point ask the students why they believe Jaco did not follow the

suggested course of action. (5 - 10 minutes)

No, the project could still have been saved, but he is not to blame - Again the student should

be directed to explain his/her answer and particularly point to specific instances/event prior to

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Jaco’s arrival that shaped the eventual outcome. The immediate follow up question should

then be, “If Jaco is not responsible, then who is?”. To this there may again be a few

responses, particularly, “the Minister of the DPE”, “Thabo Mbeki”, “the technical staff of the

PBMR project”, or even “the entire PBMR board”. The student should be prompted to give a

reason for any of these (or other) responses. The instructor should ensure the student links the

particular actions referred to with the eventual outcomes of these actions and how they

influenced the eventual project outcome. (5 – 10 minutes)

Was Jaco Adequately qualified and experienced for the job? (10 – 15 minutes)

During the above discussion, question or comments may arise regarding Jaco’s suitability for

the position as CEO of the project. If so, it would be worth following up with a short

discussion regarding his suitability by addressing this question.

The instructor should refer the students to Exhibit E containing details of Jaco’s experience

and background. The following arguments may be presented by the students:

Arguments against his suitability for the job - Here, students will typically call his

background into question. A valid reason may be that “his only experience has been in getting

funding for and structuring new projects, but that he has never managed any large project

through to delivery”, “none of the projects on which he was previously involved were as

technologically innovative”, “he had no experience in the regulatory and highly complex

environment of nuclear development”. In each even the instructor should direct the students

explain how this detracted from his ability to run the project. (5 – 10 minutes)

Arguments in support of his suitability for the job - Here students may give reasons such as

“he has been involved in several mega-projects in the past, so he understands the risks and

complexities of such projects”, “he has been involved in garnering buy-in for large projects in

the past, and should know what investors are looking for and how to setup deals and get

clients on board” or “He would have had to deal with stakeholder management in the past,

and as such, he was well suited to deal with the myriad of stakeholder issues in this case” For

each response, either the lecturer should propose valid counter arguments, or give the rest of

the class a chance to rebut the particular response.

Throughout the discussion, the instructor should direct the discussion to the importance of

having suitably qualified (both experience and skills) personnel within the executive

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management structures, on the ability to deal with and manage a technologically innovative

mega-project. The instructor should also get the students to reflect on who (type of skills and

experience) might have been an ideal candidate for the job. (5 – 10 minutes)

Who is Jaco ultimately accountable to? (10 – 15 minutes)

The instructor should end the case with a discussion around who Jaco was ultimately

accountable to. Who was Jaco’s master? Potential responses from the students may typically

include: ‘Thabo Mbeki’, the ‘Minister of the DPE’, the ‘PBMR shareholders’, the ‘PBMR

board’, the ‘PBMR Company and employees’, or the ‘South African tax payers’. Response to

this question should be justified by the students and the instructor should provide valid

counter arguments where possible.

The instructor should ensure that this discussion links all of the above questions together and

reflects on how this affected the decision made, stakeholder relations and Jaco’s ability to

make any meaningful difference in the project.

Concluding the Session

The case discussion should be finalised by bringing the class back full circle to Jaco Kriek

and his role in the project. The instructor should conclude the session by making sure that the

students have an understanding for the complexities and uncertainties that go with managing

mega-projects of this nature. Emphasis should be placed on the importance of decision

making and difficulty of rectifying decisions made, on the importance of shareholder

management and expectations, and of the potentially precarious role that managers of such

mega-projects have to operate in. The instructor should then pose the following question to

the students, “Does Jaco’s situation and who he is ultimately accountable to change any of the

stand point made earlier during this discussion, and if so why?”

This should bring the session back to crux of the case. The instructor should then leave the

students with the following questions without addressing them in class; Will people blame

him for the eventual outcome? Will the project’s failure tarnish his reputation and his career?

The idea is that the student, based on a better understanding of the case and of some of the

key issues at play, should be able to form their own opinion and leave the class pondering

over these questions, potentially even leaving seeds for post session discussions amongst the

students.

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6.2 Interviews

Jaco Kriek, ex-CEO of PBMR, interviewed on Monday 08 August 2011

Jaco Kriek, ex-CEO of PBMR, interviewed on Thursday 03 November 2011