South Africa’s plans to boost its generating capacity have faltered after a decision by Eskom to scrap plans for a new nuclear power plant in the country.

The state-owned utility says it has terminated the commercial procurement process to select a preferred bidder for the project, which would have seen the development of the country’s second nuclear power plant. Areva and Westinghouse were competing in the tender.

The proposal to construct a new nuclear plant was part of Eskom’s plans to expand generating capacity in South Africa, which is suffering energy shortages caused by rapidly rising electricity demand. The utility said that the magnitude of the investment required was too great.

Eskom was planning to announce a preferred bidder for the project by the end of the year, but doubts over the viability of the project were initially raised by the government in November. The utility was aiming to build up to 3000 MW of nuclear capacity at a cost of over R120 billion ($11.5 billion).

Local reports indicate that the South African government says it remains committed to the development of nuclear power and may seek a technology partner with which to develop a programme.

Westinghouse Electric and Areva both submitted bids in February 2008 to build new nuclear capacity in South Africa in response to an invitation from Eskom. Up to 20 000 MW of new nuclear capacity could be built by 2025 under the utility’s ambitious plans.

Eskom is currently attempting to raise funds for its R343 billion, five-year capital investment programme, which is aimed at modernising and expanding the country’s electricity generation and transmission infrastructure. It recently secured a $500 million loan from the African Development Bank, and is thought to be in talks with the World Bank for funding.

The on-going crisis in international financial markets and this year’s downgrade of its credit rating by Moody’s have made it hard for Eskom to raise funds for its investment plans. The utility has secured funding from the European Investment Bank and earlier this year persuaded the South African government to grant early disbursement of a R60 billion loan.

South Africa’s electricity regulator NERSA earlier this year approved a 13 per cent increase in tariffs but Eskom was then dealt a blow when Moody’s downgraded the utility’s credit rating to Baa2 from A1.