Department of Energy update on international agreements and participation in international bodies

Energy

03 September 2012
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The Department of Energy briefed Members on current international agreements concluded by South Africa with other countries in Africa and the rest of the world. There were several agreements on a government level while PetroSA was involved in several exploration projects. South Africa was also a member of several international organisations. One of the benefits was the access to training.

Members questioned the wisdom of heavy investment in exploration projects. The Department agreed that this was a risky business, but it would be a commercial decision. Gas deposits on the African continent needed to be exploited. Members were assured that South Africa had learnt valuable lessons following the recent nuclear accident in Japan. Members questioned the value of membership of international bodies given the associated fees.

The Department told Members that there was a greater tendency for international companies to provide refined products to Africa rather than crude oil. Negotiations were conducted initially on a governmental basis, after which companies such as PetroSA would conclude commercial agreements with other companies. International agreements would be ratified in Parliament.

Meeting report

 

Department of Energy (DoE) briefing
Ms Elizabeth Marabwa, DoE Chief Director:
Petroleum, Coal and Gas Policy, introduced the presentation by saying not much would be said about nuclear aspects due to the confidential nature of these matters. The security of supply had to be ensured by energy policies. International agreements had to be seen against this perspective. The priority for South Africa was to look at the Southern African Development Community (SADC).

Hydrocarbons
Ms Marabwa said that agreements had been signed with various countries to ensure the supply of oil and gas. These countries included Venezuela, Egypt, Ghana, Algeria, Angola, Mozambique and Namibia. South Africa had signed a government-to-government memorandum of understanding (MoU) with Venezuela. Subsequently, PetroSA had concluded an agreement with their counterpart PDVSA to work on some marginal blocks. An MoU was in place with Egypt. PetroSA had explored one block without success. Further efforts would be made once the new Egyptian government was settled. An MoU had been signed with Ghana. PetroSA was exploring potential opportunities. An MoU had been signed with Algeria in 2010 and PetroSA was working on an implementation plan. There had also been co-operation on nuclear issues. An MoU was signed with Angola in 2009. PetroSA was working with Sonangol in the area of oil and gas. South Africa was promoting gas development and trade with the Mozambique Gas Commission. The increased use of gas would have a positive effect on the environment. There had been discoveries in East and Southern Africa.

Ms Marabwa said that the RSA and Namibia Gas commission had been established. South Africa was battling to reach an agreement with Namibia on the Kudu Gas field. Exploration was continuing on the continental shelf. There was an increase in oil trading with Angola and Nigeria in terms of crude oil, and Mozambique regarding gas. Other types of gas deposits might be exploited in Botswana and South Africa.

Hydrocarbons infrastructure
Ms Marabwa said that China had shown interest in developing infrastructure. There was an MoU between PetroSA and SINOPEC. Co-operation between the two parties would help to develop the Mthombo project. The China Development Bank (CDB) had also signed an agreement with South Africa which would enable the energy sector to access funding.

Electricity
A cooperation agreement had been signed with India to promote cooperation in electricity and electrification programmes. Agreements had also been signed with Botswana and Zambia. South Africa would advise these countries on their efforts to develop electrification programmes. Mozambique had a vast energy production potential, especially in terms of hydro-electricity. Transmission projects were being conducted with Lesotho - there was potential in terms of hydro, wind and solar energy, and energy efficiency.

Ms Marabwa said that an agreement had been signed with the Democratic Republic of the Congo (DRC). A combined treaty could now be negotiated. The Grand Inga Project had been on the table for almost fifty years, and it was time to move on this plan. The hydro electric generation capacity was estimated at 40 000 MW.

Clean Energy
Ms Marabwa said there were a number of projects focussing on clean energy. There was an agreement with Switzerland. International benchmarking would be provided. There was a MoU with Denmark. This country was a global leader in wind energy. A skills transfer was taking place. Wind energy projects had been implemented. Biofuels would soon be introduced.

The relationship with
India-Brazil-South Africa (IBSA) would benefit the country in bio-fuel implementation.

Ms Marabwa said that South Africa was a council member of the International Renewable Energy Agency (IRENA). This body contributed to the development of renewable energy. There was a special focus on Africa. The plan included the development of a wind atlas, which would identify the best sites for wind energy. This program had been completed.

South Africa was the only African country amongst the 24 participants in the Clean Energy Ministerial initiative that included energy efficiency, electric vehicles, carbon capture, solar and light emitting diode (LED) access, clean energy education, smart grids and super efficient appliance and deployment. Women were being encouraged to enter the industry.

She noted the South African Renewable Energy initiative that had been signed by four countries and one investment bank. The initiative had been moved from the Department of Trade and industry to the Energy Department.

South Africa was a member of the Africa European Union (EU) Energy Partnership. It was important to give the public education on the new energy sources becoming available. The technologies developed elsewhere should be absorbed locally. Targets had been set, but not at extremely high levels. The agreement was to develop capacity for 10 000MW of new hydro facilities, 5 000MW of wind power and 500MW of solar energy in all its forms.  The capacity of other forms of renewable should be tripled. There should be an improvement in all sectors of energy efficiency in Africa. Modern and sustainable energy access should be provided to 100 million people across the continent. The capacity of cross-border interconnections should be doubled, both within Africa and between Africa and the EU. The use and export of natural gas should be doubled.

Ms Marabwa said that the African Energy Ministers Conference (AEMC) had held several meetings leading up to COP 17. A declaration had been signed by more than 45 countries highlighting the needs of African countries, including training.

Ms Marabwa said that South Africa was also a member of the International Energy Agency (IEA). A MoU was in place to support capacity building, energy planning, modelling and forecasting.

Nuclear
Ms Marabwa said that DoE had relations with multilateral bodies on the question of nuclear energy. DoE had taken an interest in the outcomes of the nuclear disaster at Fukushima. Bilateral agreements were in place with Algeria, Korea and China. There had been an interchange of information.

Access to funding
Ms Marabwa said that another important role of agreements was ensuring access to funding. Several multilateral agreements had been signed. The Declaration of Intent on the South African Renewables Initiative enabled the government to access soft loans from signatory countries and institutions to support deployment of renewable energy.

Multilateral agreements
All agreements had a component of information sharing and capacity building. South Africa was involved in the Carbon Sequestration Leadership Forum, the International Atomic Energy Agency (IAEA) and the International Energy Forum.

SADC regional initiatives
A renewable energy strategy had been developed. There was a focus on regulatory policies. Extensive capacity building workshops had been held. There was a need for interconnectivity. The Southern African Power Pool (SAPP) was an initiative to promote this principle. Connections had to be modernised to be more efficient.

SADC power pooling
Power trading was being made possible but there was a need to create an enabling environment. SAPP was lagging behind similar organisations. This was due to insufficient availability. She presented a number of transmission projects (see map).

SADC approved energy infrastructure projects
Ms Marabwa gave a list of these. In terms of energy diplomacy, DoE worked closely with immediate stakeholders such as state owned enterprises (SOEs) and sister departments. They also worked closely with the Department of International Relations and Co-operation (DIRCO). DoE had developed an understanding of global trends and their implications for the energy sector.

Growth in the sector would be achieved by investment. Secure, affordable and accessible energy was needed. South Africa was embracing the African continent and in particular the SADC region, in line with DIRCO policy.

Discussion
Mr L Greyling (ID) noted the comprehensive presentation. In terms of hydrocarbons, exploration prospects in Venezuela had been mentioned. PetroSA had spent R2 billion in fruitless exploration in Equatorial Guinea and Egypt. He asked if there were better prospects for success in Venezuela. The country needed to move fast in the field of gas. A number of countries were eyeing the deposits in Mozambique and Tanzania. He asked what infrastructure plans were in hand. South Africa might miss the boat on this issue.

Mr D Ross (DA) noted the agreement with the CDB. He would like to hear more details on this agreement. The proposed funding could be a major source of finance. Regarding India, he asked what had been learnt. The Indian experience provided a good model, and the subject deserved a presentation of its own. He asked what plans had been made for transmission of electricity from the DRC. There was also much to learn from Brazil. He wanted to hear more on the progress of agreements with China, and had only heard of a MoU.

Mr S Radebe (ANC) wanted an understanding on the increase in oil trading on the African continent. He asked why prices had to be set according to US Dollar values. He wanted more clarity on the agreement between PetroSA and China. The DoE, in engaging with Japan on nuclear issues, should have learned valuable lessons from the recent nuclear disaster. He asked if there was any awareness programme as a result.

Mr J Smalle (DA) asked why the MoU and treaty with Nigeria had failed. The country had been unable to secure a supply from that country. He understood that South Africa had failed on some of the conditions. Iran was a major supplier but was now under international sanctions. It seemed to him that PetroSA's balance sheet was being over-committed to various explorations. Perhaps the company should rather concentrate on shale gas and other successful projects, while minimising the risk at exploration level. There was a risk in negotiating treaties with other countries. The national security of supply was not being met. Some international arrangements did not favour South Africa. No possibility had been mentioned of plans to relay DRC-generated power to South Africa. Many forums caused South Africa to pay substantial fees. SA paid R50 million in membership fees to the IAEA. He asked what benefits were being achieved.

Mr S Mayathula (ANC) noticed that the presentation had been updated since being distributed to Members.

Mr K Moloto (ANC) said that Eskom had reported challenges on the sub-station on the Mozambican side. He asked what the capacity was for the project in Botswana. He asked where they would sell surplus electricity. There would be further challenges in the years leading up to 2020.

The Chairperson said that details of some of the deals could not be divulged. PetroSA reported directly to the Committee.

Ms Marabwa said that she would not be able to answer all the questions posed. In principle, more and more products were being imported. This was not good in terms of security of supply. It was important for sub-Saharan Africa to have its own refineries. The timing of the Mthombo project might be questionable, but it was a critical requirement. She showed Members a map of Africa with the refineries indicated. Many were mothballed. Some international companies had pulled out of sub-Saharan Africa, and their replacements were often of a dubious character. The average age of South African refineries was over forty, and many were reaching the end of their useful life. Mthombo was a necessary project. Many international operators were withdrawing due to the introduction of national oil companies and were preferring to export refined products to Africa rather than crude oil. There was a progressive increase in the amount of refined products. She did not think this was what the country wanted.

Ms Marabwa said that the figures for the Mmamabula project were being changed regularly. The SADC region would have a power crisis. Expansion was needed. The Eskom project with Mozambique was being resolved but she could not say to what degree. A backbone project for Mozambique was crucial. A smart grid approach could be followed.

Ms Marabwa agreed that a significant amount of money was being paid to international organisations, but there were benefits. One of these was the availability of training. Some of the benefits were in the fact that SA could not afford certain types of specialised training, and standards on aspects such as waste management. Best practice had to come from international institutions. A specific cost-benefit analysis was still to be done.

Ms Marabwa said that there had been a plan to develop the Inga project. There had been some imports of electricity from DRC. The transmission network was in place, and had been on standby during the 2010 Football World Cup. Agreements between governments were needed to protect investments. Overarching agreements were needed for PetroSA and other major companies. Benefits should be purely commercial in nature. PetroSA should craft agreements that would benefit its shareholders. When treaties were negotiated, the principles were based on ubuntu and mutual benefit.

Ms Marabwa said that there had been an issue over Nigerian crude. There had been some form of agreement. Most deals were international, and DoE was not involved. Questions should rather go to PetroSA. After the Fukushima disaster, stress tests had been conducted at Koeberg to determine the safety of the site. An assessment would be conducted in December 2012. The Minister had been invited to Japan to participate.

Ms Marabwa understood that an agreement had been signed with the Chinese government. PetroSA had decided to engage on its own accord. More than 100 companies were involved. There was a lot to be gained. PetroSA must determine what details could be divulged.

Ms Marabwa said that all crude oil trading was done in US Dollars. The crude price was benchmarked on three different markets. The amount of over or under-recovery was determined on a monthly basis, and the price was then determined. Prayer was needed to keep the price down.

Ms Marabwa said that there was an agreement with the Chinese on nuclear issues. The Chinese had offered to train South Africans on disaster procedures. South Korea had also offered this training. The training of engineers was a long-term process.

Ms Marabwa said that it was important that Members should visit countries like India and Brazil, which were well developed in terms of biofuels, as well as Denmark and Germany in terms of wind energy. India had imported wind energy technology and developed it further.

Ms Marabwa said that negotiations were progressing on funds being offered by other countries. Accountability would be needed and the terms of such packages were being negotiated. It was a long process. The Chinese market was richer than any other.

Ms Marabwa agreed that there were eastern, western and southern gas clusters. South Africa was committed to reducing the country's carbon footprint. The DoE was working on this. From a regional perspective, discussions with Angola and Namibia were developing. This asset should be exploited.

Ms Marabwa agreed that oil exploration was a high-risk business, with a failure rate of up to 90%. Instead of looking at blocks, PetroSA was now looking into upstream production rather. Certainty of the viability of a product would be needed. There were fields in Venezuela, but not all had major reserves. It was easier for a small operator to exploit such deposits. There was definitely some promise there. There was a perception that DoE was bullying PetroSA into specific initiatives. This was not so. PetroSA would have to negotiate a commercial contract should it be satisfied the return would be worthwhile. Countries with potential had been identified. A more strategic approach was being taken.

Ms Marabwa commented on the 20-80% split in Namibia between PetroSA and its international partners. It would not make sense if PetroSA had to cover the bulk of the costs with the minority of benefits, but they would need to give a fuller answer.

Mr Smalle commented on the MoUs between DoE and other countries. He asked if there was any inspection of the benefit structure before advancing negotiations. On the security of oil and gas fields, he asked what incentives were in place for negotiating these treaties. Many international communities did offer incentives. He asked if DoE assisted in ensuring that MoUs were in place.

Ms Marabwa said that agreements were tabled in Parliament. When the DoE negotiated an MoU, this was done with governments rather than companies. The exception was in the case of China. The agreements DoE signed were more on a political level, paving the way for companies to negotiate with other companies. PetroSA's agreements would be purely commercial. Government would only negotiate on access to a particular block. In most cases, the competition was with the big international companies. PetroSA reported to its Board, which would determine the commercial viability.

Ms Marabwa said that other countries did offer incentives for the move to cleaner fuels. She had worked in that field. In some cases, countries provided incentives sooner than in others. In South Africa, regulations were in place. There would be some way of recouping costs. This could have a drastic impact on fuel prices, and would have to be considered carefully.

The Chairperson asked if there were any agreements in place which would consider the environment. He asked if there was any strategy to address power issues within SADC. This was the first region in Africa where formal trading arrangements were in place. He asked if there was any strategy to reduce the deficit. At the Energy Summit the following year, it was important to note the major energy projects throughout the continent. He wanted to know what involvement South Africa had. The Committee conducted oversight of these flagship projects.

Ms Marabwa replied that there was an infrastructure project on the continent. South Africa participated in this programme, and President Zuma was the current chairperson. There were several projects around the continent, including solar programmes. There was European involvement in some of the projects. One of the outcomes of the Ministers' programme was to put a number of flagship projects in place. Each regional structure should take ownership of the projects within their areas. An important outcome was that most African countries were in need of assistance. International partners were being sensitized to this. The USA had put forward a plan. The African Development Bank had played a leading role. Projects had to be moved from the drawing board to implementation. The United Nations organisation would also assist sustainable projects. Flagship projects had been highlighted together with financial shortfalls.

Ms Marabwa said that most of the agreements had still to be tabled at Parliament. This would be done shortly. The benefits of multilateral agreements were there, but the lead times for energy projects were much longer than a project such as a shopping mall. It could take up to ten years to build a power station. The same applied to oil exploration. There were issues related to training.

Ms Marabwa said that one of the forums had produced a useful booklet on oil and gas exploration. Most of these studies were published by the oil companies, but this was an independent analysis. The cleaner energy ministerial forum was supporting the development of the world wind atlas, in particularly in Africa. Danish support had led to the compilation of a South African wind atlas. Funds could be made available for viability studies and the development of smart grids. The total benefits could not be quantified.

Ms Marabwa said that while there was negotiation with international partners, there were benefits on their side. There had been no specific cost-benefit analysis studies.

Ms Marabwa said there was a strategy to identify the power deficit. SADC had developed a regional energy master plan, identifying all the gaps in the current strategy. This had been discussed at the Ministers' summit.

The Chairperson said he would like a briefing on the regional plan at some stage. Whilst the DoE might have briefed Members on its international role, charity began at home. South Africa was integrated into the region. The regional plan would also have to address other elements of social and economic development. Members needed an assessment of how DoE engaged with other departments for the benefit of the country. The sector would mature in time. Organisations were bound to engage on issues of climate change. The benefit of membership of the various organisations still had to be assessed. He would like Members to agree that the DoE should update the Committee regularly on international issues. Skill levels had to be increased. In 2013 the Committee would be eligible for a study visit, and he had noted the suggestions. He noted the parliamentary library had four periodicals on its intranet on energy issues. These magazines contained articles on energy at international level.

The meeting was adjourned.


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