Suspended nuclear company execs smell rat over adverse audit

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

The Auditor-General says there are doubts over the ability of SA Nuclear Energy Company (Necsa) and its subsidiary Pelchem to continue operating.

That is what he told Parliament’s portfolio committee on energy earlier this month. Auditor-General (AG) Kimi Makwetu said Necsa’s liabilities exceeded its assets, and that Pelchem – which makes fluorine-based products for use in steelmaking and other applications – continues to make losses.

What a turnaround a year makes. Last year, Necsa and its NTP Radioisotopses subsidiary were among the few state-owned companies to win clean audits. In 2017, NTP earned revenue of R1.3 billion, generated profits of more than R300 million and paid tax of over R80 million to the state.

In November last year energy minister Jeff Radebe suspended three Necsa board members for “insubordination” and “defiance” and within 48 hours had replaced them with a new board – an astonishing display of efficiency given the usually tortuous hiring processes that take place at this level of the public sector.

Breach of protocol

The three suspended board members are chairman Kelvin Kemm, CEO Phumzile Tshelane and audit and risk director Pam Bosman. They say the AG had private meetings with Radebe last year concerning Necsa, but Necsa was not invited to the meetings. “We were very suspicious because that action breaches established protocol,” says Kemm.

In December last year the trio brought an urgent application seeking to overturn the minister’s decision. The case was due to be heard earlier this month but was removed from the urgent roll when Radebe plonked an 800-page court file before the judge. Court rules demand that anything over 500 pages must be placed on the ordinary roll, which means the case will now be heard in June. By that time the election will have passed and Radebe may himself be replaced as energy minister.

The three suspended board members argue that the minister has set in motion plans to sell 60% of NTP Radioisotopes to an American company, despite denials from the ministry. NTP is the world leader in the production of nuclear medical isotopes used in the treatment of cancer, and was making R3 million a day exporting products to more than 60 countries. Though SA dismantled its nuclear bomb in the early 1990s, those bomb secrets remain on site at Necsa’s Pelindaba facility. The Safari-1 reactor is now used for the production of medicine and other commercial products, and in the process Necsa has built up a considerable trove of nuclear secrets which may now end up in foreign hands.

Kemm says even more disturbing is the engineering of a financial crisis at Necsa to scapegoat the suspended management. “What was once a magnificent example of a prospering state-owned company has been severely damaged by the actions of the minister. This is an engineered crisis, one that was totally avoidable.”

The nuclear medicine production facility was shut for nearly eight months from November 2017 for minor safety lapses, a case of “rampant overkill” by the nuclear regulator, says Kemm. That destroyed NTP’s ability to generate revenue, and was seized on by Radebe as evidence of poor governance by the suspended board.

Planned move

We now know from the court papers that Radebe had planned the replacement of the board as early as August last year, several months before he raised his concerns over Necsa governance with the previous board.

The AG’s doubts over Necsa’s going concern status is misleading and omits audit input from the suspended board members, adds Kemm.

“The items cited as adverse findings had been systematically and procedurally dealt with to the extent that, had they been included, the audit outcome would have been positive,” said suspended Necsa CEO Phumzile Tshelane. “The fact that the work was not taken into account by the AG is suspicious.”

In his reply to the Pretoria High Court application brought by the suspended board members, Radebe outlines his reasons for dismissing the board, claiming breaches of protocol and violations of the Public Finance Management Act. Government orders to suspend overseas travel by Necsa personnel were apparently violated – though this is disputed by Kemm, who provides evidence that Radebe’s predecessor as energy minister had specifically exempted Necsa from this ban. Radebe also claims a breach of the Companies Act by the suspended management over an attempt to convert a loan to equity so as to improve solvency ratios in subsidiary company Pelchem.

Corrupt deal

These claims are all disputed in Kemm’s answering affidavit. Both Kemm and Tshelane believe that the AG’s negative report is part of a strategy orchestrated to discredit members of the board standing in the way of a corrupt deal to sell NTP Radioisotopes to US diagnostic imaging company Lantheus Medical Imaging (LMI).

“A document with full details has been in President Ramaphosa’s hands for several months,” says Tshelane.

“Since Radebe’s new board could not reasonably address the AG’s audit queries, this led to acceptance of a report that creates the false impression that the AG’s queries were not addressed satisfactorily. Our removal facilitated a misleading audit.”

He adds that the minister’s action was procedurally irregular and unfair, and a smokescreen to hide the real agenda, which was to remove people opposing a corrupt deal.

The new board is due to present Necsa’s financial statements in Parliament on March 5. Kemm and Tshelane believe they will be blamed for the financial meltdown resulting from the shutdown of the medicine production facility, and that the poor financial results will be used to discredit the previous board, and subvert disciplinary proceedings against Tshelane, and the court case.

Necsa declined to comment on the AG’s audit report.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.