Department Budget Vote and Strategic Plan: briefing

MINERALS AND ENERGY PORTFOLIO COMMITTEE
8 May 2007
DEPARTMENT BUDGET VOTE AND STRATEGIC PLAN: BRIEFING

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
Department of Minerals and Energy presentation of 2007/8 MTEF Strategic Plan
Director-General’s Overview
Measurable Objectives, Impact/Outcome. Key Activities, Targets for 2007-2010 Period

Audio Recording of the Meeting

SUMMARY
The Department briefed the committee on its 2007/8 MTEF Strategic Plan. Security of energy supply, electrification, electricity distribution, free basic energy, nuclear and petroleum licensing were the major points of discussion. Members were especially interested in the Department’s efforts concerning electricity and solving the problems related to it.

MINUTES
Briefing by Department
The Department of Minerals and Energy (DME) team comprised of Adv Sandile Nogxina (Director General), Mr T Gazi (Deputy Director-General: Mine Health and Safety), Ms M Ledingwane (Acting Deputy Director-General: Mineral Regulation), Mr A Mngomezulu (Deputy Director-General: Mineral Policy and Promotion), Mr N Gumede (Deputy Director-General: Hydrocarbons and E Planning), Ms T Zungu (Deputy Director-General: Corporate Services), Mr S Simelane (Chief Financial Officer) and Mr G Mnguni (Chief Director: Management Services).

The Director General commenced the briefing with an overview of the Department’s strategic plan and the discussions on energy, mine health and safety and corporate services. He noted that the Department had for the past two years been involved in the development of various computerized and non-computerised implementation systems, processes and procedures. The time had now come for the Department to monitor the impact of policies on the lives of beneficiaries, monitoring the effectiveness of transformation processes as well monitoring how the Department together with other government structures was participating in the implementation of government policy.

Earlier in the year the Department had reviewed its vision, mission and strategic objectives in addition to reviewing its performance of 2006/7 against specified targets. The Minister had at the same time, given the Department its strategic direction which now forms the basis and approach to the Department’s strategic planning. Issues raised by the President in the State of the Nation address were also to be taken into account in the Department’s strategic planning.

Adv Nogxina proceeded to explain the implementation of strategies. Energy as a whole as well as the security thereof was discussed. Given the country’s recent fuel shortages and electricity shortages, the Department had come up with an Integrated Energy Master Plan to address the problem. To support the renewable energy drive, the Energy Planning and Energy Efficiency directorates would be introducing a piece of legislation that will mandate provision of energy data and the use of healthy, safe, energy efficient and environmentally friendly energy appliances. The same piece of legislation would create entities that would promote energy efficiency, renewable energies, energy planning and environmental protection.

The Department’s biofuels strategy would be published in 2007. Comments received from stakeholders would be taken into account. Energy poverty continued to be a challenge for the Department. Even though significant progress had been made with the implementation of the integrated national electrification programme, poor or non existent infrastructure especially in rural areas had put a strain on its performance. A total of R1,4 billion had been allocated in the 2007/8 financial year, for the electrification of 150 000 households, 700 schools, all clinics and the building of ten substations. The Department was continually aware of questions being asked as to whether it would be able to meet its target of universal access to electricity to all by 2012. The Department was well aware of problems in electricity distribution as the industry was fragmented and poorly regulated. In this regard the focus for 2007 would be on advancing the RED creation process and implementing the Electricity Regulation Act.

The Free Basic Energy Policy allowed the provision of free electricity to deserving households who had access to none. The Department’s role was however limited to providing the policy framework and supporting municipalities and Eskom in the implementation of the policy. The challenge was however in deciding who deserved and who did not. Nuclear Energy as an alternative source of energy was seriously being considered if SA’s over-reliance on coal was to be reduced. The Department was therefore developing a nuclear energy policy that responded to the challenge. A draft had already been submitted to Cabinet to allow for consultation with other government departments. Reference was made to petroleum lisensing activities which had started in earnest in 2006. The closing date for applications had been 17 September 2006. The Department had already begun the process of evaluating applications and it was foreseen that all licences would be issued by the end of the current financial year. The transformation of the petroleum industry and more specifically the liquid fuels sector was high on the Department’s agenda.

The Mine Health and Safety Inspectorate would continue with their improvement in governing the mining industry to be healthier, cleaner and safer. 2007 heralded the Mine Health and Safety Council’s biennial summits in order to review the state of health and safety at mines. The tentative date for the summit was 5 October 2007 in Johannesburg.

As of 1 March 2007 the Corporate Services Branch was introduced within the Department. Priorities of the branch would be skills development, building the Department’s corporate culture, turning DME into a learning organization and enhancing the observance and implementation of the Batho Pele principles within the Department.

The Committee was given a breakdown of the Department’s budget for 2007/8. The overall spending of the Department was expected to grow from R2,6 billion in 2006/7 to an estimated R4 billion in 2009/10. On the other side of the spectrum, the expected revenue of the Department was expected to increase from R120,8 million in 2006/7 to an estimated R146,8 million in 2008/9. The main sources of revenue for the Department were royalties and prospecting fees collected from mining companies.

The DG concluded the briefing by stating that the EDI Restructuring Bill, Radioactive Waste Management Agency Bill, Energy Bill, Mineral and Petroleum Resources Development Bill and the Geoscience Amendment Bill would be tabled during 2007/8.

Discussion
The Chair was pleased with the briefing and said that the Department could expect interaction on issues that were covered in the presentation as well as those that were not.

Mr S Louw (ANC) felt that the dynamics had been pulled out from under the Department. He asked why the PBMR had been shifted to the Department of Public Enterprises. If it had remained with the DME, it could have stimulated discussion on nuclear energy. He asked how many schools and clinics were to be electrified. He felt that capacity problems experienced by the Department would inevitably cause certain schools and clinics not to be electrified. He was happy to hear that the EDI Restructuring Bill would be been tabled as it would allow for better interaction with councillors. He was concerned that all the Bills mentioned by the DG would meet the tabling deadlines of Parliament. Referring to the announcement that a Directorate on BEE had been introduced into the Department, Mr Louw said this was long overdue. Such a directorate was needed to guide the public.

Adv Nogxina referred to the issue of the PBMR and said that a report had been sent to the Nuclear Regulator. He preferred not to comment further on the issue. It was pointed out that whatever happens with the PBMR, it does not affect the nuclear expansion programme. The nuclear build programme did not hinge on the PBMR. A total of 8800 schools would be electrified from 2007 up until 2010 and a total of 341 clinics would be electrified in 2007/8.

Adv Nogxina stated that the Department supported the BEE Directorate. He shared Mr Louw's sentiments.

Mr J Combrinck (ANC) said that a great deal of talk had taken place over the scarcity of fuel. He asked if the pipeline between Pretoria and Durban was still to be built, who was going to pay for its construction and would it fulfill the need. He commented that the Committee was being misled by persons within the Department on the issue of electricity. He asked the Department look into the matter. The supply of electricity to municipalities seemed fine. He felt the infrastructure of municipalities in distributing the electricity was lacking. The Department was asked to comment. Mr Combrinck asked if mines should not be forced to use rail as a means of transport instead of roads. He asked why trucks were used. The point was also made that much was said about households wasting electricity but companies should also be held accountable for electricity wastage. They should do more to reduce their consumption. He felt similarly over the issue of water. Households and farms had to bear the brunt of water restrictions whereas mines had carte blanche. Mines should also be restricted in their usage of water. Mr Combrinck lastly asked if he as a farmer was required to obtain a licence for the petrol tanks that he had on his farm.

Adv Nogxina explained that the economic hub of SA was inland whereas the refineries and the ports were at the coast. It was therefore important to have a link from the coast to the inland. There was thus a need for the pipeline from Durban to Pretoria to be built. Government and parastatals should invest in the building of infrastructure. He referred to Petronet as a possible source of funding.

Adv Nogxina said that it was not up to government to decide on what mode of transport a mine preferred to use. It was a commercial decision that was taken by the parties involved. Government could however incentivise the use of one mode over the other.

Adv Nogxina said that persons within the petroleum industry need to educate themselves on the policies and laws applicable to them. Ignorance of the law was no excuse. He made the point that the Department did conduct workshops in the provinces to educate persons not in the mainstream economy on the licensing provisions.

Prof I Mohamed (ANC) pointed out that a great deal had been said about saving electricity. It was suggested that the focus should rather be on producing more electricity. He referred to the budget of the Department and asked why only 9% was being spent on nuclear whereas 28% of its budget was spent on administration costs. Prof Mohamed felt it not good enough and said that the budget should be better spent. He asked why the Department had not made an effort to find out how the public felt about nuclear energy, when it had promised the Committee that it would do so. He asked what plans had been made regarding the storage of nuclear waste and whether possible sites had been investigated. He referred to the issue of uranium enrichment and asked to what extent the public had been consulted on the issue. He also asked to what extent the uranium would be enriched.

Adv Nogxina responded that the Department had approached Cabinet about a nuclear strategy. The strategy would set out the extent of the uranium enrichment. The idea was to consult with the public but that the Department was awaiting a go ahead from Cabinet.

He said that capacity was first considered when a budget was done. Having said this he explained that the energy budget could not be increased if the Department did not have the capacity. He noted that there was a need to align strategies with budgets.

He stated that it was important that SA not exclude nuclear from its energy mix. There was a resurgence in the use of uranium throughout the world and that SA appreciated the possible uses that it had. SA could not have highly enriched uranium as it was a signatory to agreements which allowed only low enrichment.

Mr C Kekana (ANC) emphasised that there was a dire need to beef up electricity infrastructure. He said that workshops had taught him that beneficiation used a great deal of electricity. Residences only used 5% of a power station’s electricity whereas industry used the bulk of it. He asked for the Department to assess how far ahead the country was in building the power stations that SA required. What mechanisms had the Department in place to identify which persons were entitled to free electricity?

Adv Nogxina replied that the Department was well aware that as demand increased, so too the supply would have to increase. It was therefore building 2000 megawatt plants in both Atlantis and in Mossel Bay. The building projects would take approximately 5-7 years to complete. A further power station was also to be built in the Limpopo Province which would be completed by 2011. A twenty year plan was in place for further rollouts of power stations.

Adv Nogxina reiterated that the Department’s mandate was to provide a policy framework for free electricity. He noted that in 2003 the Department had done a study on who would qualify for free electricity using technical targeting methodology. In other words the Department looked at behavioural patterns of households. The poor and the rich apparently had divergent behavioural patterns. Adv Nogxina made the point that it was eventually up to the municipality to decide who received free electricity. The unfortunate fact of the matter was that in some townships everyone was receiving free electricity whether they could afford to pay or not.

Mr C Morkel (DA) referred to SA being a signatory of the Kyoto Protocol and therefore bound to meet certain emission demands. He asked how the cleaner developmental mechanism (CDM) worked given that the Department supported certain CDM strategies. Mr Morkel thought that perhaps it was more within the domain of the Department of Environmental Affairs and Tourism. He also asked if the Department had checked whether biofuels produced high levels of carbon as some research claimed.

Mr N Gumede responded that the energy mix must find a solution which must be seen to serve the environment, developmental growth and poverty alleviation etc. The energy mix would have to take into account price, volume, quality and flexibility of the product. It would have to make economic sense. Mr Gumede said that the Department together with the SA National Research Institute would look into the matter of carbon emissions of biofuels.

Ms N Mathibela (ANC) referred to the electrification of schools and clinics and asked whether the Department was not over-committing themselves.

The DG responded that in the event that the Department had over-committed itself, it would prioritise certain activities over and above others. For example it could cut down on the number of houses to be electrified in favour of schools or clinics.

The meeting was adjourned.