Department of Energy on their Annual Report 2010/11


13 October 2011
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The Department of Energy (DOE) presented its Annual Report for 2010/11, indicating how it responded to the imperatives set out in the State of the Nation Address, the Millennium Development Goals and the Government Outcomes. It was noted that the DOE’s mandate extended to ensuring energy security, achieving universal access and transformation in the energy sector, the regulation of the energy sector, effective and efficient service delivery, and sustainable development. It was fully recognised that security of energy supply contributed directly to increased economic opportunities, job creation prospects and sustainability of enterprises. The DOE noted that its structure had been implemented from 1 April 2010 and although it was not yet working to full capacity, it had increased its staffing to 52% of required capacity, and had an average vacancy rate of 10.6%. It had four programmes, and had established various governance structures, including the Internal Audit, the Audit Committee, Strategy and Risk Management, Monitoring and Evaluation, Procurement Committee and Committees related to Human Resource. It was currently sharing accommodation with the Department of Mineral Resources. Some of the challenges it faced included lack of resources, the need for the country to recover from the 2008/9 economic meltdown, lack of significant investment in the energy sector, challenges in electricity distribution and the urgent need to respond to climate change and global warming in an integrated manner. The regulatory uncertainty and price instability in the liquid fuels sector, as well as challenges to security of supply, were also problematic. A summary of performance against predetermined objectives was given, listing those targets that were fully, partially or not achieved. The objectives mentioned in the report included the ensuring of energy security, achieving universal access and transforming the energy sector, regulation of the energy sector, effective and efficient service delivery, optimal utilisation of energy resources, ensuring sustainable development, enhancing DOE Culture, systems and people, and the promotion of corporate governance. A presentation was then given on the work in each of the programmes. The Chief Operations Officer had been appointed in May 2010, and although this office was operating at under 10% capacity, it had managed to produce the Annual Report and strategic plans and budgets on time. The HR function, employment equity figures and training programmes, bursaries and internships were also explained. The functions of Programme 2: Hydrocarbons and Energy Planning and Programme 3: Electricity, Nuclear and Clean Energy, were also set out in some detail. The establishment of the South African National Energy Development Institute (SANEDI) in March 2011 was noted.

Members noted their appreciation for the work of the Department, but one Member felt that there were no innovative attempts to address the problems, and wanted to see greater commitment and vision. Members asked about pricing, which was linked to providing affordable energy and universal access, and said that although the Inclining Block Tariffs were a positive move, there were huge challenges in implementation, and stressed that affordable pricing was needed for businesses and private individuals. They also questioned the Eskom methodology, as well as the approach to Eskom funding adopted by the National Energy Regulator. Members asked about the implications of the new nuclear build, and several raised questions and concerns about the unreliability of supply of Liquid Petroleum Gas, which not only ran counter to the Department’s promotion of the use of such sources, but had forced several businesses to close. The Department agreed that this was a major problem but noted that it was tied also to issues of refinery shutdowns, ageing refineries, port infrastructure and choice of refineries as to what type of products to produce. Members asked for progress reports on the blending of fuels and clean fuels programmes, asked about the oil stocks policy, and thought that more coherent vision was needed for electricity distribution. The problem of municipalities being able to set tariffs was raised. A Member wondered why all experts in the field were not being consulted in a unified manner and suggested that it was possibly unnecessary to have an expert draw the plans as a more common-sense approach was needed. Members noted that the Department had achieved an unqualified report but commented that this was expected of it in any event, and questioned why it had underspent. They emphasised that the posts must be filled to relieve the pressure on the present employees as well as boost the inspection capacity in the Department. Members asked to be provided with copies of the Energy Efficiency Awareness Campaign promotional material, asked about collaboration with Eskom and the National Planning Commission, on the transition to a low carbon economy.


Meeting report

Chairperson’s opening remarks
The Chairperson noted that the Annual Report presentation from the Department of Energy (DOE or the Department) would be approached from a slightly different perspective, given the shift in emphasis occasioned by the Budgetary Review and Recommendations Report process. This was an integral part of a multi-phase project. The Committee had also received other inputs from the Financial and Fiscal Commission (FFC), the Auditor-General (AG) and the Department of Performance Monitoring and Evaluation (DPME), which would be integrated into the Committee’s oversight work. The same comments would apply to the assessment of other state-owned enterprises (SOEs) or the entities that fell under the Department. When it came to entities like Eskom, this Committee would work jointly with the other relevant portfolio Committees, like that on Public Enterprises.

Department of Energy Annual Report presentation
Ms Neliswa Magubane, Director-General, Department of Energy, noted an apology on behalf of the Minister, who could not attend this meeting because of prior engagements.

The Chairperson interjected that in future it was essential that all parties ensure that they did have time free to attend meetings around the Budget Review process, which was fundamental.

Ms Magubane referred to the call, by President Jacob Zuma in his State of the Nation Address, for energy security, which was critical for economic growth and job creation. The President had also reiterated that security of the energy supply was a fundamental aspect of human existence, since it was the principal element for providing basic needs such as food and water, and facilitated various opportunities for achievement of a decent quality of life. Accessing affordable, safe, and modern energy services was therefore a prerequisite for sustainable development and achieving the Millennium Development Goals (MDGs). The Department attempted to align itself to the ideals espoused by the President.

Ms Magubane noted that the Department had a mandate to ensure secure and sustainable provision of energy for socio-economic development. Its mission was to regulate and transform the sector for the provision of secure, sustainable and affordable energy, and that would be achieved by the Department formulating and exercising oversight on the implementation of the overall energy policies, and ensuring access to affordable and reliable energy by all South Africans, as well as by promoting environmental friendly energy carriers.

The Department sought to ensure energy security, created and maintained the balance between energy supply and demand, developed strategic partnerships and ensured reliable delivery and logistics. It also sought to achieve universal access and to transform the energy sector by diversifying the energy mix, improving access, providing quality and affordable energy and promoting safe usage. It would also regulate the energy sector by developing legislation, encouraging investment and ensuring compliance. It would ensure effective and efficient service delivery by understanding stakeholder needs and improving turnaround times. The Department also tried to ensure optimal utilisation of energy resources by developing enabling policies and encouraging energy efficient technologies. It would ensure sustainable development by promoting clean energy alternatives and economic development and job creation. All of this would be achieved within the context of ensuring that energy was delivered to all the people of South Africa.

Ms Magubane noted that the Department of Energy, as outlined previously, had not had sufficient resources to ensure that it achieved all its objectives in the past financial year, and even now funding challenges had prevented the Department from meeting its full structure.  The structure that had been implemented as of 1 April 2010 comprised of the Minister, the Deputy Minister, the Director General, and five branches, which included only two line function branches for Electricity Nuclear and Clean Energy, and Hydrocarbons and Energy Planning, whilst the other three provided support to the Department.

Programme 1: Administration provided support services to the Ministry and Corporate services. Programme 2: Hydrocarbons and Energy Planning was concerned with developing policy and regulations to manage the petroleum, coal and natural gas industry. Programme 3: Electricity, Nuclear and Clean Energy concentrated, in the electricity sector, on developing, implementing and monitoring electricity policy and programmes, whilst in the nuclear energy sector there was emphasis on improving the governance of the nuclear sector in relation to nuclear safety and nuclear technology, and the clean energy sector concentrated on facilitating the implementation of renewable energy and energy efficiency technologies. Programme 4: Associated Services dealt with the state owned entities who reported to the Minister of Energy.
Ms Magubane gave a general overview of the organisational environment. The DOE had begun with 41% of its required capacity in April 2010, which later increased to 52%. The majority of funded posts were transfers from the former Department of Minerals and Energy and did not address most of the critical post requirements. Most senior positions in support services were filled by the end of the year. The Chief Financial Officer, a critical post, had resigned during the year. On average, the vacancy rate for the past year, based on the approved interim structure, was 10.6%. The employment equity figures showed that the Department consisted of 93% blacks and 54% women. Various governance structures were established during the year under review, which included Internal Audit, Audit Committee, Strategy and Risk Management, Monitoring and Evaluation, Procurement Committee and Committees related to Human Resources. Currently, the Department was sharing accommodation with the Department of Mineral Resources at Trevenna Campus in Pretoria.

Some of the challenges faced by the Department in its first year in the service delivery environment included the recovery from the 2008/09 economic meltdown, the urgent need for integrated plans to address security of energy supply, lack of significant investments in the energy sector, challenges in the electricity distribution industry and the urgent need to respond to climate change and global warming in an integrated manner. There had been regulatory uncertainty and price instability in the liquid fuels industry, and capacity challenges in manufacturing, refining and distribution in the liquid fuels sector.

Government Outcome 2, and the Millennium Development Goals, sought to achieve a long and healthy life for all South Africans. The Department of Energy contributed to this through the electrification of clinics and health centres, through the National Electrification Programme (NEP), and introduction of more affordable and cleaner sources of liquid petroleum gas (LPG) energy for household cooking and heating. Government Outcome 4 aimed for decent employment through inclusive economic growth. The Department would ensure the security of energy supply to sustain economic growth and job creation. Government Outcome 6 aimed for an efficient, competitive and responsive economic infrastructure network. The Department had to ensure reliable generation, distribution and transmission of electricity, and address the backlog in maintenance of electricity distribution infrastructure. Government Outcome 8 dealt with sustainable human settlement and improved quality of household life. The DOE programmes contributed to supporting households and businesses, and there were job opportunities presented by the electrification programme. Government Outcome 10 looked at enhancing and protecting environmental assets and natural resources, and here the DOE sought to reduce greenhouse gas emissions and climate change impacts, and improve air/atmospheric quality.

Ms Magubane then examined the Millennium Development Goals. MDG 1 aimed to eradicate extreme poverty and hunger. The Department tried to eradicate energy poverty through the implementation of the NEP, energy diversification and affordability. MDG 3 was to promote gender and equality and empower women, and the DOE was looking at gender mainstreaming in departmental policies, supported women empowerment initiatives and women’s participation in the energy sector. MDG 7 was to ensure environmental sustainability. The DOE would introduce and support sustainable clean and renewable energy initiatives. MDG 8 spoke of developing global partnerships for development, and in response to this, DOE would ensure international cooperation and collaboration at multilateral, bilateral and trilateral levels on energy issues.

Ms Magubane then set out the performance against predetermined objectives, set out in key focus areas. The first objective was to ensure energy security. In response, the Department had concentrated on the Integrated Resources Plan (IRP) and had also started the process of developing the Integrated Energy Plan (IEP) and the New Multi Product Pipeline (NMPP) from Durban to Johannesburg. In answer to the objective to achieve universal access and transform the energy sector, the Department had focused on the Integrated National Electrification Programme (INEP), the Inclining Block Tariffs (IBTs) for domestic/residential customers, the Solar Water Heaters programme, a Compliance Audit on the Liquid Fuels Charter, and the launch of the 7th Integrated Energy Centre (IeC) in Qunu.

Objective 3 related to the regulation of the energy sector, and here the DOE had regulated LPG supplied to residential customers. In response to the need for effective and efficient service delivery, under Objective 4, the DOE had focused on improving the turn-around time for petroleum licensing and clearing backlogs, engagements with stakeholders and filling of vacancies. Objective 5 aimed at achieving the optimal utilisation of energy resources, and here DOE had focused on key policy decisions.

Under Programme 1, the Chief Operations Officer’s office had started operating in May 2010, with less than 10% capacity. There had been some challenges to establishing all required components. However, the last Annual Report had been tabled on time, and the first DOE strategic planning session was held in November 2010, where the new outcomes-based planning approach was introduced and implemented. The strategic plans and Medium Term Expenditure Framework (MTEF) budgets were duly tabled in February 2011 to Parliament. The Internal Audit and governance structures were established. There were capacity challenges in full implementation of the Strategy and Risk Management function.

Mr George Mnguni, Deputy Director: Corporate Services, Department of Energy, reported that the average vacancy rate for the past year was 10.6%. The Department had managed to fill 95 critical posts within 4 months. He repeated that there was black staff representation of 93% and 54% were women. 262 employees participated in the Department’s training programmes, including an Advanced Management Development Programme, Financial Management for non Financial Managers, Excellent Customer Service for Frontline staff, Leadership and Management programmes.
The Department offered 39 employees internal bursaries, with 26 of them being accepted. 55 unemployed graduates were engaged on an internship programme and 12 students were studying in the fields of civil, chemical and mechanical engineering. 10 Public Participation Programmes (PPP) were conducted during the year.

Mr Mnguni noted that under Programme 4: Associated Services, the DOE had transferred grants to state owned entities during the year under review. The National Energy Regulator of South Africa (NERSA) was fully funded by levies from the regulated industries. The Central Energy Fund (CEF) Group operations were in the main funded from the income generated from operating activities.

Mr Tsheliso Maqubela, Deputy Director-General: Hydrocarbons and Planning, DoE, said that Programme 2 undertook integrated energy planning to promote the sustainable usage of energy resources. Hydrocarbons developed policy and regulations to manage petroleum, coal, and natural gas. Energy planning promoted the sustainable usage of energy resources through integrated energy planning. This programme aimed to ensure a sustainable energy supply by developing the Integrated Energy Planning Strategy by September 2010, the National Strategy Fuel Stocks Policy by March 2011, and to provide oversight over the construction of the National Multi Purpose Petroleum Pipeline (NMPPP) as well as to strengthen the regulatory framework in the petroleum products industry by implementing the regulatory accounting system before March 2011. So far, the DOE had managed to develop a Draft LPG strategy. The Clean Fuels 2 discussion document on fuel specifications and standards had been published on 08 March 2011 for comment and the DOE was currently evaluating the comment. The South African National Energy Development Institute (SANEDI) was established to promote the diversification of energy supply, and would ensure that emerging energy technologies were incubated and commercialised, as well as ensuring the development of human capital to support new energy related industries. An infrastructure database report containing maps and further improvements to the energy statistics database internally were also noted.

Mr Maqubela then noted that there had been partial progress on license inspections, where 2 460 inspections were conducted, falling short of the target of 3 660. The DOE had faced constraints of insufficient budget and lack of vehicles for inspectors in the Northern Cape and Free State. 360 petroleum licensing applications, out of 600 lodged, were processed within 90 days, but in others the DOE had not received all the necessary information from applicants.

Mr Maqubela noted that the installation of the 24-inch truck-line had been delayed, pending a workable funding mechanism being found, although in terms of the Grant Funding Agreement the entire R1.5 billion had been transferred by the DOE to Transnet for the construction of the Multi-Products Pipeline from Durban to Gauteng.

Mr Ompi Aphane, Deputy Director General: Electricity, Nuclear and Clean Energy, Department of Energy, said that Programme 3 provided the policy and regulatory framework for the electricity, nuclear and clean energy sectors, in a manner that would ensure energy security, universal access to electricity, diversification of primary energy sources and the promotion of clean and efficient technologies. One of the strategic objectives required the DOE to implement the nuclear energy policy by developing an implementation strategy by June 2010. It was also to promote the sustainable use of electricity to achieve a 100 MegaWatt (MW) saving in the MTEF period, by publishing the solar water heating framework by June 2010 and, ensuring the use of compact fluorescent light bulbs in public buildings, and reducing the use of old bulbs in domestic and street lighting.

The Electricity Distribution Industry (EDI) restructuring process commenced in this financial year, and was reviewing the entire electricity distribution value chain, with the aim of developing a focused strategy on energy security and determining the implications of capital investment required for the entire value chain. The IRP 2010-2030 was promulgated in March 2011, to provide a blueprint for the power generation options for the next 20 years, including a portfolio of renewable energy technologies, coal, gas and the energy efficiency option.

The Department had partially achieved its objectives in the Renewable Energy Feed-In Tariff (REFIT) and Fossil-fired power generation. Negotiations in respect of the 1000 MW Open Cycle Gas Turbine Project were concluded in January 2011. The policy for the Energy Efficiency Demand Side Management (EEDSM) Incentive Scheme standard offer had been promulgated, and NERSA had concluded the stakeholder engagement process. Public consultations on regulations for the Energy Efficiency Tax Incentive Scheme (EETIS) would only commence after June 2011. Nonetheless, the Standard Offer promulgation would facilitate the accelerated uptake of solar water heaters.

Mr Aphane explained that the DOE had not reached its targets for the Renewable Energy and Subsidy Office (REFSO), because when it was conceived  there was no REFIT or any other incentive scheme for supporting a renewable energy project developer. When REFIT was introduced, it was no longer appropriate to use REFSO to fund the five renewable energy projects, by the planned date of December 2010, and the introduction of REFIT had necessitated a review of the allocation of subsidies to support renewable energy projects, to avoid misallocations of scarce resources.

The plan for nuclear transactions was to obtain Cabinet approval by June 2010, but the delay in adopting the IRP, which included nuclear programmes, meant that this could not be done.

Mr Aphane noted that the DOE had partially achieved on its targets of ensuring reliable transmission and distribution networks outcomes, through the identification of critical infrastructure that required rehabilitation and maintenance. That was done with a specific focus on Metropolitan Municipalities and 2010 World Cup host cities. The report detailed municipal allocations towards maintenance, and shortfalls for metros and a sample of municipalities. That resulted in the development of an implementation plan to manage electricity distribution asset management.

Mr Aphane stated that certain limitations had been identified under the existing Electricity Regulation (ER) legislation, which included facilitating Independent Power Producers (IPP), and although the DOE had intended to amend the legislation by April 2010, that was not done. Additional issues that came to light under the REFIT programme resulted in a delay in processing the amendment of the ER under the rebate scheme, by leveraging additional private sector funding.


Mr D Ross (DA) noted that his comment related to issues of pricing, which he said were linked to providing affordable energy and universal access of energy to people under the MDGs, and reducing poverty. The IBT had been introduced, and this was a positive move, but there were huge challenges in implementation at local level. It was vital to try to get the IBT to work effectively. It was also imperative to ensure that both businesses and private citizens received affordable pricing, in order for businesses, in particular, to promote their businesses and job creation. However, the presentation seemed to show that there was lack of significant investment, and that might be because of low prices. Perhaps it would be advisable to hold a workshop on pricing, and discuss the correct methodology in future. Eskom was working on a Modern Equivalent Asset (MEA) evaluation method, and he questioned if there was not a need to recover at least the percentage invested to make ends meet.

Mr Ross asked about the implications of the proposed new nuclear build, which was awaiting a pronouncement from the Cabinet, and what the price implications would be for ordinary South Africans.

Mr Ross noted that in regard to the supply of liquid fuels and reliable supply of LPG, there had been many job losses, particularly in the Western Cape. LPG should be an alternative for electricity, and likely would be cheaper, but the supply had proved highly problematic and some people had had to close factories for lack of supply. The DOE would have to investigate that issue.  

Mr Ross also requested the Department to look at the clean fuels programme, the biofuels and the compulsory blending. The Government Gazette had announced 2% compulsory blending of ethanol into the petroleum mix and those regulations would be enforced in 2017. He knew that there would be huge investments required for the filling stations to ensure that ethanol was part of their energy mix, and he asked for progress reports on that.

Mr Ross also noted that DOE was awaiting Cabinet pronouncement of distribution. The Financial and Fiscal Commission (FFC) had suggested a once off conditional grant of R32 billion to address the problem. However, he did not think that the distribution hurdles were past, and asked for comment.

Mr L Greyling (ID) also wanted to question pricing, especially “price elasticity” on energy. NERSA sets the required revenue for Eskom, as opposed to the actual price, and this was a concern because if there was a change in energy efficiency, or lack of demand for electricity, then run-away prices could result. He asked if the DOE had considered that as part of the IRP process. He also questioned the new nuclear build, and said that if DOE was planning to spend R1 trillion on nuclear power, it would also have to ensure that there was an optimum way of bringing all assets on stream for generation capacity, so that it did not sit with stranded assets, as had happened elsewhere in the past.

Mr Greyling presumed that the reference to the draft document on stocks policy referred to oil stocks. Although the DOE had spoken of lack of capacity, he thought that South Africa had a huge capacity for holding oil stock, particularly at Saldana. He asked if the Department needed to bring in more stocks, and what the plan was to do so.

Mr Greyling said that he was also concerned about electricity distribution and the problem was that he had not seen any coherent vision from Government on electricity distribution, which was a major failure on its part. He asked who was responsible for developing a coherent vision to tackle the issue of electricity distribution in South Africa. There was both a major problem with the R42 billion backlog in electricity distribution networks in municipalities, as well as another problem because municipalities were allowed to set charges that could clearly be called into question. This was a very complex issue, and he was not sure that there were answers to it at the moment. He reiterated that someone had to take responsibility for driving the new vision for electricity distribution in the country.

Mr P Dexter (COPE) commended the improvement in the administration of the Department, noting that it had been a new Department that faced many challenges, and in particular paid tribute to the Director General and her team for their hands-on approach to management. However, he noted that both in the previous and current financial years, when anything to do with pricing, distribution, renewable resources, governance of SOEs or innovative ideas, including the rollout of solar water heaters, he had the sense that there was not enough attention paid to changing the mindset of “business as usual” and there was no sense of new vision, strategy or leadership in relation to the energy challenge. He noted that there had been mention made of the lack of expertise. However, the National Planning Commission had an expert working on these issues in the NPC, and he asked why all resources could not be pulled together, to ensure that the skills were properly used, without duplication. Aside from that, he did not agree that any special expertise was needed to put together a plan. Everyone knew what needed to be done, it was really a question of applying common sense, so he did not accept the Department’s comments on this point. In fact, he was demoralised to hear the DOE perpetually listing excuses. The Central Energy Fund was a fantastic entity, yet, with all its resources and capabilities, it had done nothing of any visible value, and had not moved the country forward at all. He suggested that DOE needed to take decisive action, remove those who were “dead wood”, clean up the structure and act in a manner to take the country forward.

Mr S Motau (DA) noted that the Department’s achievement of an unqualified report was not to be seen as a cause for celebration, because this was precisely what was expected of it. He was confused by the reference to a “surplus” as to his mind the only time that a surplus would be achieved was if money had not been spent, and it should have spent it and not returned R54 million to National Treasury. In particular, he noted that there was an urgent need to fill posts, as those who were employed were feeling the strain. Mr Maqubela had noted that the requisite number of inspections could not be carried out because of human resource constraints. DOE needed both quality and quantity, because nothing would be done if it did not carry out the inspections, and he quipped that people did what was inspected, rather than what was expected. The Departmental management had to come up with a plan. He pointed out that the money “lost” through not being spent could never be regained.

Mr Motau noted that the targets on solar water heaters would not be met. He also noted that the DOE was contradicting itself by encouraging people to move to using gas, but not providing gas for them. He too noted the closure of businesses due to supply problems and urged the DOE to come up with plans to address this.

The Chairperson was appreciative of the fact that the DOE had noted its full, partial and non-achievements, which was helpful. He noted that the Department would be aware that the Committee would be monitoring the areas that were partially or not achieved, during the budget review cycle. He encouraged the Department to maintain its unqualified audit report status, agreeing that this was expected of the DOE, and it should build a culture of compliance.  

The Chairperson noted that there was no mention of full, partial or non-achievements in respect of Programme 1, particularly the training programmes. He asked what the target was for employees who participated in the training programmes.

The Chairperson asked the DOE to provide a copy of the Energy Efficiency Awareness Campaign, noting that a number of radio dramas, TV series, billboards and newspaper advertisements had been used in this campaign. The Committee wanted examples, because these types of activities were not that visible, and he asked if there had been a problem in the DOE, or with the Government Communication and Information System (GCIS).

The Chairperson asked to what extent the DOE was collaborating with Eskom on the energy efficiency drive.
With regard to Clean Fuels 2, he asked to what extent the Department was collaborating with the National Planning Commission on the transition to low carbon economy.

Ms Magubane noted, in relation to service delivery questions, that this was outlined on page 15 of the presentation. The DOE was concentrating not so much on the organisational environment but on the outside environment. During the year under review there was a challenge around the economic meltdown, and accurately projecting the economic growth of the country did pose something of a challenge. The energy sector saw itself as providing the opportunity for economic growth that could contribute substantially to job creation, and tried to plan for this. However, the recession had posed a challenge in reaching the objectives, although the DOE knew where it wanted to go in the outside environment. She agreed that the DOE had to ensure that it integrated all plans to address the security of energy supply. That meant that whatever was happening in the liquid sector and the electricity sector should not happen in isolation, but should be integrated. For example, the Department would, at the moment, like to see transportation of fuels being done by rail, rather than by road, but that in turn was dependent upon an adequate electricity supply for wagons to move from Durban to inland.

Ms Magubane commented on the points raised about lack of investment in the energy sector. She noted that there were a number of interventions needed in the sector through the value chain. The lack of investment to date in the distribution sector meant that one part of the chain was under-resourced.

Ms Magubane noted that it was not possible to plan outside climate change and global warming in an integrated manner, but the DOE needed to ensure that whatever it did would address issues of climate change, so it was necessary to talk about clean fuel and issues of renewable energy. In the refinery sector, most refineries were ageing, and were between 30 and 50 years old, and outages that would lead to inadequate supply were being seen. One of the main issues around LPG gas supply was that the refineries were not producing adequate LPG, and there was therefore the need to come up with a new strategy to ensure there was adequate LPG to meet the particular challenges.

Mr Maqubela added comments on the situation with the LPG. He noted that the main problem was to do with the refineries and their reliability, and here he pointed out that the unplanned shutdowns were increasing alarmingly. There had to be reconsideration of whether to build new refineries. The DOE believed that there was a need for new refining capacity in South Africa. The issues around LPG were also dependent on ports infrastructure, and that was not in the control of the DOE. There was a need to accelerate those issues, particularly around designated areas for imports. The Department had already been in contact with Transnet in that regard. The third factor related to the deregulation of the refining sector, which meant that it was now up to refineries to decide what crude oil they would process, and what product they would maximise. LPG was not bringing more returns to the refineries than petrol would have, in which case the refineries might decide to maximise production of petrol. The Department would need to look at whether to give more signals from the regulatory side. If it did so, however, that would come at a price, because it would need to incentivise production of LPG, until the ports structure and refinery reliability improved. This was of major concern to the DOE, particularly since there were apparent contradictions, both in the strategy versus availability, and the fact that people had to find more costly sources of power.

Ms Magubane then commented on the internal environment, noting that this was a highly technical Department, and most of the employees were scientists or engineers. Commenting on the remarks about the need for planning, she said that all policies had to be fact-based, and the people compiling those facts had to have the requisite technical knowledge and understanding to plan in the sector, so it would not help to adopt a “common sense” approach or use anyone without those specific skills. Whatever was produced had to resonate with those in the industry. She could not emphasise enough the need to have highly skilled, highly technical people to ensure that the Department delivered what was required by both the society and industry, particularly around energy security.

Ms Magubane agreed with Mr Ross that IBT was a challenge. The pricing had been arranged so that the lowest consumer of electricity would pay as little as possible, with the hope that high-use consumers would pick up the difference. However, there were two main challenges. The first was that municipalities saw electricity as a revenue stream. The second problem was that most of the customers were residential customers, so municipalities could not recover from them enough to recoup what they had given out at the lowest level, and had still to have fiscal support to address the customers at the lower end. It would be difficult, and not in the best interests of municipalities, to implement IBT. She hoped that the FFC had mentioned that at the end of the day there were attempts to solve a fiscal problem using electricity, and that would create unintended consequences if suddenly electricity was unaffordable. That was the biggest challenge that the Department faced. The electricity issue could not be discussed outside the fiscal debate. It was necessary to have reasonably-priced energy to create jobs. The DOE was engaging with National Treasury on this point. Over the past years, no final solution had been found.

Ms Magubane agreed that the concerns of Members on pricing were valid, and even the DOE was concerned with the regulatory methodology that NERSA applied when awarding funds to Eskom. Currently, Eskom would approach NERSA and request a certain sum, based on how much it was going to be building. That was creating a very perverse incentive even if they were going to meet their targets, for even if the Medupi plant was late in coming on stream, Eskom would still get its funding. She felt that there needed to be further consideration into how to regulate in order to ensure that value was received. The IPPs had been told that nothing would be paid until they produced their first MW. She thought that the same should be applied to Eskom, but this would require a radical change in the regulation.

The Chairperson noted that he had deliberately requested the DG to go through the challenges in service delivery and the organisational environment, as the Committee would be looking at the impact of those challenges. However, it would also be checking to see that the responses from the Department were adequate and addressed the issues. The Department of Performance Monitoring and Evaluation had emphasised that it wanted to see departments improving the time that they were currently spending on internal systems and procedures and spending more time on actual service delivery. Obviously, any department had to have proper systems, well trained people, and internal organisational culture, but it was also expected to deliver on its mandate. The Committee would be monitoring the delivery, and hoped to see more service delivery in future.

The meeting was adjourned.


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