Central Energy Fund (CEF) & subsidiaries Strategic Plans 2013

Energy

16 April 2013
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The Committee was briefed by CEF group of companies and its subsidiaries on their respective strategic plans for 2013 to 2018. Strategic plans and budgets were presented by the Central Energy Fund (CEF), Strategic Fuel Fund (SFF), Clean Energy Division (CED), Petroleum Agency South Africa (PASA), The African Exploration Mining and Finance Corporation (AEMFC) and South African Development Agency (SASDA).

The CEF presentation outlined all the entities and their arena. In broad terms, CEF mainly was the holding company, CED dealt with renewables, Petro SA with  oil and gas, SFF with strategic oil, PASA attended to licencing, AEMFC dealt with mining and coal, and SASDA dealt with supplier development. The CEF had a mandate to finance and promote the acquisition, exploitation, manufacturing and marketing of energy. The CEF’s strategic intent was to provide energy resources for national energy security whilst minimising environmental impact, and to pursue the government policies. CEF’s main strategic targets were directed to managing projects, delivering targets, managing finance, managing human capital, and group oversight. CEF had reviewed its strategic and mandate issues at a number of workshops. CEF group objectives included a contribution to the national security of energy supply, building financial sustainability, building and maintenance of appropriate human capital, and ensuring effective group oversight and coordinated planning. The group structures and main approach for 2013 were described. It would implement projects that contributed to security of energy supply, undertake activities that would meet safety, health, environmental and quality targets appropriate to the operating environment, and address holistic and cross-cutting activities and objectives to ensure that the group was effectively governed. The consolidated balance sheet and the consolidated income statement of CEF were outlined. The strategic risks had been defined as including human resources skills, project risks, financial sustainability risks, leadership risks and oversight risk, which were summarised. CEF was currently restructuring for growth, would take firm control of the group as a holding company, projects would be robustly scrutinised, and staff vacancies had been filled to provide the skills needed.

CED noted that it operated as an arm of CEF. It was also undergoing restructuring. Its most important project, and the one on which it would be concentrating also in later years, was the Solar Park, which could well be extended. CED’s overall mission of developing and investing in renewable energy, energy efficiency and low smoke fuel projects was described. Other objectives included investigating and investing in growth in solar park feasibility, solar water heaters, ensuring energy efficiency for public facilities, power generation, photovoltaic manufacturing, synthetic fuels, and social projects such as Basa Njengo Magogo, and solar powered lights. The budget was also described.

SFF aimed to manage strategic stocks and storage facilities and assets on behalf of the government, to store and manage third party crude oil on a commercial basis in order to fund its mandate, and to manage the oil pollution prevention and control activities at the Saldanha Bay, Milnerton and Ogies facilities. The operational functions were summarized. Its challenges were described as including the fluctuating crude oil markets, worldwide increase storage requirements, high cargo dues charges in Saldanha Bay, compared to lower or no charges in other international ports, environmental concerns and adverse weather berthing during winter. The business structure of SFF was outlined. The asset terminals included Saldanha, Milnerton, and Ogies. The revenue generation services included oil pollution services, and commercial trading. The major projects included office refurbishment at Milnerton Tank Farm, with tank refurbishment in later years, and upgrading security systems to comply with national key point standards, as well as sourcing land for additional strategic stock tanks
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PASA aimed to contribute to the energy resources of the country by promoting and regulating the exploration and production of the country’s natural oil and gas resources. It promoted onshore and offshore exploration and production of petroleum, monitored and reported regularly to the Minister in respect of compliance with permits or rights, performed functions related to petroleum as the Minister may determine and collected the prescribed fees for reconnaissance permits, technical co-operation permits, exploration rights and production rights. A map of its presence in South Africa, and staffing requirements, were described and the income statement and cash flows were summarized. Current challenges faced by PASA included future funding, capacity, the Mineral and Petroleum Resource Development Amendment Bill, and locations of energy resources.

AEMFC short term objectives included producing and selling 1.5 MT of coal, achieving zero fatality and minimising long term risks during the year, completion of three desktop studies, achieving the budgeted profitability, cash flow and liquidity ratios, and achieving good corporate governance. Its longer term requirements were also outlined. Its organisational structure and employee complement was described. It currently had 82 employees and 236 contractors, but was aiming to increase its employees to 98. Its financial outcomes and forecasts, balance sheet borrowing plan, budget projections for 2013 to 2018, statement of comprehensive income, and financial position were described. It was driving the Pan African Mining Development Programme exploration, and remained a 33.3% shareholder, with participation at project level at 49%. Its exit plan included appointment of implementation agents, searching for third party funding CEF loan restructuring and repayment terms, which were in progress.

SASDA concentrated on mentoring and coaching, providing technical support, skills training, supplier assessments, facilitated access to raw materials, project management, and facilitated financial support. Its current supplier development projects included supplier development oil companies, refineries managers’ project, and Turner and Townsend project. It was aligned with group objectives. It aimed to contribute to national security of energy supply through the continued development of black suppliers in the energy sector, would fully comply with safety, health and environmental quality targets, and facilitate funding from various institutions.  Its budget and annual income statements were tabled.

Members questioned how PASA was surviving on grant funds, noting that it had experienced loss in cash flows, and asked PASA and other entities to describe their strategy to retain staff skills. They enquired of SASDA why loans had been written off. They asked CEF to give clarity on assets permit termination, various amounts in the financial statements, the increase in loans, liability for non-compliance, and loans to PASA. They also asked for answers on drilling in the containers and renewable energy. They felt, in general, that more clarity was needed in the presentation, that the impact and precise extent of activities in government should be mentioned and that the strategic intention required more explanation. CEF said that this would be clarified. Members wanted to know why AEMFC was not currently involved in Waterberg in Limpopo, and enquired, from CED, about the clean energy projects, transformation issues and the extent of its agreements with Department of Human Settlements on solar water heaters, and whether it should not also be working with the Department of Cooperative Governance. Several Members asked for more clarity on the Basa Njengo Magogo project, and asked why it focused on Gauteng only, and asked for dates on which the second phase of the solar water heater programme would start. They also questioned the risk of environmental liabilities.
 

Meeting report

Centre for Energy Fund Group of companies: Strategic Plans 2013 to 2017: Central Energy Fund (CEF) briefing
Mr Sizwe Mncwango, Chief Executive Officer, Centre for Energy Fund, outlined the various entities that fell within the CEF Group. CEF was the holding company, Clean Energy Division (CED) dealt with renewables, Petro SA dealt with oil and gas,  Strategic Fuel Fund (SFF) dealt with clean oil, Petroleum Agency South Africa (PASA) dealt with licensing, the African Exploration Mining and Finance Corporation (AEMFC) dealt with mining and coal and South African Development Agency (SASDA) dealt with suppliers.

He explained that the mandate of CEF was to deal with financing and promoting the acquisition, exploitation, manufacturing and marketing of energy. The strategic intent of CEF had been to provide energy resources for national energy security, whilst minimising environmental impact and pursuing government policies. The vision was to be the leader in Africa in energy. CEF had reviewed strategic and mandate issues at a number of strategic workshops. The review had led to review and rationalisation of the group structure, the CEF’s own organisational structure and the need to strengthen the holding company function of CEF. The strategic objectives of the group had been redefined and now provided a platform for activities and investments for all entities.

The CEF group objectives included the following: to build and maintain appropriate human capital, to ensure affective group oversight and coordinated planning, to build financial sustainability, to ensure that safety, health and environmental quality control (SHEQ) was a priority for the group, and lastly, to contribute to national security of energy supply.

The group structure as at April 2013 consisted of CEF, the holding company, and other subsidiaries such as SFF, Petro SA, SASDA and PASA, as well as other divisions such as CED which was responsible for solar park and other clean energy projects. The main strategic approach for 2013/14 included good governance, fossil energy, which dealt with strengthening of core business, and renewable energy. Stabilisation would include cost containment, and would improve efficiencies and filling EXCO vacancies. The CEF's main growth areas were described as taking place on Project Umthombo, Project Irene, Folkhwezi feedstock and upstream and Sabre.

The consolidated income statement was presented (see attached presentation for details), indicating the breakdown of 2013/14 budget. The statement indicated revenues, cost of sales, other incomes, operating costs, loss/earnings from operation and financial costs. Mr Mncwango took Members through the consolidated balance sheet as well, indicating amounts of money spent on assets, and equity and liabilities. The CEF had assessed the strategic risks, which ranged through human resources-skills, project risks, financial sustainability risk, leadership risk, oversight risk, inefficient systems and processes.

In concluding, Mr Mncwango said that CEF was in the process of restructuring for growth, but challenges would remain in the immediate future, CEF would take greater control of the group as the holding company, and that projects proposed by subsidiaries and required CEF funding would be robustly scrutinised. The CEF undertook the process of identifying new projects in the renewable and clean energy space. He noted that staff vacancies had been filled to provide skills needed.

Clean Energy Division (CED) briefing
Miss Phindile Masangane, General Manager, CEF, noted that the Clean Energy Division (CED) was the operating arm of CEF that was responsible for developing and implementing renewable and clean projects. CEF was undergoing a restructuring as required by its project portfolio. The Solar Park had been an important project within CED. The mission of CEF was to develop and invest in renewable energy, energy efficiency and low smoke fuel projects. CED's objectives included growth in solar park feasibility, and here the geo-technical work and feasibility studies had been finalised. Agreements for solar water heaters (SWH),in cooperation with the Department of Human Settlements (DHS) and Department of Energy (DOE) had been signed, and the second phase of the SWH programme was about to start. In relation to energy efficiency for public facilities, she said that a co-operation agreement with the Department of Public Works (DPW) and municipalities was signed. Photovoltaic (PV) manufacturing was one of the CED objectives, and the final decision on investment on PV manufacturing plant had been taken. She reported that social projects such as Basa Njengo Magogo had been rolled out in Gauteng province, and that solar powered lights had been distributed to rural schools in Limpopo, Kwazulu Natal and Eastern Cape.

Strategic Fuel Fund (SFF) briefing
Mr Bheki Gila, Chief Executive Officer, Strategic Fuel Fund, mentioned that the purpose of SFF was to manage strategic stocks and storage facilities and assets on behalf of government, to store and manage third party crude oil on a commercial basis, in order to fund its mandate, and lastly to manage the oil pollution prevention and control activities at the Saldanha Bay, Milnerton and Ogies facilities. CFF’s operational functions included provision of environmental services related to mining, operating the ChevronSA, and management of three facilities at Saldanha, Milnerton, and Ogies. He said that growth and challenges experienced by SFF would be affected by fluctuating crude oil markets, adverse weather berthing during winter, worldwide increased storage requirements, encroaching human habitation and environmental protection, and high cargo dues charges in Saldanha Bay, compared to lower or no charges in other international ports (see attached document for full details).

Mr Gila described that the business structure of SFF consisted of a CEO who was responsible for strategic direction, regulatory and legislative environment, and then an Operations division dealing with risk and SHEQ, and Corporate Services that dealt with management of support service for the entity, whilst the Commercial division dealt with commercialisation of the entity’s assets and business development.

He reported that Saldanha terminals managed strategic crude oil stock on behalf of shareholder, and rented unused storage capacity to third parties. Milnerton terminals had only two tanks currently in use for crude storage, and Ogies terminal was for environmental services for mining companies in the area, through water level monitoring in the mines. Two revenue generation services of oil pollution services and commercial trading took place. Oil pollution service provided loading and discharging of environmental services to all vessels calling at the Saldanha Bay terminals, and commercial trading was about leasing of Saldanha and Milnerton tanks to third parties on a commercial basis in order to fund the entity’s mandate.

Major projects in this year included office refurbishment at Milnerton Tank Farm, perimeter detection and CCTV security system to comply with national key point standards. Future projects would be the upgrading of security system to national key point standards, sourcing of land for additional strategic stock tanks, refurbishment of tanks at the Milnerton Tank Farm, and investment projects.

Petroleum Agency South Africa (PASA) briefing
Mr David Van Der Spuy, Acting General Manager: Promotion, Petroleum Agency South Africa, said that the strategic role and mandate of PASA was to contribute to the energy resources of South Africa by promoting and regulating the exploration and production of the country’s natural resources. Functions of the designated agency were summarised. He outlined the mandate according to section 71 of the Mineral and Petroleum Resources Development Act (MPRDA). The designated agency must promote onshore and offshore exploration and production of petroleum, monitor and report regularly to the Minister in respect of compliance with such permit or rights, perform any other function, in respect of petroleum, which the Minister may determine from time to time, and collect the prescribed fees and considerations in respect of reconnaissance permits, technical co-operation permits, exploration rights and production rights (see attached document for more details).

PASA reported the staffing requirements for 2013/14 and 2016/17 in regulation, promotion, information services, CEO and company secretary office, human resource and administration, and finance, IT and procurement departments.

Ms Oliva Mans, Chief Financial Officer, Petroleum Agency South Africa, outlined the PASA’s income statement and cash flows. Income statement indicated the incomes from permit, exploration rentals, personal costs, travel costs and other costs. The cash flows indicated cash flows from operating activities, interest received, and cash flows from investing activities (see attached document for detail). She said that current challenges faced by PASA were future funding, capacity, the requirements of the MPRDA draft Amendment Bill and location (related to energy or mineral resources).

The African Exploration Mining and Finance Corporation Soc Ltd (AEMFC) briefing
Mr Sizwe Madondo, Chief Executive Officer, The African Exploration Mining and Finance Corporation Soc Ltd, said that the long and medium term strategic objectives of AEMFC required funding for growth, acquiring and training of staff, profitability and positive cash flow management. AEMFC short term objectives included producing and selling 1.5 MT of coal, achieving zero fatality and minimising long term risks during the year, completion of three desktop studies, achieving the budgeted profitability, cash flow and liquidity ratios, and achieving good corporate governance (see attached document for detail). AEMFC reported the organisational structure and employee complement. AEMFC currently had 82 employees and 236 contractors, and intended, in 2013/14 to raise this to 98 employees, with no contractors.

AEMFC’s financial outcomes and forecasts, balance sheet borrowing plan, budget projections for 2013 to 2018, statement of comprehensive income, and financial position were described. (see attached presentation for details).

AEMFC reported on the capital expenditure programme, and items such as computer software, exploration assets, property plant and equipment and the Pan African Minerals Development Corporation (PAMDC). AEMFC reported that it would drive PAMDC’s exploration programme. Investments shareholding still remained at 33.3% for AEMFC, at PAMDC company level. AEMFC was a 49% participant at project level, and this was guided by signed agreements with milestones. The AEMFC’s exit plan included the appointment of implementation agents, searching for third party funding, including from CEF, CEF loan restructuring and repayment terms, which were in progress. The engagement with the Department of Mineral Resources (DMR) was in progress, and was positive.
 
South African Supplier Development Agency (SASDA) briefing
Mr Lunga Saki, Acting Chief Financial Officer, South African Supplier Development Agency, outlined that SASDA concentrated on mentoring and coaching, providing technical support, skills training, supplier assessments, facilitated access to raw materials, project management, and facilitated financial support. Its current supplier development projects included supplier development oil companies, refineries managers’ project, and Turner and Townsend project. The future projects would be provided by PetroSA, SITA, Eskom, and Turner and Townsend project (See attached document for details).

Mr Saki said that the corporate plan and objectives were aligned with CEF group objectives. It was intended that SASDA activities would contribute to national security of energy supply through the continued development of black suppliers in the energy sector. Its activities would meet safety, health, environmental and quality targets appropriate to the operating environment, and this would include a focus on developing and maintaining a culture of compliance with SHEQ, and facilitating access to finance from Development Bank of South Africa (DBSA), Industrial Development Corporation (IDC) and other institutions. Other objectives reported were that SASDA would effectively manage its operating expenditure and projects costs, SASDA would ensure that human capital was correct and effective to support its planned activities, and it would comply with government legislative requirements and effective oversight.

The budget and annual income statements of SASDA were described, indicating revenues, projects and development costs and operating costs (see attached presentation for details).

Discussion
Mr K Moloto (ANC) noted that PASA had experienced loss from cash flows, and the company survived on grant funds. He asked how, excluding the reserves, PASA had survived, and how it was dealing with the loss of cash flow.

Ms Mans replied that, historically, PASA had been successful in taking forward its objectives, and in managing incomes and cash flows. The government had put the plan in place to assist the company in moving forward its mandate.
Mr S Radebe (ANC) asked PASA to describe its strategy to retain staff skills.

Mr Van Der Spy replied that the strategy to retain skills was to retain open communication with staff, and a continuous engagement with other stakeholders. Skills of petroleum agency staff would not be weakened, but they would be improved from time to time. The Clean Energy Division had done good work and it would continue doing some good work in the clean energy sector. It would take some years to deal with shell gas.

Mr Moloto asked SASDA why loans had been written off.

Mr Madondo replied that issues at SASDA were very much structural, and the whole strategic plan was essentially directed to solving structural issues.

Mr Moloto wanted CEF to give clarity on assets permit termination, 24.4 million, level on inventories, 1.8 billion restricted cash, increase in loans, non compliance liability and 7 billion uncertainties.

Mr L Greyling (ID) wanted clarity on CED as an arm of CEF, the Strategic Fuel Fund, and PASA loans, drilling in the containers, and renewable energy.

Mr Radebe asked how CEF helped its subsidiaries to retain skills.

Prof S Mayathula (ANC) requested that the acronyms in the presentation must be clearly defined, and the objectives of each company needed to be more clearly defined and detailed.

Mr J Selau (ANC) noted that it had to be clear as to what activities were taking place in government, and the impact had to be mentioned. He then noted that CEF objectives had to be clearly defined, and the strategic intent needed more explanation.

Ms Nonhlanhla Dick, Acting Chief Financial Officer, CEF, replied that the company’s figures were driven by moving activities in the PetroSA, and that affected incomes and balance sheets. Loans were funded by CEF, and each year CEF reviewed the balance of provision to see if it was still in line with the work of Centre for Energy Fund. She replied that PetroSA team would give a comprehensive report on income and cash flow statements.

Mr Mncwango replied, in relation to earlier questions on staff skills, that CEF had a very clear programme to support skills development, and sustainability had always been a work in progress. CEF had always been about creating new ventures. He apologised for so many acronyms in the presentation, and said that they would be corrected and information would be clearly defined.

Mr Moloto asked why AEMFC was not involved in Waterberg in Limpopo.

Mr Madondo noted that Waterberg in Limpopo was the future, but there were challenges of access to surface and land. The AEMFC was still waiting to be granted rights to be involved in Waterberg. He noted that exploration costs were too high. On the issues of environmental liability, there were still various subsidiaries that needed to come on board. Some Wits University Staff had been employed to work with AEMFC in the mines.

Questions for CED
Mr S Radebe (ANC) wanted clarity on clean energy projects, transformation issues, and the agreement with DHS. He asked CED whether there was not also a need for it to work together with the Department of Cooperative Governance and Traditional Affairs (COGTA).

Mr Radebe asked why the Basa Njengo Magogo project focused on Gauteng only.

Mr Greyling asked CED to explain the role of companies and government. 

Ms N Mathibela (ANC) wanted more details from CED on both the Basa Njengo Magogo projects and solar power lights.

Mr Selau wanted to know from CED when the second phase of the solar water heater programme would start.

Ms Masangane replied that South Africa could attract solar energy generators. Therefore, CEF operated as an enabler. Gauteng was selected for Basa Njengo Magogo because the pilot study was conducted there. However, the aim was to penetrate into other provinces. The partnership with DHS was mainly to assist the low income houses with solar water heaters, and local municipalities had welcomed the partnership. The working relationship with service providers had been good, and CEF would continue working with some service providers in order to achieve its mandate. The plan for solar water heaters was in place and it was about to be completed. Phase 2 of SWH programme would be rolled out at the end of the current financial year.

The Chairperson wanted some clarity on citizens, environmental liabilities and shale gas.

Mr Gila replied that there was a potential danger of environmental liability. Transformation for SFF had always been in two parts, but it had been distorted by the process, and this produced some difficulty in exactly how to achieve it. However, transformation was a market wide responsibility, and it included government policies, so engagement was needed from different stakeholders, all of whom must come on board and address the issues of transformation.

The Chairperson noted that the pilot for Basa Njengo Magogo would be helpful, and it needed to be extended to other provinces. The Committee noted the important role played by the CEF.

The meeting was adjourned.
 

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