State of the Nation Address: Implications for the Energy sector: Parliamentary Researchers and Department of Energy briefings

Energy

21 February 2013
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The Research Unit of Parliament, and the Department of Energy (DOE) briefed the Portfolio Committee on the implications of the President’s remarks in the State of the Nation Address on the energy sector. The Researcher emphasised that the National Development Plan represented a bold, strategic and integrated platform to mobilise the state, private investors and the South African public, behind a clearly articulated storyline of South Africa’s opportunities. The Plan had emphasised energy efficiency and resilience in addressing renewable energy resources. The DOE had already made significant progress on job-generating programmes such as Working for Energy and Energy Efficiency interventions in the residential housing sector. The specific implications of the SONA would include electrification, sustainable energy, job creation, urbanisation and economic growth. The increasing urbanization would impact on demand, meaning that more sustainable and alternative energy would be needed. The DOE had worked out policy for provision of electricity to informal settlements, but the challenges with municipal capacity had to be addressed. The DOE’s potential for growth in jobs was noted. The Researcher commented that the role of Parliament was to analyse whether programmes were aligned to the National Development Plan, to monitor implementation of policies and to investigate the  idea of a Household Integrated Electricity Programme.
 
DOE noted that there were initiatives under way to increase renewable energy and enforce mandatory energy efficiency requirements for the industry. Electricity generation, with installed capacity of 40 870MW, had become a constraint on the country’s economic growth. It was noted that until the next base-load generation capacity was increased, with the commissioning of the Medupi and Kusile power stations, South Africa faced possible shortages, with very little new capacity coming onstream. A number of initiatives were underway to improve the situation. Energy Infrastructure Development, as directed by the President in the State of the Nation Address (SONA), was the driving force. The Integrated National Electrification Programme had developed a new electrification roadmap, which outlined how the backlogs in households without electricity would be addressed. In 2012, over 675 kilometers of electricity transmission lines were laid, to connect fast growing centres and power to rural areas. On average, there were about 220 000 new connections made annually, through the national electrification programme, managed by the DOE and funded by an annual grant of around R3.2 billion. This programme ensured creation of over 8 000 direct and about 3 000 indirect jobs. In addition, in 2012, the Petroleum retail sector created 5 000 direct jobs during the construction of service stations, another initiative of the DOE.

DOE was cracking down on corruption, tender fraud and price fixing in its infrastructure programmes. It was providing apprenticeships and learnerships. South Africa participated in the SADC Regional Infrastructure Master plan (RIDMP), which included the energy sector. It would be included in the Programme for Infrastructure Development of Africa Programme. A vision for a better Africa in a better world would be directly supported by South Africa hosting the 5th BRICS Summit in Durban next month. Challenges faced by the DOE included scarcity of both human resources and financial resources. However, the DOE was developing a work plan, to ensure alignment of the National Development Plan and DOE’s strategic plans.

Members questioned the financial feasibility of the nuclear programme, the world oil prices and the operations of the Medupi and Kusile Power Stations. They noted the likely increase in fuel prices by 80c in the following month. It was also stressed that the DOE supported the Shell Gas project in the Karoo.

Meeting report

State of the Nation Address: Implications for the Energy sector
Research Unit briefing

Mr Sivuyile Maboda, Parliamentary Researcher, briefed the Committee on the impact of the President’s State of the Nation Address (SONA). He highlighted the emphasis on and importance of the National Development Plan (NDP) and how government activity should be aligned this programme. The NDP set out the vision for the country for the next 20 years. Some of the objectives that had an impact on the Energy sector included electrification, sustainable energy, job creation, urbanisation and economic growth.

It was projected that 70% of the country’s population would be living in the urban areas by 2030. This was expected to have an impact on local government, which had to try to provide services for the growing population, including essential services such as energy. The growth in urban population was also expected to result in an increase in the number of informal settlements. The Department of Energy (DOE or the Department) had worked out a policy framework for the provision of electricity to informal settlements. 

Municipalities faced challenges in electrifying informal settlements. These challenges included regulatory issues, and the fact that in general, the installation of electricity in informal settlements fell below the standards when providing electricity to ordinary households. Urbanisation would lead to an increase in demand for energy, which meant that energy efficiency programmes must be introduced.

He noted that 11 million jobs were expected to be created by 2030. In order to create these jobs the economy needed to grow by 5.4%. It was noted that partnerships between business and government were crucial in order to create these jobs. The DOE said it was providing learnerships which assisted in skills development and the gaining of the necessary work experience.

Although 85% of households were currently electrified, there was still a problem in rural areas and informal settlements which were yet to be electrified. In response to this, alternative energy policies had been introduced.

The DOE already had a policy on renewable energy. The President indicated that contracts to the value of over R47 billion had been signed for renewable energy programmes. Investments in the Green Fund had also been made. He commented that the 2012 SONA had set out plans to shift transportation of coal from road to rail. There was progress, as the rail lines were being constructed.

Finally, Mr Maboda said that the role of Parliament was to analyse whether programmes were aligned to the NDP. Parliament must also monitor implementation of policies. He recommended that Parliament must also visit the idea of a Household Integrated Electricity Programme.
 
Discussion
Mr L Greyling (ID) asked for more detail on the development of a financial feasibility study on the use of nuclear energy. He asked if the Department had formulated another plan besides using nuclear energy.

Ms N Mathibela (ANC) was worried about the free alternative energy programme. She said she could not  understand why it was apparently so difficult to identify poor people, pointing out that the municipalities had staff to investigate those who were indigent.

Ms B Ferguson (COPE) asked how effective the Department was on the various boards where it was represented. She asked how DOE expected municipalities that lacked capacity to undertake work.

Mr B Mayathula (ANC) asked about the investments in renewable energy.

Mr Maboda noted that there were financial challenges in most municipalities. Most municipalities did not make allocations for free basic alternative energy. However some municipalities were rolling out the programmes.

The Chairperson also stressed Parliament’s role in monitoring the DOE. Free Basic Electricity has been addressed and follow up reports were critical. More elaboration was needed on the reports.

Department of Energy briefing
Mr Tseliso Maqubela, Deputy Director General: Petroleum Regulation, Department of Energy, said that the Department’s programmes were aligned with the NDP. He noted that matters in the energy sector were changing and the changes, both those already happening and still pending, needed to be taken into account. One area that impacted immediately on the local energy sector was the growth in United States and China. Fuel prices were going to increase hugely; in the next month the increase would not be less than 80c. This was expected to have a huge impact on job creation. The Department  pleaded that this Committee must add its wisdom on energy pricing. One of the interventions concerned that the fact that the road fleets needed to move over to diesel, particularly for public transport, as this would reduce the cost of importation. The Committee must support these issues, as fuel was important for economic growth.

The other intervention related to the crucial need for domestic production of oil and gas. It was pointed out that firms that had been given exploration rights needed to do the work. Regulatory frameworks for gas would be reviewed. The Gas Amendment Bill would soon be presented, and this would link in to the  Mineral and Petroleum Resources Development Amendment Bill. The importation of lubricants needed to be investigated, as this affected the domestic industry. Bureaucracy between the various spheres of government also needed to be addressed. He urged that South Africa should not lose the opportunity that had been presented by the Shell gas exploration. A regulatory framework was, however, important to solidify this opportunity. 

Dr Wolsey Barnard, Integrated National Electricity Business Planning Unit, DOE, noted that the NDP was a roadmap to a South Africa where all citizens would have access to electricity, jobs, housing, public transport, recreation and a clean environment. The plan sought to emphasise energy efficiency and resilience in addressing renewable energy resources. It was pointed out that key contributors in stabilising emissions included a commitment to undertake mitigation actions, achieving an appropriate mix of carbon pricing mechanisms, an expanded renewable energy programme, an advanced liquid and bio fuel sector, an effective mix of energy efficiency and demand management. The Department of Energy had already made a significant progress on job generating programmes. There were also initiatives underway to increase renewable energy and enforce mandatory energy efficiency requirements for industry.

The Integrated National Electrification Programme (INEP) had developed a new Electrification Roadmap, which, among others, outlined how backlogs in households without electricity would be addressed. There was also a National Electrification Master Plan and DOE was working in conjunction with Eskom. Twenty eight projects in wind, solar and small hydro technologies were to be developed in the Eastern Cape, Western Cape, Northern Cape and Free State. An estimated R800 million had been set aside for the Green Fund. The Department had rolled out 315 000 solar water geysers by January 2013, mostly for poor households. Around 200 000 households had been connected to the national electricity grid in 2012. According to the 2012 census data, about 12.2 million households were utilising electricity as a lighting source.

To combat the scourge of fraud and corruption within the Department, DOE now ensured that the tender processing system was strictly regulated and controlled through the approved supply chain regulatory framework of the Department. The DOE, in collaboration with municipalities and private companies, was committed to establishing two Integrated Energy Centres (IEC) every year for the next five years. Each IEC would contribute about 60 temporary jobs during the construction phase and at least ten permanent employment opportunities. Energy-related issues featured prominently in the BRICS programme of action. After the next summit in Durban, it would be critical to ensure that the DOE monitored the adherence to and implementation of decisions within the multilateral grouping.

The Minister of Energy directed that there must be the formation of an NDP alignment forum, comprising of all the Deputy Director Generals, chaired by the Director General. Reports on the progress of the plan would be given to the Minister after every four months.

Discussion
Mr Greyling asked what was driving world oil prices up. He asked about the introduction of electric vehicles as a way of saving energy. The question of Shell Gas exploration was also raised. The issue of using nuclear energy as an alternative source was another point that he wanted to debate. He asked for a follow up to the report on the household electricity policy that was raised last year.

Ms Ferguson asked about the impact of the Shell gas exploration impact. She asked about the population of the North West Province and asked if there was a date by when the strategic plan would be concluded.

Mr Mayathula highlighted that the wording used on the completion of power stations in Mpumalanga could cause media concerns. He suggested that the DOE must clarify the issues to avoid confusion.

The Chairperson raised concerns about the running of Eskom, as well as its tariff charges. The operation of electricity within the SADC region was also queried. He also wanted further clarity on the changes to the regulatory framework in the energy sector, noting that other countries that had discovered natural resources were changing their regulation frameworks.

Mr Maqubela responded that the global price of fuel was affected by the state of affairs in the Middle East, and that the war in Syria, in particular, had pushed up the prices. The change in the season in America would also affect prices, as demand increased in colder weather. He noted also that the poor health of Venezuelan leader Hugo Chavez had also impacted on this. He agreed that South Africa needed to explore ways of making its own fuel, and pointed out that this country also supplied fuel to Lesotho and Swaziland. A regulatory framework was necessary, to ensure that the nation’s interests would be protected. In addition, he indicated that achieving certainty was critical before investors in the energy sector were prepared to invest. The Minerals and Petroleum Resources Development Amendment Act would assist in this regard. Theft of fuel was a serious issue on which the Department was working and it had engaged with the Ministry of Police.

Mr Barnard noted that his reference to an imminent shortage was intended to state that there could be such a shortage, if the problems and challenges in the power station in Mpumalanga were not correctly addressed. He noted that although DOE did face challenges, it was working within its means to address them. It was noted that the installation of electricity in informal settlements was an intricate task, but the DOE was also working with the municipalities. The North West province had a total population of 3.5 million. It was noted the Department of Environmental Affairs was launching an electric car soon.

Mr Zizamele Mbambo, Deputy Director General: Nuclear Energy, DOE, pointed out that Cabinet had looked at the nuclear policy and a White Paper had been drafted.

The Chairperson thanked the Department for the presentation and hoped to receive more updates.

The meeting was adjourned.


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