During the past financial year, PBMR has experienced a profound transformation. The Company’s focus is no longer confined to research and development; it is preparing for first concrete placement at the DPP site at Koeberg and the manufacture of fuel at the Pelindaba plant. While we are busy enshrining our safety culture, completing all the necessary tests, compiling the reports and meeting the stringent standards of our industry, PBMR has entered the technology demonstration phase. Our target date to pour the first concrete is the end of 2010.

PBMR has become a national asset in less than a decade. Starting out as a small research and development company in 1999, we have grown into a formidable nuclear reactor design and development team. In addition to the core team of permanent employees, specialists at universities, private companies and research institutes around the world are currently involved with the project.

During the year under review, PBMR has matured as a nuclear energy company with a clear business sense and an unequivocal commitment to playing a leading role in the local and international nuclear industry.

This clarity of purpose enabled the Company to interact effectively with the NNR to adopt a phased licensing approach and to develop all the necessary mechanisms to facilitate licensing. In December 2007, the NNR lifted the work suspension order imposed in 2006 on the PBMR. This is subject to the updating and implementation of certain processes and procedures within Eskom and PBMR. Effective communication and concerted efforts to resolve the outstanding issues have greatly improved the understanding of the various issues between the government, PBMR, the NNR and Eskom. The PBMR teams also became more focused and cohesive in the process. The road to establish the first-of-a-kind nuclear technology in a demonstration project at Koeberg, is now clear to all the roleplayers.

Currently, Eskom owns PBMR 100%. This is expected to change in due course through a Shareholders Subscription Agreement that would issue shares in PBMR in proportion to the historical contributions of the IDC, WEC, the government (through the DPE) and Eskom. Westinghouse is now majority-owned by Japan’s Toshiba Corporation, who bought the company from British Nuclear Fuels plc (BNFL). This new Shareholders Subscription Agreement is currently being negotiated.

The PBMR enjoys solid support from the South African government, who regards it as one of the most important capital investment and development projects yet undertaken in the country. The Minister of Public Enterprises has played an important role in ensuring that the development of the PBMR stays on track to produce between 4 000 to 5 000 MW of electricity in South Africa by 2025. This translates to between 24 and 30 reactors.

The NNR is an independent statutory body established under the National Nuclear Regulator Act, and it is responsible for issuing licences related to the siting, design, construction, operation, decommissioning, decontamination and closure of any nuclear installation.

Because the PBMR is the first nuclear reactor to be designed and built in South Africa, the licensing process is also a first. The same applies to the licensing of the nuclear fuel plant at Pelindaba.

The licensing of a nuclear power plant and the certification of all its components is an intensive process to ensure that all relevant safety standards and internationally acceptable specifications are met. Although the South African design, manufacturing and regulatory components of an integrated nuclear industry are the most recent in the world, excellent international collaboration and the existent skills base of Necsa provides additional backup when required.

PBMR is actively working with the NNR and Eskom in establishing and updating the safety documentation needed to support the licensing of the DPP to be sited at Koeberg. The learning being experienced by all parties on the project and the complex interactions between PBMR, its suppliers, Eskom and the NNR, result in PBMR having difficulty in managing a credible and predictable programme. This is despite the full commitment by all affected parties to the success of the programme. Eskom, as applicant and future licence holder, is responsible for submitting all the necessary licensing documentation to the NNR to obtain the nuclear installation licence for the power plant. PBMR is supporting Eskom in the development of strategies to resolve the set of key licensing issues that has been defined for the project, the completion of an SAR, and the submission of additional supporting documents that fully describe the safety case for the demonstration unit. In addition, PBMR and Eskom are reviewing a series of requirements documents, licence documents, and licence guides in conjunction with the NNR. These documents will constitute the regulatory requirements set for the design, construction, start-up and safe operation of the DPP.

PBMR is also working with Necsa to develop the safety case for a PBMR Fuel Plant (PFP) to be sited at Pelindaba. This plant will demonstrate the quality processes needed for large-scale pebble fuel manufacturing. The SAR is in process and should be submitted to the regulator by April 2009. The construction licence target date is towards the end of 2009.

The first fuel for the PBMR – manufactured to the exacting and successful German specifications – will be obtained from the fuel development laboratory later this year and sent for irradiation testing.

During FY2007, the Minister of Environmental Affairs and Tourism upheld the positive RoD on the EIA of the PFP at Pelindaba, while delinking it from that of the DPP. This granted environmental approval for the manufacturing of fuel, while the regulatory approvals for the power plant are still under way.

On the international front, PBMR is in preapplication discussions with the US Nuclear Regulatory Commission (NRC) that will culminate in the submission of a formal application for certification of the PBMR reactor design. These interactions with the NRC will advance the international recognition of PBMR technology and help to establish the PBMR as the leading Generation IV, High-Temperature, Gas-cooled Reactor (HTGR) design.

The establishment of a nuclear reactor design and development capability in South Africa also necessitates the establishment of a duly certified and accredited manufacturing capacity. The PBMR executive, in conjunction with Eskom, is in the process of compiling a competitive supplier development plan to be submitted to the DPE. This plan is aimed at establishing a viable and sustainable nuclear manufacturing industry in South Africa.

Discussions with relevant stakeholders are under way to ensure that ASME III (American Society of Mechanical Engineers) licensing for manufacturing to international nuclear standards is effected timeously. PBMR has selected ASME III as the code of construction, supported by additional good engineering practice to enhance nuclear safety. ASME relies on an accreditation-based process which has inbuilt controls.

The licensing approach will ultimately be based on leveraging the DPP and subsequent commercial units, as well as Eskom’s pressurised water reactor units’ engineering and design, manufacturing and construction contracts.

The increasing role of nuclear technologies in South Africa called for a structure to link the various roleplayers. This need resulted in the establishment in June 2007 of NIASA. The purpose of this association is to create a forum where all the industries and users involved in nuclear technologies (mining, energy, medical, academic, research, etc) can meet and formulate ideas and strategies to support the new and developing nuclear industry in South Africa. PBMR welcomes the creation of this forum and will continue to support its efforts.

South African universities are key roleplayers in the realisation of the PBMR. We have already signed research contracts with the universities of Pretoria and Stellenbosch, and the North-West and Nelson Mandela Metropolitan universities and are planning to sign at least three more with other local universities.

The results from the various test facilities and research projects provide essential verification and validation data to support the safety case of the PBMR to obtain an operating licence. The test facilities are critical to effective licence approval and design maturity of the reactor and fuel plant. The progress of the facilities and the success of the tests provide tangible and practical evidence of PBMR’s engineering, design and operational maturity.

• The HTF at Pelindaba has passed the milestone of 100 000 accident-free man-hours after being commissioned early in 2007. This facility enables the first full-scale operating tests on the critical components of the reactivity control system, reserve shutdown system and the fuel-handling system. All active components such as valves and measuring equipment are being tested in an actual high-temperature, high-pressure helium environment. These tests are providing crucial and early feedback regarding the performance of equipment designed and built for the high-temperature and high-pressure helium environment.
• The High-Pressure Test Unit (HPTU) at the Potchefstroom campus of the NorthWest University (NWU) was commissioned in September 2007. Together with the Heat Transfer Test Facility (HTTF), the facilities are providing essential inputs to verify and validate data in support of the PBMR’s safety case, to obtain an operating licence for the reactor.
  The HPTU will perform high-pressure and high-temperature core heat transfer tests. These empirical heat transfer tests will verify and validate thermo-hydraulic calculations and analyses to determine the heat generated in the core, and the energy provided to the turbines for power generation. These calculations have laid the platform for the design optimisation and component design specifications of the PBMR’s Brayton cycle. (The Brayton cycle describes the workings of the gas turbine engine. It is named after the developer, George Brayton (1830 – 1892).
• The University of Pretoria has made good progress in modelling the effect of destabilised molecules on the PBMR fuel, while the femtochemistry and laser spectroscopy at the NWU has enabled the studying of the dynamics of chemical bond formation and breakage on an atomic level. This involves the use of ultra-fast lasers, firing femtosecond pulses, to induce or follow chemical reactions.
  
• Having been granted a hot commissioning licence by the NNR, the Advance Coater Facility (ACF) at Pelindaba successfully commissioned and tested the 5 kg coater with natural uranium. After a licence has been obtained to operate the facility with enriched uranium, pebbles with enriched uranium will be produced and sent to Russia and the Netherlands for tests.

The increasing role of nuclear technologies in South Africa called for a structure to link the various roleplayers. This need resulted in the establishment of NIASA in June 2007.

• The stringent requirements of the nuclear regulatory structures.
  
• Skills development and retention in fields like engineering, nuclear science, theoretical modelling and specialised technical operations.
  
• The need (especially for so-called FOAKE) for government backing and support.
  
• Financial support and sources.

Over and above the general industry challenges, PBMR faces the challenge of building the first gas-cooled nuclear reactor designed for series production in a standardised modular form. PBMR is committed to delivering the technology, driving sustainable economic growth and providing skilled manpower to develop, construct, operate and maintain a fleet of successful nuclear reactors. This ties in with the government’s Accelerated and shared growth initiative for South Africa (AsgiSA), which aims to promote economic growth and halve poverty and unemployment by 2014.

The operating environment of the PBMR is geographically removed from the developed clusters of nuclear manufacturing capability in Asia, Europe and North America. Our commitment to drive development in South Africa requires an additional effort to develop the necessary support industry for the commercialisation of the PBMR technology.

PBMR’s strength lies in the abilities and adaptability of the various teams to deliver on specification. We place a high premium on the development and integration of our culturally diverse workforce into a formidable, world-class operating unit. The PBMR executive management regards employment equity (EE) as the backbone of an indigenous nuclear programme, and an Executive Committee on Transformation has been established to deal with transformational matters at a high level and help create an environment conducive to the implementation of affirmative action measures.

The graph below depicts our current EE status. PBMR recognises the need to further improve on these numbers and have been developing strategies to address this. Appropriate targets will be set and be reported on in the Company’s next annual report.

To develop, recruit, maintain and retain highly skilled technical employees, PBMR has embarked on several programmes:

• A mentorship programme.
  
• Succession management.
  
• Establishment of an accelerated development programme.
  
• Networking and relationship building with universities to increase the provision of engineering and technical skills.
  
• Diversity management interventions.

A major international bank has prepared a comprehensive investment model on the funding requirement during the demonstration phase. It also calculates revenue and costs required for an analysis of the viability of the PBMR project over its lifetime (assumed to be 2047 for modelling purposes). During the current demonstration phase, there are a number of programmes that are essential to demonstrate the fuel and reactor technology. The total combined cost of these programmes is R31,9 billion (R22,1 billion in real terms). Concurrent with the demonstration programmes are a number of investment opportunities in preparation for the commercial phase. These opportunities will be milestone-based and the project proposals will have to be presented to the PBMR Board for approval. The estimated funding required for these investment opportunities during the demonstration phase is R6 billion (R4,1 billion in real terms).

The calculated cost of the project is: R14,5 billion for the DPP to completion in 2014, and R2,3 billion to complete the fuel construction projects by 2013 (in 2008 rand values). The forecast final cost against budget for the completion of the demonstration phase includes an estimated impact of R235,6 million and 15-month delay on the project schedule as a result of the Suspension Work Order. The real impact on cost and schedule has not been finalised, because negotiations and submissions are still in progress. If a manufacturing slot on a major component is lost, the risk on schedule will increase dramatically. It will then become very difficult, if not impossible, to maintain the project forecast final cost within budget.

• receiving the graphite blocks for the reactor core structure;
  
• initiating feasibility studies in process heat applications for strategic business partners;
  
• finalising the safety case and obtaining the outstanding regulatory approvals for the fuel plant. Necsa has already received the RoD for its planned fuel plant at Pelindaba;
  
• receiving approval to start the manufacture of the reactor pressure vessel;
  
• receiving authorisation to start production of the forgings for the reactor core barrel;
  
• setting up a nuclear academy to train nuclear industry personnel; and
  
• continuing efforts to build an accredited local nuclear manufacturing capacity through localisation initiatives.

• further strengthen its safety culture;
  
• improve communication at all levels;
  
• stay on schedule for the first concrete at Koeberg and Pelindaba; and
  
• keep all the teams motivated and focused.

• The DPP plant at Koeberg.
  
• The fuel plant at Pelindaba.
  
• Developing the process heat market.

The leadership and workforce of PBMR are grateful for the excellent guidance and positive interaction it enjoys from the Board of Directors. I wish to thank them for their commitment during the past year that assisted PBMR to make the transition to a new phase.

I would like to thank the executive management and all the other teams in PBMR that have worked together to achieve a successful year. You make PBMR a special place to work and to achieve our shared vision. Together we are making the vision a reality, so let us stay on track.