Department of Energy on its 3rd and 4th Quarter 2012/13 Performance

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed the Department of Energy to the meeting. He said that the meeting would be dealing with the Department’s 3^rd quarter and 4^th quarter reports, as part of the budgetary review process. He suggested that the two reports be discussed separately, because both were quite hefty. He pointed out that the Department did not submit the documents to the Committee in advance, and that was frustrating because Members needed to study the documents before the meeting. The Committee needed to engage with the quarterly reports as part of their oversight work.

In the past, the Committee had not been very effective in its oversight work, because they received annual and operational reports in September, and that was not effective enough. There were no early warning mechanism, and so a lot of damage could be done, and there would be very little that the Committee could do. The quarterly reporting process was effective for proper oversight and it was necessary that the Department’s took the process as a serious one. The Committee therefore did not take kindly to being handed documents a few minutes before the start of the meeting. He noted that it was the last time that the Committee would be accepting late documents from the Department. Should the matter persist; the Department would be sent back.

When interests rates went up and the Rand got weaker, that had a negative effect on energy supply in the country. When the balance of payments and trade deficits become negative, all forms of energy were also negatively affected. It was vital that there be consistency in the implementation of policy and legislation. The Committee needed to receive reports in time as it needed to link the reports to DoE’s earlier commitments.

Mr George Mnguni, Deputy Deputy-General: Corporate Services, apologised about the late submission of documents. He assured the Committee that all further documents from the DoE would be submitted within reasonable time to enable the Members to go through the documents prior the meeting. He explained that he would be leading the presentation because the Director-General, Ms N Magubane, was on an overseas visit. He asked that his delegation introduce themselves. He extended and apology from the Minister, Ms Dipuo Peters, and from Mr Ompi Amphane, Deputy Director-General: Policy and Planning, who were unable to attend the meeting due to other commitments. He said the Chief Financial Officer would start with the presentations in order to set the scene for the rest of the presentations.

Department of Energy 3^rd Quarter Financial Performance Report, ending 31 December 2012
Ms Yvonne Chetty, DoE Chief Financial Officer, asked that the Chairperson provide direction on which of the two quarters should be detailed and which one she should provide only an overview.

The Chairperson responded and said a detailed presentation on the 3^rd quarter should be given and an overview of the 4^th quarter’s report.

Ms Chetty gave an overview of performance per economic classification, the top five major cost drivers for 2012/13, an overview of each programme and the 3^rd quarter transfer payment schedule. The DoE had received a budget allocation of R6.8 billion and adjustments of about R71 million were made. The DoE was then left with a revised budget of R6.7 billion (see document).

Discussion
The Chairperson said the problems which the DoE raised around baseline and resource constraints were not valid. He reminded the DoE that earlier the Committee along with the Appropriations Committee had tried to give support to the DoE in these matters but the Department refused. Therefore staff constraints were something which the DoE did not have the pleasure to raise as a concern. The Committee would therefore engage with the DoE as though it was any other fully capacitated department. He acknowledged the remarks made by National Treasury that all departments were affected by the financial crunch; however it was not an excuse for the Department of Energy. He noted that Members battled to follow the presentation because the presentation slides were not the same as the documents handed out.

Mr L Greyling (ID) said it was difficult to engage with the presentation because the documents did not make much sense; and the presentation was not well structured. With regard to the Integrated National Electrification Programme (INEP), he said a policy was produced in the last financial year to try and speed up the process, and that was laudable. However, the concern was around non-grid electrification; Eskom did not seem to want to give directive in this area. He wondered whether the new policy had addressed these concerns. He suggested that the idea of creating smaller grids be looked at rather until the actual grid was rolled out to all communities. Solar power was therefore a concern for most municipalities where Eskom had not yet reached.

Mr J Smalle (DA) mentioned the matter of the slow rate of transfers and the inability of entities to deal with transfers. He asked what effect the Division of Revenue Act (DORA) had on these entities and the DoE with regard to rollovers. Local government in certain areas had a very high level of underspending. What monitoring role did the DoE play?

The Chairperson said the uniqueness of quarterly reports was that they focused on a specific period, hence the need to have documents handed in on time so quarterly expenditure could be looked at. The Committee had been very upfront about energy efficiency, and it had been communicated to the DoE that they needed to focus more on energy efficiency initiatives. Why was there still underspending there? How far was the DoE in addressing agreements with municipalities? The Department of Performance Monitoring and Evaluation (DPME) had highlighted that this was one area where the DoE was not doing well in. He also raised the overspending by the DoE and asked if money for membership fees was not addressed during the planning stage. Non grid allocation was usually in the rural areas, and he agreed with Mr Greyling that this was a matter which needed to be given more attention.

Mr Mnguni responded and said members from the DoE would answer the questions according to their programmes.

Dr Wolsey Barnard, Deputy Director-General: Programmes and Projects, DoE responded and thanked the Members for the precise questions. On the question of electrification, when dealing with quarterly reports; the 3^rd quarter under discussion related to that of national and provincial aspects, whereas it meant municipalities were still in the 2^nd quarter. This resulted in a hockey stick effect. Therefore even though the R46 million allocations for transfer seemed like a huge amount it was not; it was for transfers for about three municipalities. As for the underspending, there were various explanations for these: the municipality had changed its banking details and did not inform the DoE in time, or there was non-performance so transfer had to be stopped. In some cases, business plans were not submitted to the DoE in time, therefore transfers had to be retracted. In terms of non grid, there were two reasons for the underspending. First, there was a challenge of negotiations between the municipalities, the private entities and Eskom. The negotiations therefore took longer. Also, the contracts were expired. Transfers were made upon delivery, only after audits had been conducted. On the question on agreements, in the current financial year, DORA applications were published at the end of January 2013, and agreements with the municipalities were entered into at the end of February. This resulted in huge delays, resulting in some contracts not being signed.

The Chairperson asked whether the Department of Public Services and Administration (DPSA) was not one of the tools available to assist municipalities in addressing these capacity constraints.

Dr Barnard replied that the challenges he was referring to were not about high level technical skills. Rather many of these municipalities did not have a municipal manager at that time. The challenges were therefore not technical, they were rather managerial.

Ms Chetty responded to the question on membership fees and said these were budgeted for but the money received had a shortfall. The DoE still had to pay these fees due to international obligations; therefore some operational expenditure in the DoE was cut.

Department of Energy, 4^th Quarter Performance – Programme 1: Corporate Services
Mr Mnguni said during the last strategic planning session, a decision was made that the Annual Performance Plan (APP) was too “busy”. A concern was raised that the performance targets needed to be revised, since then the targets had been revised; some were combined, while others were deleted. The presentation was therefore a direct reflection of the revised Annual Performance Plan.

For Corporate Services, these were some of the annual targets which were discussed, some were achieved while others were partially achieved:
▪ Implementation of phase 2 of the Human Resource Plan and compile a report on the first phase of the Human Resource plan progress (Partially achieved)
▪ Relocation of identified Department offices to new accommodation (Achieved)
▪ Records Management plan developed, approved and implemented (Partially achieved)
▪ Facilities Management Framework implementation (Not achieved)

The Chairperson asked that the following presentations be summarised in order to make time for all the presentations and the discussions.

Mr Mnguni suggested that the presentations be given first and questions raised afterwards, giving respect to time.

Department of Energy, 4^th Quarter Performance
Programme 1, Sub-Programme: Financial Services
Ms Chetty said all targets in the Programme were achieved, with only two partially achieved. She explained that this programme took care of Supply Chain Management, which did all the DoE’s procurement and contracts. The budget section took care of all submissions to National Treasury, debtors and asset management. Information Technology was also included under this Programme for the 2012/13 financial year. The DoE had internal audits conducted throughout the year. She explained that the annual target which was “partially achieved” was: Develop 1 Petroleum Licensing Lodgement Module. The corrective action taken by the DoE was to develop query/maintain and amendment functions beyond the scheduled time frames.

Due to time constraints, the following DoE Programmes summarised their presentations (see document):

Programme 1, Sub-Programme – Governance and Compliance
Mr Lucas Mulaudzi, Acting Chief Operating Officer, DoE

Programme 2 – Policy and Planning
Mr Muzi Mkhize, Chief Director: Hydrocarbons Policy, DoE

Programme 3- Petroleum Products and Petroleum Regulations
Mr Tseliso Maqubela, Deputy Director-General, DoE

Programme 4 – Nuclear
Mr Zizamele Mbambo, Deputy Director-General, DoE

Programme 5 – Clean Energy
Mr Sandile Ntanzi, Chief Director:

Programme 6 – Programmes and Projects
Dr Wolsey Barnard, Deputy Director-General: Programmes and Projects.

Discussion
Mr Smalle referred to petroleum and asked whether the 30% loss of crude oil supply was as a result of the shift from partnering with Arabian countries to partnering with Nigeria. He asked if South Africa would benefit from the diversion of products, what role did the Strategic Fuel Fund (SFF) play in this regard? On Clean Energy, he asked if the DoE monitored the timelines for the development of municipal energy consumption efficiency interventions.

Mr J Selau (ANC) said it would be very difficult to discuss the progress report of the last quarter of 2012/13 in the absence of the 2013/14 1st quarter report (April-June 2013). Some of the targets which were not achieved in the previous quarter where achieved in the current quarter. Therefore the status quo on the DoE’s ability to deliver can only be measured when the current quarterly report had been finalised.

Ms Smalle said some of the matters raised in the 4^th quarter report did not seem to be reflected in the 3^rd quarter report. He explained that there was one area where he noticed this, and if the documents had been handed out in time, he would have had more time to look through the documents properly.

The Chairperson thanked the DoE for the presentation. He raised a concern about the high level of  “partial achievements” under the Policy and Planning: Programme 2, same as in Projects and Projects: Programme 6. He asked that DoE explain these concerns. The non grid spending was a challenge and DoE was requested to give a clear explanation of why this had been the case. What programmes did the DoE have in place with regard to legislation?

Department of Energy 3^rd Quarter Performance
Programme 1 Sub-Programme Corporate Services
Mr Mnguni said in the interest of time, the presentation would only be addressing the partially achieved targets. There were a few partially achieved targets; the first was operational classification and framework, the other was the updating of fiscal steps resource revised structure by 31 March 2013. The long process of consulting with stakeholders was cited as the main cause of delays in the first quarter. He also noted that the implementation and monitoring of the Facilities Management Plan and the Maintenance Plan had not been achieved. A draft management plan was developed but had not yet been approved. The development, approval and implementation of a Records Management Plan was also partially achieved. Also, the implementation, alignment and evaluation of the DoE’s communication strategy to be in line with the National priorities, was partially achieved due to capacity constraints.

The following DoE Programmes summarised their 3^rd Quarter Performance presentations (see document):

Programme 1, Sub-Programme – Financial Management Services
Ms Yvonne Chetty, DoE Chief Financial Officer

Programme 1, Sub-Programme – Governance and Compliance
Mr Lucas Mulaudzi, Acting Chief Operating Officer, DoE

Programme 2 – Policy and Planning
Mr Muzi Mkhize, Chief Director: Hydrocarbons Policy, DoE

Programme 3- Petroleum Products and Petroleum Regulations
Mr Tseliso Maqubela, Deputy Director-General, DoE

Programme 4 – Nuclear
Mr Zizamele Mbambo, Deputy Director-General, DoE

Programme 5 – Clean Energy
Mr Sandile Ntanzi, Chief Director:

Programme 6 – Programmes and Projects
Dr Wolsey Barnard, Deputy Director-General: Programmes and Projects

4^th Quarter Financial Performance Report, ending 31 March 2013
Ms Yvonne Chetty, DoE Chief Financial Officer.

Discussion
The Chairperson thanked the DoE team for their presentations, and reminded them that quarterly reports were necessary to monitor quarterly performance. He asked that an additional document be provided outlining what the DoE would use the R69 million rollover for as requested from National Treasury. He explained that the Committee would use that document to assess if the 1^st quarter 2013/14 targets where achieved.

Ms Chetty noted the Chairperson’s request and explained it was an oversight on her side; however the additional document would be made available.

Mr Mnguni said the DoE would now be answering the following questions raised previously:
Fuel specifications
Crude supply
Municipal connections and the monitoring of timeframes
Overall performance in non achievement in policy and planning and programmes and projects
Non grid connections
The lack of progress in relation to legislation.

Mr Maqubela responded to the question on fuel specifications and said the matter would first be discussed internally with the Chief Financial Officer. The estimations were that it was a huge undertaking therefore the DoE would have to visit all ports of entry such as the border with Mozambique. The fuel which came from the Durban port was easier to monitor because it went through the oil companies; it was the fuel which came through other borders which needed to be monitored. The South African Bureau of Standards (SABS) had been engaged; however the issue currently was funding.

The Chairperson asked for an estimation of how much the process would cost.

Mr Maqubela responded and said the costs were estimated to be about R30 million. On the question on crude oil, he said South Africa used to receive about 30% of its oil from Iran, but it had decreased as other countries have been partnering up with South Africa. The DoE was however looking to develop inter-African trade for the development of the continent. The capacity of Strategic Fuel Fund (SFF) had also been enhanced and so it was to play a critical role in this regard. Infrastructure would also be developed to increase the security of supply.

Dr Barnard responded to the question on municipal connections and said the DoE and the municipalities had different financial years. The main challenge facing the DoE was that the procurement process at municipalities was also very long. However some interventions were that the DoE was forcing municipalities to manage their deadlines and to hold back funds to contractors until the work had been completed. The DoE was also committed to assist struggling municipalities where needed. Assistance from the Department of Cooperative Governance and Traditional Affairs and from DPSA was welcomed. On the question on non grid, there were a number of challenges as licensing was solely the responsibility of Eskom. Therefore municipalities needed to first apply to Eskom for licensing, and this was quite a process.

On the question on legislation delays, Mr Muzi Mkhize, Chief Director: Hydrocarbons Policy, said part of the problem was that the DoE seemed to be too optimistic in the timeframes it set itself, and the skills shortage in legislation drafting was another concern. These therefore added to the delays in meeting timeframes.

Mr Selau asked Programme 3: Petroleum Products and Petroleum Regulations  what methods they used for ensuring proper licensing. What mechanisms or remedial action did the Policy Programme have in place to address the delays caused by stakeholders? Addressing the Programmes And Projects Programme, he if there was an option for Eskom to enter into partnerships via an agreement with the South African Local Government Association (SALGA) rather than having Eskom, a macro entity, have to enter into many different agreements with various municipalities spread throughout the country. He asked DoE what it planned to do in order to achieve more targets per quarter.

Prof Mayathula asked what mechanisms the DoE had in place to address the problems which came about as a result of resource constraints.

Mr Greyling asked about the challenges faced by the DoE as a result of unqualified inspectors. Yet, DoE had an internal audit, so how were the unqualified inspectors allowed to continue with their work in nuclear energy. He raised a concern that security and safety risks where being ignored. He asked if in the next quarter the KPIs would talk to the number of institutions the DoE was trying to assist. What would be the Rand figure of these commitments? As for the transfer of the licences, was there a link to the South African Companies and Intellectual Property Commission (CIPCO) to prevent the highjacking of companies? As for unspent funds, there was about R130 million unspent, yet the DoE requested only a R69 million rollover. He asked the Chief Financial Officer to explain this. He asked what mechanisms were in place to ensure that the quality of imported refined products was up to standard. What penalties did the DoE extend to companies whose products were found to be of a lower quality than stipulated? What timeframes did the DoE have for the safeguarding of South African borders?

Mr K Moloto (ANC) referred to the Global Enterprise Risk Management and raised a concern about the high levels of partially and not achieved targets within the DoE. Why had the DoE not improved since it was established in 2009? Why did the internal audit not address these key risks?

The Chairperson said Audit Risk Management was an interesting topic. He would relay his question to the DoE in writing.

Mr Mnguni responded to the questions on delays caused by stakeholders and said the delays were caused by the restructuring of the Department of Energy. However the DoE had taken to educate their stakeholders and to reassure them that the change within the DoE was a positive move. With regard to resource constraints, he responded that the DoE had embarked on a process to prioritize the filling of management posts. Thus an Organizational Development Committee had been introduced to assist in prioritising the filling of posts.

Prof Mayathula proposed that all the questions be responded to in writing because there was no time.

The Chairperson agreed. He thanked the DoE for the presentations, and reiterated that the reports needed to be submitted to the DoE within a reasonable time. He reiterated that the DoE needed to strengthen the mechanisms it had in place to monitor the quality of imported fuel.
The meeting was adjourned.

Apologies: Mr S Radebe (ANC), Ms B Tinto (ANC), Ms B Ferguson (COPE), Ms. N. Magubane, Director-General, Department of Energy