Department of Energy on its Strategic Plan 2013

Meeting report

Introduction by the Chairperson
The Chairperson welcomed Members of the Committee and the delegation from the Department of Energy. The meeting was going to focus on a presentation from the Department of Energy (DoE) on their revised strategic plan, the annual performance plan and the budget vote. Parliament’s second term was usually dedicated to receiving plans on the performance and budgets of government departments. He said that the Committee was now into the usual interaction with the DoE after the completion of the deliberations on the ISMO Bill.

After the tendering of apologies by the Committee Secretary, Mr Arico Kotze, and a round of introductions, the Chairperson requested the DoE to proceed with the briefing.  

Department of Energy (DoE) Strategic Plan
The Director General of the DoE, Ms Nelisiwe Magubane, led the delegation from the DoE. She tendered an apology for the Chief Operating Officer of the Department who was supposed to do the presentation but was on leave. The presentation was done by the Acting Chief Operating Officer, Mr Lucas Mulaudzi.

Planning Background
Mr Mulaudzi traced a background of the DoE starting from the creation of the DoE in May 2009. The strategic plan covered a period of five years and was done in terms of the Outcomes Based Approach which was adopted by government in 2010. The new strategic plan published by the DoE covered the period from 2011/12 to 2015/16. The DoE had implemented a Monitoring and Evaluation (M & E) system and M&E foundational documents had been created. These included monitoring and evaluation frameworks, policies and procedures, quarterly reporting templates and improvement plan templates. 

A Risk Management structure, which included a fraud prevention strategy, in line with section 38 of the PFMA was in place to ensure that an effective and efficient risk management system and good governance was maintained, monitored and evaluated on a regular basis. The DoE had reviewed its Strategic Plan to align it with frameworks to illustrate alignment of goals with agreements and provide for additional outputs. Cabinet had adopted an infrastructure plan consisting of 18 Strategic Integrated Projects (SIPs) of which the Minister of Energy chaired one of the projects; co-chaired two projects; participated in 10 projects; and had observer status in five projects.

Seven Strategic Outcomes-Oriented Goals
For the period under review, the DoE had the following strategic outcomes and goals:
▪ Security of supply - to ensure that energy supply was secure and demand was well managed;
▪ In terms of infrastructure - to facilitate an efficient, competitive and responsive energy infrastructure network;
▪ Regulation and Competition - to ensure that there was improved energy regulation and competition.
▪ Universal access and transformation - to ensure that there was an efficient and diverse energy mix for universal access within a transformed energy sector;
▪ Environmental assets - to ensure that environmental assets and natural resources were protected and continually enhanced by cleaner energy technologies;
▪ Focus on climate change - to implement policies that adapt to and mitigate the effects of climate change; and
▪ Enhance corporate governance - to implement good corporate governance for effective and efficient service delivery.

Mr Mulaudzi outlined the delivery agreements pursued by the various goals and strategic integrated projects. He then looked at the strategic objectives and the selected performance indicators for the seven strategic outcomes and goals of the DoE.

After the briefing by the DoE on its strategic plan, the Chairperson called for questions and remarks from the Committee members.

Mr K Moloto (ANC) said that many issues of concern which he had identified in the briefing were directly related to the Budget Vote and he would have liked to listen to the presentation on the Budget Vote before asking his questions. He said that there was the possibility that some of his concerns and questions could be answered in the briefing on the Budget Vote.

Mr L Greyling (ID) said that the Committee could go ahead to receive the presentation from the Department on the Budget vote so that the questions asked could be informed by both presentations.

Department of Energy Presentation on the 2013/14 Budget Vote
The Acting COO of the DoE, Mr Mulaudzi, presented the Committee with the 2013/14 Budget Vote theme of the DoE. The briefing basically comprised of the DoE’s key and focus areas over the medium term and especially in 2013/14.

The DoE would focus on the implementation of the Integrated Resource Plan (IRP 2010) and in response to the National Development Plan, the DoE was going to ensure that SA had an adequate supply of electricity and liquid fuels by 2025 and that 98% of the population has access to grid and non-grid electricity.

Mr Mulaudzi said that gas and other renewable resources would make out 20 000 MW of the additional 45 000 MW needed by 2030. With the introduction of Independent Power Producers (IPPs), the proposed Independent System Market Operator (ISMO) Act was going to make a significant contribution in ensuring security of electricity supply as envisaged by the IRP 2010.

In line with DoE’s previous year’s commitments and Annual Performance Plan, the DoE had finalised the data collections and energy modelling which were essential elements of developing the Integrated Energy Plan (IEP). The Department would table the draft IEP Report in Cabinet at the end of 1st quarter of 2013/14 financial year. Once this was approved, DoE would release the document for public comments and consultation during the first three quarters of the financial year. The department was to enhance the draft IEP by incorporating all comments before tabling the final IEP in Cabinet for adoption.

The Committee was told that the second window of the Renewable Energy Independent Power Producer Programme (RE-IPPP) was to reach financial close at the end of this month and it represented approximately 1200 MW of renewable energy capacity, an estimated investment value of R28 billion. Window Three which totalled about 1000 MW and was the last window of the DoE’s August 2011 renewable energy allocation of 3600 MW was now open for bidding, and was expected to close in August 2013. This would include a concentrating solar power allocation.

Mr Mulaudzi said that the DoE would continue to work with all stakeholder and data providers to enhance and improve the quality of statistics that were published.

The focus over the medium term was to be on expanding the Intergrated National Electrification Programme (INEP) to increase the number of household connections to the grid. DoE was to promote Energy Efficiency and Conservation through the expansion of the Solar Water Geyser Programme. The focus would be to increase access to modern energy sources implemented by Eskom and municipalities, to reach a target of electrifying 645 000 households by 2015/16. The Department was also going to provide support to Local Government and Municipalities to address challenges experienced in the provision of electricity.

The technical studies for the Liquefied Natural Gas (LNG) Import Projects were expected to be completed during the financial year. The feasibility and front end engineering and design studies for the Mthombo Project were expected to be advanced during the year. The South African National Energy Development Institute (SANEDI) was to continue to ensure that effective internal systems and process were implemented to ensure energy efficiency in the South African economy. The implementation of the Shale Gas investigation work plan was to be started by SANEDI during the 2013/14 financial year. The South African Nuclear Energy Corporation (NECSA) was to continue with its programme to establish Low enriched Uranium fuel and target plate fabrication capabilities. Investigations for the replacement of the SAFARI-1 were expected to continue during the financial year.

Mr Mulaudzi said that with regards to international relations, the strategic focus would be on the promotion of energy security, securing of resources for human and technical support in the energy sector, capacity building in scarce and critical skills, technology transfer, industrialisation and job creation. The DoE would embark on a number of international engagements to find solutions to energy challenges and to explore funding opportunities that could be made available to South African investors in the energy sector. The DoE's engagement and participation in climate change would continue to direct and advocate for South Africa’s role in the SADC and the African Continent at large on issues of energy.

Mr Mulaudzi said that in order to achieve its developmental goal, the DoE was also going to continue to focus on its internal capacity, enabling it to carry out its mandate. All funded 560 DoE staff positions were filled by September 2012. The DoE would also commence operations based on the approved organisational structure in this calendar year.

Discussion
Mr K Moloto (ANC) asked what the position of the DoE was on the issue of upgrading of refineries in the context of reviewing basic fuel prices. How did they intend to carry out the idea? What were the pros and cons on the regulation of fuel prices? What were the salient features of the MOU on the Grand Inga Project? He was concerned that 99.3% of the DoE’s budget was being transferred to other agencies. Did the DoE have the internal capacity to follow up and ensure compliance by these entities on spending and the implementation of the envisaged projects? Meaningful oversight was critical. What were the objectives of the establishment of the IPP unit and did it give adequate support and powers to the Minister of Energy?

The Accounting Officer of the DoE, Ms Magubane, replied about the MOU, saying the Presidents of Democratic Republic of Congo and South Africa had signed an agreement and the DoE was working on a treaty to ensure that there was a transmission network. The project was estimated at R200 billion. Neighboring countries were called to participate in enhancing the project. The project was part of the IRP 2010. On internal capacity, the DoE had engaged with the National Treasury and the Auditor General to ensure that the maximum impact and capacity upgrade. The APP indicated how the capacity was being dealt with and how the reorganisation in the DoE was taking place. On the IPP unit, the DoE had a risk mitigation plan on the IRP that indicated the participation of the private sector. Unfortunately, that had not happened. The Minister had to intervene decisively on the issue. The IPP unit seeks to assist the Minister to do the procurement transparently and with adequate capacity and on issues of risk mitigation.

Mr Moloto asked what the DoE had done to encourage the private sector to actively engage in the IRP.

Ms Magubane replied that the DoE was going to engage with the private sector to find out the reasons for their not taking the IRP seriously. However, it was important to note that the DoE could impose on private companies especially in situations where the actions of the companies were not particularly unlawful.

The Deputy Director General for Petroleum Products Regulation and Licensing, Mr Tseliso Maqubela, said that with regards to the refinery upgrades, South Africa currently had assets in the form of refineries and a decision had been taken that the refineries would be used till they became non-productive. There was the need for a vibrant refinery sector. The issue of the user-pay principle was still applicable but the regulatory system tampered with the principle in the interest of the consumer and the disadvantaged people in society. The public would have sufficient time for notice, input and planning. The current system was not perfect but it worked and that was going to be used for the upgrade of refineries.

Mr Maqubela said that on the issue of a regulatory accounting system, the process had started some time ago and it would be completed this year. The regulatory accounts had been formed and the technical principles and framework had been discussed. The DoE was trying to ensure that there was no cross subsidization between retail, wholesale and other parts of the value chain. The retail sector was a vehicle for SMEs. The challenges involved the push and the pull between the retailers and the wholesalers. On the concern of deregulation, the DoE had the White Paper on Energy Policy and certain issues had been agreed to. It was important to establish whether deregulation would actually benefit the South African economy. It could help in the short term but the effects in the long term also had to be considered. The loss of jobs in the retail sector had to be considered before deregulation.

Mr Maqubela replied that in relation to the number of licences, there were a lot of service stations that changed hands. More than 11 000 applications had been received and about 9 000 had been adjudicated. This should normally not be the situation but the reason was the changes in ownership of service stations.

Mr L Greyling (ID) said that on the review of the IRP, it was said by the Department that the review was only going to be done by the end of the year. Did the DOE not think that it was important for the IRP to be reviewed before big investments were made around the energy mix? On energy security, the nation was in a critical position. Had the DoE been getting briefings from Eskom and the relevant Ministers to prevent load shedding? What plans were in place to prevent load shedding? What was being done with regards to improving the sustainability of renewable energy in South Africa.

Ms Magubane replied that the IEP looked at the whole plan which contained several plans. The IRP was but one of the areas which had to be looked into. The DoE had put together the IEP which was an umbrella plan and the DoE was calling for public comment to change issues within the various sub plans. Many things had changed since 2010 but the DOE was looking at the national response to climate change and the National Development Plan (NDP) to inform the IRP and the Integrated Energy Plan (IEP). The DoE held that the 2010 IRP was still relevant but it was, however, going to be revised. After the interaction with the IEP, the IRP was going to be reviewed.

On the prevention of load shedding, there were very few interventions which could be done. The biggest weapon available to the DoE was energy efficiency.

Mr J Selau (ANC) said that the strategic plan was a good one and all that needed to be done was implementation. On selected performance indicators, delivery was limited to "per year", but the “per year” disappeared with general and planned performance. On the implementation of the IRP, the DoE said that it was planning for real turnaround by 2025. Did this mean that the deadline for performance was being changed to 2025?

Ms Magubane replied that in terms of planned performance, reference was made to “per year” because the current snapshot was made for just 2013/14.On the deadlines and targets, there had not been a change but the DoE was planning to align with the NDP. However, there was the need to look for more resources in this regard. The DoE had already initiated discussions with the National Treasury with the objective of seeking to commence discussions around reviewing the deadlines.

Prof S Mayathula (ANC) asked what the current backlog was with regards to the electrification of houses. He asked how the DoE disbursed the R933 million for SMEs and the subsidies for renewable energy. What were the conditions for access and what was expected of SMEs to access the subsidies?

Ms Magubane replied that there was a backlog of 3.4 million households which did not have electricity. The R933 million was part of the contract which was to go to businesses offering services in the energy sector. It was open to all businesses operating within the energy sector.

Ms N Mathibela (ANC) said that on sector transformation, the DoE was facilitating the participation of historically disadvantaged people by awarding 25% of petroleum licences. How many licences had already been given out?
On Liquefied Petroleum Gas (LPG), was the DoE going to create pipelines for households for the usage of gas?
How was the DoE performing on increasing awareness about energy as a whole.

Ms Magubane replied that with regards to LPG, the DoE was going to look at the supply to households via cylinders. Over short distances, LPG could however still be reticulated as was the case in some areas in Johannesburg. The limitation was with LPG domestic production. This was a challenge in South Africa and could lead to a situation where resort had to be made to the importation of LPG.

Mr S Radebe (ANC) asked how the DoE was monitoring and following up with municipalities around the country about performance and speeding up of processes and how was it supporting these municipalities? What was the DoE doing to ensure the transfer of skills and capacity within the energy sector? In terms of State Owned Enterprise annual performance appraisals, what was meant by ' the seeking of external help'? Was it the use of consultants?

Ms Magubane replied that the situation was tough with regards to municipalities. The Auditor General had commented on the issue and it had been noted that municipalities lacked resources and suffered from poor leadership and management. The DOE did not have a huge project management function and this made the monitoring of municipalities a challenging aspect. However the trends had been noted and the reasons given by municipalities were being considered in the operations of the DoE. The DoE was putting together a Project Management Unit which would be working closely with specific municipalities.

Mr Radebe said that the DoE should provide the Committee with the list of municipalities which were going to be involved in the operations of the project management unit.

Ms Magubane agreed to provide the requested list to the Committee.

On the use of external assistance, the DoE was looking at working with the Institute of Directors as it did not plan to create new capacity in an area which was not a core mandate of the DoE.

During a round of follow up questions, Mr Greyling said that he was concerned that R33.5 million had been shifted from the solar water heating project which was experiencing slow take-off to the SAFARI-1 project. Was NECSA involved in the project and why was this money taken from the solar water heating project? On the risk mitigation plan, had any study been done as to why the private sector had not done what it was expected to do? What were the barriers identified? Was there any document which the Committee could look at to get more details on the reasons for non-compliance by the private sector? He asked for more clarity on the timelines associated with the distinctions between the IEP and the IRP. He said that he was concerned about the delays and the timelines. He had raised this matter four years ago and the DoE had taken five years to develop the IEP and yet there was still no IEP, but in the meantime an IRP had been developed. These two documents came out of two very important pieces of legislation. The IEP was simply a blueprint which should guide the country’s energy policy. He was concerned about the risk that the IRP could end up being the guide for investment decisions in the energy sector. The DoE had to make some very big decisions so as to prevent the making of any mistakes in energy investments. When was the IEP going to be finished? And when was the IRP going to be revised? He said that he wanted specific dates for these finalisations.

Mr Moloto asked if there were any events or particular situations which caused the DoE to initiate the movement towards identification of nuclear materials.

Prof Mayathula said that considering the electricity backlog of 3.4 million households and the details which had been given by the DoE, it meant that the Department intended to take 17 years to cover the backlog. He proposed that the DoE should review its strategy.

Ms Magubane replied that on private sector participation, the DoE did not have the actual reasons for non-compliance but the DoE had been informed that it was mostly due to investment concerns within the companies. The companies believed that it was more expensive to do their own generation than buying from Eskom. The DoE did not however have a written report in that regard.

On the IEP, the programme would be finalised by the end of 2013. The IRP had been approved by Cabinet and it gave specific programmes which were endorsed and these programmes had to be invested in and were not going to be revised. However, there were certain programmes that could be put on hold. One of these programmes was renewable energy up till 2020. The Nuclear Power project was also approved and the Minister of Finance actually endorsed it in his budget speech. The only decisions currently expected from Cabinet had to do with what kind of procurement framework would be used and how was it going to be funded. The principles of the nuclear programme had actually already been finalised. The original NDP had questions about the nuclear programme, but the current NDP acknowledged it. All Cabinet expected from the DoE was a detailing of how much the nuclear programme would cost. This was contained in page 83 of the NDP. It was not advisable to rush the finalisation of the IEP so the DoE had given itself up till the end of 2013 to complete the IEP. The IRP would be revised.

The Chairperson asked if the DoE was confident that it had the resources and necessary plans to finalise and revise the IEP and IRP respectively.

Ms Magubane replied that the Department had the required resources and plans for the finalisation and review of the IEP and IRP respectively. When the DoE took the proposal to Cabinet, it proposed that the programme should do 3.2 Gigawatts but Cabinet refused and said that in order to achieve economies of scale, the DoE should cover the whole 9600 Gigawatts on the nuclear programme.

The Chairperson said that the DoE should explain to the Committee in writing what the DoE was counting on in terms of the rolling out of the nuclear plan.

Ms Magubane said that the Minister of Energy had done a Ministerial Declaration of all the power that had to be done by 2020. By the third quarter of this year, the DoE would be requesting information as to how the investments were going to be done. This was based on the approved IRP.

The Chairperson said that the energy sector required a lot of long-term planning and the various plans and programmes could not be exhausted in one sitting. The concern about private sector participation had to be looked into and some research into how the participation could be improved had to be done. He had visited many companies which were energy intensive users and these companies were quite interested in coal generation. He said that it was important for the Committee to note how the Strategic plan of the DoE had taken an outcome based approach. This was actually enhancing the oversight work of the Committee.

The Committee would meet the next day for a discussion on the Central Energy Fund.

The meeting was adjourned.