National Nuclear Regulator of South Africa & National Energy Regulator of South Africa Annual Report s 2010/11

Energy

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

The National Nuclear Regulator (NNR) briefed the Committee on the Annual Report 2010/11. The key highlights for this year were outlined, which had included the Nuclear Security Action Plan for the 2010 FIFA World Cup, the progress made in testing the effectiveness of Koeberg Nuclear Power Station’s emergency preparedness and response arrangements, the promotion of openness and transparency through the facilitation of knowledge-sharing platforms such as technical symposia, and its own self-assessment of the regulatory infrastructure. In this year, there were no incidents of undue or excessive exposure of workers, the public or the environment to the harmful effects of radiation. A constant watch was maintained over, and directives were issued to special case mines which had reflected some raised radiation levels. The challenges that the NNR faced included the reduction in its operating revenue and government grant, an inadequate legislative framework, and the need to strengthen the Regulator’s enforcement mandate, the regulation of special case mines and remediation of legacy sites. NNR had submitted proposals to the National Treasury in regard to its financial sustainability, urged that it should not face cuts to the budget, and that a comprehensive funding model must be developed. In regard to the legislation, the Board of Directors had approved amendments and they would be brought soon. It assured the Committee that the occupational and  public exposure at all of its sites was well within the prescribed regulatory limits. The NNR had achieved 60% of its planned strategic initiatives during the year under review. Any under-performance occurred primarily as a result of capacity constraints.  NNR outlined that its total revenue had increased in this year by only 1%, or R1.1 million compared to previous years. There had been decline in the State grant and only a 6% increase in authorisation fees. The total operating revenue was derived from authorisation fees, the government grant and some other income. Although it had received an unqualified audit opinion from the Auditor-General, there were emphases of matter, relating to the restatement of corresponding figures for 2010 as a result of an error discovered in the financial statements. There had been some irregular expenditure in relation to a few procurement transactions, but there would, in future, be rigorous monitoring of all procurement transactions. There was another area of concern around the non-quantifying of performance information. A restructuring process undertaken put the NNR in a better position to meet its performance targets and enhance its efficiency. It would require adequate capacity and funding to address all regulatory aspects of the new planned programmes. It would be reporting back to the Committee on the safety assessment following the Fukushima accident, as well as the amendments.

Members asked for the NNR’s views on the Auditor-General’s finding that its leadership had failed in relation to adequate record keeping, noted that this related to one tax-clearance certificate that could not be found, and was regarded as unfair by the NNR. Members asked for more detail around the funding model and the amounts required. They asked if the NNR was receiving adequate cooperation from municipalities in relation to ensuring effective disaster management, and took note of the problems experienced with the local municipality near Koeberg, although this was being addressed. They asked for more details on the progress with the new nuclear build, the post-Fukushima safety assessment report, allegations that workers at the NECSA plant had work-related health problems, and the problems of capacity at the Madibeng municipality. The Committee also asked what the NNR had done to address the findings of the Auditor-General, and suggested that they should meet with the Auditor-General to discuss the findings, as they did seem to be quite harsh. They were interested in the steps instituted by NNR to prevent recurrence. They asked why the particular mines had been targeted, and what was being done to share information in the sector.

In the afternoon session the National Energy Regulator of South Africa (NERSA) presented its Annual Report to the Committee, noting at the outset that it had received an unqualified audit opinion with no emphasis of matter from the Auditor-General for the 2010/2011 financial-year. Some of the highlights in relation to the industries that NERSA regulated were set out. In relation to electricity, it had approved 179 municipal tariff applications, had conducted a number of workshops and approved the principles to be used in determining the electricity tariff guideline increase for electricity distributors. It had also published a consultation paper on revised rules for Energy Efficiency and Demand Side Management. In relation to the piped gas industry, NERSA had approved the preliminary reference prices, as well as the Transnet Pipeline transmission tariff from Secunda to Durban South. It had conducted inspections on nine construction sites were conducted in 2010/11. A consultation document on a methodology to approve maximum prices for gas was prepared in the lead up to the end of the agreement in 2014. It was also noted that the gas industry had not been regulated for some time, and NERSA was planning to investigate the size of the industry and formulate plans for the future. In relation to the petroleum pipelines, revised tariff methodologies had been approved, five construction licences were granted, and the Fourth Quarterly Report on Security of Supply was approved. It had approved an increase in the allowable revenue and approved the minimum requirements for tariff applications. From the internal perspective, NERSA had successfully hosted the Regional Electricity Regulatory Association Conference. Some of the challenges remained on the human resources side, where employment equity was difficult, and there were also delays in filling positions, which impacted on its ability to complete projects. There were delays in the finalisation of the revision of the Energy Efficiency and Demand Side Management policy. The financial results were tabled, noting that there was an unqualified audit report, although it was noted that there had been underspending of 6%, and there had been some irregular expenditure, as well as a small amount of fruitless and wasteful expenditure. Operating expenses took up 31% of the budget while employment costs amounted to 53%. Consultation fees took up 10% of budget.

Members asked about the corrective measures being implemented by City of Johannesburg in regard to billing, and asked what NERSA was doing about non-compliance, noting that amendments to its Act were being made which should ease its ability to regulate. Members asked why there now seemed to be problems with supply of Free Basic Electricity, asked if the independence of NERSA from Eskom would ease matters, and what methods it would employ after severing the ties. Members commented that a strategic direction was needed for the distribution network, said that external delays on the energy efficiency path and the pricing path were difficulties, and that pricing discussions were needed. Members asked if the lower spending on consultants had been deliberate, and asked about the underspending.  They asked about pricing of renewable energy into the grid, enquired about the Darling Wind Farm, commented that there had to be some flexibility on pricing over the next twenty years, according to what the demand would be, and asked if NERSA was concerned about delays in the Transnet pipeline. They also commented that the provision of electricity by municipalities should be changed.

Meeting report

National Nuclear Regulator of South Africa Annual Report 2010/11
Mr Boyce Mkhize, Chief Executive Officer, National Nuclear Regulator of South Africa, said that key highlights for the year under review included the drawing of the Nuclear Security Action Plan for the 2010 FIFA World Cup, which was hailed as a huge international success, as well as the progress made in relation to testing the effectiveness of Koeberg Nuclear Power Station’s emergency preparedness and response arrangements. The results of this exercise proved that there were adequate emergency measures in place in South Africa. A few corrective measures were proposed in order to further strengthen these measures. Further highlights included the promotion of openness and transparency through the facilitation of knowledge-sharing platforms, such as technical symposia convened in conjunction with the International Commission on Radiation Protection (ICRP), as well as the self-assessment for regulatory infrastructure that the National Nuclear Regulator (NNR or the Regulator) had conducted in order to develop and sustain national regulatory infrastructures for nuclear and radiation safety.

He reported on the NNR Safety Index, saying there had been no incidents of undue or excessive exposure of workers, the public or the environment to the harmful effects of radiation. A constant watch was also placed on special case mines which had reflected some raised radiation levels. Directives issued to these mines included the institution of engineering controls, the temporary closure of certain shafts and other related interventions to protect workers.

Challenges faced included the reduction in operating revenue and government grant, an inadequate legislative framework to strengthen the Regulator’s enforcement mandate, the regulation of special case mines and remediation of legacy sites such as the Wonderfonteinspruit catchment area.
  
In order to address these challenges the Regulator had submitted proposals to National Treasury on its financial sustainability, and had also developed a comprehensive funding model for the future. The Board of Directors had also approved amendments to legislation giving better power to the Regulator for enforcement of its mandate.

In relation to programme performance, the Regulator regulated the following facilities: The Nuclear Energy Corporation of South Africa (NECSA) - at both the Vaalputs Radioactive Waste Disposal site and Pelindaba, the Koeberg Nuclear Power Plant, mining and minerals processing plants, as well as nuclear vessels. Occupational as well as public exposure at all of these was well within the prescribed regulatory limits.

Seventeen mining and mineral processing facilities had been identified as having the potential to exceed the set regulatory limit of 20mSv/a if not closely monitored. These facilities were, however, continuing to implement appropriate corrective measures in order to ensure that all dose levels were kept as low as reasonably possible, as part of an on-going monitoring programme.

Mr Mkhize set out that the Regulator had achieved 60% of its planned strategic initiatives during the year under review. The areas of under-performance were primarily due to capacity constraints.

Total revenue had increased by 1%, or R1.1 million, when compared to the previous financial year. The reason for the low increase was that the State’s grant had shown a significant decline  of 16%, and there was only a 6% increase in authorisation fees. The effects of the recession had resulted in a number of consolidations in the mining and mineral operations, which in turn had a negative impact on the revenue due to litigation and surrenders and other matters. Operating expenses had also increased by 7% from the previous year, mainly as a result of the Regulator’s relocation to new premises. Total operating revenue for the year stood at R109.8 million and came mainly from authorisation fees of R89.5 million, a direct Government grant of R19.95 million, and other income of R350 975.

The Regulator received an unqualified audit opinion from the Auditor-General, which suggested a generally acceptable level of internal controls. Emphases of matter were, however, raised on the financial statements. This related to the restatement of corresponding figures for 2010 as a result of an error discovered in the financial statements of the Regulator at 31 March 2011. Another area of concern was around irregular expenditure, in relation to a few procurement transactions, largely relating to the tenant installation for the new building. This would be strengthened in the future through the rigorous monitoring of all procurement transactions. Another area of concern was around performance information, as there were certain measures which could not be quantified accurately.

Mr Mkhize noted that the Regulator had recently completed a restructuring process and was therefore currently better positioned to meet its performance targets as well as enhance its efficiency. The new nuclear build programme required the Regulator to be adequately capacitated and resourced in order to address the regulatory aspects of this massive programme. The Regulator’s financial sustainability and viability continued to pose serious challenges to both itself, and to the country’s ability to meet its international nuclear regulation obligations.

Mr Mkhize concluded that a secure funding tenure was needed, and urged that there should not be any  systematic erosion of funding baseline by National Treasury. The Regulator would report back to the Committee on the results of the safety assessment it had conducted as a response to the Fukushima accident. It would also be approaching the Committee with a request to support the driving the NNR Act amendments in order to strengthen the regulatory regime.

Discussion
Mr K Moloto (ANC) asked for the Regulator’s views on the Auditor-General’s finding that its leadership had failed in relation to adequate record keeping.

Mr Mkhize answered that there had been strong disagreement on the Auditor-General’s (AG) finding in this regard, particularly as this was based on an isolated incident in which an original tax clearance certificate was not found. The conclusion reached therefore seemed unfair, and he added that although there had been engagement on this point with the office of the AG, the latter was not persuaded on this point. This was also the case in relation to the other emphases of matter it raised. Despite this, measures had subsequently been put in place by NNR to address the areas of concern.

Mr Moloto asked for more detail about the funding model NNR would propose.

Mr Mkhize noted that although the funding model was still being developed, the Regulator held the view that the State should, in compliance with the mandate to protect its citizens, inject more resources into the entity.

Mr Moloto also asked if the NNR was receiving adequate cooperation from municipalities in relation to ensuring effective disaster management.

Mr Mkhize responded that there was, generally, support from municipalities though there was concern around a need for a more effective emergency evacuation programme at the Koeberg Power Station as well as developments around it. In this particular regard, however, there was poor cooperation from the municipality concerned, but he hastened to assure the Committee that the NNR was continuing its engagements. There were significant capacity restraints in the Madibeng municipality.

Mr P Dexter (COPE) asked what amount of additional funding would be needed.

Ms Tracy Cohen, Director, National Nuclear Regulator, answered that, although no fixed figure had yet been finalised, it appeared as though this amount would be in the region of R20 million. This amount was likely to change.

Mr Dexter asked what had been done thus far around the new nuclear build.

Mr Mkhize said that the NNR would soon be briefing the Committee on this matter specifically. To date, it had been looking into the costs and capacity needs, and other preliminary matters.

Mr D Ross (DA) asked if there was likely to be a greater stream of income as the recession passed.

Mr Ross asked why the post-Fukushima safety assessment report had not been completed yet.

Mr Ross asked what the NNR would be expecting in terms of legislation around the nuclear build programme, and asked also if the NNR would be involved in the site selection for the new nuclear build?

Mr Mkhize answered that the operators needed time to test their systems so that the issues were comprehensively addressed. It was difficult to assess exactly how long this would take. He said that the NNR would engage with the Committee on the legislative approach. There was a need for a coherent and comprehensive approach to the new nuclear build sites.  

Ms Cohen added that NNR would approach the Committee on the regulatory approach once it had done more preparatory work in this regard.

Mr L Greyling (ID) asked whether NNR would be able to attract and maintain skills.

Mr Mkhize answered that the entity offered market-related compensation and would therefore be able to attract the necessary skills. It was also working with training institutions so as to ensure that the skills pool was broadened.

Mr Greyling asked if there had been any developments around the investigation into the poor health of workers at the NECSA plant, supposedly as a result of working there.

Mr Mkhize said that the NNR had directed Necks to provide comprehensive medical reports of the employees concerned.

Mr S Motau (DA) asked whether there had been any attempt at redressing the capacity constraints in the Madibeng municipality.

Mr Mkhize answered that concerns had been raised around this. NNR would, however, accelerate its attempts at working to find solutions in this regard.

The Chairperson said that the Committee would be paying close attention to the Regulator’s organisational restructure. The issue of the role of municipalities and provinces in disaster preparedness should be taken up seriously by the Committee in the coming year. The harmonisation of functions also needed to be looked into.

The Chairperson asked what plans were in place to address the Auditor-General’s findings and what mechanisms were in place for the review of these plans so as to avoid these issues recurring.

Mr Mkhize answered there were indeed areas of weakness that needed to be strengthened and NNR was currently in the process of working on these, so as to ensure non-repetition of these concerns.
The Chairperson asked why only 17 mines were identified.

Mr Mkhize said that it had been found that these particular 17 mines had the potential to exceed the allowed radiation levels. NNR had therefore placed emphasis on instituting preventative measures.

The Chairperson asked if NNR was involved in information-sharing with its peers.

Mr Mkize confirmed that the NNR engaged on a regular basis with other international bodies, through various forums.

Mr Dexter commented that there appeared to be a need to engage with the Auditor-General around its seemingly unfair findings.

Mr Moloto concurred, particularly as such apparent unfair findings hampered Parliament’s ability to execute its oversight role effectively.

Mr Mkhize replied that the Regulator would welcome this.

The Chairperson agreed with this point.

The Chairperson also stressed that there was a great need for the Regulator to look at ways of strengthening the Continent’s regulatory framework.

The morning session was adjourned. 

Afternoon session


National Energy Regulator of South Africa (NERSA) Annual Report 2010/11
Ms Cecelia Khuzwayo, Chairperson: National Energy Regulator of South Africa, indicated that the Regulator (NERSA) had achieved its regulatory mandate through projects set for the 2010/11 financial year. It ha completed 68% of its business plan activities as planned. It had received an unqualified audit opinion from the Auditor-General for the 2010/2011 financial-year

She briefly highlighted the achievements of NERSA in this year in relation to the electricity industry regulation, piped gas industry regulation, and petroleum pipelines industry regulations. In regard to electricity, Ms Khuzwayo stated that, amongst others, the Energy Regulator had approved 179 municipal tariff applications for 2010/2011. NERSA conducted 22 workshops with municipalities on the implementation. It had approved the principles to be used in determining the electricity tariff guideline increase for electricity distributors. It had also  approved the publication of a consultation paper on the revised rules for Energy Efficiency and Demand Side Management for public consultation, and approved the close out report on Electricity Distribution Maintenance Summit 2008, indicating that all outstanding activities were subject to ongoing activities by the different role players.

With regard to piped-gas industry regulation, NERSA approved the preliminary reference prices – minimum and maximum prices for the year 2008/09 – which were published for comment. NERSA also approved the Transnet Pipelines transmission tariff for the gas pipeline from Secunda to Durban South. Inspections on nine construction sites were conducted in 2010/11, and a consultation document was prepared on a methodology to approve maximum prices for gas in order to prepare for the end of the agreement in 2014.

The highlights for the petroleum pipelines industry were set out. The revised tariff methodologies for the petroleum pipelines and storage facilities had been approved. NERSA granted five construction licenses in 2010/11, approved the fourth quarterly report on Security of Supply of Petroleum Products, approved an increase in the allowable revenue for Transnet Pipeline System for 2011/2012, and approved the Minimum Information Requirements for Tariff Application (MIRTA) guidelines for the electricity and petroleum pipelines tariff applications, to ensure that all applications contained the minimum required information.

On the organizational side, she noted that NERSA successfully hosted the 7th Annual Conference and Annual General Meeting of Regional Electricity Regulatory Association (RERA).

Ms Khuzwayo then set out some of the challenges. These were related to delays in finalisation of the revision of the Energy Efficiency and Demand Side Management policy, and in filling some positions within the organisation that had had an impact on the completion of some of the planned activities. Employment Equity was still posing a challenge as NERSA had difficulty in recruiting people from the minority groups and the disabled.

Ms Busisiwe Chaunzwa, Chief Financial Officer, NERSA, presented the financial statements. She indicated that NERSA had received an unqualified audit report for 2010/11. The actual expenditure for the period of 1 April 2010 to 31 March 2011 amounted to R163,7 million. This represented an under-spending of 6% on the budgeted amount of R177.2 million. The electricity industry was allocated 60%, the piped-gas industry received 16%, and the petroleum pipelines industry got 24%.

There had been some irregular expenditure during the year, which totaled R85 242, whilst there was also fruitless and wasteful expenditure of R5 797.00. Operating expenses accounted for 31% of the budget while employment costs amounted to 53%. Consultation fees took up 10% of budget. 6% went to the remuneration of Regulator members.

In summary, it was stated that NERSA had achieved its regulatory mandate through projects set for the 2010/11 financial year. It completed 68% of its business plan activities for 2009/10 as planned. In order to deal with regulatory challenges, NERSA had undertaken various initiatives to refine regulatory practices and methodologies in its quest to become a world-class energy regulator. Staff turnover had stabilised over the years. It was submitted that NERSA was continuing to be a viable entity and was still operating as a going concern.

Discussion
Mr S Moloto (ANC) wanted to know if NERSA was happy with the steps taken by the City of Johannesburg regarding its billing problem, and asked what NERSA was planning to do about issues of non-compliance. He pointed out that there were people who were operating without a licence.

Ms Phindi Ndzimande, Chief Executive Officer, NERSA, said NERSA was happy with the corrective measures that were being implemented by the City of Johannesburg.

Ms Ndzimande said, in relation to the non-compliance, that the legislation was being amended and its finalisation would inform NERSA what to do about the non-compliance. She further noted that the gas industry had not been regulated in the country for a very long time. Consequently, NERSA has embarked on efforts to find out the size of this industry, and plan a way forward. The compliance and monitoring capacity of NERSA needed to be increased. It was hard for the Regulator to keep its eye on everything since it had limited resources.

Ms N Mathibela (ANC) commented that most people had received free basic electricity in the past, but there were many complaints that they were no longer getting it from the municipalities. She asked the Regulator to comment.

Ms Khuzwayo explained that the free basic electricity system was not properly implemented. The largest challenge was knowledge, as people did not know how to access these services.

Mr S Motau (DA) wanted to know if the independence of NERSA from Eskom would ease matters.

Ms Khuzwayo indicated that NERSA was looking forward to the termination of ties with Eskom, and said that NERSA would then be able to demonstrate what that independence meant.

Mr D Ross (DA) asked about the kind of methodology that NERSA would use after severing the ties with Eskom.

Ms Ndzimande explained that NERSA was open to looking at other methodologies. but believed, at this stage, that the methodology it was currently using was the best. She further indicated that municipalities sometimes did not want to use the methodology given to them, but preferred to  use their own methods.

Mr L Greyling (DA) commented that, on the issue of distribution network, the country needed a strategic direction. He said, in relation to energy efficiency, that there were external delays which emanated from the Department of Energy. There were also external delays in regard to the price path. He reminded Members that the country still had to discuss how it was going to price electricity.

Mr J Selau (ANC) asked if the 6% under-spending was linked to lower use of consultants, and if NERSA  had made a deliberate move to use internal employees.

Ms Ndzimande explained that that 6% underspending was a result of payments delayed externally and internally. In relation to the consultants, she confirmed that NERSA had taken a conscious decision to build capacity internally, hence the reliance on consultants had dropped.

Mr Selau wanted to know about pricing in the generation of renewables into the grid. He asked NERSA to comment on the wind farm in Darling.

Ms Ndzimande said that there was a disparity in the cost of different sources of renewables. It was normal for them to be priced differently. In relation to the wind farm in Darling, she noted that NERSA granted its licence and was now interested what it would be selling to the City, and what the City was selling to the public.

Mr Greyling commented that in relation to pricing, there should be flexibility in the next twenty years. There was no indication of what the demand would be in South Africa. He noted that Medupi was built when there was a boom in the world, and now it was costing the country more.

Ms Khuzwayo stated that the issue of flexibility would take three years to mature. This issue needed to be looked at again next year, so that plans could be developed to see how to bring the intentions to fruition.

Mr Moloto asked if the Regulator was concerned about the delays in the Transnet pipelines.

Ms Ndzimande replied that this was still a matter of concern. NERSA did not want to see any further delays because it had been dragging for a long time.

The Chairperson enquired about the high attrition rate of staff.

Ms Ndzimande explained it happened during the transition period but now matters had stabilised.

Mr Selau indicated that the Constitution allowed local government to provide citizens with electricity. He felt this matter was not to be left to municipalities only, and that NERSA should play a role.

Ms Ndzimande replied that the Constitution was too specific on that issue, and indicated that the regulatory landscape in South Africa had not been tested.

The meeting was adjourned.


 

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