Minister of Energy Budget speech & responses by ANC, DA and IFP

Minister of Labour, Ms Tina Joemat-Pettersson, gave her Budget Vote Speech on 11 May 2016.

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Honourable Chairperson
Honourable Ministers and Deputy Ministers
Chairperson and Members of the Portfolio Committee on Energy
Members of National Assembly
Sibingelela uMama Wesizwe uMaKhumalo
Invited Guests
Ladies and Gentlemen

[Introduction]
The energy sector has enormous potential to contribute to the growth stimulus that our country desperately needs.  Economic growth through re-industrialisation, skills development and the creation of employment opportunities for our communities can all be enabled by the energy sector.

This year we will continue to focus on our chosen path towards a diversified energy mix, especially as it relates to renewable energy, regional energy integration, gas development and the Independent Power Producers Programme.  We believe that these initiatives will support our economic growth strategy outlined in the 9 Point Plan, the 2014 and 2016 ANC Elections Manifestos and the National Development Plan.

Over the recent period, the global community reached two milestone commitments towards a broad-based transformation of the world’s energy systems and building a more prosperous, healthier, cleaner and safer world for this and future generations.

In September 2015 the new, post-2015 sustainable development agenda was adopted by 193 United Nations member countries. In addition, the Paris Agreement reached at the COP 21 Climate Change Conference in December 2015 signifies a second critical milestone, where the world agreed to chart a pathway to a low carbon energy system to mitigate against the impacts of climate change.

[Integrated Energy Plan]
The Integrated Energy Plan (or IEP) represents our overarching energy policy and strategy statement that has been under development since 2012, when Cabinet approved the commencement of the public consultation process.

I would like to thank the Ministerial Advisory Council, chaired by Dr Zav Rustomjee, for their detailed and comprehensive comments on the document.  We will ensure that their comments are given serious consideration.  A final version will then be tabled for further consultation.  The IEP will provide answers to various questions our country has been grappling with regarding our energy future, including the development of our Energy Master Plan.

[Integrated Resource Plan (IRP) and the Gas Infrastructure Plan]
Arising out of the process for developing the IEP will be the infrastructure plans in respect of the electricity, gas and liquid fuels sectors in more detail as recommended by the IEP.  The updated IRP process is well underway, and will be submitted to the economic sector and infrastructure development cluster in the second quarter of this financial year.

Similarly the Gas Infrastructure Plan will take its lead from the IEP, in regard to the gas pipelines, storage and other infrastructure that is necessary for meeting the energy demand through gas supply.

Going forward it is becoming more and more apparent that future energy demand will be a mix of electricity, gas and liquid fuels and, depending on the relative cost competitiveness of each of these an equilibrium between the three will be established.

[Renewable Energy IPPP]
As part of the Youth Month commemoration this year, we will celebrate the great strides made by the Renewable Energy Independent Power Producers Programme towards the development and empowerment of the youth.  Not only have numerous employment opportunities been created, with 52% of total job opportunities specifically for youth, but they have also benefitted from various education and skills development initiatives preparing them for, hopefully, a bright and successful future.

In October 2015, South Africa became the sixth, and the first country in Africa to host the International Renewable Energy Conference. It is the foremost international conference dedicated to renewable energy, and provided a global platform for government, the private sector and civil society leaders to advance our renewable energy agenda.  The conference was a huge success, drawing participation from more than 80 countries and, notably, most of the international organisations active in this space.

Our Renewable Energy Independent Power Producer Procurement Programme has become one of the world’s most progressive and successful alternative energy programmes, a fact that is recognised globally.

Since their introduction, solar, wind, biomass, small hydro and landfill gas power plants have been going up across the country, feeding increasing numbers of clean energy into the national grid.

As at December 2015, the department had procured 6 377 MW of renewable energy and has already connected 44 projects with a capacity of 2 021 MW to the national grid, with many more under construction.  The energy contribution of independent power producers is expected to grow to approximately 7 000 MW with the first 47 renewable energy independent power producers fully operational by mid-2016. Private investment in the programme currently exceeds R194 billion.

Bids in terms of the Bid Window 4 Expedited Round, totaling an additional 1800 megawatt are currently under evaluation, and we will announce preferred bidders in the second quarter of the financial year.  Bid Window 4, including the investments made though the small projects programme, will increase the investment amount to more than R 255 Billion.

We remain on track to meet our national commitment to transition to a low carbon economy with the target of 17 800 MW of renewable energy power by 2030.

The current renewable energy operational portfolio is contributing an increasing percentage of the buffer between the available supply and projected demand for electricity.  Already a 16% contribution is made to the total energy produced during the morning and evening system peak periods in a 24 hour period.   As the energy mix diversifies with the inclusion of concentrated solar power, which includes a storage element, biomass and landfill gas, the share of energy available during peak periods will increase.

The department has procured private peaker stations to the capacity of nearly 1 000 MW that can be used when there is a larger demand than what the Eskom generators can produce.  The Avon plant in Eastern Cape was completed in September 2015 and can produce 330 MW.  The Dedisa plant in Kwa-Zulu Natal, when completed by the end of this year, will produce 630 MW.  Total projects costs were R8 Billion, while 210 permanent jobs and 6190 temporary jobs were created at both plants.

Last year we initiated a process of redesigning the RFP for Bid Window 5 with attention to early, efficient and equitable benefits to communities and greater localised industrialisation.  We are pleased to indicate that a new RFP for Bid Window 5 will be released during the second quarter of this financial year.  This will further fast-track investment in the sector.

To further boost renewable energy development in South Africa, we have determined, with the concurrence of NERSA, that 1 500 MW will be generated from new solar technologies in a Northern Cape Solar Park.

The Solar Park will stimulate investment in new and expanding industrial and manufacturing facilities, the development of local supply chains and entrepreneurial and employment opportunities for South Africans in general and for the people of the Northern Cape in particular.

The Solar Park will be developed in a clustered fashion, sharing common infrastructure and services such as access to land, water supply, feeder lines to electricity transmission system, roads and support industries.  Since 2010, significant development work has taken place including improvements to the grid infrastructure around the Upington transmission station which has been augmented to enable the integration of the Solar Park.  The area has been included in one of the newly promulgated Renewable Energy Development Zones.

We have now made provision for the DoE IPP Office to lead the processes with regard to the structuring and procurement of the intended additional solar park capacity. We have directed further that the IPP Office should in its structuring of the proposed projects or programmes ensure the involvement of one or more state owned companies, taking into account the constrained economic and fiscal environment of the country.  The intention remains the transfer of skills and the strengthening of balance sheets of the participating SOC’s, whilst leveraging private sector experience and financial strength through the participation of Strategic Equity Partners.

I am glad to announce that earlier today, the IPP Office published a Call for Expressions of Interest from potential Strategic Equity Partners for the Solar Park.  We urge the participation of qualifying private sector and public sector stakeholders in this massive undertaking.

[Coal]
The Department is expected to announce the preferred bidders from the first bid submission for domestic coal projects in July 2016.  Bids with a combined capacity of 900 MW were received and are currently in evaluation.  The projected investment commitment from these coal projects is in the region of R45 billion, and will be rolled out over the next 4 years.

An additional 3750 MW of power will be generated utilising coal technology, through cross border projects that will augment the local Coal IPP procurement programme.  The rationale behind the cross-border coal programme is that it facilitates the construction of the transmission interconnectors between South Africa and our neighbours.  Transmission interconnectors are critical if we are to import power from the hydropower projects in the DRC, the Grand Inga, and in Zambia and Mozambique such as Cahora Bassa North Bank and Mpanda Nkuwa.  This also gives the respective transit countries the necessary comfort that the interconnections are in their national interest and not just for the benefit of South Africa.

[Biofuel strategy]
Chairperson, as you are aware, the South African Cabinet approved the national Biofuels Industrial Strategy in December 2007.  The regulations for mandatory blending of biofuels with petrol and diesel were promulgated in August 2012 and came into effect in October last year.

The Biofuels Regulatory Framework will be submitted to Cabinet during this year.  It will outline how the nascent biofuels industry will be financially supported and how the projects would be selected and supported.

The blending of biofuels reduces the impact of fuel emissions on our people.  In addition the benefits arising from biofuels include:

• the potential for a biofuels manufacturing industry to create a captive market for the agricultural sector, especially for new black or small farmers;
• the opportunity of a biofuels industry to create jobs in rural areas; and
• the reduction in imports of refined liquid transport fuel, which is good for the country’s balance of payments savings.

The production of 460 million litres of biofuels, as approved by Cabinet in 2007, can create 15 000 new permanent direct jobs in the biofuels manufacturing plants and agriculture; plus over 3 000 temporary jobs during the 24 months of construction.

A 460 million litres per annum biofuels industry can immediately improve the country’s annual balance of payments by over R2.5 billion at the current crude oil prices and exchange rate. 

The Department of Agriculture, Forestry and Fisheries (“DAFF”) played a key role in designing the biofuels feedstock protocol for mitigating the possible impact of biofuels production on food security. This will prevent the use of staple food crops and land currently used for these crops from being used for biofuels production other than as a result of crop rotation.

[Nuclear Energy]
The nuclear energy expansion programme is a central feature of our future energy mix, given the need to provide base load electricity and also meet the significant greenhouse gas emissions reduction target we have set for our country.  We must re-iterate that our vision around this programme is centred on processes that will create a nuclear industry, with the objective of catapulting South Africa into the top echelons of the knowledge economy.  We are confident that our nuclear programme would respond to job creation needs, by creating employment and fighting poverty.  It will also provide assurance to the investors for security of supply for industrial purposes.

Our country once again stands at a cross-roads of a nuclear new build programme procurement process having done significant preparatory work for the deployment of at least 9 600 MW of nuclear power fleet by 2030, in line with Integrated Resource Plan for 2010 which will ensure that the South African socio-economic vision defined in the National Development Plan (NDP) up to 2030 is in part realised.

The NDP implored Government to undertake detailed investigations prior to making a final decision on whether to deploy the nuclear new build programme. These detailed technical investigations culminated in various studies and strategies.  These were considered by Cabinet which has decided to allow the Department of Energy to, issue a Request for Proposal (RFP) to confirm the market appetite for the nuclear programme.

The RFP phase would ensure that our country secures binding commercial and financial information to fully appraise the Cabinet to be able to take a final decision on the best arrangement to implement the nuclear new build programme. This would inform the price, affordability, pace and scale of this programme.  And, we will only implement what our country can afford.

We will ensure that the process is above board and free of any potential for corruption.  We will not rush the process and will meet all the necessary national and international requirements for the new build process, led by the guidance, in the main, of the International Atomic Energy Agency.

Applications to license sites where these nuclear power reactor plants might be constructed are on the coast of the Eastern and Western Cape have been submitted to the National Nuclear Regulator in March 2016.

The Department of Energy is in the process of ratifying the amendments on the Convention on the Physical Protection of nuclear material. The Cabinet approval process has been initiated in this regard and ratification of this amendment by South Africa is an important step and will have major effect in strengthening measures for nuclear security in South Africa as well as contribute to the global effort of strengthening nuclear security.

[Gas]
During the second quarter of the 2015/16 financial year, the Department solicited market information to help in the design of the gas-to-power programme and in development of documentation required to procure gas fired power.  There was an overwhelming interest in the programme.  We hosted a successful international gas options conference at the end of September 2015 to solicit inputs from the market in developing the SA gas-to-power programme. 

The exploitation of our indigenous gas (coal bed methane and shale gas) as well as the regional natural gas resources must be seen in the broader context of regional integration. The trade-off between South Africa and our neighbours in a synergistic manner will improve our ability to secure those clean energy resources we do not currently possess, due to the lack of adequate exploration, in the case of shale gas, or those that we do not possess at all like hydropower.  We believe that the trade-off can be achieved by supporting and collaborating on the interconnection projects including transmission lines and gas pipelines.   Mozambique and the DRC are strategic partner countries that possess complimentary clean energy resources that fit our energy strategy. Therefor there is logic for supporting the development of gas pipeline infrastructure from Mozambique into South Africa.

I have directed my Department to undertake more upfront development work for the procurement of imported gas to ensure bankability of the gas-to-power programme for investors, affordability for gas users and the minimum fiscal exposure for government. 

We will make a preliminary information memorandum on the 3125 MW gas-to-power programme available to the market in the second quarter of the 2016/17 financial year, prior to commencing with the formal procurement process later in the year.  This will be an important development to stimulate our economy and promote investor confidence.

We will also, through the IPP Office, tomorrow release a further Call for Expressions of Interest from the private sector to partner with our State Owned Entities with the development of a 600MW Additional Gas Determination.

[Inga Hydropower Project]
Since the treaty for the development of the Grand Inga Hydropower project entered into force in March 2014, the DRC commenced the process of selecting the concessionaire.  We will continue to work with our neighbours in Southern Africa to conclude power transmission transit arrangements.  The Department of Energy with the Department of water Affairs are in partnership to identify other strategic sources for hydro power to address the regional challenges that affect neighboring countries

We are accelerating implementation of our bilateral and regional agreements to realise the benefits of energy cooperation in the areas of hydro-electricity, coal, gas and renewable energy. The Grand Inga Treaty between SA and the DRC obliges SA to negotiate an off-take agreement for 2 500 MW of hydroelectricity from the Inga Hydro Project.  We are also providing capacity support to the DRC for the project’s management.

[Solar Water Heater Programme]
The solar water heater programme has finally taken off, with contracts placed for the supply of baseline systems under the social programme.  Approximately 9 000 systems have been secured through this programme, in terms of which the local content of these products exceeds 75 percent.  The next step is to commence with the training of local communities in the installation of the solar water systems, with clear objectives set for skills and enterprise development, job creation and the targeting of the youth, women and other designated groups.

Another priority for the Department of Energy is to address defective installations from the initial SWH rollout programme to ensure continued operation of the installed systems and service delivery to the recipients.

This corrective SWH programme has been identified to serve as incubator for suitably skilled and experienced SWH installers and installation businesses. It provides a platform for technical training at different skills levels and an opportunity for work-based experience with respect to all aspects of SWH installation; from identifying installation and system defects, to repairs and doing new, replacement installations. In this initiative we see an ideal opportunity for youth development and the establishment of an industry that can support the delivery of the larger national SWH target.

[Integrated Electrification Programme (INEP)]
INEP and its implementing agencies Eskom, municipalities and non-grid service providers have made remarkable progress in increasing access to electricity in South Africa and connected over 6.7 million households between 1994 and March 2016, as of February 2016 access to electricity is at 88% since 1994. It is important to note that, with every house electrified and more especially rural areas, this has a ripple effect, with security and increasing developmental opportunities to the residents. 

R5.6 billion has been appropriated by 2015/16 financial year on the electrification programme, to delivering 260 000 connections utilising both grid and non-grid technologies. To the end of March 2016 INEP achieved 256 000 new connections as part of the 2015/2016 financial year allocations which were implemented by Municipalities, Eskom and non-grid Service Providers.  The final figure will only be determined as soon as all the verification of the new connections have been completed, which will be by the end of May 2016, however the department is confident that the target of 260 000 new connections will have been achieved.

The non-grid programme has progressed well in the last financial year and has over overachieved its target by over 5 000 in achieving 25 076 modern solar energy connections.  Since the inception of Non-Grid Programme INEP achieved more than 123 379 installations of Non-Grid systems mainly in EC, KZN, Northern Cape and Limpopo.  Non-grid systems consisting of solar cells converting sun energy into electrical energy, which are now also being considered to be implemented in urban areas of the country with a view of increasing the basic electricity services in the informal settlement.  The EU is also assisting the Department to develop sustainable delivery model and sustainable non-grid entities around the country.

The Department has developed the first draft of the electrification master plan to ensure better co-operation between the different implementing entities, as well as different technologies, grid and non-grid roll-out in un-serviced areas, to ensure that universal access is reached by 2025/26.

The INEP programme will be appropriated with R5.5 billion in the 2016/17 financial year to deliver 235 000 connections for both grid and non-grid. Over the MTEF 2016/17 to 2018/19 an estimated amount of R17.6 billion will be appropriated.

[Petroleum and Petroleum Products Regulation]
We attach great importance to the quality of fuel sold to motorists and other users. In this regard, we have strengthened our capacity to monitor adherence to fuel specifications. We will conduct unannounced visits to service stations across the country to collect petrol and diesel samples for analysis.  Non-Compliant operators will be issued with relevant enforcement notices and those repeat offenders risk losing their licenses.

The year 2016 marks the tenth year anniversary of the enactment of the licensing of persons involved in the manufacturing or sale of petroleum products petroleum products.  For this, the department prides itself in having given Historically Disadvantaged South Africans an opportunity to participate meaningfully across the value chain, the number and quality of licensees to date bears to this.

We continue to monitor compliance to the Liquid Fuels Charter commitment which requires that Historically Disadvantaged South Africans own, in total, 25% of the aggregate value of the equity of the entity that holds the operating assets in the South African Oil Industry. To effectively monitor compliance with transformation initiatives, I instructed that the Department establish a Chief Directorate to drive radical economic transformation and this has now been done.

We can report to South Africans that Sasol Oil joined Total SA in fulfilment and compliance to the ownership element.  Effective from 1 July 2006, Sasol Oil sold 25% of its shares to Tshwarisano LFB (Pty) Ltd, a broad based black economic empowerment consortium comprising of 150,000 direct shareholders and 2,8 million beneficiaries.  The value of this transaction amounted to nearly R1.5 Billion, making it a significant BEE transaction in the liquid fuels industry.  The demographics of this empowerment group include 54% women ownership, substantial rural representation, 3% youth and 2% disabled.  In keeping with our strategic drive since 1994 and as implored by the Freedom charter, we would be facilitating other initiatives for economic freedom and empowerment.

We have always indicated that the refineries in the country can no-longer meet the national demand for petroleum products.  In 2015, we saw a steep increase in the amounts of diesel and petrol imported into the country.  In line with the National Development Plan, Government, in the next 12 months, will make recommendations and firm proposals regarding refining capacity in South Africa.  We would need to consider a public private partnership model given the need to manage the demand on the public resources.

In respect of LPG, Mozambique became the number one source of imports, again helping to bolster regional integration in the energy trade.  However to better develop LPG industry in our country, there are still bottleneck issues that need to be taken care of.

[Skills]
The challenges of technical skills required in the Energy Sector have continued to be of concern to the DoE. In response to these challenges; the DoE has developed a Workplace Skills Development Plan (WSP), based on the training needs of individual employees and their managers.

As part of the implementation of the WSP, a number of training and development interventions have been identified for implementation. The DoE has also offered thirty two (32) new bursaries to serving employees of the Department.

We will also contribute with the implementation of youth development intervention programmes such as the provision of bursaries to external applicants.  Eleven external applicants within the youth programme were offered bursaries sponsored by the Chemical Industries Education and Training Authority (CHIETA) including four integrated learners, 32 interns and 15 people on learnership programmes.

In preparation for the rollout the nuclear build programme, the Nuclear Skills Development and Training programme is under way with various countries including China, the Russian Federation and South Korea.
 

[2016/2017 Budget]

Turning to the nuts and bolts of this year’s budget:  The total appropriation to the Department for 2016/17 is R7.5 Billion.  90.2% is earmarked for transfer to municipalities and state owned entities while the remaining 9.8% is to be utilised for the Department’s operational and capital expenditure

• The spending focus over the medium term will remain on transfer payments to Eskom and Municipalities for expanding the electrification programme to increase the number of households with connections to the grid and providing substation infrastructure.  We also focus on the implementation of the National Solar Water Heater programme with the objective of promoting energy efficiency.  Spending of R1.2 Billion over the medium term on more than 130 000 solar water heaters is projected.
• Transfers to municipalities are expected to increase from R1.9 Billion in 2016/17 to R2.2 Billion in 2018/19, and transfers to Eskom from R3.5 Billion in 2016/17 to R4 Billion in 2018/19.
• Non-grid electrification projects, mainly solar energy, will be extended countrywide. The projects will be implemented in any areas where extending the grid would not be cost-effective.  70 000 non-grid connections to households are expected to be achieved over the medium term, with spending on non-grid electrification projects expected to increase from R166.4 million in 2016/17 to R201.6 million in 2018/19.
• Funding of R10.9 million was also allocated over the medium term within the Integrated National Electrification Programme for the oversight, monitoring and evaluation of non-grid electrification projects.
• Funding for state owned entities such as the South African Nuclear Energy Corporation, National Nuclear Regulator and the South African National Energy Development Institute were maintained at existing funding levels. NECSA will receive R599.34 million in 2016/17 while the NNR and SANEDI will receive R16.64 million and R20.63 million respectively.  I have requested the Chairperson of NECSA to ensure that all the points of contention between NECSA and the Auditor-General must be addressed and resolved urgently, and, in an amicable manner.
• The New Nuclear Build Programme is part of the security of electricity supply.  Additional funding of R200 million in the Nuclear Energy programme is made available in 2016/17 for a transactional advisors and consulting services for the New Nuclear Build Programme.

[CEF/SFF]
In line with the Presidential Review Commission on State Owned Entities, we have been working towards the review of the composition of the CEF Group of companies. Our work in this area includes the strengthening of the entities in the oil and gas sector and the stated policy objective of the creation of a stand-alone National oil Company, using PetroSA as a nucleus. Working with the Boards of the affected State owned Companies (SoCs), we will finalise this work by October 2016, and will revert back to Parliament on our views and strategies for a revised energy sector SoC framework.

Furthermore, the Department together with our state owned entities has been focusing on leveraging the current low oil price environment towards ensuring that our country benefits optimally.

Accordingly, in 2015, we issued a ministerial directive for the rotation of strategic stocks by the Strategic Fuel Fund and this has resulted in the increased revenue base for SFF, whilst at the same time maintaining stocks within our storage tanks for security of supply. This is in place through long term lease and contractual agreements with the buyers.  The estimated revenue to accrue from this process is around R 170 million per annum, significantly boosting the balance sheet of the SFF.

Through the rotation of strategic stocks and trading initiatives the SFF has further consolidated its ability to be self- sustainable.  This has also allowed us to replace the unsuitable stock that we have been storing in our tanks which has been both uneconomical and did not contribute to security of supply.  The SFF will continue to ensure that it is able to respond to any shock in the market, whilst optimally making use of the opportunities presented in an evolving oil sector.

In addition the ROMPCO pipeline from Mozambique in which iGAS has a 25% stake is continuing to earn considerable income for iGAS.

[Legislative Programme]

The department has submitted a programme to the leader of government business regarding the following legislation for consideration by parliament and which will either be introduced or concluded in the financial year.

• Amendment of the National Energy Regulation Act:  A new proposed structure will create a two-tier energy regulatory structure, to enable the appeal of regulatory decisions through a body that is not conflicted by having participated in making the regulatory decision in the first instance. The Review Board will create such a body.
• Gas Amendment Bill:  The Bill will largely introduce a mechanism that allows the Minister of Energy to direct the development of new gas infrastructure including pipelines, storage and regasification technology for imported liquefied nation gas (LNG).  The Bill will encompass the midstream elements of the gas value chain, whereas the upstream will be covered under amendments to the Mineral and Petroleum Development Act.  The plan involves separating from the mineral regulatory framework those elements that relate to the petroleum value chain.
• Upstream Gas Bill: The Gas Amendment Upstream elements of the gas values chain, including the exploration and concessioning of conventional and unconventional gas will fall under the purview of the Upstream Gas Bill, the legislation which will be derived from the MPRDA separation process.
• Petroleum Agency of South Africa Establishment Bill:  seeks to establish the upstream gas regulator separately from its incumbent CEF SOC location.  This will conclude the regulatory and institutional arrangements that are necessary to facilitate the concessioning, licensing and exploitation of the shale gas resource that offers so much potential for our country
• Petroleum Products Amendment Bill seeks to improve the enforcement elements in the licensing framework for wholesalers and retailers in the liquid fuels sector.  Over the past few years shortcomings have been identified in relation to the extent to which the law does not adequately punish malevolent behavior by licensees, given the weak penalty regime that is applicable under the Act.
• IPP Office Establishment Bill: The IPP Office Establishment Bill will formally create the Independent Power Producer Office and define its role and mandate in regard to private-public sector programmes in the power sector.  This has become necessary due to the lapse in the agreement that gave effect to the creation of the project office responsible for the procurement and contract management of the 15 to 20 year IPP projects that the Department of Energy has entered into.  It has become incumbent that the department must manage its obligations under these contracts in a more structured manner.

The President implored us to work together to solve our current problems.  If we are individually inward looking we will not succeed.  It cannot just be a case of doing what is “good for me”.  We must put aside individual preferences and gripes and pull together to achieve the collective goals that will ensure that we get our country firing on all cylinders again.

In conclusion I would like to thank the Deputy Minister, the Chairperson and Members of the very engaged Portfolio Committee on Energy, the Director-General, Ministry Officials, Department Officials and all our state owned entities for ensuring that their eyes are focused on our mandate all the time.

I thank you

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Responses

Budget Vote Debate- Extended Public Committee National Assembly Mr JA Esterhuizen, IFP MP

Honourable Chairperson,

We could never underestimate the impact and severity of continued rolling power constraints to socio-economic growth in South Africa.

This coupled together with long project delays and spiralling budget costs of construction of State owned power utility Eskom’s, Medupi and Kusile coal power stations, place Eskom in both an energy supply side and budget crisis.

Eskom must repay the long term loans used to build these new plants in the next few years which total approximately R110 billion. If they were fully operational by 2014 and 2017 respectively, as had been planned, the incurred debt would have been paid through normal cash from operations.

Why should the citizens of this country have to pay for such incompetence? NERSA has just further rewarded their inefficiency by allowing above inflation increase of 9.4%.

Electricity tariffs have now reached the point where every increase in price results in less demand.

The Departments lack of transparency on Nuclear is a concern.

Also there is a real risk that South Africa could experience an outright recession in the last quarter of this year. How would it be financially viable then to justify the enormous financial impact of a R1 trillion build on an already strained economy?

The rand’s plunge, which might erode its credibility, will in turn make international projects much more expensive.

This Government has shown conclusively that it is unable to manage simple coal-fired electricity builds. Going the nuclear route will make the financial disasters of Medupi and Kusile seem small in comparison.

South Africa signed a treaty with the DRC in 2013, for hydropower, construction to start October 15 last year – (Inga 3). SA was obliged to pay a $10 million deposit, 15 October came and went without a sod being turned. Will the R170million be paid back if the project is stillborn?

We as the IFP feel that the maturing renewable energy sector will make South Africa’s power system more sustainable and equitable.
With exceptional solar and wind resources, South Africa could become a hub and lead the way for the production of renewable energy in Africa.

Fossiel brandstof wat verantwoordelik is vir 90% van ons krag opwekking is nie net skadelik vir die atmosfeer nie, dit het ook n onsaglike negatiewe impak op die onmiddelike omgewing waar bevoorbeeld kool myne gelee is, asook op die gesondheid van die mense in die omgewing.

Case studies have also proved that gas can be a great success in energy efficiency.

Economic hurdles hindering South Africa from developing gas and its infrastructure include a persistent lack of clarity regarding the economic feasibility of regional gas supplies, the need for a stable legislative environment, a lack of commitment and the significant capital investment required to do so.

In conclusion, we are encouraged by government’s support and recognition of the value and contribution that renewable energy can play in our energy mix.

The Minister and Department must also be commended on the 280,000 new-grid and non-grid connection’s that will be delivered in this budget cycle.

The IFP supports this budget vote debate.

Department’s veil of secrecy leads to untraceable vanishing of state funds: Pieter van Dalen DA Shadow Deputy Minister of Energy

Speaker.

I have uncovered a code during my tenure as MP of this house. The Code is to Follow the Money.

For my speech I would like to say we need to Follow the trail of the  Big Money. which will lead us to the mysterious island. Honorable speaker,  I want all of the MP’s in this house to follow me on the map to the Mysterious Island.

The Code is Follow the Big Money. Every year the department puts forward a budget and makes certain promises. And every year we have been coming to this podium and searching these budget allocations to see if the department has fulfilled its promises.

Every year we are criticised for looking at small amounts that are negligent and a small percentage of the overall budget. So this year I told myself I would select the largest amount in this budget and only focus on that.
So the amount I found was R117 billion on table 26.20 under current expenses 2014/2015. In the 2014 budget estimate for 2016, this year, it was R140 billion. This is quite a gigantic amount. R140 thousand million Rand. If you want to put it in context it is double Eskom’s annual turnover at about R70 bill and it is about 12% of South Africa’s annual budget. A lot of money in anybody’s terms.
I have to report to this house today that this money has vanished into thin air. If you follow the money as I have done there was very optimistic projections that this revenue stream of R115 Bill would come online in 2014/2015 and would grow to an estimated staggering amount of R140 Bill this year. I must inform you there are billions of rands on the Mysterious Island.
The reasons that where given in the 2014 National Budget for this income stream is on page 689 and I quote “over the medium term, total expenditure is expected to increase as well, to R141 Bill in 2016, due to the incorporation of the operating results of Irene into the budgeted financials over the planning period” You will see it has nothing to do with Project Ikhwezi.
In the 2013/14 CEF integrated annual report, page 37, project Irene was hailed to be “nearing financial close”

For those that don’t know what Project Irene is, due to it being veiled in secrecy and mired by controversy, it was PetroSA’s attempt to gain a foothold in the fuel retail and forecourt space, by acquiring from Malaysian state oil company Petronas a stake in Engen, South Africa’s largest fuel retailer. Petronas holds 80% in Engen and the remaining stake is held by the Pembani Group. And for those that still don’t know, Pembani gained that stake when it was merged with Shanduka, which at the time of this deal belonged to our own “King Of Coal” the Hon Ramaphosa himself. Coincidence or not?
Last year at this podium I told you that the Hon Ramaphosa, through Shanduka owned Optimum mine and delivered 50% of the Junior mining sector market share. He was quick to point out that he has divested all his shares and doesn’t hold any mining shares. Mr Deputy president let me tell you, you cannot absolve your responsibility by just walking away from your dealings to try start life with a clean slate just because you want to be the president of this Country. Your dealings will come and haunt you and will always be scrutinised.
It is not as if there were no warning signs or red flags on Project Irene
Business Day last year wrote and I quote “The board of PetroSA was repeatedly advised by both transaction advisers and the Treasury that the proposal to buy the Engen stake did not make good business sense.

However, the project was strongly championed by Ms Joemat-Pettersson and President Jacob Zuma. In the end, the deal fell through due to lack of financing.”
Instead of listening to the advice of treasury and the advisors from global investment bank HSBC as transaction advisers, they fired HSBC and appointed a local fund management firm Harith , without any due ¬tender procedure.
Harith’s letter of appointment promised it more than 10 times HSBC’s reward; a 2.65% success fee — R371-million on a R14-billion deal — plus a monthly retainer of R1.3-million. Then there were the legal costs to Mr George Sabelo that were part of the deal. His involvement is clouded in corruption and double invoicing of millions of rand and ended with his employer distancing himself from Mr Sabelo and his dealings
So what went wrong with project Irene. That is the R100 billion-rand question.

This is the “uncovering of the code: Follow the Big Money to the Mysterious Island”.
For any project this size there would have had to been the highest level of authorisation and collaboration. The best advisors would have had to be appointed and the money that was paid to sweeten the deal must have been exorbitant.

Why was the advice ignored and what value did we get for our bribes and or commissions? Just the due diligence exercise must have cost a small fortune. Financial viability and asset registers that had to be compiled and audited. What where the penalty fees and who ends up paying for all these fees?

I am sure the minister would come and tell you that no taxpayers money was spent. The truth is this that this is a state owned company, which if it makes a profit, it gets paid back into the fiscus. If they make a loss, we have to bail them out. They cannot go bankrupt as do private companies,  so when they deal recklessly it is taxpayers money that is wasted.
Can the minister please provide these answers as it seems that she herself was closely involved in these dealings. Can the minister please enlighten us as to what is happening on this Mysterious Island ? Let her help all of us Honourable speaker to give insight about the Big Money – the Billions of the department. Let her please help us to uncover the code and secrets of Following the Big Money to the mysterious island.

I thank you

Minister must abandon nuke deal in order to save dying economy, jobs: Gordon Mackay DA Shadow Minister of Energy

Ngiyabonga Sihlalo

It is a measure of the insanity that prevails in our country at present that President Zuma’s proposed nuclear deal has fallen from the front pages of our nation’s newspapers.

The latest cost estimates of Mr Zuma’s nuke deal now stands at a whopping R1.6 Trillion. To put that into perspective –  that is equal to Government’s ENTIRE budget for 2015 and a third South Africa’s total gross domestic product (GDP).

Alongside ballooning public sector wages and a noble but unaffordable proposed national health system; Mr Zuma’s nuclear deal stands as the single biggest risk factor undermining investor confidence in South Africa.

It is therefore Chair, a fortuitous time to review the Ministers adherence to her Constitutional and Statutory obligations to nation as they pertain to the nuclear new build programme

At the heart of our multiracial Constitutional democracy lies the worlds greatest Constitution, Section 217(1) of which is pertinent to the Minister and reads as follows:

When an organ of state … contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

[1:05]

It is generally accepted Chair that to procure goods or services in a manner compliant with the aforementioned constitutional principle – that such procurement must be done by way of an open, competitive, public tender process.

Actions speak loader than words Chair and despite continued rather limp lip service to an open and transparent procurement process, it is the Minister’s actions that are in fact speaking volumes.

Open and transparent the Minister says – but then tables the various Nuclear Intergovernmental Framework Agreements (IGAs) under the very limiting Section 231(3) of the Constitution effectively binding the Republic to the provisions of the IGAs without requiring Parliament’s consideration or approval.

Competitive and public the Minister says – and yet the Department of Energy in a briefing to the Cabinet sub-committee on Energy Security recommends a closed government to government procurement process –  which would effectively by-pass the requirements for competitive bidding and further insulate any potential deal from public scrutiny.

[1:55]

As regards the Minister’s statutory obligations – the Electricity Regulation Act is unambiguous when it states that the decision to procure nuclear and the nuclear procurement system must be taken PRIOR to the commencement of nuclear procurement.

“Prior” – meaning “before” or “existing or coming before in time, order, or importance”

I refer to this definition Chair, for the meaning of the word “prior” seems to have eluded, the Minister, her Department and even the brains trust that is our Cabinet.

It is a matter of public record that the nuclear process has commenced. In fact, the Minister has issued a Ministerial Determination to this effect.

What has not commenced however, Chair, what has not been determined and what has not been discussed is the nuclear procurement system.  This is a glaring failure and contravention of the Act.

How exactly the Minister hopes to get herself out of this pickle, currently being examined by the Cape High Court, is unknown – perhaps the Minister will heed some free advice:

·         don’t issue the RFP;

·         halt the nuclear procurement process and;

[2:46]

·         await the Judgement of the Cape High Court – and no doubt the various other Courts that will become involved as the constitutionality and legality of this arms deal – I mean nuclear deal – are tested in the Courts.

Ignore this advice Minister at your peril for the volume of litigation to follow will be of such intensity that you will no doubt replace your boss as so-called Accused Number One.

Chair, before accusations are laid at my door of waging lawfare against the Minister, let us consider the economic and social implications of the nuclear deal on our people.

The Democratic Alliance has from the onset been concerned by the potential negative affect of the nuclear new build programme on jobs and economic growth.

Studies now show that all households in South Africa will be affected by nuclear with rich and poor alike carrying the burden of Mr Zuma’s nuclear deal.  Our people will be directly affected via tariff increases and the escalating price of electricity or indirectly through job losses and changing wage rates.

GDP will be negatively affected as investment across sectors becomes crowded out by the large scale investment required by the nuclear new build program.

[3:40]

This will lead to a contraction in the economy – especially in those sectors which are employment intensive and employing the bulk of so-called unskilled labour.

Nuclear becomes an even greater gamble at low growth rates and where nuclear is incompetively priced relative to other energy options such renewables, gas and hydro.

Both these conditions are now prevalent – economic growth in the short to medium term will fall to btwen 1% – 1,5% while nuclear will remain expensive at well over $8000 per kilowatt hour.

The Energy Research Centre (ERC) at the University of Cape Town predicts that under these conditions nuclear will result in a sustained negative impact on GDP in the range of 0,1% to 2.1% between 2020 and 2040. This is staggering Chairperson when one considers we will grow at just 0,9% this year.

Simply put, the foolhardy decision to procure nuclear will have long-lasting damaging effects on the economy for at least the next 20 years.

This drag on economic growth will in turn extinguish future job growth and destroy 75 000 existing jobs.

Of those jobs destroyed, 50 000 or nearly 2/3 will accrue to those with  holding a matric qualification or less.

[4:40]

As such, a decision in favour of nuclear will have to be disproportionately carried by the working classes and the poor, effectively undermining social justice and further straining social cohesion within South Africa.

Nuclear therefore poses a real threat to the future welfare of our people while at the same time undermining the welfare gains already achieved.

In light of the legal irregularities and the inconvenient economic facts, we must ask ourselves Chair – why is our government doggedly pursuing this nuclear deal. It is clearly not a deal in the interests of the poor. It is clearly not a deal in the interests of business. It is clearly not a deal in the interest of the nation.

Clearly this is a deal in the interest of only one man – that is accused number one.

Speech by Hon. FZ Majola ANC on the occasion of the Budget Vote Debate

Honourable Chairperson
Minister and Deputy Minister of Energy
Ministers and Deputy Ministers present
Honourable Members
Ladies and Gentlemen
Comrades and Friends

The African National Congress fully supports this budget of the Department of Energy.

This 2016/17 budget of the DOE must be located within the broader spending plans of the medium expenditure framework as presented by the Minister of Finance in February. It is reflective of the subdued economic context and tighter revenue base, a context in which globally has seen the International Monetary Fund revising its projections downwards to 3.4% for 2016. In a nutshell, we are engaged in this debate in the midst of unfolding structural tendencies and changes in the global economy, in which energy and other commodities are a central part. It bears reiterating and indeed we cannot overstate the importance of the government's response in terms of the overarching Nine Point Plan, which amongst others sets out critical tasks and measures to tackle the binding constraints of energy supply - to put the economy back on a faster growth trajectory and to ignite light at the end of the tunnel for millions of our people.

The department of energy has been allocated a budget of R7.54 billion, which is less than a per cent higher than the R7.4 billion allocated to the department last year. As is the case with previous years, the Integrated National Electrification Programme (INEP) was allocated the largest share of R5.64 billion. As the ANC, we welcome the fact that the department successfully spent 99.1% of the R4.5 billion allocated to this programme last year. This is a very critical programme comprising grid and non-grid electrification of millions of households, especially the far flung rural communities.

Energy is a basic need of the people of this country; we need energy to prepare food, to keep warm, to heat water, to purify the water we drink, to provide lighting so our children can study at night. Indeed, we need it for transportation, for industry and commerce so our people can access jobs, and to grow our economy.

Honourable Chairperson

The mandate of our fifth democratic Parliament remains one of catalysing and overseeing an uninterrupted radical socioeconomic transformation. This builds on the back of the steady and yet extraordinary real gains of socioeconomic and political transformation that have taken place in our country since 1994. A continuous good story narrated by concrete facts on the ground and on record, amongst which is the fact that when our fifth democratic parliament began about 5.8 million poor households had been electrified in less than 20 years. As the ANC, we are proud to say that as at March 2016, this has been expanded to over 6.7 million households, which now amounts to 88% of all households. This already makes the South African reality almost unrecognisable given the fact that in 1994, a mere 36% of households were electrified - which was of course largely white and urban households.

Honourable Chairperson

We can be confident that with the allocation of R17.6 billion over the medium-term period, the department is on course towards achieving the mandate of 1, 4 million households by March 2019, 75 % of which are in rural areas.

Five Point Plan

Honourable Chairperson and Members

When I took the podium last year on this occasion, the house was suffocated with a sweeping air of cynicism coming from the other side and swirling in the corporate media in the midst of the spates of load-shedding that were unfolding. At that time we communicated the decisive outcomes of the ANC's January Lekgotla of that year, which directed that urgent measures must be taken to address issues pertaining to the generation capacity, a constrained network (transmission) capacity and a distribution infrastructure that is interrupted by the imperative of maintenance and refurbishment. Indeed, the Lekgotla deliberated on and endorsed a concrete 5 point plan at the centre of which is a strategy of immediate and short term interventions to stabilise energy supply.

With its War-Room led by the Deputy President, Cyril Ramaphosa, as the ANC we welcome the concrete and remarkable progress that has been registered to date. Yes, it is true there has been no loads shedding since August last year.

Renewable Energy

Honourable Chairperson

As well as the protracted global economic crisis, ours is a generation that is also facing ecological crisis of a planetary proportion. Hence, we must welcome the momentum added to global climate action to cut carbon emissions and contain global warming by the historic agreement reached in December last year in Paris. This came on the back of the United Nation's Sustainable Development Summit held in September 2015, which for the first time in history adopted a global sustainable development goal for energy - aiming for access to affordable, reliable, sustainable and modern energy for all. In this context, as the ANC we welcome the deepening national commitment to transition to a low carbon economy, as underscored by the Integrated Resource Plan (IRP) in terms of which 17800 MW are expected to be generated from renewable energy sources by 2030. This firmly places us as a country amongst some of the leading countries of the global-south that have taken on the challenge of shifting towards renewable energy sources, which include China, Morocco, Bangladesh, Mexico, Tanzania and Turkey. Since August 2011 the Renewable Energy Independent Power Producers Programme (REIPPP) has maintained its place amongst the top 10 renewable energy programmes globally - which makes SA a leader in the renewable energy sector.

We welcome the progress registered in terms of the department's REIPPP, contributing substantially to the generation capacity of SA. By the end of the last financial year, 37 projects were able to add more than 1 800 MW to the national grid. There has also been substantial tariff decreases for wind by 55% and solar photovoltaic by 62%.

With regards to the 9,600 MW nuclear new build, the department was able to complete the vendor parades, and concluded five inter-governmental agreements. The DoE is currently embarking on nuclear skills development and training programme that aims to grow the necessary local skills required for the nuclear build programme. We welcome the directive by the President that "we will only procure nuclear on a scale and pace that our country can afford".

Petroleum and Gas

Honourable Chairperson

The Middle East remains our important source of crude oil, but as the ANC we welcome the fact that more than half of our country's crude oil requirements have been met by African countries, notably Nigeria and Angola. With regard to the refined petroleum products, the capacity of our domestic refinery industry is falling short of demand even in the midst of a subdued economic climate, as illustrated by the fact that in 2014 South Africa refined approximately 27 billion litres of liquid fuels and consumed 29 billion litres, with the shortfall being imported.

The ANC's 2015 NGC appreciated that the setting up of refining capacity in the Coega SEZ is an important development for the liquid fuels sector growth and for development. This will boost industrialization, job creation and attract significant foreign direct investment. It is therefore necessary to reiterate some of the key conclusions of the NGC of the ANC, which include that:

Operation Phakisa recommendations to advance offshore oil and gas exploration be implemented expeditiously.
That the exploration onshore for shale gas should be accelerated in such a way to ensure that no damage is done to South Africa's water and other environmental resources.
The effective integration of the South African economy with the oil and gas resources available in the Southern African region.
That we expedite the drafting of policy of Oil & Gas industry, separate from the mature mineral policy, and incorporating the "free-carry" principle for the state.
And that South African companies, including state-owned companies, should have a clear role in the gas industry.
Honourable Chairperson

We welcome the fact that the committee will soon receive a presentation on the IEP, South Africa's own energy master plan.

With regard to the liquid fuels, despite the price volatility in the market, the demand and supply equation has been managed with commendable competency by the department of energy. None of us can claim that we have found fuel stations depleted of petrol or diesel with long queues being the order of the day. Yes this is a good South African story. However, the aging infrastructure, the slow pace of transformation, the delayed or pending decisions on the cleaner fuels specification and the proposed new refinery capacity are all adversely affecting the economy and we now need bold steps from the department to address some of these challenges.

Following the release of the Integrated Energy Plan and the updated Integrated Resource Plan, we should see the tabling of the Gas Utilization Master Plan. Similarly, a concern must be expressed with regard to the status of the solar water heater programme, which at one point was a flagship programme of the DoE, second only to the Integrated National Electrification Programme. About 400 000 SWH have been delivered to South Africans, however there have been challenges that have led to the department taking direct control of the programme. Proper and concerted attention and focus are now clearly required to reposition this programme.

With regard to the SOEs, in the last financial year there have been various challenges noted, including poor corporate governance, irregular expenditure, lack of alignment to the objectives of the department - all of which effectively resulted in poor utilization of resources. We once more urge the department to move with speed to reposition entities to ensure that they can fully deliver on their mandates. At the centre of this intervention there must be the alignment of the strategic plans of these SOE's with that of the department.

As the ANC, we can proudly and confidently say that in the overall, the department is on course. The PCE appreciates the achievements of the DOE in its few short years in existence. It has significantly contributed to energy security in South Africa and it continues to do so.

For those of us, especially the masses of our people, whose lives and circumstances have been intertwined with the history of this country, and therefore who in their living memory actually know what it means to live in the dark days of apartheid, also know that our country has the practical capacity to secure an even brighter future. Yes there can be no doubt that SA is a far better place today than it was 22 years ago. And yes we know that tomorrow will be better than today.

Siyaqhuba, Siyasebenza.

Together we move South Africa forward!

The ANC supports the budget.

I Thank You