Minister and Department of Energy briefings: Strategic plan 2011, 3rd Quarter 2010 Performance

Energy

21 March 2011
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The Minister and Department of Energy briefed the Committee on the strategic plan for 2011, and also outlined its third quarter 2010 spending and the budget for the 2011 year. The Minister noted that this year would be important, given the close date for achieving the Millennium Development Goals, and emphasised that the forthcoming year would see inclusion of the Independent Power Producers, implementation of solar water heating systems, and Director-General’s review. The Director General and deputy directors general then outlined the strategic plan and performance. The achievements in the 2010 financial year included ensuring electricity supply for the World Cup, electrification of 93 941 households and the completion of a draft Bill providing the framework for the inclusion of Independent Power Producers. She indicated how the 2011/12 strategic plan was developed, and what it took into account. The 2011 State of the Nation Address emphasised the need to create more jobs, more efficient energy use and renewable energy procurement, the provision of electricity to those who did not as yet have access to electricity, rural development, co-operation between private and public sectors, and the building of prosperity. The outcomes-based strategic planning approach focused on impact of service delivery to community. The Department noted challenges in service delivery, declining electricity generation capacity, the need to fast track interventions to improve power supply and stability of the electricity distribution infrastructure and supply of liquid fuels as challenges. The Department partnered with other entities to fulfil its mandate, and international cooperation and partnerships were particularly important. The Department was still in an interim structure, with about 65% capacity, but the final approved structure would be implemented in 2011/12. Two more branches would be created. The strategic objectives included ensuring continued security of the energy supply, maintaining an efficient and competitive energy infrastructure, improved regulation of energy, transformation of the energy sector into a diverse environment of universal access, protection of environmental assets, adaptation to climate change and good corporate governance. Legislation would also be reviewed.

The Hydrocarbons branch outlined the importance of its activities, and development of policies for petroleum, gas and coal, the Integrated Energy Planning Strategy, new fuel specifications and national stock policies and bio-fuel pricing strategy. Particular challenges the difficulty in ensuring the supply of liquid fuels, as well as insufficient funding. The Electricity, Nuclear and Clean Energy branch outlined the current status of its programmes, including solar water heating, the Integrated National Electrification Programme (INEP), Integrated Resource Planning, system market operations and power producers, the Renewable Energy Feed In Tariff (REFIT) programme, energy efficiency awareness campaigns, nuclear safeguards and nuclear transactions. Over 250 000 solar water heaters would be installed by March 2012. The INEP programme intended to connect 170 000 households by March 2012. The accounting and control in respect of nuclear energy programmes was to be revised so that Cabinet approval would be required for all transactions and a Cabinet Committee would be appointed. Investigations into South African safety standards showed a high level of stability and it was explained that the Japanese power plants currently posing risks had adopted an older and less safe design. There were challenges with human resources and funding. The Corporate Service branch outlined the proposed new structure, and outlined the activities of the branch, and the Chief Operations Officer provided a similar briefing on her branch.

The budget for the 2010 financial year was R5.65 billion, of which R 4.96 billion had been spent (87.9%) and it was expected that most would be spent but a rollover of R138.7 million was possible. The budget for the 2011 year was R6.089 billion, which would include major project funding, as outlined.  

Members asked about the funding options, short term, for the South African National Energy Development Institute, and the incorporation of the Research Institute into it. Members asked about costs incurred by delays in the Transnet pipeline, what was done to secure safety of nuclear programmes in South Africa, and their development, including negotiations at the Paris Conference, and sought clarity on the link between the New Growth Path and policies put forward by the Department. They asked about the pricing framework for biofuels, how much this would comprise of total fuel stock, whether energy efficiency legislation would be introduced, and why the Nuclear Energy Corporation of South Africa received so much money in the proposed budget. They enquired who would be responsible for ensuring connection of remaining settlements to the national grid after 2014, and commented that there remained quite some significant hydrocarbon issues to be finalised before the end of the 2010 financial year. They also suggested that incorporation of lighting into solar power systems should also be investigation.

Meeting report

Minister and Department of Energy: Strategic Plan 2011 briefing and Third Quarter 2010 Performance report
briefing

Ms Dipuo Peters, Minister of Energy, stated that the coming year was an important one for the country and the Department of Energy (DOE or the Department). South Africa was close to achieving the Millennium Development Goals, and was about to include Independent Power Producers (IPP) into energy production, the implementation of solar water heating systems. The performance review on the Director General would also be done in this financial year.

Ms Neliswa Magubane, Director General, Department of Energy, continued the briefing by outlining some of the Department’s achievements over the last year. It had fulfilled the objectives laid out in the 2010 State of the Nation address (SONA), which had included securing the electricity and fuel supply so that the 2010 Soccer World Cup could take place, the electrification of 93 941 households by February 2011 and the completion of a draft Bill, which would be tabled by the end of the financial year, providing the framework for the inclusion of IPPs. Some other performance highlights for 2010 had included the completion of regulatory accounting systems, the publication of the fuel specification and standards Discussion Paper, the development of regulations for strategic stocks to be maintained by oil companies, the publication of the Standard Offer Incentive Scheme, the completion of the Integrated Resource Plan (IRP) and the establishment of the South African National Energy Development Institute (SANEDI).

Ms Magubane then took Members through what had informed the 2011/12 strategic plan. This included the 2011 State of the Nation Address, government outcomes, and the situational analysis of the current energy environment. It also looked at inter-Cluster activities and had included an examination of past activities. The analysis of the 2011 SONA emphasised the need to create jobs, the need for more efficient energy use and renewable energy procurement, the provision of electricity to those who did not as yet have access to electricity, rural development, co-operation between private and public sectors, and the building of prosperity.

The DOE and Government outcomes included creation of decent employment, through promotion of economic growth, an efficient, competitive and responsive economic infrastructure network, sustainable human settlement and improved quality of living and environmental assets and well-maintained resources.

She noted that an outcomes-based strategic planning approach was adopted by the Department in the previous year, and this approach focused on the impact of service delivery to the community. This approach was led by the President. It further aligned strategic planning and the budgeting cycle. The strategic plan being presented covered a five-year planning period, and reflected the broad strategic outcomes of Parliament.

Ms Magubane presented a situational analysis of the energy environment. There were challenges, since service delivery was presented as problematic. There was a declining electricity generation capacity. There was thus a need to fast track interventions that would improve the power supply. Government was working to achieve 92% power distribution by 2014. There were also questions around the stability of the electricity distribution infrastructure (EDI), as well as constraints in the supply of liquid fuels.

She noted that the DOE had a number of partnerships that were necessary to enable the DOE to fulfil its mandate. These included international partnerships with Southern African Development Community (SADC) countries, climate change forums, funding and technology partners, other countries with nuclear energy programmes and other skills.

She noted that the Department was still in an interim structure phase, and it was currently operating with 65% human capacity. There would be a migration to the final approved structure, which would commence in the middle of the 2011/12 financial year, and it was intended also to appoint two Deputy Director Generals, and to implement of the four line branches.

Ms Magubane then outlined the DOE’s strategic objectives for the 2011/12 financial year. These included ensuring continued security of the energy supply in South Africa, the maintenance of efficient and competitive energy infrastructure, the improved regulation of energy, the transformation of the energy sector into a diverse environment of universal access, the protection of environmental assets, adaptation to climate change and good corporate governance.

She noted that the DOE was tasked with reviewing and developing legislation in the sector. The legislation under its purview included legislation dealing with the National Energy Regulator of South Africa (NERSA), electricity regulation, petroleum products and gas.

Mr Muzi Mkhize, Chief Director: Hydrocarbon and Energy Planning Programme, Department of Energy, briefed the Committee on the position of hydrocarbons in the strategic plan.  He stated that the objectives of the hydrocarbon branch included the development of appropriate policies to regulate the use of hydrocarbons, including petroleum, gas and coal. This programme included the use of an integrated energy planning strategy, approved by Cabinet, as well as new fuel specifications and standards, and a national liquefied petroleum gas (LPG) expansion strategy. The programme also included the national strategic fuels stock policy, which was intended to set out the framework for the storage of fuels stocks by both government and oil companies, the installation of a regulatory accounting system and a bio-fuel pricing framework. Finally, the programme also focussed on the provision of integrated energy centres for use in rural areas, as well as the review of the Liquid Fuels Charter.

Mr Mkhize added that the two main challenges faced by the programme included the difficulty in ensuring the supply of liquid fuels, as well as insufficient funding.

Mr Ompi Aphane, Deputy Director General: Electricity, Nuclear and Clean Energy, Department of Energy, briefed the Committee on the current state of the Electricity, Nuclear and Clean Energy programme. He stated that the objective of this programme was to monitor developments in the electricity, nuclear and clean energy sectors, improve and implement policies that affect these sectors and to promote universal access to electricity. Initiatives that fell under this programme included solar water heating, the Integrated National Electrification Programme (INEP), Integrated Resource Planning, system market operations and power producers, the Renewable Energy Feed In Tariff (REFIT) programme, energy efficiency awareness campaigns, nuclear safeguards and nuclear transactions.

He then detailed the solar water heating programme, noting that 250 041 solar water heaters would have been installed by March 2012, with another 18 000 units currently being allocated.

The INEP programme intended to have connected 170 000 households by March 2012.

Mr Aphane continued to describe nuclear safeguards. There was an ongoing investigation into the removal of the State system of accounting and control, from National Energy Council of South Africa (NECSA). For nuclear transactions, Cabinet approval would be needed for the phased decision making approach, as well as the formation of a Cabinet level Coordination Committee.

Mr Aphane stated that the challenges facing his programme included some problems with human resources, as well as financial constraints.

Mr George Mnguni, Deputy Director: Corporate Services, Department of Energy, briefed the Committee on the structure of the Department of Energy. The interim structure of the DOE included five branches, dealing with Hydrocarbons and Energy Planning, Electricity Nuclear and Clean Energy, Corporate Services, the Chief Financial Officer and the Chief Operations Officer. These branches were overseen by Deputy Director Generals, who in turn reported to the Department of Energy’s Director General, who was answerable to the Minister of Energy. The final approved organisational structure of the DOE would include an additional two branches, to deal with Policy Development, and Energy Operational Services.

Mr Mnguni stated that the key activities of Corporate Services included the finalisation and implementation of an Integrated Human Resources plan, the provision of a safe and secure working environment, the implementation of a communication strategy and plan, as well as the provision of legal advice to the Ministry and to the Department.

Ms Y Chetty, Chief Financial Officer, Department of Energy, outlined the budget for the Department for the 2010/11 financial year. The total budget for 2010/11 was R5.65 billion. R 4.96 billion of this budget had been spent (87.9 %) with R 684.9 million still to be spent. By the end of the financial year most of this would have been spent, but an expected rollover of  R138.7 million was probable.

She outlined that the budget for the 2011/12 financial year was set at R6.089 billion. Some of the major projects that were to be funded included INEP (at R3.2 billion), the National Energy Efficiency and Demand Side Management (R398.8 million), Transnet (R1.5 billion) and Renewable Energy Subsidy Scheme (R41.3 million).

Ms
Tandeka Zungu, Chief Operating Officer, Department of Energy, briefed the Committee on this branch’s key focus areas for the 2011/12 financial year. These included strategy and risk management, and full implementation of government’s new outcomes-based planning approach and the risk management and fraud prevention plans. Other key areas included State Owned Enterprises (SOEs) oversight, and more specifically the deregistration of EDI Holdings in early 2011, the restructuring of the Central Energy Fund (CEF) companies, the establishment of the National Radioactive Waste Disposal Institution and the review of legislation including the NERSA Act, National Nuclear Regulator Act and the Central Energy Fund Act.

Further key areas identified by Ms Zungu included the need for international co-ordination and the inclusion of outreach programmes. International co-ordination was important, because South Africa was a net importer of fuel. International support was also needed to effectively run the South African nuclear programme. The need for clean energy was also a factor in highlighting the need for international co-ordination.

Ms Zungu noted that special programmes instituted by the Department were important as they represented the Department at multilateral engagements. They also served to highlight gender equality and to coordinate the work of energy sector groups. Outreach programmes helped in identifying and implementing rural development projects, as well as initiating projects aimed at alleviating poverty.

Discussion
Mr K Moloto (ANC) asked what funding options were being considered in order to fund the Energy Development Institute in the short term.

Mr Aphane answered that the funding for the EDI was to be provided at municipal level until the project moved into the long term.

Mr Moloto asked for clarity on how costs incurred in the delay of the multipurpose pipeline being built in Kwa-Zulu Natal would be mitigated.

Mr Mkhize answered that the multipurpose pipeline was intended to help secure the supply of liquid fuels. He added that the project was to be fully completed by 2013.

Mr Moloto enquired what was being done to ensure the safety of the nuclear programme in South Africa.

Mr Aphane commented that the safety of South Africa’s nuclear programme, especially with heightened concerns from recent developments at the Fukushima Power Plant in Japan, was encouraging. He noted that the Japanese power plant was an old design, and that the continued use of pressurised water reactors in South Africa should be able to reassure the public, as these systems were much safer.

Mr P Dexter (COPE) asked for clarity surrounding the link between the New Growth Path and policies put forward by the Department.

Mr Aphane answered that the Department was trying to address the lack of a dedicated renewable energy sector in the country through its policies. He commented that incentives were being introduced for the private sector, and he assured the Committee that the link between the growth path and policy was being clarified and would be achieved soon.

Mr D Ross (DA) asked whether the pricing framework had been taken into account when looking at the introduction of bio-ethanol, and whether there would be a compulsory mix of bio-ethanol.

Mr Mkhize answered that the introduction of bio fuels was a difficult subject, and that an appropriate pricing frame work was being developed. He added that bio fuels would probably take up 2% of the overall fuel economy, but that this would probably be limited to a few species of plants.

Mr Ross wanted clarity on current developments in the nuclear programme, and asked what resolution was reached at the Paris Conference in terms of the contract renewal.

Ms Peters, Minister of Energy, answered that there were no new agreements reached at the Paris Conference, and that only a renewal of the standing agreement had been reached.

Mr L Greyling (ID) asked whether the Department was considering bringing legislation to Parliament on energy efficiency. He also enquired why the South African Nuclear Energy Corporation (NECSA) received so much money in the proposed budget for 2011. He also suggested that a debate over the relative pros and cons of the nuclear programme could open up the issue to public discourse, far better than any advertising campaign.

Mr Aphane answered that although NECSA had a commercial side, it was also the corporation that handled all of the waste material generated by the nuclear programme. He added that it therefore needed to be subsidised by the government.

Mr J Selau (ANC) commented that the proposed 92% connectivity by 2014 would result in 8% of settlements not being connected to the national grid. Mr Selau asked who would then be responsible for ensuring that this remaining 8% was addressed, and whether the task would fall to Eskom, local government, or other bodies.

Mr Aphane answered that it was the responsibility of local government to initiate the development of infrastructure.

Mr Selau asked whether, in the future, the National Energy Regulator (NERSA) would fall under the scope of the Department of Energy.

Mr Selau noted that there was not much time before the end of the 2010 financial year, yet some of the hydrocarbon focus areas still had significant implementation issues to be resolved.

Mr Selau asked how many more people could be put into the Corporate Services system.

Mr Mnguni added that the corporate structure currently stood at 439 persons, and another 85 people would be employed, bringing the total to 524 employees.

Mr Selau enquired as to the role of South African National Energy Research Institute (SANERI) in relation to the Department of Science and Technology.

Mr Aphane answered that SANERI would be incorporated into the South African National Energy Development Institute (SANEDI) by the end of 2011.

Ms N Mathibela (ANC) asked what could be done to include lighting also by solar power, and whether this could be incorporated into the solar water heating systems currently being installed as part of the DOE initiative.

Mr Aphane commented that the addition of lighting into the solar power systems was a good idea, and that by the end of February 2011, 55 000 solar power systems would have been installed.

Ms Mathibela also asked for clarity regarding how large a settlement had to be before Eskom would electrify it.

Mr Aphane answered that only occupied buildings would be electrified, to try to prevent vandalism. He added that it also depended on financial constraints.

Mr S Radebe (ANC) asked for clarity surrounding the measures that had been put in place in order to ensure vigorous engagement between the DOE and local municipalities. He also asked for clarity on rollover of unspent budgets, and what was to be done with this money.
 
Mr Aphane answered that the rollover budget would be returned to the fiscus, and that it would be factored into the current budget.

The meeting was adjourned.


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