Department of Energy on its 2013 Annual Performance Plan

Meeting report

The DoE delegation was led by the Director-General, Ms Nelisiwe Magubane, who thanked the Committee for the opportunity to present the DoE budget and Annual Performance Plan. She said that the presentation would be lead by the Chief Financial Officer, with the rest of the team of Deputy Directors-General contributing throughout the presentation. The Chairperson added that Minister Dipuo Peters also could not attend the meeting as she was part of the presidential delegation which was meeting the President of Nigeria during his visit to the country.

Department of Energy (DoE) 2013/14 Budget
Ms Yvonne Chetty, DoE Chief Financial Officer, provided an overview of the 2013/14 budget and compared it to that of the previous financial year (2012/13). The major variances were outlined. With regard to the 2013 Estimates of National Expenditure (ENE), the adjusted budget for the 2012/13 financial year included all rollovers from 2011/12, and also the adjusted allocations from National Treasury. The budget for 2013/14 had a 2% decrease compared to the 2012/13. This was due to some changes which took place within the structure as well as some forced savings from Treasury. There were therefore substantial reclassifications of funds of about R 150 million which was distributed to all programmes and entities. The major spending focus in 2013/14 would be on expanding the electrification programme which was implemented by Eskom and various municipalities. Transfer payments continued to represent the bulk of the Departments’ budget, with an average spend of 93%. The Department would therefore be left with an estimated 7% to spend on its operational costs, such as travel, rental, lease payments.

The various categories of the Department budget were compensation of employees which had a 19.7% increase due to the changes in structure, goods and services which had a 6.5% increase, transfers and subsidies decreased by 2.9% and payments for capital assets which decreased by 65.9%. The decrease for payments of capital assets was a once-off payment. With regard to the programmes, Programme 1 Administration, included the Ministry and the Director-General’s office, the Chief Operations Officer’s office as well as other support services such as finance and human resources. Compensation of employees experienced a 15.7% increase in 2013/14. This was a result of the new DDG position and positions which were under-funded in the previous financial year. Goods and services decreased by 23.2% this was a result of the previous years’ reclassification. Transfers and subsidies had a 3.8% decrease and payments for capital assets also decreased by 58.4%, and this was due to a once-off payment due to a reclassification.

Under Programme 2 Energy Policy and Planning, there was a decrease in budget, which was down by 96.7%. Compensation of employees decreased by 9.3% in 2013/14, goods and services decreased by 47.5% mainly due to the rollover requested from Treasury which was not in the 2013/14 budget. Transfers and subsidies decreased by 100% as a result of the end of transfer pipeline funding of R 4.5 billion over 3 years. Payments and subsidies also decreased by 100%. With regard to Programme 3 Energy Regulation, compensation of employees increased by 85.2%, goods and services increased by 432.2%, this was a result of provision made for the development of a core routing centre system at the regions as well as funding for fuel testing. Transfers and subsidies experienced no changes, and payments for capital assets decreased by 100%. Overall, the programme experienced a 168.1% increase. Under Programme 4 Electrification and Energy Programmes Management, there was an overall increase of 24.4%. Compensation of employees experienced a 33.8% increase, this was attributed to the additional funding reprioritised from Eskom to capacitate the newly created sub-programme within the new structure. Goods and services increased by 61.1%, with funding being reprioritised within the programme. Transfers and subsidies experienced a 24.1% increase as a result of transport and other Eskom structures.

Dr Wolsey Barnard, Deputy Director-General: Energy Programmes and Projects, DoE outlined the presentation for Programme 4 Electrification and Energy Programmes Management. He pointed out that the 24.1% increase in transfers and subsidies was as a result of the once off ADAM programme which was initiated by DoE. Therefore a once-off transfer for the programme was made. ADAM was an acronym for Approach to Distribution and Asset Management, a programme which assists with distribution backlogs. A total of R 3.866, 95 billion was distributed to various municipalities for the electrification programme. Of this total budget, municipalities were allocated R 1 314 billion, planned connections were allocated R 103 864 million, Eskom was allocated R 2.141 027 billion, non-grid was allocated R 91 152 million and planned connections were allocated R 276 703 million. The ADAM programme was allocated R 320 000 million, which was a once-off allocation.

Connection and bulk allocations were then broken down per province for allocation. These included Eskom allocations, municipal allocations, non-grid allocations and the ADAM allocation. The majority of the allocations were going to backlog municipalities such as in the Eastern Cape which received an allocation of R 1 123 674 billion, KwaZulu Natal R 792 067 million, Limpopo R 480 419 million allocation and the North West R 413 000 million. These were the top four provinces with the highest backlogs. He also outlined the bulk allocations for connections and infrastructure for the various municipalities. The installations and upgrades of infrastructure allocations were shared by Eskom and the municipalities.

Ms Chetty asked the Deputy Director-General of Nuclear Energy to present Programme 5 Nuclear Energy, which had an overall increase of 10.4%. The major increase was for the compensation of employees, while transfers and subsidies increased by 10.4%. This was as a result of an allocation to the emergency preparedness centre.

Mr Zizamele Mbambo, Deputy Director-General: Nuclear Energy, DoE said that the programme was capacitating itself with regard to the compensation of employees in preparation for the rollout of the nuclear programme. With regard to goods and services, the allocation was supporting the branch. The main thrust of the branch was to prepare for the rollout of the nuclear programme.

Ms Chetty gave a brief outline of Programme 6 Clean Energy and said that the overall increase for the programme was 48.9%. One of the biggest increases was for the compensation of employees, which was for posts which were previously under-funded. The increase was also for increased monitoring capacity within the programme. Goods and services increased substantively at 1441.3%, the allocation was to promote increased public awareness for energy efficient projects. Transfers and subsidies increased by 47% due to the increased demand for funds for Eskom’s Energy Efficiency and Demand Side Management (EEDSM) project. Additional funds were allocated for operational needs and research demands for carbon storage.

Mr Ompi Aphane, DoE Deputy Director: Policy, Planning and Clean Energy, said the focus of DoE for 2013/14 was improving energy efficiency performance of the country. Programmes to monitor the performance of municipalities had been provided to measure their energy efficiency, such as their street lighting. The spend of municipalities in this regard had been previously been very difficult to quantify. DoE had however identified 20 municipalities where spending was high but energy efficiency was low. One of the projects initiated by DoE was the solar water heating allocation.

Ms Chetty said that the transfer payments schedule represented a 93% spend by DoE. In 2012/13 DoE was allocated a R 6.3 billion budget, which decreased by 2% in 2013/14 to an allocation of R 61 billion. The decrease in the budget was largely due to the end of the Transnet funding, and various increases in some of the state owned enterprises.

Ms Magubane thanked her delegation and said the team would now be presenting the Annual Performance Plan (APP). The APP indicated what DoE would be doing in the current financial year, for example, it outlined DoE’s strategic objectives. She asked Mr Mulaudzi to give a presentation on the overview of DoEs’ plan while the individual branch heads would assist where necessary.

Department of Energy (DoE) Annual Performance Plan (APP) 2013
Mr Lucas Mulaudzi, DoE Chief Director: Renewable Energy, said the Annual Performance Plan of 2013/14 was in line with the Estimates of National Expenditure (ENE) and the budget programme structure outlined by the Chief Financial Officer. He highlighted its three components: the strategic outcomes-oriented goals, the selected performance indicators, and the strategic objectives per programme.

DoE followed the SMART (Specific, Measurable, Attainable, Realistic, Timely) principle, which was in line with the guidelines for strategic performance and planning, as prescribed by National Treasury. DoEs’ strategic outcomes-oriented goals spoke to all six programmes to ensure that their goals and objectives were in line with those of DoE. There were seven strategic outcomes-oriented goals:
▪ Security of supply
▪ Infrastructure
▪ Regulation and Competition
▪ Universal access and Transformation
▪ Environmental Assets
▪ Climate Change
▪ Corporate Governance.

Mr Mulaudzi said the strategic objectives were also converted into strategic objectives for each programme. Under Programme 1 Administration there were four sub-programmes which were responsible for supporting the line functions. There were four strategic objectives under this programme, which were expanded on in the presentation document: finance and supply chain management, corporate support, governance and compliance, and international coordination.

Under Programme 2 Energy Policy and Planning, there were seven strategic objectives per sub-programme: demand management, competition, energy policy, energy planning, energy publications, distribution asset management plan and liquid fuels infrastructure plan. Programme 3 Energy Regulation had five strategic objectives under its sub-programmes, and these were: regulatory accounting system, sector transformation, compliance monitoring and enforcement, petroleum licensing and fuel price regulation. Under Programme 4 Electrification and Energy Programmes Management there were six sub-programmes with their strategic objectives expanded on in the presentation document. These were: universal access, electricity distribution asset management, electricity infrastructure/ industry transformation, community upliftment and regional information, inspections and liaison. Programme 5 Nuclear Energy had four sub-programmes: nuclear security, nuclear control and accounting, radioactive waste management, and nuclear energy expansion/ infrastructure development. Lastly, Programme 6 Clean Energy had four sub-programmes: climate change and environment, energy efficiency and demand management, energy management plan and renewable energy.

Mr Mulaudzi said there were seven performance indicators which applied to all programmes; these were monitored through various strategic goals of DoE.
- The first goal was security of supply; the performance indicator was megawatt reduction in electricity demand per year. The planned performance plan was to reduce electricity demand by 100 MW for example.
- The second goal was to improve infrastructure, one performance indicator in this regard was to monitor the number of additional substations upgraded per year, and the other was to monitor the number of municipalities in which refurbishment of key electrical networks took place annually. The planned performance indicators for these goals respectively were to upgrade 10 additional substations annually, and to refurbish key electrical networks in nine municipalities.
- The third goal was regulation and competition; the indicator was to monitor the number of new petroleum retail site inspections per year, and the planned performance was to execute 500 new petroleum licence applications.
- The fourth goal was universal access and transformation. Its performance indicator was the number of additional households electrified per year, and the planned performance indicator was to electrify 200 000 additional households.
- The fifth goal was environmental assets. The performance indicator was the number of solar water heating units installed in residential and commercial sectors per year, while the planned performance was to install 129 679 solar water heating units in residential and commercial sectors by 2014.
- The sixth goal was climate change. The performance indicator was the number of new renewable energy projects subsidised per year, while the performance plan was to subsidize three new renewable energy projects annually.
- The seventh goal was corporate governance. There were no performance indicators or planned performance in achieving this goal.

Ms Magubane added that the reason why DoE had presented the APP “as it was” was because DoE was slowly migrating into its interim structure. When the new Department was formed it only had a 30% budget which was unspent from the previous department, and only two line function managers. Since then, DoE had managed to fill all Deputy Director General posts, and this had gone a long way towards streamlining. DoE’s strategic plan, which was developed in 2009, was still very useful in the current structure and was therefore not adjusted, as it was still relevant.

Discussion
Mr K Sinclair (COPE, Northern Cape) said that there had been a lot of discussion in South Africa about alternative energy, and the need for people to understand its social impact. What was DoE doing to realise this goal? He added that very little localisation was taking place in South Africa, and that the majority of energy products were being brought in from overseas. What was DoE doing to ensure that it was South African people who enjoyed these economic benefits? He asked that an explanation be given for the two big electrification projects which were funded by DoE, Project Ntombu being one of them? What was the progress?

With regard to the APP, he raised a concern about consultants, where DoE had spent an estimated R61 million on these. DoE was asked to explain. A concern was raised about the expansion of DoE, why was DoE expanding when there was a growing need for South Africa to have a smaller government? DoE had raised the issue of maintenance, how was it planning to provide effective monitoring and maintenance within an expanded structure? He asked if DoE monitored the capacity of its role-players such as Eskom and municipalities. DoE was asked to explain the R 21 billion of the Central Energy Fund. Was this for oversight, if not, what was it for?

Mr J Nyambi (ANC; Mpumalanga) referred to the SMART principle and asked if DoE had fully adopted this principle in measuring the implementation of its goals. DoE was asked to elaborate on what the difference was between the interim structure versus the current one. Since DoE had filled 500 funded posts, how was it planning to meet the goals set out in the African Union 2010-2020 declaration for the African Women’s Decade. How far had DoE gone in dealing with the challenges of fair and equal representation of women? With South Africa’s adoption of the National Development Plan (NDP), what progress had DoE made in assessing the impact of the NDP on its APP and budget. With the Central Energy Fund, there was the challenge of filling senior management posts. What timeframes did DoE have in place to address these challenges? What plans did DoE have to reach its 2014 target for electrification?

Ms M Dikgale (ANC; Limpopo) asked for clarity on why all ADAM allocations were not being distributed to the Limpopo province.

Ms B Abrahams (DA; Gauteng) thanked the Director-General and DoE for a good presentation and the clear effort made by the team. She asked whether the one million solar units to be installed, were for residential or RDP government houses. Did the commercial sector contribute to the instalment of these units? Who was responsible for their maintenance?

Ms E van Lingen (DA; Eastern Cape) said that the NDP was adopted by Parliament; however the 2010 Integrated Resource Plan (IRP) needed urgent attention. She referred to the National Planning Commission and whether the commission would be revising the IRP. She added that nuclear power was not necessary right now and would only be required later. What was the cost of non-delivery for the three major Eskom plants which were not operational? How was DoE dealing with this?

She added that that the King Sabata Dalindyebo municipality had been in the programme for a long time, with seemingly no progress. DoE was asked to explain. She added that there were a lot of municipalities which were going over their allocations/demand. Was there a programme to monitor which municipalities which exceeded their demand, if so how was it going about doing so? What were the Generally Recognised Accounting Practice (GRAP) issues of the municipalities? To what extent was DoE making sure that municipalities were GRAP compliant. She asked DoE to expand on DoE’s work for non-grid connections in rural areas. To what extent were solar lights and geysers being used?

Ms Magubane responded to the question of alternative energy equipment being brought in from overseas and said that bidders had strict compliance measures in place. DoE monitored these processes; however assistance from the Committee would be very useful. Therefore Members were asked to indicate to DoE any specific matters which were of concern. With regard to the two major projects, there was a lot of progress with the Grand Inga Project. The treaty was finalised and would be presented at the Directors-General cluster that day. As for Project Mthombo, progress on the issue would be brought before the Committee. She indicated that the Chief Financial Officer would respond to the question on consultants.

She responded to the question on smaller government structures and said that DoE preferred not to have a big department as well, because there was a need to retain only highly skilled and competent staff. The energy sector was one of the most important in the country. Shortages in energy could heavily constrain the economy. DoE planned to achieve the aspirations outlined in the NDP, and these would not be achieved if there was not enough electricity or energy. DoE was spending a lot of funds to train management, and so it needed to ensure that the correct structure was in place to efficiently implement DoEs’ strategy.

Ms Magubane responded to the question on maintenance and said that the electricity distribution industry (EDI) was structured to consolidate the industry and assess the state of the distribution network. Some municipalities were in a bad state, and this was why DoE identified the top 20 municipalities which were in a state of collapse. DoE therefore agreed to devise strategies to solve these worst case scenarios first, and assistance from the Auditor-General was requested. The National Energy Regulator of South Africa (NERSA) needed to put in place measures for the maintenance of municipalities. Mr Mnguni would respond to the question on the interim structure. With regard to the question on the AU 2010-2020 declaration, she responded that DoE had not done badly, with a 51% overall representation of women. However, more work still needed to be done at senior management level, as there were only two female Deputy Directors-General out of seven.

She indicated that Dr Barnard would respond to the questions on ADAM. As for DoE’s alignment with the NDP, Chapter 4 of the NDP was dedicated to infrastructure development, which included nuclear energy. Therefore DoE was on its way to achieving the 2030 target set for universal access. It had a plan in place which was approved by Cabinet, with an aspiration of an economic growth plan of 5.4%. On the question of Eskom power stations with were not operational, she responded that old power plants needed to be replaced because of the strict air quality measures, and this would retire 20k megawatts of power. As for vacancies at senior management level, a Chief Executive Officer for DoE has been appointed, and he would do his own skills audit in an attempt to fill empty vacancies. Dr Barnard would be responding to the question on electrification. DoE was looking at doing things differently and renewable energy formed part of the solution.

Ms Magubane responded to the question on Limpopo and said the Limpopo was a victim of its successes. Limpopo was one of the provinces which received the first batch of funding for the improvement of their infrastructure. However other provinces managed to show improvement, Limpopo did not. Currently Gauteng was the province with the highest number of non-electrified households, while Limpopo no longer formed part of the provinces with the highest backlog such as the Eastern Cape, KwaZulu Natal and Gauteng. On another note, most solar water heating systems utilised by DoE have been imported, and the problems which were emanating now were that these systems were not performing well under South Africa’s environment. As a result, DoE had spent about R25 million on repairs. Mr Aphane would provide more details in this regard, and would respond to the question about the IRP. On the question on maximum demand by municipalities, the amount of energy which municipalities consume was agreed upon by Eskom. Municipalities were therefore penalised when they exceeded their demand.

Ms van Lingen said the 2007 demands had not been met. Some municipalities had been exceeding their demand, even though they could not afford to do so.

Ms Magubane responded that the maximum demand was an issue to be monitored by Eskom and various municipalities. The role of DoE was only to make sure that the grid was in shape.

Mr Aphane responded that the Committee needed to understand the difference between who was responsible for upgrading the transformer between Eskom and municipalities.

Ms Magubane added that whoever owned the infrastructure, was responsible for its maintenance.

The Chairperson asked whether the infrastructure did not belong to the municipalities. Eskom was the overarching party, and the ownership was with the municipalities.

Ms Magubane responded that in a substation, there was a portion owned by municipalities and there was a portion owned by Eskom. However, as part of ADAM, DoE could assist with monitoring where necessary.

Mr Aphane responded that Eskom was not able to provide content, therefore infrastructure upgrade was the responsibility of municipalities, not that of Eskom or DoE.

The Chairperson commented that during oversight visits, the Committee had engaged with various municipalities and no one seemed to want to take responsibility for the content or the infrastructure upgrades.

Ms Magubane replied that electricity infrastructure belonged to either municipalities or to Eskom.

Ms Chetty replied to the question on the use of consultants and said that the entire DoE budget was reclassified and was therefore not entirely spent.

Ms Magubane corrected Ms Chetty and said that the question asked was why DoE was using consultants.

Ms Chetty replied that there were not enough skills available within DoE, and this was why DoE had to use consultants where necessary.

The Chairperson asked why DoE was not doing more to invest in training its existing staff rather than contracting consultants.

Mr Sinclair asked what progress had DoE made in the rollout of the renewable energy programme.

Mr Aphane replied that the programme was an R 47 billion investment, and about R 200 million of this was spent on transaction advisory services. It was not possible to run such a large programme with the current capacity of DoE. Therefore the programme was one of the major contributors to skills development and training, where mentorship was provided to DoE staff. DoE’s experience was too low; therefore the risk of running the programme was transferred for insurance purposes.

Mr George Mnguni, DoE Deputy Director-General: Corporate Services, replied that funding compensation of employees had not increased, and this had a significant impact on DoEs’ training budget. However DoE went into partnerships with various Sector Education and Training Authorities which had set aside about R 6.2 million for skills development, mostly in the areas of nuclear and petroleum gas, and clean energy. Going forward more funding was expected. Overseas countries had signed MOUs and were prepared to assist South Africa with nuclear and advanced training within the country. DoE was busy aligning its strategy and plans with these MOUs.

In response to the question on the expansion of DoE’ structure, and the difference between the previous structure versus the interim structure, Mr Mnguni said that the structure had not been expanded. It had been reduced instead. Therefore with the split of Department of Mineral and Energy Affairs, the approved structure included a total number of vacancies within DoE of 927, 475 of these were not filled due to a lack of funding. The total number of warm bodies within DoE was 563. The newly approved structure therefore reduced the total number of posts from the initial structure from 927 to 730. Matching and placement processes had been finalised and were being implemented. As for gender representation, females made up an overall 52% throughout DoE, male representation being 48% overall. At senior management level, females made up 38% while males made up 62%. DoE has set out clear targets in its Employee Equity Plan on how to achieve broader and equal representation of females within DoE at senior management levels.

Dr Barnard replied to the question on the social impact of the Independent Power Producer (IPP) Renewable Energy Procurement Programme, which was a 20 year programme [IRP 2010-2030]. About R2 billion rand was allocated for the social upliftment programme. However there was a misconception that DoE was not doing enough for community upliftment. There was however projects which were funded by DoE in various remote areas. Timber City which had closed down was being reopened, as well as the clinic which had closed down. With regard to the ADAM programme, DoE received R 320 million which was spread throughout different sized municipalities. ADAM was based on three legs: skills development, project management and infrastructure. Master plans of the municipalities were currently being evaluated to find out where the biggest challenges and biggest impacts would be. The team consisted of Nersa, National Treasury and Department of Cooperative Governance and Traditional Affairs.

Ms van Lingen said that the municipal financial year was different from DoE’s financial year, how then would monitoring of the ADAM programme be taking place, seeing that the financial years were different?

Dr Barnard replied that DoE first analysed the municipal plans and projections for the year before allocations were made. The programme was therefore well monitored and the finances were well managed. With regard to electrification and universal household access, DoE had an 85% target for this, and even though it was lower than the initial 90%, DoE was confident of its success. Treasury was providing financial support to DoE for the realisation of the target. With regard to solar water heating systems, DoE’s focus was on reaching rural areas. About 10 000 households had been identified, even though the environmental conditions in some areas were not adequate for the sustainability of these systems.

Ms Magubane thanked the Committee for welcoming DoE and she thanked her team for their hard work in putting together their quality presentations.

The Chairperson thanked the Director General and the team from DoE for their presentations and said that the Committee looked forward to their next meeting.

The meeting was adjourned.