Department of Energy Annual Report 2012

NCOP Economic and Business Development

30 October 2012
Chairperson: Mr F Adams (ANC, Western Cape)
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Meeting Summary

The Department of Energy (DoE) briefed Members on its Annual Report and Financial Statements 2011/12. The report comprised key focus areas for 2011/12 - provision of human resource and auxiliary support services, legal support services to the Ministry and the Department; and communication and knowledge management support services. It also included performance against targets, and challenges such as the industry’s reluctance to provide data to the Department, human resource challenges internally, unplanned refinery outages and impact on personnel, quality management system issues, and resistance to change in the industry.

Members raised many concerns, including the fact that the Department had only met 46% of targets. It had failed to meet the target to cushion the poor from the increasing tariffs, causing Members to worry that the increase would make the poor poorer.

Members rescheduled the meeting to the following Friday due to time constraints. Since they would be going to Johannesburg the following week to take part in 'Bringing Parliament to the People', they would schedule a meeting with the Department there.

Meeting report

The Chairperson welcomed the delegation. In order to make the most of their time, he requested Members not to ask unnecessary questions and the delegation to go straight to the point when answering. He read the apologies of Mr M Maine (ANC, North-West), Mr B Mnguni (ANC, Free State), and Ms M Dikgale (ANC, Limpopo).

Department of Energy (DoE) Annual Report 2011/12: DoE briefing
Programme 1: Corporate services
Mr George Mnguni, DoE Acting Director-General, gave the apologies of the Minister and Deputy Minister who had other official commitments, and the Director General and the Chief Financial Officer who were on study leave.
During the Department’s annual strategic planning meeting in 2010, the management came up with seven strategic objectives which were aligned to government’s 12 outcomes, taking into account the new government outcome based planning approach. The strategic plan and annual performance plan were based on several assumptions that included the availability of financial and human resources. DoE was committed to providing an enabling platform for other sectors to speed up economic growth and transformation, and creating decent jobs and sustainable livelihoods.
The focus areas for Corporate Services for the year under review were the provision of: human resource and auxiliary support services; legal support services to the ministry and the Department; and communication and knowledge management support services.

The Human Resource Plan of the DoE had been finalised and implementation commenced. The organisational structure and framework for occupational classifications had not been achieved due to a prolonged consultation process with employee organisations. This process had also delayed the matching and placement of staff. Turnaround time for filling of vacancies had greatly improved to remarkable three months average through-out the year, and interventions to improve the vacancy rate had also been implemented.

All performance agreements and work plans had been finalised and appropriate disciplinary sanctions imposed for non-compliance. The Public Service Wellness Framework had been approved and implemented in the first quarter of 2011. The Human Resource Development Strategy and Training plan had also been finalised before end of June 2011 and implemented. DoE had managed to train 443 employees in both administrative and functional areas.

The record management plan had been approved by National Archives and Records Service and was being implemented; so was the Security Risk Management Plan. The Standard Operating Procedures and Contingency plan had already been finalised and implemented.

DoE had acquired alternative office accommodation through the Department of Public Works and DoE had settled in. On legal services, all legal requests had been finalised and a target of 50% exceeded with 66% of requests received being dealt with within the prescribed time- frames.

The draft Communication Strategy had been implemented, but capacity constraints had had a negative impact on its finalisation. Communications policies and procedures could not be finalised due to capacity constraints. The internal communications plan, marketing, advertising and branding plan, and publications services had been developed and implemented. The Stakeholder Management plan had also been developed and implemented, except the strategy because of lack of capacity to do same in the relevant unit. The Draft Knowledge Management Strategy had been developed, but approval was delayed due to planned relocation to alternative building and lack of space.
The target of 2% for recruitment of persons with disabilities had not been achieved; a strategy had been developed and submitted for consideration. Implementation of the structure at the macro-organisational level had also posed challenges relating to reporting and lines of authority. This would be addressed through the matching and placement of affected employees after finalisation of the structure. The establishment of a Knowledge Management Centre as well as development and implementation of a strategy and plan had posed a challenge, but this had been addressed following relocation of DoE to the new premises.

Financial Performance
The Department stated that 2011/12 was the second year that the DoE had been operating as an independent department. There had not been any significant increases in the Department’s budget allocation between 2010/11 and 2011/12. Of the 12% increase between the two years, 10.6% went to transfers and subsidies and only 1.4% went to the Department’s operational budget. However, there were still challenges of the inadequate baseline allocation for the Department resulting from the split of the Department of Minerals and Energy. From the 2011/12 total budget allocation of R6.2 billion, 95% went to transfers including: Integrated National Electrification Programme - R3.2 billion; Transnet’s New Multi-Product Pipeline - R1.5 billion; and Energy Efficiency Demand Side Management - R398 million. The balance was transfers to State Owned Entities and other smaller programmes. Only 5% of the total budget was allocated for the Department’s operational needs, amounting to R305 million. The Department had spent 99.6% of the allocated 2011/12 budget. A rollover request was submitted to National Treasury for the unspent budget amount of R26.65 million, and 25.83 million was approved. DoE had processed R8.1 million in payments for international membership fees. These payments remained in the Department’s Commitments awaiting the release of the foreign funds by the South African Reserve Bank, which transferred the funds to the relevant foreign recipients.

Analysis of financial performance           
Funds earmarked for capital assets could not be spent due to the delay of the DoE relocation. A request for a rollover of these funds was submitted to National Treasury and approved. The unauthorised expenditure of R14.86 million was due to an Infrastructure Grant transfer payment to the Mthonjaneni Municipality in May 2010. The transfer was appropriated in the 2009/10 financial year. The payment to the municipality was processed in March 2010, but transferred in May 2010 due to the system's rejection of the banking details. This amount was awaiting condonation and authorisation from National Treasury. DoE had since implemented the controls to avoid a recurrence. It was emphasised that the Department had received an unqualified audit opinion, without any emphasis of matter.

Ms Thandeka Zungu, DoE Chief Operating Officer, stated that the Department had established a Risk Management Unit which included the Anti-Fraud and Corruption function during the year. The risk assessments had been conducted, the risk register produced and mitigation strategies put in place to enhance the control environment. Challenges faced included the implementation of the enterprise-wide risk management strategy for the Department and the absence of a risk management tool.

During the year under review, DoE coordinated the African Ministerial Energy Conference, which was attended by more than 40 energy ministers, and produced a declaration which outlined the energy needs for the continent and political commitments to alleviate energy poverty. The Minister of Energy had visited Zambia, Mozambique, Botswana and Namibia. Declarations of intent with the following countries and organisations were concluded: International Energy Agency (IEA), Swiss Confederation, Ghana, Lesotho, Denmark, Korea and Democratic Republic of Congo (DRC). The South African Renewables Initiative (SARI) was signed with the United Kingdom, Germany, Denmark, Norway and European Investment Bank.

Programme 2: Hydrocarbons & Energy Planning

Mr Tseliso Maqubela, DoE Deputy Director-General: Hydrocarbons and Energy Planning, stated that the purpose of this branch was to undertake integrated energy planning to promote the sustainable use of energy resources by developing appropriate policies and regulations that promoted the sustainable use of petroleum, coal gas and renewable energy sources. Its functions included: overall management of the programme, promoting sustainable use of energy resources through integrated energy planning and developing policy and regulations to manage petroleum, coal, and natural gas.

Highlights of the branch included compliance inspections for petroleum licensing and the sting operations to uncover illegal fuel sales; and petroleum products licensing awareness campaigns done in all provinces. Shortcomings included underestimation of the complexity of the task given the resource constraints, failure to complete the Gas Amendment Bill and Petroleum Amendment Bill, and failure to promulgate regulations on cleaner fuels specifications. Challenges experienced included the industry’s reluctance to provide data to the Department, human resource challenges internally;,unplanned refinery outages and impact on personnel, quality management system issues, and resistance to change in the industry.

Programme 3: Electricity & Clean Energy
Mr Ompi Aphane, DoE
Deputy Director-General: Electricity, Nuclear and Clean Energy, stated that energy efficiency targets that were not reached included the Energy Efficiency Target Monitoring System, which was in line with the Energy Efficiency Strategy to develop a national target monitoring system covering all segments of the economy; the savings verification mechanism, which entailed the measurement and verification protocols and standards, and would cover the industrial, commercial, residential sectors; and the Energy Efficiency Campaign Strategy, which would improve awareness building beyond what Eskom’s campaign did.

he energy efficiency action plan involved various initiatives, including: campaign for awareness building; target setting for various sectors; and interventions in the residential (accelerated solar water heaters), commercial (public buildings), and industrial sectors. It also involved a centralised funding mechanism, through tariff ring-fencing; incentive schemes such as standard offer programme plus tax incentives; an Energy Efficiency Target Monitoring System to keep track of performance relative to baseline; a measurement and verification system developed; and data collection in respect of various sectors.

Electricity pricing targets that were not achieved included: inclining block tariffs (IBT) approved by National Energy Regulator of South Africa (NERSA) to cushion the poor against increasing tariffs; and only 60% configured municipal prepaid meters, which was mainly due to financial sustainability problems emanating from IBT. The next round of tariff determination would be completed by March 2013 so that pricing principles could be aligned with electricity pricing policy.

Pricing and electricity tariffs
Objectives of the Multi-Year Price Determination (MYPD) methodology included: ensuring Eskom’s sustainability as a business, limiting the risk of excess or inadequate returns, while providing incentives for new investment; ensuring reasonable tariff stability and smoothed changes over time consistent with socio-economic objectives of the government; appropriately allocating commercial risk between Eskom and its customers; providing efficiency incentives without leading to unintended consequences of regulation on performance; and ensuring consistency between price control periods.

The Chairperson interrupted the Department to leave time for discussion.

The Chairperson suggested that, in future, the Department should limit its presentations to one and a half hours.

Mr Mnguni suggested focusing on the areas in which the targets were not met.

Ms E van Lingen (DA, Eastern Cape) was reluctant to let the Department leave without addressing the topic of nuclear energy.

The Committee suggested having the Department return for a follow-up meeting. It was not possible to the Department to return the following day as delegates had travelled from Pretoria to attend the meeting.

Ms Van Lingen asked what criteria would be used to cushion the poor.

Mr K Sinclair (COPE, Northern Cape) stated that the Department had to have a way to monitor and manage funds. As public representatives, Members had collectively refused to deal with the ‘elephant in the room,’ which was Eskom. With reference to the challenge of resistance to change in the Department, he told it that if it did not manage change, change would manage it. The Department had to have a stronger drive in dealing with Eskom.

He noted that there was a lot of uncertainty in the municipalities on what was available for the solar heater project. The quality of the solar heaters from the East was wanting, and had resulted in the people being worse off than they had been initially.

He noted that page 101 of the Annual Report spoke of R100 billion investments over a period of 12 months. That was a massive investment; was that figure correct? What was the status of the solar park in Upington (page 103 of the report)?

Ms Van Lingen stated that the International Atomic Energy Agency had been to South Africa on a visit. She requested the Department to give Members access to the report.

She stated that it was sad that the DoE had only achieved 46% of targets despite the difficult circumstances.

On the issue of refineries, who was holding whom to ransom? Some refineries had complained that oil was bought for them from Iran, and then suddenly they had to take out huge loans to revamp their refineries. There was an underlying problem somewhere because there was no shortage in oil. In fact there was a rumour that the tankers were camping over somewhere along the sea and bringing that same oil back to South Africa, yet the country did not have an oil problem. What guarantee did members have that this was not happening?

On the regulation of cleaner fuels, why had the Department not promulgated? She noted that there were a lot of regulatory framework backlogs. Was the industry pressuring the Department on the regulations? This, she said, made her think that the industry was holding the Department to ransom.

She said that the industry had been complaining that the Department had not been publishing information, so the industry could not make adequate financial plans.

She wanted clarification on the amount of fuel that the Department could hold in confiscation.

She notified the Department that the tax certificate issue that had been holding up its system could now be found online.

She requested information from the Commissioner on the collusion between industries.

On the issue of municipalities and electricity, there was a need for an infrastructure rehabilitation program where the Department could see all the details. The Department had said that the municipalities wanted to ask for unreasonable prices, but the reality was that Eskom also wanted to ask for unreasonable prices, and it was the consumer at the end who was forced to pay for them. 

She stated that there was a reason why municipalities like Gariep and Baviaans were having financial problems. Eskom, for instance, currently had a big problem with Gariep and had attached some property of the municipality because Eskom had not been paid.  She explained that when a municipality had an indigent population greater than 60%, there was a problem because there was no revenue base that could carry that vast indigent population. This was why she was concerned that the price increase by Eskom for the period would cause the poor to become poorer.

She requested figures on losses incurred due to stolen electricity. There was a need to have the will to end this type of crime.

She reported that there was a worrying practice going on in the townships: since the poor people could not afford to pay for all the services of the municipalities, the municipalities sold the R100 worth of electricity but only gave them 40% worth of the electricity. Was this legal?

The Chairperson stated his lack of confidence in the ability of the Department to meet the target of installing one million geysers since most of those that were installed were not even working.

He was concerned that the move of Corporate Services, and Chief Operating Officer and Chief Financial Officer had the potential to increase the wage bill and squeeze out expenditure geared or productive capabilities.

What was the level of alignment of the budget programme structure and the organisational structure?

There was an issue with energy legislature such as the gas amendment bill, petroleum amendment bill and energy efficiency strategy that had not been finalised. Was this not hindering the Department’s progress considering that it was empowered by these policies? 

He noted that, even though it was good that the Department had received an unqualified audit report, the aim was to get a clean audit.
The Department needed to plan on how to reduce expenditure on consultants.

Ms Van Lingen stated that the industry had said that there was a lot of money lying in wait for the renewable energy project investment, but the Department was being slow in taking advantage of this. What was the Department’s explanation?

The Chairperson stated that the Committee would have to reschedule the meeting due to time constraints. Since Members would be going to Johannesburg the following week to take part in 'Bringing Parliament to the People', they would schedule a meeting with the Department there. The Committee Secretary would communicate with the Department on the logistics.

The meeting was adjourned.


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