Department of Energy Performance Review April to September 2010


11 October 2010
Chairperson: Ms E Thabethe (ANC)
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Meeting Summary

The Department of Energy presented its performance and spending for the first six months of 2010 to the Committee. The overall budget for the Department was R5.53 billion, but the spending to date was at 37.7%, with underspending noted in the programmes for Hydrocarbons and Energy Planning, Electricity, Nuclear and Clean Energy programmes, Administration and Associated Services. The Department indicated that its major funded projects was the Transnet Pipeline, and although a total budget of R1.5 billion was approved, once again there had been significant underspending, which the Department later explained was due to the agreements that each phase of the project must be paid for only on completion and on furnishing of an invoice. The Department was unable to explain the delays exactly, but mentioned that they had included environmental issues. The organisational structure of the Department since its inception was outlined. Although there was a total of 925 approved posts, only 531 were funded, and from these, 458 were filled, leaving 73 vacancies and 394 unfunded posts. The Department had taken some austerity measures, which were outlined. The Department then tabled the projects and anticipated completion dates and current progress, including the progress of the Integrated Resource Plan, licencing of petroleum products, and non-grid electrification programme, which focused on solar heating systems.

Members were not happy with the reports presented, commenting that they appeared to be incomplete, did not clearly show the spending in each programme, and were presented in a confusing format. They also had not specified enough about use of nuclear and clean energy. Members asked what progress there had been on the programmes presented earlier in the year. Members asked about the filling of the posts, particularly questioning where the money for this emanated, since it appeared that a re-allocation of amounts incorrectly paid to the Department of Mineral Resources, although confirmed, were yet to be actually paid across to the Department of Energy. Members questioned the provision of solar heaters, an asked why 82% of the budget for nuclear and clean energy was yet to be spent. Members questioned the spending on Associated Services, the amounts disbursed in respect of the 20 Year Integrated Energy Plan, and the spending on the Renewable Energy Financing and Subsidy Office. They also questioned the spending on the Transnet Pipeline, pointing out that the completion of this was key to transformation in the energy sector, questioned whether the problems now apparent had not been foreseen some months back, and commented also that the Department should be taking a far sterner stance on completion dates. Members agreed that it would be necessary to have another meeting to clarity the projects and completion dates, as well as the figures.

Meeting report

The Chairperson noted an apology from the Minister of Energy, as well as members of the Committee.
Ms Neliswa Magubane, Director General, Department of Energy, introduced members of the team from the Department of Energy (the Department or DoE).

Mr Dakalo Netshivhazwaulu, Acting Chief Financial Officer, Department of Energy, started the presentation with a brief overview of the departmental budget review, major funded projects, organisation and establishment structure of the Department. He outlined the key unfunded activities (see attached presentation for detail).

He noted that the overall departmental budget was R5,53 billion. Of that, only 37.71% had been spent to date. He then expanded upon the spending in each of the programmes for Hydrocarbons and Energy Planning, Electricity, Nuclear and Clean Energy programmes, Administration and Associated Services, which, although allocated the bulk of the budget, had seen spending of about only one-third of the total allocations to date.

The Department’s major funded projects included the Transnet Pipelines. Although a total budget of R1.5 billion had been allocated, there had been only little spending on this, due to the agreement that amounts would be transferred only on completion of phases of the work.

Mr Netshivhazwaulu briefed Members on the organisational structure of the Department since its inception, outlining the posts that had been filled in the last six months. He reported that there were at present 458 filled posts, and 73 vacant positions within the Department. He added that 531 positions were funded and 394 were unfunded, which amounted to the total approved structure of 925.

The Department had taken austerity measures to curb costs, which included restrictions on international travelling, review of the internship programme, restrictions on advertising and commercial media, as well as stringent measures for control of telecommunications costs.

Mr Ompi Aphane, Acting Deputy Director General, Department of Energy, tabled the progress of projects, and set out the anticipated completion dates (see attached presentation for full details). He noted in particular that the Department’s Integrated Resource Plan (IRP) had a completion date set for December 2010. This had been released for consultation to stakeholders.

The licensing of petroleum products was ongoing, and from April to September 2010, 298 applications were processed, 16 were approved and 8 were refused. His report noted that an average of 52 applications were lodged each month.

The non-grid electrification programme, which focused on solar heating systems, started in April 2010, and was allocated a R124 million budget, of which only 0.71% was spent. The solar water heating roll-out would involve 120 000 units rolled out in Nelson Mandela Bay, Ekurhuleni and Mossel Bay. Kroonstad and Bloemfontein were to receive a total of 40 000 units each. A Memorandum of Understanding (MOU) had already been signed for the solar water heating units in these areas.
The Chairperson commented that the presentation of the report was confusing and that it was hard for her to follow. She was not easily able to see what spending had been done, and commented that there did not appear to be enough focus in the report. She also commented that nothing was said about use of nuclear and clean energy. It would be difficult for Members of the Committee to interact without clear information presented to them.

Ms L Moss (ANC) said that she too was not able to follow the report. She had anticipated that the Department would have been taking the Committee through the programme that was discussed earlier this year.

Ms N Mathibela (ANC) said that she wanted clarity on the 73 posts which were not filled.

Ms Mathibela also asked about clean energy and whether the Department was paying attention to climate change, since the expenditure report did not reflect that. She also commented that it appeared that little money had been spent.

Ms Mathibela asked if the Department was taking the poorest of the poor into consideration, when speaking of solar power, and if it was looking at free basic electricity.

Mr Aphane replied that this was a very important question. The Department had a deliberate programme for cushioning the poor. A number of initiatives had been started to complement free basic electricity and free basic alternative energy, particularly since the electricity tariff was rising. One of those initiatives was to provide solar water heating to the poor, in addition to the 15 units of free electricity. This meant that the free basic electricity could be put to uses other than heating water. So far, only certain regions, such as Nelson Mandela Bay, had been targeted.

Mr J Selau (ANC) pointed out that Slide 5 of the presentation indicated that 37.1% of the budget had been spent thus far. However, he commented that the mid point of the year had already been reached, and this should be matched by the spending. The purpose of this meeting was to try and see whether the Department was on track with spending. It appeared that in some areas there was under spending, and in others there was over expenditure. He pointed out that, in respect of nuclear and clean energy, the Department made reference to 82% of the budget which had not been used. He asked for clarity on this, and asked how the spending would look by the end of December. He further asked how the project progress report and completion dates presented related to the overall budget.

Mr Aphane replied that the Department’s focus at this meeting was on the budget report. The Department had indicated, on pages 11-17, that some programmes did have financial implications in relation to the overall budget. However, there were, as also indicated, some programmes that did not have financial implications, such as the Integrated Energy Planning, so that the Department had not felt that it was necessary to include more details on that. He apologised if this had caused any confusion.

The Chairperson asked the Chief Financial Officer to expand upon the figure of R3.4 billion, which he had referred to twice in his presentation.

Mr Netshivhazwaulu said that he had noted the Chairperson’s remarks about the way in which the presentation was given.  He said that the majority of the Department’s expenditure related to the R3.4 billion mentioned, which was for Associated Services. The only transfer that was missing from that figure was an amount of R1.5 billion, which had been included under the hydrocarbons and energy spending. He added that there was a budget for hydrocarbons and energy planning, but the 1.5 billion had related to multi-purpose spending.

The Chairperson also questioned what amounts were being disbursed in respect of the 20 Year Integrated Energy Plan, per month. She noted that the presenters had mentioned that amounts were being disbursed, and stressed that it was necessary for the Committee to know how much was being spent.

Mr Aphane replied that most of the money paid was in respect of affiliations to the National Atomic Agency, but since most of the nuclear programmes did not have a direct funding requirement, this meant that the funding for them was reflected as zero.

The Chairperson said that the position in respect of the Renewable Energy Financing and Subsidy Office (REFSO) looked poor, as only 2.36% had been spent on it thus far in the financial year, which brought into question what plans had been made for spending over the next six months. She wondered if the Department would be able to spend the rest of the allocated budget, and asked what the challenges or the delays were around the spending.

Mr Aphane said that REFSO was a subsidy office, which was dealing with the renewable energy target for 10 000 Gigawatt (GW) hours by 2013. REFSO spending had not advanced, for reasons relating to the Renewable Energy Feed In Tariff (REFIT) programme, which had not shown movement until recently. The IRP was only promulgated early this year. When that target was resourced in the plan, there was no money in the ESKOM tariff in January. Money had become available for the 10 000GW only in April 2010. The Department had then needed some time to decide which technologies were ready to be included in the grid. The market sounding which was targeted for 2013 was not satisfactory. The Department had now re-formulated and completed the market sounding and had a list of projects which indicated how advanced the technologies were. This would inform them how much of the R20 million subsidy could be allocated to those processes. The full complement was R120 million for the next three years. He assured the Committee that the Department would be able to utilise the money, and that there was no cause for concern on that front.

The Chairperson said that with regard to the Transnet Pipeline, there had been a public hearing on 14 and 15 September, to assess how far this project had progressed, since its completion was key to the transformation in this sector. She said that 23.33% expenditure, out of a R1.5 billion budget, did not seem to correlate.

Mr Netshivhazwaulu replied that with regard to the Transnet pipeline, the only amounts that were transferred thus far were reflected in the presentation figures. The Department retained the remaining funds, which on aggregate put the Department’s own finances at a lower position.

The Chairperson asked why this was so.

Mr Netshivhazwaulu answered that the Department had an agreement with Transnet that the Department would only pay over on completion of each phase, after Transnet had furnished an invoice confirming the completion and the amounts to be paid.

Ms Magubane commented that Transnet was behind schedule, and the Department had received a letter from Transnet confirming this, which was the reason why the expenditure was slower than expected. She reiterated that it had been agreed that the Department should pay only for each phase of completion.

The Chairperson said that delays should be communicated to the Committee. The money budgeted could not all be used if there was a delay at Transnet. She asked what exactly the problem at Transnet was. The Department had been asked about the issues in March this year and she asked whether the problems within Transnet were not known at that stage.

Mr Netshivhazwaulu answered that some of the issues that currently faced Transnet and the Department had not been known before the current time. The agreement with Transnet had been on the table since November 2009, and was finally concluded it in May 2010.

The Chairperson said that in March 2010 the Committee had been told that the R1.5 billion allocated for Transnet was to be used, yet six months down the line it still had not been used. She asked again what exactly the cause was for the delay.

Mr Netshivhazwaulu said that this was something to do with engineering work. He could not exactly state what the problems were, but said he also understood that there were some environmental issues that were causing delay.

Mr Selau pointed out that it was problematic if the Department of Energy was being submissive to Transnet. The Department was part of the government running the country, and must protect the interests of the public. Transnet should not be allowed to tell government what it could or could not do, and he recommended that a much sterner approach should be adopted by the Department.

Ms Mathibela asked whether Transnet could give the Department an alternative plan. If they did not deliver, then it would not reflect well on the ANC in the run up to the next government elections.

Ms Moss added that the Department needed to put a time frame on completion of the project, pointing out that time was marching on toward the end of the year.

Mr Zingiza Mavuso, Chief Director: Petroleum Controller, Department of Energy, said he could shed some light on the progress on the delays surrounding the pipelines. Transnet had proposed a tariff that was perhaps higher than fair to carry out the pipeline work. When the design of the pipeline was confirmed there were some environmental concerns, necessitating a redesign. The main issue now was that reports were indicating that perhaps the original design was more appropriate.

The Chairperson asked about staff structure and vacant posts. Unfunded posts was raised as a challenge, and she asked the reasons for this. She also noted that if the Department was failing to spend the money already allocated, then there was no reason why National Treasury should give any more.

Mr Aphane responded that after the workshop, the Department had made a presentation to the Members, during which he had compared what was ideally planned, in terms of the overall structure of the Department of Energy, against what structure had then had to be put in place when it was realised that the funding for the new Department of Energy would not be sufficient to fund the initially planned structure. The Department was then forced to identify which critical positions would ensure the workable establishment of the Department. Only those newly created critical posts in support services were filled, and he pointed out that this resulted in a minimal staff structure. Not all the critical posts had been funded, because part of the money was erroneously allocated to the Department of Mineral Resources (DMR) when the former Department of Minerals and Energy had been split. As indicated by the Chief Financial Officer, an amount of R30 million was reallocated, but the Department was still liaising with National Treasury to get the proper allocations. In the meantime, however, a decision had been taken to use part of the money to fill vacancies, on the understanding that the full and correct allocations would ultimately be made.

He outlined that the 325 posts mentioned were positions were critical, and were needed in order to kick-start the new Department of Energy. They included support services, corporate services and chief financial officer components. When the Department had become aware that it would be receiving the R30 million mentioned earlier, it had started to fill those posts that were the most critical in terms of the entry structures. There were another 206 posts, making the total to be filled 531 posts. Of this, 458 had already been filled. The 73 vacant posts still remaining had been advertised, and the majority were at an advanced stage of being filled. The full staff complement approved by the Minister for the Department was 925. The figure of 394 thus represented the 925 approved posts, less the 531 that were funded, as well as those funded by the money erroneously allocated to the DMR.

The Chairperson asked where the Department of Energy obtained the money to fund employment if the money had been erroneously funded to the DMR.

Mr Netshivhazwaulu replied that the process of obtaining this money happened in October, through the adjustment budget process. Earlier, in July 2010, the Department of Energy had been notified by National Treasury that the money would be reallocated through the adjustment process, which the Department had then taken as approval to proceed with the filling of the posts. Had the Department waited until it actually received the money in October, this would have put the filling of posts three months behind. The Department had prioritised its requirements, and from the R30 million that was due to be reallocated, R12 million would be applied to hydrocarbons, R6 million to administration, and further amounts to electricity.

The Chairperson noted that the money was not actually in the hands of the Department, since it was still with National Treasury, and therefore wanted to know what money had been used to employ people, an what had been used for electricity projects.

Mr Netshivhazwaulu answered that cash flow was not considered separately for each programme, but instead the Department could balance its programmes and decide how to balance the amounts that were actually available as cash at a given time. The Department had requested additional money to augment its cash flow, to be able to fund the employees. He likened this to a process of rollovers, saying that if the Department was given an indication of the amounts involved, it could then decide how to adjust its cash flow to match its new money.

Ms Moss commented that she had understood that although the allocations were to be corrected, the money was actually still with National Treasury, and enquired whether the Department had received approval from National Treasury to spend on the structure.

Ms Mathibela asked for clarity on 7.04% expenditure for nuclear energy and electricity.

The Chairperson asked for clarity on the development of the National Integrated Energy Modelling System which cost R90 million, but which had noted a figure of R3 million for Phase One. She asked for an explanation on this.

Mr Netshivhazwaulu said that with regards to the Integrated Energy Plan (IEP) there were programmes that the Department was running internally. However, the major part of the expense would relate to the modelling system itself, which was why he had said that the Department would soon be in a position to disburse funds, because the procurement system was almost complete and the service provider would be starting the modelling process. Thus a major part of the R3 million would be going to procurement.

Mr George Mgnuni, Chief Director, Department of Energy, further stated that one of the issues in the planning had been integration. The Department had introduced the Integrated Resource Plan (IRP), which was an electricity specific plan. IEP was the umbrella energy plan, which spoke not only to electricity, but also gas and petroleum infrastructure. If the IEP was not in place first, the Department would not have been able to develop the energy modelling system. He reiterated that the total cost would be R90 million.

Ms Moss asked whether the Department still took on interns, and the reasons, and why it was reviewing internships.

Mr Mnguni replied that there were 55 interns in total and that the programme was still continuing.

The Chairperson said that she was still expecting to be given accurate figures.

Mr Selau said that he felt that the responses about financial implications were insufficient. A number of issues were raised in this area. He questioned what was meant by the statement in the presentation that a memo was prepared for the establishment of electricity distributors. He said that the projects and completion dates needed to be further discussed, as they were still unclear. He suggested that this should be done during another meeting, or a workshop, and stressed that  Committee Members needed to be fully informed.

The Chairperson reiterated that the presentation given had been fragmented and confusing.

Ms Magubane assured the Committee that there would be no problems with implementation. The Department had systems in place, which would be rolled out as soon as possible.

Mr Selau said again that another meeting was required, at which actual amounts should be presented and proper recommendations made.

The Chairperson said that another meeting would be scheduled for October, when accurate information and figures should be presented.

The meeting was adjourned.


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