Central Energy Fund, PetroSA, Nuclear Energy Corporation SA: 2009/10 Annual Reports

Energy

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

Central Energy Fund and its subsidiary PetroSA presented their 2009/10 Annual Reports. Both noted substantial losses and a drop in profits, some being expected and planned for, such as shut down, and others not. Most challenges faced by the group resulted from the global economic downturn, dwindling gas reserves at PetroSA, and the tri-annual shutdown. The fluctuation in the oil and gas prices and a stronger rand were also contributing factors. Both companies reported on the highlights for the year, and presented their annual financial statements. CEF cited continued development of energy research hubs, support for post-graduate students and Energy Research and Development projects, as well as the South African Supplier Development Agency (SASDA) breaking barriers for entry into the energy industry. CEF came under fire for allegedly giving false information to the Committee the previous year, when reporting on the 2008/09 financial year, on the roll out of one million solar water heaters, with Members stating that their subsequent oversight showed that none had been placed in Ekhuruleni. The Chief Executive Officer attempted to explain the context of his remarks the previous year, but was again taken to task for his inability to present figures, and the Committee resolved not to accept the report of CEF and to take the matter up with the Minister. Other questions were asked in relation to future plans for the Energy Efficiency Campaign and its funding, the fruitless and wasteful expenditure in both CEF and its subsidiary PetroSA, the tax position in regard to these two and the Strategic Fuels Fund, and what investment was made by these entities into communities, and to help people, especially women, enter the industry. Members suggested that there was a need for SASDA to become more visible and do more.

PetroSA outlined its history, background and noted that its core business was the exploration and production of natural gas, local and international upstream petroleum ventures, production of synthetic fuels from offshore gas, as well as the development of refining and liquid fuels and logistical infrastructure. Its revenues had fallen R8 billion from the previous year, recording a net loss of R356 million. Performance was good in relation to employment equity, also at board level, preferential procurement and black economic empowerment, and good progress was also shown on F-O field development, Liquid Natural gas, crude refinery and some of the projects. It was working hard to address the challenge of drought. Members asked what the break-even and competitive prices would be, questioned the liability for tax and tax concessions, asked about the loan agreement for oil exploration, and the results of exploration in Equatorial Guinea and Egypt and Mthotho. They noted the unqualified audit but questioned the net loss and unauthorised expenditure. They asked what strategies would be used to recover from the loss, questioned whether any turnaround was needed, and noted the need to follow up on the Liquid Fuel Charter.

The Nuclear Energy Corporation South Africa (NECSA) presented its annual report, and described some of the progress made in 2009/10, including progress towards accreditation of the Nuclear Manufacturing Centre, its status as leading supplier of medical isotopes, and achieving a National Science and Technology Forum award, as well as conversion of the SAFARI-1 reactor. Its emergency control centre was upgraded, and it had employed people prior to and after the 2010 World Cup to protect ports of entry and stadia. The Nuclear Skills Development Centre was accredited as a decentralised Trade Test Centre, R26.5 million was invested in upgrade of site infrastructure, and R15.2 million in Research and Development infrastructure. NECSA was responsible for institutional obligations on nuclear matters. The Integrated Resource Programme IRP2, planned a nuclear energy expansion programme costing R462 billion until 2030, and this offered potential for huge revenue and industrial development in South Africa. Staff increased, in line with employment equity, and mentorship and coaching programmes, internship, bursary and apprenticeship initiatives, as well as outreach programmes, were described. Financial performance reports showed an increase in sales, but also increases in expenditure, resulting in a net loss of R31 million for the NECSA group. An unqualified audit report was given, but there were emphases of matter relating to uncertainty on the taxpayer status, restatements of some figures, material impairment of investment in a subsidiary and contingent liability for PAYE tax. The baseline for NECSA had been reduced for 2011 to 2014, and funding was needed to fulfil its role and retain staff, and to avoid deterioration of infrastructure. Members asked about the tender process for the medical isotopes, the Forum award, and sought clarity on the costs and responsibilities for the nuclear build programme, as well as the job opportunities, and NECSA’s role in this programme. Members were concerned about the financial constraints in the next budget, especially in view of plans to roll out IRP2. Members questioned the large raise in salary for executive directors, noted the challenges in retention of highly skilled nuclear staff, hoped that NECSA was not poaching staff from the National Nuclear Regulator, and asked about disabled staff. They also asked about the restatement of figures and the outreach programmes. 


Meeting report

Mr Mputumi Damane, Chief Executive Officer, Central Energy Fund, outlined briefly the results of the Central Energy Fund (CEF) for the 2009/10 annual year. He mentioned some of CEF’s subsidiaries, but focused mostly on PetroSA, its biggest grossing subsidiary. Its operations included renewable energy, conventional fossil fuels and cross-cutting energy related issues.

Renewable energy activities consisted of commercial projects, developmental projects and solar water heaters. Conventional energy activities focused on African exploration, PetroSA and the Strategic Fuel Fund (SFF).

Challenges the group faced in this financial year included the global economic downturn, dwindling gas reserves at PetroSA and the tri-annual shutdown, which meant less production. The fluctuation in the oil and gas prices and a stronger rand were also contributing factors. Among the highlights was that CEF had maintained strategic oil stocks, managed environmental responsibilities and liabilities without incident and had expanded piped gas capacity through compressor investment. A successful PetroSA maintenance shutdown was also reported.

The highlights in cross cutting energy included continued development of energy research hubs, support for post-graduate students and energy Research and Development (R&D) projects. Mr Damane reported interactions on a number of energy efficiency projects as well as breaking barriers for entry into the energy industry through the South African Supplier Development Agency (SASDA).

He set out the CEF financial figures for the year (see attached presentation), with a comparison to the previous financial year, noting a drop in profits. He noted also that in the previous year CEF had yielded over R2.8 million in investment income, as opposed to R1.02 million in the 2009/10 financial year, largely attributable to the decrease in interest rates. The total equity and liabilities in 2010 was slightly higher than in 2009, but the cash and cash equivalent figure was lower. He noted that the decrease in cash reserves were expected as a result of the major projects that had been planned, including the Crude Refinery in Coega and Liquified Natural Gas (LNG) importation for the Mossel Bay refinery.


Discussion
Mr L Greyling (ID) noted that CEF had mentioned problems with the Energy Efficiency Campaign and asked for the future plans. He had noted, in the emergency plan from Cabinet, that far more emphasis would have to be placed on energy efficiency to mitigate the potential crisis. He asked if the agency was up and running or whether it had been removed from CEF.

Mr Damane said that the problems were institutional. The agency was supposed to be at CEF, but its mandate in this regard was not funded, and there was no money to execute the plans. The electricity legislation placed the agency under the South African National Energy Development Institute (SANEDI), which was to move out of CEF, and that was how the agency would in future be funded.

Mr S Motau (ANC) was concerned about the financial figures, noting that there had been fruitless and wasteful expenditure both in CEF and Petro SA, totalling nearly R40 million for the two together. This suggested that officials were being negligent.

Mr Damane replied that it was necessary to look at the Group’s accounts. R10.5 million related to interest charged by South African Revenue Services (SARS) on taxes. That, however, was not through any fault on the part of CEF. CEF did not want to pay tax if it did not have to, but the problem was that SARS changed its position frequently. This was something that CEF was going to take up with the Minister. He added that SFF, being an agent of the State, should not be paying tax.

Mr Motau noted the comment but said that essentially CEF was withholding and investing its tax liability, paying only when demands were made on it, which was a dangerous practice, since not only was the entity speculating with public funds, which could cause serious trouble, but its delay at the start resulted in it having to find huge amounts at the end to pay over.

Mr Damane explained further that SFF was a Section 21 company, which was a State agent. Only recently had SARS changed its position, and had then imposed tax for the 2006 financial year. He said that CEF was not “gambling” with the State’s money, but had engaged tax consultants to advise it properly. Currently, CEF and SARS were deadlocked, so the matter had been escalated, and guidance was being sought whether SFF should now start paying tax, which it had not done in the past in line with its status as agent of the State.

The Chairperson said that there surely should be some manner in which this could be resolved, such as getting written rulings from SARS.

A CEF delegate said that it had engaged with SARS, who had advised that two other State entities were currently litigating with SARS around these issues, and who had advised that clarity should be sought from the Minister.

The Chairperson understood that PetroSA was a primary subsidiary of CEF, but wondered why the presentation did not make mention of the other smaller entities under its umbrella.

Mr Damane responded that CEF had started PetroSA, which was funded by CEF in the same manner as all the others, and CEF was hopeful that the smaller entities would reach the same level as PetroSA. SFF had been making significant headway, but CEF was also pleased with the other entities.

The Chairperson said that the reply had not satisfactorily addressed her question.

Ms L Moss (ANC) pointed out that SFF had been making profits, and enquired what investment it was doing into the surrounding communities, particularly De Noon, as merely making a profit was not enough.

Mr Damane replied that the aim of any business was to make a profit. However the CEF companies did assist in projects that impacted positively on the community. SFF had been operating in that area for a long time, and although it had done much in the past, this had dropped in the most recent years. SFF would have to look into raising its assistance to communities again in future.

Mr Motau said that SASDA was supposed to assist people to get into the industry. Recently, he had heard comments from women entrepreneurs who dismissed the Fuels Charter as “a lot of chatter”, and he enquired specifically what CEF was planning to assist women to enter the fuels business.

Mr Damane said that SASDA was trying very hard, despite difficulties in dealing with oil companies, was making progress and hoped to be able to fund itself within the next year or two.

The Chairperson said that SASDA was formed to assist people, but seemingly made little progress since those it was supposed to assist were still battling. She enquired what exactly what they were doing, and agreed that there was a need to become more visible, and do more.

Mr J Selau (ANC) said that the presentation had not clearly outlined past, present and future plans. He asked whether there was significant progress on the previous year, when CEF reported PetroSA as making headway and the rest of the smaller companies as being in the forming stage, asked why any progress was not described, and asked if CEF anticipated that this economic development would assist development in future.

Mr Damane pointed out that his report had addressed the results from the last financial year, 2009/10, and he would be very wary of attempting to predict the future. The Auditor General had not foreseen any problems for the future, but questions must be asked about the role of CEF. It was not the full owner of some projects, and there were limitations in some contracts in relation to their continuance.

The Chairperson said that the Members were asking critical questions, because CEF had been given allocations to do work, but did not appear to have done it. She said that consideration must be given to the future of the company. SASDA had to start making itself relevant, and development and transformation needed to take place.

Mr Damane replied that businesses everywhere looked to the future, and CEF was staying in the renewable energy space. This was a new field, and CEF was the first agency in the country to address it when it had not been making money. Currently, CEF was making headway but certain regulations were hindering its work. CEF was the first agency in the country to set up a carbon trading mechanism, which was taking advantage of developments and looking to the future. CEF was making progress in complying with the United Nations Framework for Climate Change, and was currently the only agency in South Africa that was generating its own carbon emission reductions, which would be sold through CEF’s own company that it had set up in London. It was interacting worldwide with others who were looking to the future. CEF was aware that it could not only focus on the positive, but must look at all potential problems. CEF was a centre for knowledge. He conceded that the smaller subsidiaries were not making money, but noted that, until recently, neither had PetroSA, yet it was now performing.

The Chairperson said that this answer was more satisfactory.

The Chairperson referred to the 2008/09 Annual Report of CEF, and noted that Members had wanted to check how far the projects that were presented as highlights in that financial year had moved, since taxpayers’ money was spent on them. Members had been particularly interested in the rollout of solar water heaters (SWH), but had received excuses from CEF each time an oversight visit to examine these projects was proposed. Members eventually discovered that SWHs had not been rolled out, particularly in Ekhuruleni. This meant that the Committee had adopted what was essentially an incorrect report, and the Chief Executive Officer had committed a serious transgression by misleading the Committee. For this reason, she wondered if the current Annual Report could be trusted. 

Mr S Radebe (ANC) confirmed that the CEO’s report of that year claimed to have rolled out one million SWHs, but this had not been done. He said nobody should present false information to Parliament.

Mr Selau though that the CEO should be allowed to present his explanation, and to tell the Committee in what direction any rollout that might have occurred needed to go. It would be necessary for the Committee to assess how much trust it could place in CEF.

Ms B Tinto (ANC) suggested that an explanation, and apology if necessary, should be given.

Ms N Mathibela (ANC) referred to Page 11 of the presentation, which stated that CEF had made strategic investment into the sector and remained the senior investor for South African operations, but that its commercial scale plan failed to achieve the requirements. She asked for clarity why it failed.

Mr Damane explained that CEF did not run the project Johannes Solar, but had merely invested in it. It involved technology developed in Johannesburg, which was the first of its kind in solar Photovoltaic (PV) CEF became involved when the university sold the rights to a German partner, hoping it would operate on a commercial scale in Germany. For technical reasons, what had been developed in the laboratory did not match the factory situation, and so another SWH was being developed in South Africa. When he had presented the results, he had said that CEF was negotiating with and trying to reach agreement with the Ekhuruleni Municipality about installation of water heaters, as this municipality was lagging behind Nelson Mandela Bay. He had not said that CEF was to roll out one million water heaters, as it was government who had committed to doing that. CEF had no capacity to install one million SWH. Government was working with many players in the South African energy sector, although CEF was one of the leaders. He apologised if there had been a misunderstanding, saying he never intended to mislead Parliament.

The Chairperson stopped Mr Damane from proceeding further. She said that he was attempting to give a qualified apology. She did not recall him having said this last year. She presented him with the slides that had been tabled for the 2008/09 Annual Report, which clearly stated that CEF was developing SWHs. She had asked, at that particular meeting, whether CEF’s SWHs were part of the one million that the Department of Energy was putting in place, and asked if the entities were working together. Mr Damane had referred to a “rollout” last year, and when he was asked where this was being done, he had responded that it was being done in Nelson Mandela Bay and Ekurhuleni. The Committee had accepted the veracity of this. He should not try to twist his words.

Mr Damane stated that he was at a loss to explain this further. CEF had not rolled out the SWHs, and no agreements were signed with municipalities, since the parties had battled to reach agreement, which resulted in Nelson Mandela Bay rolling out, but not Ekurhuleni.

The Chairperson said that the information seemed to be have been “thumb-sucked” by CEF. CEF should have clearly set out its problems rather than misleading the Committee.

Ms Moss referred to the presentation given by Department of Energy on 12 October, in preparation for the Budget Review and Recommendations Report (BRRR) and asked with whom Ekhuruleni municipality had signed the Memorandum of Understanding (MOU).

Ms Neliswa Magubane, Director General, Department of Energy, said that it was signed with Eskom and the suppliers of the SWHs. There was an intention to extend that with CEF and discussions with CEF for acceleration of its original programme were in an advanced stage.

The Chairperson asked Ms Magubane not to contribute to the problem, but to provide accurate answers.

Ms Magubane confirmed that the MOU had been signed by Eskom, the SWH suppliers and the Department, but not CEF.

Mr Radebe said that one of CEF’s key activities lay in SWHs. He wanted clarification when and where that was going to take place.

Mr Damane said that he was unable to say exactly when, but it would take place all over the country, but could not confirm more at this stage.

The Chairperson asked why his report did not contain those facts.

Ms Mathibela said that even if he could not report on exactly how many were involved, he should be able to report where they would be installed, to enable the Committee to do oversight.

Mr Damane pointed out that his report related to 2009/10, and was dealing with past activities. He did not know where CEF would be installing SWHs, because he had not been asked to prepare on this, which would taken place in 2010/11.

The Chairperson said that he misunderstood the question. Ms Mathibela was asking him about the report he had given, which was linked to the last year’s report, and was asking where CEF would roll out the SWHs.

Mr Damane said this would happen in Nelson Mandela Bay.

Mr Greyling asked how many had been installed.

Mr Damane said CEF had commenced rollout in Nelson Mandela Bay but was unable to give an updated number, as installations happened both last year and this year. CEF itself did not do the installations.

The Chairperson said he should at least have an idea on how many were involved and how much was paid.

Mr Damane replied that he was reluctant to say whether the numbers were in the hundreds or thousands. He would not like to commit himself to a figure, as the Committee might hold this against him the following year. He did not have the correct figure with him.

The Chairperson said that the Committee had to decide whether to accept the report.

Mr Selau said that, without wanting to offend Mr Damane, it seemed that Mr Damane, in not providing the information, was displaying some passive resistance, but if he promised to consult with those doing the installation and report back, then that gave the Committee some hope.

Mr Greyling said that there was a commitment to SWH and energy efficiency. It was necessary to pay attention to this, because this was the quickest, easiest and cheapest route to get the country out of its immediate electricity crisis. Instead, the Committee had seen many institutional problems regarding the rollout both of energy efficiency and SWHs. He asked what role CEF had in SWHs. If it was to sort out the institutional blockages that were causing the delay in rollout, then he wanted to know what success CEF had had so far. He asked what CEF’s plans were for solving this institutional crisis and how it was working with the DoE in the rollout. It did not appear to be sufficiently serious about the implementation, and that must change.

Mr Radebe stated that the Committee had the right to subpoena CEF if it did not produce the figures. It seemed that the presenters were unprepared, and they should not be allowed to bluff members.

The Chairperson cautioned Mr Radebe against making such strong allegations. She asked for a proper report on the issues.

The Chairperson said that it was clear that CEF Annual Report presentation was not acceptable to the Committee. It would be necessary to engage with the Minister. Commitments were made by the President, and CEF, as a government entity, was not doing what it should be doing, which was a problem.

Petro SA 2009/10 results and future plans
Dr Nompumelelo Siswana, Vice President, Trading and Logistics, PetroSA, gave a presentation on the company’s background and core business, noting that this revolved around the exploration and production of natural gas, local and international upstream petroleum ventures, production of synthetic fuels from offshore gas, as well as the development of refining and liquid fuels and logistical infrastructure.

It had been a challenging year for PetroSA, whose revenues had dropped to R8 billion compared to R12 billion reported in the 2008/09 financial year. Dr Siswana said that the R4 billion drop was expected, due to the statutory shutdown and reduced oil prices (US$69 compared to US$84 per barrel). R356 million was reported in net losses, very different to the R1.9 billion of profit last year.

Dr Siswana then reported on performance against objectives for 2009/10. Good progress was made on employment equity, on preferential procurement and Black Economic Empowerment (BEE) and good progress was made on F-O field development, LNG, crude refinery and Project Castle. The employment equity statistics showed that 7 out of 23 board members were female, and 78% were historically disadvantaged South Africans (HDSA), of whom 26% were female. R20 million was spent on skills development, Centre for Excellence bursaries and leadership development. From the BEE perspective,
there was a 27% increase in BEE sales from R146 million to R186 million litres. Preferential procurement totalled R1.26 billion and enterprise development increased from R36 million to R69 million.

Dr Siswana said that drought was a key threat to sustainability, but the company was working to address the crisis by spending in excess of R100 million on an effluent treatment plan, which supplied 5 million litres of water per day, a desalination plant to produce 15 million litres of water per day of which 5 million litres went to the to the Gas-to-Liquid plant and the rest to Mossel Bay municipality. It was also recycling storm water and effluent water.

Mr N Nika, Chief Financial Officer, PetroSA, outlined the financial statements briefly (see attached presentation for details). He noted the historical performance trends, noting that lowest prices per barrel occurred in 2009, 2006 and 2003. He reiterated a revenue decrease of R4 billion and cost of sales decrease of R2 billion. He also set out the figures for other income, other operating expenses variance, investment income (R586 million) and noted that profits from discontinued operations was at R403million. The total equity and liabilities was less than the previous year, and the cash flow also had reduced. The total cash used by operations totalled R1 billion. He further reported that the Auditor-General had reported fruitless and wasteful expenditure of R15.5 million, and irregular expenditure of R0.31 million.

Discussion on PetroSA issues
Mr Greyling asked about the price of oil, wanting to know at what level PetroSA would reach break-even, and when it would be competitive.

Mr Nika replied that the break-even price would be US$48 to $52 per barrel. However, there were many variables involved, so the issue was not straightforward. PetroSA had a high ratio of fixed cost, driven by the volumes pushed through from the platform. Sometimes, PetroSA would be making a loss for each day that the oil was at the refinery, because volumes were low, even though the price may be above break-even.

Mr Greyling asked if PetroSA was liable for tax or not. It was a State owned entity competing in a private field, which meant that, if exempt from tax, it would have an unfair advantage over its competitors.

Mr Nika said that PetroSA did pay tax but, because of the nature of the organisation, it enjoyed some tax concessions that other oil companies did not.

Mr Greyling asked about the loan agreement for oil exploration. Loans of R760 million and R408 million were granted to explore Equatorial Guinea, but produced nothing. He asked what the interest was in that area, and how, if gas had been found, it would be transferred to South Africa. He also asked for the rationale behind spending R990 million and R523 million in exploring for gas in Egypt, which was an enormous result that had not yielded results.

Mr Nika answered that the business of PetroSA lay in exploration, which was usually done through a company incorporated in that country, which also allowed it to ringfence a risk into individual subsidiaries. All the loans went to such companies to carry out exploration. PetroSA had an opportunity and a commitment to drill wells in Equatorial Guinea, of 5km in depth. It had not come across any hydrocarbons, but it was the nature of the business that substantial capital might be put into something which did not eventually produce a gain. In regard to the block, he noted that the block next to that of PetroSA had been producing oil, but it was unfortunate that the PetroSA exploration failed to find any hydrocarbons. However, PetroSA was maintaining a presence in Equatorial Guinea in case another company drilled and found oil. The same applied to Egypt. The loans would either be written off or impaired.

Mr D Ross (DA) referred to the PetroSA media release, which was very positive. PetroSA’s financial position remained strong, despite the loss shown in 2009/10. He was, however, concerned about the R360 million in net losses. It was understood that exploration was costly, but noted that revenues had dropped R4 billion, or 33%, which was of huge concern. The fact that the Auditor-General gave an unqualified report was encouraging, and it softened the blow of the loss. He wondered if, in light of the loss and the uncertainties, it made business sense to sustain the Gas to Liquid refinery.  

Mr Nika said that last year PetroSA reported a profit of R1.9 billion but he recalled predicting to the Committee that when he reported for the 2009/10 financial year, he was likely to report a loss in billions. PetroSA had tried to contain its costs, which were in fact lower than expected, and was managing the situation.

Mr Motau said that the F-O field development defined was estimated at 1 trillion cubic feet. He asked whether this was confirmed, or was an estimation, as the answer had implications for the questions that Mr Ross had raised. He also questioned what was the situation with Mthombo, in which there had been substantial investment, which many believed might amount to nothing.

Mr Nika said the gas was certainly proven to be there, but the challenge lay in how to extract it, since this area was different to other areas explored. PetroSA had embarked on detailed studies to look at the best possible way of extraction, bearing in mind the substantial differences in the geographic structure of the rock.

Mr Radebe asked when PetroSA planned to address the challenges set out in the presentation.

Mr Radebe referred to the graph that highlighted the historical performance and asked what system was used in 2004 to recover, what strategy would be used now, and when PetroSA would feel that it was in a good position.

Mr Nika answered that the issues that led to the loss were known, being attributed to the shut down as well as to the loss of volumes. PetroSA had ensured that this cost was nonetheless controlled. The profit in the first six months of the financial current year was R400 million, so PetroSA did not require any turnaround strategy. He acknowledged a need for an overall turnaround strategy to address sustainability, which would include questioning whether the gas-to-liquid refinery should be shut down. Phase 4 was the F-O development. PetroSA tried to come up with a solution for gas to liquid, but found that the existing prices were not commercially viable and instead decided to refocus on local resources.

Mr Radebe acknowledged the Auditor-General’s report. However, he noted bullet point 4, which stated that an employee had awarded a contract to a service provider, in excess of the employee’s limitations. He asked what measures had been put in place to avoid a recurrence of this issue.

Mr Nika replied that this related to past PetroSA marketing activities in relation to involvement in the J&B Met, and jazz festivals, which it then stopped this because of the financial slowdown. The employee concerned had believed that the necessary authority to sponsor the J&B Met was available, which led to PetroSA having to continue with the event. However, the official was dealt with appropriately.

Mr Selau pointed out that PetroSA’s slides used colours to represent how well or poorly certain areas were performing. He noted that, for instance, this colour coding showed that the objective of people scored well on one side, whereas the slide for employment equity indicated a bad scoring.  

Mr Nika answered that the colours were not related to the rating given later, but the rating was consistent with the Annual Report.

Ms Moss noted, in respect of slide 7, that women should not be bound to certain roles if they had the potential to undertake other jobs.

The Chairperson said that wasteful and fruitless expenditure was not acceptable, but she was generally happy with the report by the Auditor-General. The Committee would want to follow up on some issues, such as the Liquid Fuels Charter.

Nuclear Energy Corporation South Africa (NECSA) 2009/10 Annual Report
Mr Rob Adam, Chief Executive Officer, Nuclear Energy Corporation South Africa, gave a brief overview of the Corporation (NECSA) performance. Input had been provided to the Department of Energy (DoE) nuclear power Integrated Resource Planning process, with further input being due in November 2010.

NECSA’s nuclear manufacturing centre (NMC) had made good progress toward ASME III accreditation in preparation for localisation from SA’s nuclear energy new build programme. NECSA had also found itself having to drastically downsize the Pebble Bed Modular Reactor (PBMR) programme to prevent loss of scarce nuclear skills for SA.

Mr Adam reported group revenue of R795 million, which was a 46% improvement on the budget. NECSA was currently the leading supplier of medical isotopes. NECSA won the National Science and Technology Forum award for innovation for developing OSCAR-4 reactor calculation system. It had also seen a successful conversion of the SAFARI-1 reactor to LEU fuel. The emergency control centre for NECSA was upgraded and they played a vital role during the 2010 FIFA World Cup in protecting South Africa’s ports of entry and stadia. Its Nuclear Skills Development Centre (NSD) had received full accreditation as a decentralised Trade Test Centre from the relevant education and training authority, CHIETA, and had trained 592 full time students. A reported R26.5 million was invested in the refurbishment and upgrading of site infrastructure and R15.2 million in the development of R&D infrastructure.

Mr Adam stated that NECSA’s activities were fully aligned with DoE objectives. NECSA was responsible for various institutional obligations on nuclear matters, on behalf of the State. He outlined ten strategic priorities, which included speeding up growth and transforming the economy to create decent work and sustainable livelihoods, as well as developing programmes to build economic and social infrastructure.

NECSA was looking at a nuclear energy expansion programme which would cost an estimated R426 billion to implement, until 2030. Mr Adam stated that even 10% participation would bring revenue of R42 billion to SA and massive opportunity for local industrial development as well as job creation.

NECSA had a comprehensive environmental programme in place, seeing a decline in electricity consumption by 2.2% and was complying with environmental requirements of the Nuclear License, including a significant decrease in stack releases.

NECSA’s priorities for 2010 included responding to the IRP2 plan, and development of nuclear manufacturing and its role, in support of localisation. NECSA would also further the development of NTP’s role in the US isotope market and planned on launching their Nuclear Science Centre.

Mr Dan Moagi, Group Executive: Human Resources, NECSA, reported that NECSA, during the 2009/10 year, had a staff complement of 2 113, an increase from 1 870 in the previous year. Female employees had increased, from 508 to 608. Black employees were occupying 1 151 posts, which represented 52%, higher than the target of 49%. NECSA’s Executive Management comprised four white males, three black females and two black males.

Mr Moagi reported that NECSA’s mentorship and coaching programmes were successfully completed, and it currently had 36 post graduate bursary students and 18 graduates in training. 40 internships and 24 apprenticeship positions were created.
Pebble Bed Modular Reactor (PBMR) bursary holders also were transferred to NECSA.

Ms Mbali Mfeka, Senior Manager: Finance and Information Management, NECSA, reported on the company’s financial performance in 2009/10. Net profit after tax totalled R164 million for the NECSA Group, but she predicted this would drop to R129 million in 2010/11. Sales brought in revenue of R1 049 million, government and sundry grants brought R472 million, finance income brought R55 million and R24 million came from other income. However, personnel related expenditure totalled R525 million and other expenditure R923 million. NECSA Corporate’s net loss after tax was thus R31million.

The Auditor General gave an unqualified report for 2009/10, with emphasis of matter relating to significant uncertainty relating to the tax payer status, restatement of corresponding figures, material impairment of investment in subsidiary, and contingency liability relating to PAYE tax.

Ms Mfeka stated that despite the increased and expanded mandate, NECSA had its baseline reduced by R207 million over the 2010/11 to 2013/14 MTEF period. If additional funding was not secured, there would be limited capability to invest in urgent upgrading and renewal projects required to fulfil NECSA’s role in the nuclear energy programmes, and would create challenges to retention of highly skilled scarce nuclear staff. An under funded nuclear programme posed risks to South Africa, in terms of deteriorating infrastructure, skills scarcity, and a delayed nuclear energy expansion programme.

Ms Chantal Janneker, Group Executive: Marketing and Communication, NECSA, reported on the company’s outreach to the community. In support of the FIFA World Cup, NECSA recruited 63 people on contract from Vaalputs and NECSA’s immediate communities, to carry out radiation monitoring tasks during the World Cup. 20 of those people were employed permanently afterward. It was also running eight outreach programmes, which included providing bursaries, Science Week and the Nuclear Visitor’s Centre.

Discussion
The Chairperson said that she was waiting for an invitation to the visitor’s centre.

Mr Adam said that this should be complete by the end of the year and NECSA would certainly extend an invitation to Members.

Mr Ross commended NECSA on managing to increase its income. He asked how much was awarded for the medical isotopes sold.

Mr Adam said that this was a tender process, entered into in competition with other global companies. NECSA would, over the next three years, be paid up to US$25 million to deliver on achieving the level of specification for the American market.

Mr Ross asked if this was a grant from the US Government.

Mr Adam confirmed that it was.

Mr Ross wanted clarity about the achievement on the reactive calculation system

Mr Adam said that there was a competition run every year by the National Science and Technology Forum, and different awards were given. NECSA submitted a portfolio of technical innovation to a panel of judges. This was a prestige, rather than a financial reward.

Mr Ross said asked for clarity on the references to Eskom and the amount of R42 billion, in regard to the IRP2.

Mr Adam said that there were all manner of estimates on the cost of this project. It was likely to run into hundreds of billions, and R462 was a suggested figure, but could be more or less. 10% on that would be R40 billion, and this was a significant amount that could be brought in from local manufacturing work.

Mr Ross noted that the financial constraints were R207 million from 2011 up to 2014. He said that time was of the essence, and this needed to be addressed in the budget as soon as possible.

Mr Adam said that he was also concerned that the cutbacks occurred at a time when NECSA was supposed to be preparing the IRP to play a significant role. He said that he understood the difficulties the country faced, but it was unfortunate that there was a clash between the fiscus and NECSA’s ambitions for the new programme.

Mr Motau was concerned about the huge jump in salary for executive directors, particularly for Mr Adam himself. This had also occurred just before the PBMR was discontinued, and this must be reconciled.

Mr Adam replied that his own salary package was re-negotiated after his first contract with NECSA had ended. The contract had stated that if he met certain key performance indicators, he would be entitled to a bonus at the end of the contract. Within the three years of the first contract he had received limited bonuses, whilst the larger amount was paid at the end of the contract, so the percentage increase included a larger bonus. He was offered a larger package for his second contract, following a review by the Board of comparative salaries in other research institutions.

Mr Motau said that he would like to contextualise his comment on salaries. This document was now in the public domain, and the huge hikes in salary, seen against government’s inability to pay 8% increases to the public service, could raise concerns.

Ms Tinto said that NECSA faced challenges in retention of its highly skilled nuclear staff. She asked why this was such a challenge, and if it related to not paying people enough.

Mr Adam said that salaries were now less of an issue than in the past, as NECSA was now able to pay market related salaries.

Mr Radebe referred to Slide 10 of the presentation, referring to the R42 billion that could be gained through 10% participation. He asked whether the job opportunities would be permanent or contract, and questioned the sustainability.

Mr Adam replied that the R42 billion should be seen over 20 years. Capacity must be built. The IRP planned on increasing the nuclear infrastructure by five times the equivalent of Koeberg, so there was a need to build for the long term. There would be both contract and permanent appointments.

Mr Radebe said that his other concern related to human resource processes. He asked whether disabled people were included in the employment strategy.

Mr Adam said that NECSA did employ disabled people, in low-risk positions, with physically disabled people, for instance, monitoring screens, as it would be dangerous to use them in areas involving nuclear safety.

Mr Radebe commented on the Auditor General’s report and asked which policies it followed to achieve the restatement of correspondence figures.

Mr Adam said that NECSA had changed its policy. Buildings were no longer valued on cost price, but against current land and building prices. The Auditor-General was simply drawing attention to the fact that there had been a revaluation, and this was not a negative comment.

Mr Radebe asked what schools were invited to participate, and their demographic spread.

Mr Adam said that schools in Atteridgeville, near to NECSA, were mostly black, but that NECSA supported all schools in the Northern Cape, which were largely attended by coloured students, and those around Vaalputs.

Mr Radebe said that this then only covered Gauteng and Northern Cape and wondered if NECSA would extend support to Polokwane and Mpumalanga, which did not even have a university.

Mr Adam said that NECSA had concentrated on the provinces in which it operated, but that Science Week extended beyond that, and agreed that all provinces should be aware of nuclear developments.

Mr Selau agreed that localisation of nuclear manufacturing could raise NECSA’s profile, and asked whether the amounts involved had been approved by Cabinet, and what assistance might be needed from the Committee in this regard.

Mr Adam said that the figures mentioned in Slide 10 did not only relate to NECSA which, although it would be in a strong position, would also need other companies in manufacturing to play a role in this programme, as it was too large for NECSA alone. This could happen only if the proposals in the draft IRP were approved, so at this stage NECSA needed firstly to get approval of that, and then to deal with the financing and planning.

The Chairperson said that last year it had been reported that NECSA had been poaching National Nuclear Regulator (NNR) staff, and hoped this was not ongoing.

Mr Adam said that he was not aware of any movement of staff from NNR to NECSA, although some staff had been sent across for work experience at NECSA.

The Chairperson noted new additions in the IRP2 to nuclear initiatives.

The meeting was adjourned.

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