Department of Energy 2009 Strategic Plan briefing

Meeting report

Department of Energy (the Department) Strategic Plan 2009 briefing
Ms Tandeka Zungu, Deputy Director General, Department of Energy, and Mr Tseliso Maqubela, Deputy Director General, Department of Energy, gave the presentation on the Strategic Plan of the Department for 2009.

Ms Zungu said that the main difficulty facing the Department at present, in terms of implementing its strategic plan, was that the Department did not know how funds would be allocated by the National Treasury. The mandate of the Department was to ensure secure and sustainable provision of energy for economic development and growth. However, liquid fuel infrastructure was heavily challenged in the country, and each year South Africa imported 2 billion litres of fuel, because there were not sufficient refineries. The Department warned that by 2015 the country would be importing 9 billion litres of fuel, if it did not attend to the problem, and that would not be sustainable.

The main challenges facing energy at the beginning of 2009/10 were then listed. Firstly, it was noted that energy demand currently outstripped supply. There was an unreliable logistics infrastructure, resulting in a fuel supply shortage – such as the jet fuel shortage at OR Tambo International. There was also a shortage of storage facilities for fuel. The volatility of global crude oil prices was problematic. The financing of capital projects, including projects in nuclear, coal, and liquid fuels was limited due to the recession. Energy efficiency was also an issue, as was the launching of the Independent Power Producers. There was also the need to cushion the poor from electricity tariff increases.

The Department had made plans to deal with these challenges. Policy plans included the finalisation of legislation related to the restructuring of electricity distribution through the Regional Electricity Distributors (REDs), and the drafting of regulations on liquid petroleum gases (LPGs), which it was hoped would be promulgated before the end of the financial year. The Department hoped to fast track the National Energy Act enactment. It was also planning to revise the National Energy Efficiency Strategy and implement the Nuclear Energy Policy.

The Department also recognised the need to diversify the energy sector and attract new investment through Independent Power Producers.

Discussion
Mr D Gamede (ANC, KwaZulu Natal) said that the Strategic Plan of the Department showed no indication of the costing, and pointed out that this was necessary for every Strategic Plan. He therefore asked for some indications of the funding that would be required.

Mr Tseliso Maqubela, Deputy Director General, Department of Energy, replied that the figures had not yet been finalised, as this normally happened only in mid-November. The Department of Energy was expecting to receive letters from National Treasury by the beginning of the following week. However, it had been allocated R 29 million by Parliament. This was not enough for the operations of the Department. It went into setting up the new Ministry and salary adjustments, and there was a roll-over of R4 million to improve the Information Technology structure.

Mr Gamede said that he was not completely satisfied with the last comment. A strategic plan needed to be costed, whether or not the funding eventually materialized. There were many outstanding matters that still needed to be put into place at the Department, and he would have expected that figures would have been presented to indicate how this would be done.

Ms Zungu referred Members to the strategic plan document, pages 16-17. She said that it was very difficult to give figures, but the Department would be able to present the budget once it had received the Medium Term Expenditure Framework (MTEF) allocation.

Mr Gamede questioned whether the Department's plans were in line with National Government priorities such as rural development and education. The issue of rural development was going to be at the forefront of every discussion. He enquired whether the Department had any plans to get energy supply to rural communities, as it was a priority of government.

Ms Zungu replied that the Department did understand the importance of rural development. The Department would support whatever strategic decision was taken by government. Most of the rural areas in South Africa did not have energy infrastructure, so the bulk of the Department's money went to the development of bulk infrastructure in rural areas. There could be no rural development without energy.

Mr Gamede asked how cost effective the roll-out of solar water heaters would be, as he had received information that it would cost between R18 000 and R20 000 to install each solar water heater.

Ms E Van Lingen (DA, Eastern Cape) added that the Committee needed clarity on the issue of solar heaters.

Ms Zungu replied that the Department had a conference on the issue of solar water heaters, to which it had invited all relevant stakeholders. A framework was developed, stating how the project was done. It was recognised that the consumer wanted hot water, and the problem was how to match this need with the financial issues. At the moment, about 30% of the electricity bills were spent on hot water. Installing a million solar water heaters would save half of a power station. The solar water conference provided an action plan; and the project would be rolled out on 1 April 2010.

Mr Bheki Khumalo, Acting Chief Director: Communication, Department of Energy, said that the solar water heaters cost between R 13 000 and R 30 000 to install and Eskom had some subsidy. The Department wanted to increase the installation of solar water heaters.

Mr Gamede asked how the Department planned to introduce the Independent Power Producers as investors.

Ms Zungu responded that the issue of Independent Power Producers (IPP) had been bothering the Department for a while, because of the barriers that were created by the kind of electricity structure that the country had at present, the current enabling legislation and mechanism. The Department had realised that Independent Power Producers could assist in alleviating the pressure on government and Eskom. An enabling environment was being created for them. However, there was a Cabinet decision saying that the country would not have more than 30% of Independent Power Producers.

Mr Gamede said that he had heard from the FIFA 2010 World Cup Local Organising Committee that more buses would be brought into the country, and thus the supply of fuel would be strained. He added that there was no fuel pipeline from the refinery to the new Durban airport and there was no rail line to the airport to ensure easy supply of fuel to the airport. He therefore asked the Department to explain how it was planning to deal with those shortcomings.

Ms Zungu replied that there was an Inter-ministerial Committee on 2010 issues. There were various areas of responsibility. The Department's responsibility was to ensure that there was sufficient electricity and standby generators required by FIFA, and the Department had to report on its state of readiness to ensure that there was enough liquid fuel. The Department did not only look after jet fuel, but it had a task team composed of officials and people from the industry. The Department was working together with large industries to ensure that there were no power outages during the 2010 World Cup. 

Mr Maqubela added that the country could not afford to rely on one port for liquid fuel supply. One of the most sensitive areas in the country was Durban. A lot of imports came in through Durban and there was a need to diversify and look at other ports as well. The Department supported the choice of Coega. He confirmed that the new airport in Durban did not have a pipeline. When the airport was constructed, the issue of the pipeline was not considered. There were, however, plans for Airports Company of South Africa (ACSA) to look into the matter. The Department felt that the current airport should remain open during the World Cup.

Mr Gamede asked if the Department could boldly say that the country needed another refinery. The Department should stop referring to “challenges” and get to the nub of the issues.

Mr Maqubela, replied that the country did need another refinery. At that moment the country was importing 2 billion litres of fuel, due to the fact that it did not have enough refinery capacity, and that was a situation that was going to get worse. It was estimated that by 2015 the country would be importing 9 billion litres of fuel, if it did not attend to the problem, and he stressed that this would not be sustainable. The more that was imported, the less jobs would be created and sustained in South Africa. There would be spin offs for other industries if South Africa had more refineries.

Ms Van Lingen asked if the split between the Department of Energy and the Department of Minerals was caused by budget shortfalls, and to what extent it had had an adverse effect on the Department.

Ms Van Lingen said that all the capital projects mentioned by the Department involved large amounts of money. The Deputy Director General had said that the country needed to go into the continent to obtain crude oil. She asked what was the relationship with the oil producing companies in South Africa and their African counterparts.

Mr Maqubela replied that the Department had been engaging with a number of other countries to try to secure crude oil in the continent. These included Angola, which had a lot of oil. There were new discoveries in Angola weekly. The Department was also approaching Nigeria. However, the focus was not just on Africa.

Ms Van Lingen asked if South Africa was going to attend the nuclear conference in Norway, and what was South Africa's position going to be at the conference.

Ms Van Lingen asked if the national planning for 2010 was to be running part-time or full-time, and how serious it was in carrying out its mandate.

Mr R Lees (DA, KwaZulu Natal) said that very little of the strategic plan had been implemented by the Department, despite the fact that the plan had been in place for eight months. He noted that there were a number of producers who were willing to produce electricity at any given time, and it appeared that it was rather the Department that was stalling the process. He asked why private power generators were not allowed to join in immediately, as the country desperately needed the power supply.

Mr Lees said that the solar water-heating project would be good for the country, but that the capital costs were very high. He hoped that the money could be paid back early. The Department needed to have legislation in place to compel new developments to use solar water heaters. There needed to be both a carrot and a stick approach.

Mr Lees added that he did not understand the challenges raised by the Department about the liquid fuels infrastructure. He was not sure what the infrastructure problems were, as there was going to be a pipeline that was going to be installed by Transnet. He also asked if the Coega development was not going to be a solution to the infrastructure problems that the country was facing regarding liquid fuels.

Mr Maqubela replied that there were a number of actors who were applying to install a pipeline, and there were also plans by existing companies.

Mr Lees said that Germany had rejected the pebble-bed nuclear technology, yet South Africa still appeared to think that it would be able to get this working. He asked if the Department, when referring to nuclear reactors, was speaking of pebble-bed or other nuclear reactors.

Ms Ditelogo Khomo, Acting Chief Director, Department of Energy, replied that the Nuclear Energy policy that was approved in 2008 said that the country would pursue the conventional nuclear power plant project. The Pebble Bed Modular Reactor (PBMR) was still in the research stages, but until such time it had been proven to work, the country would use conventional nuclear reactors.

Mr Lees said that Eskom was already getting coal at discounted prices. If price controls were forced on coal then energy producers would suffer. He recommended that South Africa should allow the markets to determine themselves.

Mr Lees asked what the increased load of fuel going was to be at Durban port, and whether the Department was working with the Department of Transport to ensure easy and safe transportation of fuels.

Mr B Mnguni (ANC, Free State) noted that he had been told, by an entrepreneur, that there were not many people in the country who were skilled enough to install solar water heaters. He therefore enquired where the Department was hoping to find sufficient skilled people to install the one million solar water heaters in the country.

Mr Khumalo remarked that the point raised by Mr Mnguni was interesting. At the recent conference, 800 people had attended whose skills, displayed at that conference, matched those that were needed by the Department.

Mr Mnguni asked what the Department was planning to achieve with the two summits that it would be having on energy.

Mr Khumalo said that the conference that was held early in 2009 was about renewable energy, and the other one was on solar water heating. The area of focus was renewable energy. Renewable energy was the future of the country.

Mr Mnguni noted that he saw no mention of biofuels in the report, despite the fact that in the last few years there was much emphasis around these issues. He wanted to what the Department's intentions were in this regard.

Mr Maqubela added that maize was excluded as a stock for biofuels, for food security reasons. However, another plant, sugar beet, could be used for biofuels because it did not compete directly with issues of food security. The plan was to grow sugar beet massively for use in biofuels.  The Department was also looking at blending biofuels into liquid fuel, but this had to be done whilst bearing in mind that the infrastructure for liquid fuel was already stretched.

Mr A Nyambi (ANC, Mpumalanga) said that it had been clear that the external service providers had been appointed to develop the Department's road map, whilst at the same time the Department was saying that energy was a highly contested terrain. The service providers had made it difficult for the Department to improve in terms of its operational excellence. If the Department was agreeing that energy was a highly contested terrain, then he asked how it would deal with the situation where outside personnel were called in to assist the Department in drawing its own agenda.

Mr Nyambi asked if the grading of posts was done internally, or whether there were people from outside categorising the posts.

Mr Nyambi asked the Department to tell the Committee how far it had proceeded with the installation of 150 electricity connections.

Mr Gamede asked if rural communities were going to be encouraged to use paraffin stoves. He pointed out that paraffin accidents were one of the highest causes of death and injury in rural communities, and for this reason he wondered why the Department was continuing to encourage people to use paraffin instead of electricity.

Mr Khumalo said that when the Department was giving out the paraffin stoves, both the Department and the Minister had made it clear that paraffin would not be a substitute for electricity, and that electricity would, in due course, be rolled out in the rural communities in which stoves were being issued to people.

The Chairperson asked the Department to explain to the Committee how much it spent on consultants, and how many consultants the Department was using. He pointed out that government had said that it wished to move away from the use of consultants.

Ms Zungu replied that government departments were not allowed to employ consultants to effect the split of government departments. The Department had to use the resources that it had already. However, fortunately for the Department, it already had a work-study team that was utilised for the process of the split.

The Chairperson asked how far the country was in terms of creating wind farms to generate electricity. The last time the Committee heard about wind farms related to a project planned for the Eastern Cape.

Ms Zungu replied that, together with the Department of Water Affairs, the Department of Energy approached the World Bank for funding to investigate clean energy programmes. The Department would receive $500 million towards the project, and the money would be used by the existing utilities and the private sector. 

The Chairperson said that he had heard from a researcher that there was much gas around the coast of South Africa, including crude oil. He asked if it would not work out cheaper for South Africa to refine its own crude oil.

Mr Maqubela replied that there was potential, but that it would be very costly to explore deep waters, which South Africa had on the coast. Firstly, it was necessary to look where South Africa might get access to oil at competitive rates. He noted that there were small pockets of gas on the coast, but these were not connected to each other. The infrastructure that needed to be put in place to connect those pockets of gas rendered the whole exercise uneconomical. PetroSA was exploring cheaper methods of connecting those pockets of gas.

Mr Gamede believed that some municipalities were being assisted by the Department of Energy to install solar streetlights.

Mr Maqubela replied that municipalities could apply to the Department to be assisted with funds to install solar water heaters. However the programme was newly launched and many municipalities did not know much about it.

Mr Gamede asked when people in rural areas would get 60 megawatts of electricity in rural communities.

Ms Zungu replied that there were different blocks for the different categories of people. Poor people received 40 megawatts of electricity without charge, which was sufficient for cooking with a two burner stove, running basic entertainment equipment, and a fridge. If a person used more than this basic wattage, he or she would no longer fall into the category of “poor” and would be required to pay for the extra electricity used, which would put them into the next category of user, and would give them more electricity power.

She noted that electricity outages during windy or stormy weather had nothing to do with the power itself, but with the quality of the supply equipment that was transmitting the electricity. 

The meeting was adjourned.