Department of Energy Strategic Plan 2010 to 2013 and budget 2010/11


14 March 2010
Chairperson: Ms E Thabethe (ANC)
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Meeting Summary

The Minister of Energy and Department of Energy (DOE) presented its Strategic Plan to the Portfolio Committee. In May 2009, the President had announced the split of the former Department of Minerals and Energy (DME) into the DOE and the Department of Mineral Resources (DMR). The establishment of the two Departments was finalised on 31 October 2009, and funding for newly created positions in the DOE had been obtained for critical posts only. The new budget would take effect from 1 April 2010. DOE stated that in 2010 it would introduce Independent Power Producers (IPP) and make sure that the poorest of the poor were protected from the rising electricity prices. Electricity distribution pipelines required upgrading and were of serious concern. Other pending issues for the financial year included matters under the 17th Constitutional Amendment Bill, the comprehensive Integrated Energy Plan (IEP), finalisation of the Second Integrated Resource Plan (IRP2), the Nuclear Energy Expansion Programme, strengthening of regulatory bodies National Energy Regulator of South Africa and the National Nuclear Regulator, and thorough investigation into capacity to deliver on the mandate of providing universal access for all households by 2012. Three million households (20%) were still outstanding. The DOE aimed to generate 10 000 GWh (gigawatt hours) from renewable energy sources by 2013, and replace 30% of domestic electricity usage through solar water energy, with an installation target of over one million units by 2014. The Energy Efficiency Campaign needed to be intensified and the Market Operator Bill and Electricity Regulatory Bill needed to be presented to Parliament. The DOE was currently engaging on the Electricity Regulation Amendment Bill to deal with appropriation of land for electricity infrastructure and provision for the establishment of the Independent System and Market Operators (ISMO). The agreement with Transnet over the R1.5 billion budget for infrastructure development of the Transnet pipeline over the next three years would be finalised on 16th April 2010.

The National Nuclear Regulator (NNR) noted that there was a need to improve governance of the nuclear sector and strengthen regulatory frameworks in which NNR operated. However, it was of concern that no amendments to the legislation were included in the plans by the Department. There was a discussion on the approach to be taken. An apparent disconnect between the aspirations of the Department and the approach of National Treasury to requests for funding was noted. The National Energy Corporation commented that it had been said that there was not sufficient money to support the Pebble Bed Modular Reactor, and said that it had been concerned that not enough provision had been made for creation of the new Disposal Institute. It was suggested that either the process had to be put in place immediately, and the risks around safety concerns had to be dealt with, or the whole process had to be moved back to a later date.

The Department also set out the responsibility in terms of the State Owned Enterprises, noting that all the processes must be in line with each strategic plan. The Minister’s powers and duties were set out, and it was stressed that not all the State Owned Enterprises received the same level of funding, although they all had to report. DOE did not participate in shareholder conferences or budget discussions for Eskom and municipalities, but had oversight over the broader requirements for implementation of programmes. Meetings would be held with the SOEs in mid-year to discuss priorities for the following year, and regular informal discussion forums ensured continued communication.

A number of very detailed questions were posed by Members. The topics ranged from the impact of increased tariffs, to filling of posts, branding of the new DOE, security of electricity supply for the FIFA World Cup, the setting up and operations of the new Radioactive Waste Disposal Institute, and the target of achieving an improved energy mix by 2012, and universal access to electricity. Members were also interested in hearing about ethanol production from plant sources and whether this excluded maize, the removal of ISMOs from the influence of Eskom, the terms of the World Bank loans, and the plans for the supply of Liquid Petroleum Gas in the short and medium term. The tariff structures were explained. Questions were asked about shipping costs for gas.

Members also asked how the government priorities were balanced with commercial priorities of the SOEs, and asked why, if there was effective monitoring, the problems persisted. In general, they commented that they were not satisfied with the information provided, nor the time lines for implementation and the legislative process. They questioned whether the targets in the White Paper for 10 000 GWh of renewable energy could be reached, felt that the pace of implementation was too slow, and asked when the policy was adopted. Members also wanted to hear what were the issues hindering implementation, and finally questioned why employees who had showed under-performance were still in their current posts. The Chairperson asked what had been done by the Minister, what the Inquiry had cost, and remained unsatisfied with the answers provided. Members felt that there was a need for better public awareness about nuclear energy issues. The Committee felt that stronger action was required.

Meeting report

Chairperson’s opening remarks
The Committee Chairperson welcomed the Minister of Energy, the Department of Energy (DOE), and representatives from Electricity Distribution Industry (EDI), the National Nuclear Regulator (NNR), the National Energy Regulator (NERSA), and the South African Nuclear Energy Corporation (NECSA). She said that the DOE had an important part to play in rolling out what had been discussed the previous year in terms of objectives and projects.

Department of Energy (DOE) Medium Term Expenditure Framework (MTEF) Strategic Plan
Hon Dipuo Peters, Minister of Energy, said that the mandate of the Department of Energy (DOE) was primarily to ensure and sustain provision of energy for socio-economic development. South Africa (SA) had ongoing problems in the Energy sector which required comprehensive solutions. To serve the people of SA, DOE had to address challenges with the country’s energy mix, distribution mechanisms, surcharge by local municipalities, environmental sustainability and the role of pilot projects.

In 2010 DOE would bring in Independent Power Producers (IPP) and make sure that the poorest of the poor were protected from the rising electricity prices. The increased prices were believed to be a burden to job creation and to the middle-income earners. Unions had threatened to take to the streets over NERSA’s electricity price increase.

At the COP 17 Climate Change Conference, there was a call to diversify energy provision to accommodate climate changes. DOE had been entrusted with the responsibility of bringing in wind, solar and biomass energy by 2010.

Electricity distribution pipelines required upgrading and were a serious concern. Other impending issues within the financial year were the 17th Constitutional Amendment Bill, the comprehensive Integrated Energy Plan (IEP), finalisation of the Second Integrated Resource Plan
(IRP2), the Nuclear Energy Expansion Programme and strengthening of the regulatory bodies NERSA and NNR, which supported Eskom and Government programmes, as well as thorough investigation into capacity to deliver on the mandate of providing universal access for all households by 2012.

Ms Peters added that the Energy Efficiency Campaign needed to be intensified and the Market Operator Bill and Electricity Regulatory Bill needed to be presented to Parliament.

Electricity theft was still a problem. A challenge was that in the current judicial system, electricity theft was not being treated as other forms of theft.

Ms Neliswe Magubane, Director General, Department of Energy, presented an overview of the strategic plan. As highlighted in the government priorities, the State of the Nation Address, the National Budget Speech and the Minister’s speech of 2009, the objectives of the energy sector were to increase access to affordable energy services, improve energy governance, stimulate economic development, manage energy-related environmental and health impacts, and secure supply through diversity. The State of the Nation Address stated that more than half of the government spending on public investment would go to energy infrastructure. An International Committee on Energy would be established to develop a 20-year Resource Plan. Independent Market Operators would be established, independent of Eskom. The speech also highlighted the importance of participation of IPPs and protection of the poor from increasing electricity tariffs.

The DOE had oversight over a number of working groups who monitored the demand for electricity, the impact of Nersa’s tariffs on the economy, counter plans, climate change and long term electricity plans. Restructuring of electricity was important to accommodate supply and demand of electricity and in order to determine a plan for the direction in which the industry was moving. The working groups would also oversee the Nuclear Expansion Plan, regarding procurement and supply of coal. A challenge for the DOE was that Eskom was overseeing equity partners.

In her Budget Vote Speech of 22 June, 2009) (as set out on pages 6-9 of the Strategy Plan document), the Minister had stated a number of plans to be implemented by DOE.

Ms Magubane commended NECSA for their ahead of schedule success with the SARARI Reactor, by converting from highly enriched uranium use to low enriched uranium use.

She stated that in regard to the World Cup, a Task Team would monitor and ensure that there were no interruptions in electricity or liquid fuel.

The DOE Strategic Objectives were in line with what was required by the Energy Sector. DOE’s mandate was to ensure energy security, affordability and sustainability, achieve universal access to modern energy carriers for all by 2012, and improve DOE’s energy mix by having at least 30% of clean energy by 2025. She said that “clean energy” related to low carbon energy, and comprised a combination of renewable energy and other energy mixes which may be low carbon but not necessarily renewable. Other objectives included transforming and regulating the energy sector, efficient service delivery, optimal utilisation of the energy resources, sustainable development, enhancement of DOE culture, systems and people, and promotion of corporate governance.

With the budget split between Department of Energy and Department of Mineral Resources (DMR), the budget of 30/70% for support services meant that the DOE had to work smarter to achieve its objectives. Co-operation from State-Owned Enterprises (SOEs), EDI Holdings and NERSA had been helpful with setting up the new DOE. The first phase of capacitating DOE with ‘matching and placing’ of personnel had been completed and the second phase, which involved advertising and filling of vacant posts, would be completed by the end of the first quarter.

In terms of the legislative framework, DOE hoped that clarity on EDI restructuring would be achieved by June 2010 and that this would facilitate tabling of the Regional Electricity Distributors (REDs) Establishment Bill. The Committee would then be required to consider the Bill.

DOE was currently engaging on the Electricity Regulation Amendment Bill, to deal with appropriation of land for electricity infrastructure and provision for the establishment of the Independent System and Market Operators (ISMO). New regulators would enable level playing fields for Independent Power Producers (IPP) in the electricity generating sector.

Industrial policy guided DOE’s Energy Plan. Legislation on the liquid fuels sector included the Petroleum Products Amendment Act (2003) to address non-compliance, as well as aggressive legislation on ports, rail networks and the refinery sector. The National Energy Act of 2008 would empower the Minister to execute initiatives for security of supply, regulations for the provision of energy data, and other initiatives for regulation.

Ms Tandeka Zungu, Deputy Director General: Corporate Services, DOE, gave a presentation on the Administration of DOE. Operational branches for implementation of projects included Quality Development, Energy Management, Nuclear Energy and Integrated Energy Planning. These branches were supported by Corporate Services, the Chief Financial Officer and the new branch under the Chief Operating Officer, to manage the strategy plan, monitoring, SOE oversight and similar issues.

The main focus for support services for 2010/11 was on establishing the new DOE. This was to be done by 1 April 2010. It would involve setting up capacity to implement the strategy plan presented.  

Mr George Mnguni, Chief Director: Management Services, DOE, then updated the Committee on the splitting of functions that had been announced in May 2009. The former Department of Minerals and Energy (DME) was to have its functions divided, with a new Department of Energy (DOE) and Department of Mineral Resources (DMR) being created. The establishment of the two Departments was finalised on 31 October 2009. The National Macro Organisation Steering Committee (NMOS) and an internal steering committee were established to oversee the process of re-organising government departments. A consolidated transitional plan was compiled and progress reports by work streams were being submitted every second week to the Departmental Steering Committee. Funding for newly created positions had been obtained, but this related to critical posts only. Once the matching and placement of staff was finalised, all vacant (funded) positions would be advertised. This should happen not later than 30 April 2010. The first salary run of DOE would be on the 2 April 2010.

Mr S Radebe (ANC) asked how many jobs had been created and what the time line was for appeal if a staff member was not satisfied with his or her position in DOE.

The Minister said that the DOE had developed an organisational structure not in order to create jobs, but rather to identify capacity required in the DOE and upgrade that capacity in the new DOE. The DOE had not been allocated adequate resources in the current financial year to fill the posts of the organisational structure. Therefore, only critical jobs had been filled. Later in the year, the department would be able to identify how far it had moved in regard to filling of posts.

Mr D Ross (DA) said that he was pleased that the poor were protected from electricity price increases but was concerned that there was considered to be ‘no alternative’ but to increase electricity tariffs for the remainder of the public. The middle classes and businesses, where 200 000 jobs were expected to be lost, had been hardest hit. He asked the Minister if it was possible to forward this concern, and also to refer the funding of the Capital Expenditure Programme, specifically of Eskom, for re examination by the Inter-Ministerial Committee.

The Minister said that the issue of electricity being too costly was a concern. The poor had previously only aspired to, but had not had electricity at all. She agreed that the rising prices were of serious concern to the middle class, many of whom were public servants. Those who used 50 kiloWatt hours (kWh) of electricity per month, or less, received a 10% decrease on their bills, but those who used 350 kWh and upwards would feel the impact of the increase. The middle class did not qualify for free access to electricity, subsidised housing, or university bursaries for their children. It would an indictment of government to state that electricity was cheap when its own public servants could not afford it. An effort was required to find a solution to this issue. The loan from the World Bank to Eskom’s funding model had been considered as a means to attenuate the rising of the tariffs and protect the poor.

Mr S Motau (DA) said that the country had suffered because too many jobs were occupied by people who were unable to do their jobs. He asked if the DOE posts were filled by people who were fit for posts.
The Minister said that competent and qualified people were appointed in order to make delivery of the mandate possible. One thing the DOE would never do was disservice the very people to whom it wanted to deliver.

Mr Radebe asked for clarification on how the DOE would differentiate between branding and marketing of the Department as DOE.

Mr Motau said that whilst the new identity of the DOE was important, advertising and branding should not be extravagant, nor should it impact on funds required for other DOE commitments.

The Minister said that the DOE did not have the resources to place advertisements about DOE members, as other departments had done, but it was important for the DOE to have an image and be known. It was also important to move away from the former DME brand. The DOE must apply its mind to the correct way and allocate time and resources to enhance the democracy.

Mr Motau asked for elaboration on DOE’s commitment to ensuring that there would be no shortages of electricity and liquid fuel during the FIFA World Cup period.
Ms Magubane said that a Task Team was responsible for monitoring of both liquid fuels and electricity to ensure a successful World Cup.

The Minister added that the Departments of Energy, Trade and Industry, Public Enterprises, Sport and Recreation, Transport, Police, and Tourism, acting together, would perform a “dry run” and visit various stations and services, and report to Parliament on readiness for 2010.

Ms N Mathibela (ANC) asked how far the DOE was in removal of radioactive waste, which was to be completed by the 31 March 2010. She also asked if disposal of waste in the Northern Cape had been attended to.

Ms Magubane noted that this question would be answered in a later presentation.
Mr E Lucas (IFP) said that it was painful to note the impact that the electricity tariff had on the poor. He asked for clarification on fuel specifications and stated that the Committee would support the DOE with its target of improving the energy mix by 2012. He was pleased that Energy was now a separate entity as the focus in the past had been slanted toward mining.

Ms Magubane also noted that this question would be answered in a later presentation.

Ms L Moss (ANC) asked for detail on gender equality during the restructuring process of the DOE, and enquired what types of long term and short term skills were required.

Mr Mnguni said that the Integrated Human Resources Plan of the old DME had been revised with regard to gender, race, age and disability in line with the Strategic Medium Term Expenditure Framework (MTEF) plan. People were employed on the basis of merit, and the criteria for matching and placing was very clear.

Mr Lucas asked how the budget debate for DOE would be effective when the two departments had been joined until October 2009.

The Chairperson said that as of 1 April 2010, the budget would no longer include the DME. She noted and corrected two typographical errors in the presentation (the reference to the 17th Amendment Bill and the date of establishment of two departments as 21 October 2009) She hoped that DOE’s role in rural development would be clarified in later presentations.

Continuation of presentations
Mr Tseliso Maqubela, Deputy Director General: Hydrocarbons and Energy Planning, DOE, outlined challenges to the hydrocarbon and energy sector which led to the development of the Hydrocarbons and Energy Plan (HEP).

The world of oil and hydrocarbons was changing fast. Shell (globally) had indicated that it wanted to disinvest from downstream assets by selling its refineries and service stations, and BP had recently divested from Malawi, Tanzania, Angola, Namibia and Botswana. Although BP had committed to remain in Mozambique and South Africa, the question for the DOE was for how long it would remain in South Africa. Engen had sold half of its gas-related business to a Black Economic Empowerment (BEE) group, which was a positive move, although the selling of assets at this time was of concern. Shell was also in the process of disposing of some of its gas-related assets.

Countries were positioning themselves strategically in Africa. The French, Chinese, Americans and Russians were racing to secure crude oil in Africa and SA was late in this regard. The DOE had to decide whether SA would refine and provide its own oil or continue to import oil when countries such as Mozambique, Namibia and Kenya were establishing strong national oil companies of their own.

The energy sector was a highly contested arena and the role of the Committee was very critical. He believed that some of the issues could not be dealt with by officials in the Departments but would require a national focus. This Committee, and the Portfolio Committee on Public Enterprises would need co-ordinate to ensure that the ports, rail, and infrastructure were adequately developed. For example, the pipeline which transported liquid fuel to Gauteng was critical to the sector and if anything happened to it there would be devastating consequences.

Further challenges for the DOE were collusion and anti-competition by oil companies, the persistence of energy poverty and the issue of disregard for the law.

The DOE also had to deliberate on its contribution to cleaner fuel emissions and whether motorists and airlines were paying a fair price for fuel.

The country needed a committed single National Energy Plan within the current budget cycle. The plan would be described by the Chief Director in a later presentation.

Mr Muzi Mkhise, HEP, DOE said that the Petroleum Products Amendment Act, 2003 needed to be reviewed as the issue of the Charter being annexed to the Act and provision of waivers on certain products, irrespective of fuel specifications and standards, needed amendment. This would enable DOE to implement its plans without experiencing too much delay. DOE aimed to get approval from Cabinet soon, so that it would be able to consult with the public on this during the current financial year.

Mr Mkhise said that DOE would commence with promulgation of regulations under the National Energy Act of 2008, for mandatory provision of data from the various institutions, by the end of the financial year. Having to use the American (USA) data base for information on South Africa and African countries was unacceptable, as proper planning required data of optimal quality and integrity. The DOE had succeeded in a project of receiving regulatory accounting information on the liquid fuels value chain so that it could promote the correct investment in liquid fuel for consumer use or storage. DOE hoped that this project would be completed towards the end of the third quarter of the financial year.

Since 2006, the Minister had tightened specifications and standards for cleaner fuels and had consulted with the South African Petroleum Industry Association (SAPIA) and the National Association of Automobile Manufacturers (NAAMSA) regarding use of cleaner fuels. DOE would announce its plans in June 2010.

The IEP would address the short medium and long term plans for interfacing of the various energy sectors which influenced one another. For example, electricity for town planning could not be addressed without planning for liquid fuels. The IEP framework would include the Integrated Resource Plan (IRP), Energy Security Master Plan, and policy frameworks. Modelling capability and regulations would ensure planning through data provision, according to the National Energy Act.

Liquid Petroleum Gas (LPG) was regarded as the most efficient energy carrier for thermal purposes and the LPG price regulation was expected to be promulgated by the beginning of April 2010, after consultation with the State Law Adviser. The security of supply activities and import parity would involve cutting out of the ‘middle man’. Taking in consideration the negative effect this would have on jobs, this would benefit the country in the long term. Support of supply of LPG, regulation of the import price and investment in import facilities was important for the supply of LPG required for the country.

The Biofuel Strategy addressed the potential biofuel players’ needs with regard to regulation of prices and manufacturer assistance mechanisms for maintaining successful biofuel businesses. For example the bio-ethanol industry had challenges with the cost of modification of ethanol to fuel. The Cradock Sugar Beet Project was being used as a pilot study. A mechanism of assistance would be subsidies for biofuel production.

The Liquid Fuels Charter was being reviewed to usher in a new empowerment dispensation, as there had been little progress with proper and sustainable empowerment in the past.

DOE was involved in co-operation and alignment with local government for eradication of poverty and training and sustainability of the co-operatives in the communities.

International agreements with countries of strategic relevance, such as Venezuela, Angola and Cuba, were at an advanced stage and monitoring of international agreements with SA must be synchronised with national joint planning.

The agreement with Transnet over the R1.5 billion budget for infrastructure development of the Transnet pipeline over the next three years would be finalised on 16 April 2010.

External factors such as energy availability or pricing issues could not be ruled out as challenges to the focus of DOE during the year.

Mr Ompi Aphane, Deputy Director General: Electricity, Nuclear and Clean Energy, DOE, then gave a presentation. He said that the tariff charged to the domestic consumer would be different if there were factories, refineries or smelts in the country. Additionally, there were over 2 000 tariffs in the country, and an understanding of the processes was important for unpacking the issues around the increasing electricity costs.

Strategy programmes for electricity intervention included the Integrated National Electrification Programme, which connected programmes for the FIFA World Cup, Integrated Resource Plan (IRP), a programme to introduce Independent Power Producers (as there was some indication that Eskom would not be able to produce enough power), and Energy Efficiency and Demand Management Schemes to address domestic and industrial use of electricity. These were the “hard” programmes of the plan. Other programmes included Institutional Programmes, such as the Independent System and Market Operators (ISMO).

Revision of DOE legislation, particularly for electricity theft, would ensure that DOE could fast track expropriation procedures on the ground. There were still outstanding issues with regards to EDI restructuring reform processes, the necessary Constitutional amendments and consolidation of the IRP Plan.

The IEP was to diversify from coal as an electricity supply, irrespective of cost, and intervene to conserve power. The efficiency that could be achieved here was cheaper than increased supply options, and rebates and price cuts relating to the Industrial Policy were incentives for conservation. A co-operation agreement with Eskom and access code compliance was required in the sector, which was dominated by Eskom, in order to ensure adequate transmission for the requirements of the programmes.

Solar water programmes in alignment with the State of the Nation Address would address electricity poverty and create employment.

Power Conservation Programmes initiated incentives for saving electricity in commercial and government building regulation.

The Network Rehabilitation Programme would ensure that the distribution aspects of the value chain would supply adequate electricity for the FIFA World Cup.

DOE wanted to diversify from coal to the option of utilising nuclear energy and make decisions and plans around the nuclear power plants to include the nuclear fuel cycle, the regulatory framework, skills and training,; stakeholder engagement, industrialisation and localisation programmes with regard to local manufacture of parts and job creation, and funding and procurement processes.

Recently the Radioactive Waste Disposal Institute had been approved by Cabinet. Consolidated Disposal Institutions, rather then NECSA, would be responsible for management and removal of nuclear waste and the Nuclear Energy Act addressed concerns over the effect of proliferation of nuclear power on weather, health and safety.

A number of companies had signed the Energy Efficiency Accord to reduce energy expenditure and the idea was ultimately to have the whole industrial sector participating in the Energy Efficiency Programme.

DOE aimed to generate 10 000 gigawatt hours (GWh) from renewable energy sources by 2013, and replace 30% of domestic electricity usage through solar water energy. It hoped to exceed the one-million installation target by 2014.

In terms of the DOE climate change strategy, carbon trading benefits would be achieved through the programmes for efficiency and renewable energy.

The target for universal access to the grid for the remaining three million households (20%) was set for 2012.

Mr Ross asked for the Department’s policy on ethanol production from maize.

Mr Maqubela said that maize was excluded in the policy. The matter could be re-examined.

Mr Motau asked for comment on his view that the ISMOs should be removed from Eskom’s dominant influence as quickly as possible. He suggested that independent contractors should be involved in World Bank loan conditions for wind and solar energy, as Eskom worked at its own pace and would not necessarily make the 2013 target.

Mr Aphane said that perhaps as an interim measure, although it was not ideal, the ISMOs had to concede to being housed by Eskom. The conditions of the World Bank loan were that renewal energy projects had to be off the ground at the time of considering the loan, which consequently meant that Eskom was ideally placed to house the projects.

Mr Motau asked what the plans were to ensure that there was adequate LPG supply in the short and medium term.

Mr Maqubela said that the DOE had recognised that as the demand for LPG increased there would be insufficient supply, and it had engaged with the LPG industry to refurbish the existing small import terminals. However, DOE believed that this would not be sufficient in the long term and the LPG strategy was to identify an area to build a terminal. DOE was aware that Transnet had asked for a proposal for establishment of a terminal in Saldanha for LPG importation. The liquid fuel infrastructure was currently extremely constrained, and he believed that DOE would need to introduce this at the level which was expected without causing disruption in the system. The situation may improve with the new pipeline.

Ms B Tinto (ANC) asked how the DOE would assist in achieving the State of the Nation target of protecting the poor, and if the present budget would allow the DOE to meet the demands of its strategic plans.

Mr Aphane said that there was a block tariff approach to the increases. It was not correct to say that there was an increase in tariffs. The 25% increase related to an increase in revenue requirements and how it was collected by Eskom. Those users who used less than 50 kWh per month had an increase of 5.6 % only. There were two issues in the ongoing programme to address tariffs: the free basic benefits and tariffs. EDI had a part to play in identifying those households that qualified for free basic services.

Mr Martin Masemola, Chief Director: Institute for Application of Nuclear Energy, said that the current universal access funding of R3 billion per annum would enable 150 000 connections to be constructed, but 450 000 connections per year were required to achieve the target. The same funding was used to build sub-transmission networks in the rural areas. Therefore it would be a challenge to reach the objective and would take many years to complete. In terms of the total plan, there were areas of excellence. Municipalities, and some provinces on the programme, had progressed with the current level of funding. In the Eastern Cape and KwaZulu Natal (KZN), there were large areas where more money was being spent to expand the grid to address electrified shortages.

Mr Lucas asked if the DOE had thought about shipping costs for gas.

Mr Maqubela said that two weeks ago DOE had started discussions on shipping costs with their LPG counterparts in Angola, who were very encouraging. They also would offer assistance during the World Cup should there be a shortage.

Advocate Boyce Mkhise, Chief Executive Officer, National Nuclear Regulator, said that one of the objectives presented was to improve governance of the nuclear sector and strengthen regulatory frameworks in which NNR operated. He noted that the amendments to the National Nuclear Regulator Act were not included in the legislative programme. This was of great concern to the NNR. He appealed to the DOE to include the legislation in the programme somewhere, even if it was at the level of just introducing it at this stage.

Ms Didebogo Kgomo, Acting Chief Director, NNR, said that DOE was identifying all gaps in terms of nuclear regulation, safety and legislation issues, which would then allow a holistic process to close those gaps and formulate the amendments for the NNR Act. The DOE was already looking into the issues of nuclear energy policy implementation, including the IRP.

Mr Maqubela said there had always been a difference in terms of approach. The DOE had asked the NNR firstly to convince the DOE that it could implement the law, and then identify those areas that were implementable. There were some problematic issues around the independence of the NNR, which had persisted during the drafting stage of the Act. The legislature had ruled on the matter. DOE believed that implementation must take place, and where there were challenges, they would be regulated. Now that there was more commitment from management on implementing the law, the matter could be revisited. There were serious challenges within the organisation, especially around qualified audits.

Mr Mkhise said that there appeared to be a disconnect between the policy aspirations of DOE and National Treasury, and asked if there were any mechanisms in place to raise the profile of nuclear safety, so as to achieve some synergy between the policy directives from the DOE, and resource requirements being attended to by National Treasury (NT).

Ms Kgomo said that the DOE had seen the ‘disconnect’ between the DOE mission and the NT resource allocation, but felt assured that the budget adjustment process would allow an opportunity to plead the case. She said that DOE needed to engage on a more formalised level with NT, to secure an increase in regulator resource allocation. The reason that there was a challenge with Regulator funds was that there was an average financial year surplus of R5 million.

Mr Maqubela said that it was true that the NNR was not adequately funded. NT’s view was that the Regulator should recover its costs from fees. However, the problem was that when NT approved the authorisation fee, it limited the NNR to the Consumer Price Index (CPI), while at the same time cut funding. He believed that NNR costs would indirectly contribute to tariff increases.

Mr Mkhise asked if the DOE had given thought to either retaining the status quo or shifting the date for the Disposal Institute, to accommodate for the gap in policy seen against the practical realities on the ground, which had given rise to technical and safety concerns.

Mr Duma Nkosi, Director General, EDI Holdings, asked for information on the progress of the restructuring of the Pebble Bed Modular Reactor (PBMR) processes. He asked what could be done about Eskom’s reluctance, when the structures were required to be at the forefront and drive the processes.

Mr Robert Adams, Chief Executive Officer, NECSA, said that the Minister of Public Enterprises, as well as PBMR itself, had stated that there was not sufficient money in the budget to support PBMR going forward. This had resulted in the PBMR downsizing its board. The Department of Public Enterprises’ press statement stated that in the absence of a customer, it was necessary for government to review its investment.

Ms Magubane said it was the responsibility of the DOE’s legislative and regulatory framework to ensure that SOEs executed their particular mandate. If Eskom was reluctant to do anything, Eskom needed to shoulder the blame for contravening its mandate.

Mr Adams said that NECSA’s concern was that there was not adequate provision for creation of the new Disposal Institute. A range of system and structures was required and NECSA believed that the resources were inadequate.

Ms Kgomo said that DOE was currently preparing the budget and business plan, to present to NT, for listing of the entity and to deal with issues of resources. At the end of last year nominations were short-listed and these were currently at the compliance office. The Disposal Institute would not replace what happened at Vaalplats. This would remain the National intermediary waste disposal site. It would continue to be managed by NECSA. However, NECSA assets and liabilities would be incorporated into the new Disposal Institute, and NECSA as an entity would no longer have the responsibility of waste disposal.

Mr Mkhise said that the thrust of the technical complications with the Disposal Institute was that the agreements were effectively nullified and from an operational point of view the Institute was awaiting implementation of the structure. To address the technical legal complications, he suggested that either the process had to be enabled by moving back the effective date of implementation, or the Institute had to be put into operation immediately, and incur possible safety concerns and issues in terms of operation. There were broader implications for the country in terms of continued operation.

The Chairperson said that from the Committee’s oversight perspective, Members were not satisfied with the information provided, nor with the time lines for implementation and the legislation processes. She believed that the targets set by the White Paper in 2003, for 10 000 GWh of renewable energy
by 2013, would not be reached by that date. The pace at which the projects were being implemented was unacceptable. She asked for more detail from the Acting Chief Director regarding past delivery of submissions for nuclear energy policy implementation. She also asked when the energy policy was adopted, as it seemed that everything was described as being “in process” and implementation was very slow. She also asked what the issues in NNR and NERSA were that were obstructing implementation. Lastly, she asked why employees were still in their positions, when there had been lack of performance by them in the previous year.

Mr Maqubela said that the Board had decided that it could no longer work with the same executives who made proposals about legislation, yet were unwilling to implement or respond to the Minister’s instruction. A review of annual reports and strategy plans revealed that for some years the NNR had achieved less than half of what it set out to do. However he believed that conditions had changed favourably, and the new executives elected were fully behind the DOE.

Mr Motau was concerned that the DDG was saying that issues with the NNR were discussed and cleared, and instructions were given, but yet nothing had been done. It seemed that the Ministry was lacking the ability to ensure that things were actually being achieved.

The Chairperson asked why the Minister did not act on this issue.

Ms Magubane said that the Minister did act on the matter, had instituted an inquiry with the Ginwala Commission, and would be receiving a report shortly on what went wrong with NNR on that matter. There was a new board and CEO, and the DOE would still review if the NNR complications of the past were still relevant.

The Chairperson said that the response did not give a clear indication for the lack of implementation.

Ms Magubane said that the terms of reference of the enquiry were to answer how the NNR would take care of the government mandate.

The Chairperson asked how much the enquiry had cost.

Ms Magubane replied that it cost R514 000.

The Chairperson said that this was unforgivable. She was still not satisfied with the answer about the NNR.

Mr Aphane said that he was confident that the White Paper target of 10 000 kWh by 2013 would be achieved. By June 2010 the IRP would indicate what would happen beyond 2013. The ISMO would act as the buyer for the renewable energy, amongst other functions. There were a number of independent investors who were waiting for the opportunity to pursue the 10 000 kWh.

Mr Adams said that he was optimistic about the nuclear sector going forward, despite some of the issues facing PBMR, and the disappointment around the postponement of the Demonstration Power Plant Project. He looked forward to working with the DOE on future nuclear projects.

The Chairperson said that there was a need for better awareness on nuclear energy and the associated programmes of nuclear energy.

Mr Adams said he would make that possible, through a commercial that was to be broadcast for the opening of the Nuclear Science Centre in May 2010. This was the result of the former Minister’s and Portfolio Committee’s request for Outreach Education to schools and members of the public on radiation science, reactors and other issues. The Centre was well positioned amongst historic places, such as Sterkfontein in the Magalies Meander. He invited the Committee to attend.

The Chairperson said she looked forward to the invitation as part of the oversight of NECSA’s performance.

Continuation of presentation: Associated Services
Ms Thandeka Zungu said that the DOE’s administration functions assisted the accounting officer and executive authorities in their individual legislative responsibilities to the SOEs, as well as in the reports to the Minister of Energy. The Director General’s responsibility mostly lay in accounting for moneys for NT.

The budget for the 2010/11 financial year showed that around 20% of the budget went to the SOEs. The accounting officer and Director General accounted for where the money went, and for whether the SOEs performed up to expectation.

SOEs were an extension of social economy enhancement and the relationship between SOEs and the DOE was critical. The DOE’s oversight role over SOEs was a shareholder oversight role. It was important that the SOEs’ processes were in alignment with each strategic MTEF plan. The Minister had the power, as the shareholder owner, to instruct the SOEs on their focus. A second oversight function was to ensure the balance between government priorities and the commercial needs of the entities. Not all of the SOEs received funding from government. Some received part-funding and some did not receive funding at all, but all SOEs had to comply as government entities. Therefore an oversight function was to establish a balance between what was expected by government and what was expected by the individual entities in terms of their financial needs. Shareholder board appointment was also a function of oversight. The founding Act of each SOE stipulated that SOE board representatives would report to government. Performance was monitored according to what was agreed upon between the entities and DOE. The DOE did not participate in shareholder conferences or budget discussions for Eskom and municipalities, but had oversight over the broader requirements for implementation of programmes.

Based on the MTEF strategy plan and capacity performance reports, the administration advised the Minister on the quality of those performing oversight within the DOE, in terms of technical, financial and operation skills of the organisation. Monitoring and evaluation was in line with government priorities and principles addressing the Lekgotla.

DOE would meet with the shareholders in around July or August each year, to discuss government priorities for the following MTEF year, so that there was working space for the following financial year. Regular informal discussion forums between the DOE and SOEs maintained communication on various energy issues.

Oversight and monitoring of SOEs, together with strategy and risk management, was previously under the Corporate Service function but was now based in the new office of the Chief Operations Officer (COO).

DOE aimed to invest in building a formidable Team Energy to effectively carry out their responsibilities and serve the people.
Mr Radebe asked how the government ensured that its priorities were balanced with commercial priorities of the SOEs. He questioned why, if there had been effective monitoring and evaluation of the SOEs, the challenges persisted.

The Chairperson asked why there was so much discussion with the entities, and if there was an integrated plan with any other Departments on what was presented that day.

Ms Zungu said that the DOE was dealing with mistakes from the past and making improvements. Improved communication referred to regular and defined meetings. Issues needed to be discussed for implementation, but when recommendations to the board were sufficient and no discussions were necessary, they would be implemented. Entities had commercial obligations, and DOE had the responsibility to ensure that the entities were in line with government. From the planning sessions in July, the SOEs would know what was required for the government and country.

She added that the unit of the Chief Operating Officer was not only responsible for oversight of SOEs but also for the overall functioning of the DOE. One Chief Director was responsible for the strategy and risk of the DOE, and also, to a lesser extent, the SOEs. Another Chief Director was responsible for the monitoring and evaluation, including the Presidential hotline. The third Chief Director was responsible for oversight of the SOEs. More than 80% of these functions were considered critical and were funded.

Ms Magubane reported that, with regard to national planning functions, macro planning at a high level by the planning Ministry would indicate what needed to be done. However, the detailed planning was left to the various sectors. This involved back-and-forth discussion to ensure that plans of one sector were talking to plans of other sectors.

The Chairperson said that she would like the Minister’s instructions to be carried out with less discussion and more action. The Committee would engage on the amendments and the focus of service delivery.

She noted that CEF (Clean Energy Facility) and Petro SA were not represented at the workshop that day.

Mr Nkosi said that he had contacted the Chief Executive Officers of both organisations, who had told him that they had not been invited.

The Chairperson confirmed that they had indeed been invited.

The Chairperson noted that the budget would be presented on the following day.

The meeting was adjourned.


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