Department of Energy on its 2nd Quarter Performance Report for 2013/14

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed the team from the DoE and welcomed the presentation of the DoE’s performance report on the 2^nd Quarter. Due to the budget review process, quarterly reports had a strong influence on parliamentary processes. The Committee’s research team therefore needed to assist with the monitoring of DoE’s quarterly performance. The Minister, Deputy Minister and the Director-General were unable to attend the meeting due to other commitments.

Presentation: Department of Energy (DoE), 2^nd Quarter Performance Report
Mr George Mnguni, Acting Director-General, DoE thanked the Chairperson for the invitation. He indicated that it was a busy time for the DoE, which explained why most of the senior staff had been unable to attend the meeting. The DoE’s 2^nd quarter report would mostly highlight the partially achieved and non-achieved targets.

He reminded Members that in April 2013, the DoE had presented its 2013/14 Annual Performance Plan to the Committee, based on the strategic sessions held in November 2012. The Plan had included the DoE’s plans and priorities going forward. Some of the DoE’s key focus areas for 2013/14 were:

• Implementation of the Integrated Resource Plan (IRP)
• Increase grid and non-grid connections
• Solar Water Heater programme
• Energy Efficiency
• Finalisation of the Integrated Energy Plan (IEP) 

Programme 1: Sub Programme - Corporate Services

Mr Mnguni said the DoE had partially achieved the target of finalising Phase 3 of the Human Resource (HR) Plan. Quarterly progress reports on the implementation of the plan had been submitted; however, there had been a delay in the implementation of the revised structure plan and with the matching and placing of staff. The DoE had also partially achieved its target of improving the turnaround time for finalising grievances and misconduct cases, from 45 days to 35 days.

Mr Mnguni explained that Ms Yvonne Chetty, the Chief Financial Officer was on study leave and was unable to attend the meeting.

Programme 1: Sub Programme – Financial Management Services
Mr Justin Daniel, Acting Chief Financial Officer, DoE, said the branch had achieved 100% of the targets in the both the 1^st and the 2^nd quarters. With regard to the DoE’s 2^nd quarter financial performance for 2013/14, he said the DoE’s main appropriation of R6.5 billion had been reduced by R94.9 million, to an adjusted total of R6.5 billion. Total expenditure planned for the 2^nd quarter had been estimated at R3.7 billion, but the actual amount spent was R2.8 billion (76.46%). The bulk of the budget variance was in Goods and Services (34.5%) and in Transfers and Payments (23.76%). The bulk of the DoE’s spending in the 2^nd quarter was in travel and subsistence, at R23.8 million, followed by operating leases at R9.1 million, consultants and professional services at R5.1 million, computer services at R3.2 million and communication at R3.2 million.

Programme 2: Energy Policy and Planning
Ms Tshilidzi Ramuedzisi, Chief Director: Energy Planning, DoE, said Mr Ompi Aphane, the Deputy Director-General for the Programme, was unable to attend the meeting. Various sections of the presentation would therefore be handled by some of the management within the unit. The team would therefore also be addressing non-achieved and partially achieved targets.

Mr Jabulani Ndlovu, Chief Director: Petroleum Policy, said he would be dealing with questions on the liquid fuel infrastructure roadmap. He said the report had two components: refineries and infrastructure. The projected costs for 2013/14 were also outlined in the report, indicating that the target for the infrastructure roadmap had not been achieved and was therefore not accurate. The audit report for refineries had been completed. However, the 20-year liquid fuel roadmap did not meet the DoE’s requirements and had had to be sent back for review. The report on refineries had, however, been extensively dealt with and it would be made public.

On the Gas Act, the DoE had been engaged in various public consultations throughout the provinces, where various inputs had been gathered. The consultation processes had been concluded and all inputs were being consolidated. The final report would first be tabled internally and then made public. The amendment of the Petroleum Products Act had been moved to the following financial year. Inputs had been gathered internally and the state law advisor had been consulted. The DoE’s initial approach however was to scrap the entire legislation and start afresh.  However, the provisions could not be removed.

Mr Mthokozisi Mpofu, Deputy Director: Electricity Pricing, said he would be responding to questions pertaining to the transmission development plan, the distribution infrastructure plan, legislation and the development of indicators for electricity supply. He explained that within the electricity sector, there were various indicators for measuring electricity supply and security. The work on the transmission development plan and the distribution infrastructure plan was taking place parallel to work on the Integrated Resource Plan (IEP) 2010. Some challenges had been faced in connection with the renewable Independent Power Producer (IPP) programme. Upon finalisation of the IPP, a report would follow shortly. On the National Electricity Regulation Act, the draft Bills were with the state law advisor. The DoE had re-submitted the Bills to Cabinet. The Renewable Energy IPP Programme had been concluded, and successful bidders would be announced when DoE’s principal managers had seen the report.

Programme 3: Petroleum and Petroleum Products Regulations
Mr Tseliso Maqubela, Deputy Director-General: Petroleum Regulation, explained that one contributing factor to some of the programme’s targets not being met, was that the Chief Executive Officer of BP Southern Africa, Mr Gerard Derbesy, had passed away recently. BP had committed R 100 million towards skills development within the DoE until the year 2018; this initiative had been championed by the CEO of BP at the time. The sector had therefore lost a capable leader who was committed to development within South Africa’s energy sector, regardless of the fact that he was a French national.

Out of the target of testing 750 fuel samples, the DoE had been able to test 250 samples. Implementing the Basic Fuel Price (BFP) was not achieved. The BFP working rules were not amended and the revised pricing elements were not implemented. The DoE had met with the South African Petroleum Industry Association (SAPIA) technical team, to discuss their recommendations about a way forward. However, in the 2^nd quarter, the DoE did not meet its target to train inspectors and identify service stations to be surveyed. Only two companies had submitted their bid documents and the Bid Evaluation Committee could not recommend either of them further, because they had not qualified technically.

Programme 4: Nuclear Energy
Mr Zizamele Mbambo, Deputy Director-General: Nuclear, said that the DoE had partially met the target of setting up National Radioactive Waste Disposal Institute (NRWDI) offices.  However, office space had been secured. The Radiation Portal Monitor (RPM) had not been installed. The project was delayed because of equipment which had to be imported. The DoE was currently engaging relevant stakeholders to speed up the process. In addition, no nuclear internal audits had been initiated. The public consultation process had also not been completed.  Workshops had been held with the relevant stakeholders and the submission to Cabinet would be deferred to the next financial year. The target to submit amendments to the Nuclear Energy Act to Cabinet had not been achieved, as one stakeholder’s comment was still outstanding. Out of the four community outreach events planned, the DoE was able to complete only two events.

Programme 5: Clean Energy
Mr Xolile Mabusela, Director: Energy Efficiency and Environment, responded on the partially achieved target for solar water heaters. The contracting model had been revised. The programme had initially been a rebate programme; both high pressure and low pressure solar water heaters were under a low reduction model. Around 51 companies had been evaluated under the new contracting model.  About 30 000 systems had been installed in the 2^nd quarter, against the 130 000 target for annual installations. The DoE’s focus was on local production.

On the DoE’s target to develop energy consumption baselines for ten municipalities, he said a municipal efficiency and demand side management programme had been developed. The DoE was currently working with 30 municipalities, but a pilot of ten municipalities to assess municipal consumption had been completed.  The baseline determination development approach had been developed and municipalities had been introduced to it at a workshop held in August 2013. All municipalities were currently submitting business plans based on this approach.

Ms Nomawethu Qase, Director: Renewable Energy Initiatives, said the feasibility study for the development of the Northern Cape solar park had not been completed. However, the study had been approved by the Minister. Consultants had been approved for the International Atomic Energy Agency (IAEA) and main feasibility study; both studies had commenced.  The delay with the solar park project was mostly due to the fact that the original Prieska site had limited capacity and could only accommodate 100MW. An alternative site in Kielder had been made available by the municipality. This would therefore result in a delay of about six months from the delivery period. The DoE was still awaiting consent from the Department of Land Affairs for the use of the alternative site for the project.

Mr Mnguni said that the next half of the briefing would deal with presentations from DoE’s support services. Mr T Zungu, the Chief Operating Officer was unable to attend the meeting.

Mr Lucas Mulaudzi, Chief Director: Strategic Risk Management, DoE said that after the completion of the first two quarters, DoE had realised that all performance indicators within its Annual Performance Plan needed to be reviewed. The DoE was in the process of revising them so that a new Operational Plan could be drafted. All relevant department heads would be consulted and a report would be shared with the Committee.

Programme 6: Programmes and Projects
Dr Wolsey Barnard, Deputy Director-General: Energy Programmes and Projects, reminded Members that even though the DoE was in its 2^nd Quarter, municipalities had just entered the 1^st quarter.  Of the quarterly target of electrifying 65 000 households, the DoE had been able to electrify only 58 892 households. The DoE had also been unable to meet its quarterly target of 4 000 non-grid connections -- only 2 074 new non-grid connections had been made. The constraint was that contracts by service providers had been signed late. The building and upgrading of substations had been partially achieved. Of the 60 000 quarterly target for Solar Water Heaters (SWH), the DoE had been able to install only 7 787 for the period July and August 2013. Some challenges were that the contract with Eskom with regard to the contracting phase had not yet been completed. As an interim measure, a local manufacturing rebate phase would be implemented.

Additional Point: DoE
Programme 6: Programmes and Projects
Dr Barnard explained that the reason why there had been a roll-over of R28 million under non-grid electrification, was that non-grid was a negotiation process, between either municipalities or Eskom. Neither had been interested in the non-grid programme until recently, since it was seen as a pilot project. The negotiations between the communities, municipalities, Eskom and the private implementers were a very complex and time-consuming process.  Since one-year contacts had been issued to the concessionaires for the last two years, the areas identified for implementing non-grid were secured only 4-6 months into the financial year, which left the DoE with a very short period to do the physical implementation. The procurement process in the re-appointment of non-grid services was also a very long one. There were also shortages of critical INEP staff working on the non-grid programme.  In addition, the New Household Electrification strategy had not been approved at the time the non-grid contacts had expired, hence no clear strategy existed regarding the non-grid programme.  As a result, during the last two years the DOE had had to go through a procurement process to procure the non-grid service providers. This process had also added to the time delay before the non-grid projects could be rolled-out, since the Board Audit Committee (BAC) needed more information in terms of the contract extension, as well as legal advice on the long history the Department had with the non-grid service providers concerned.

With regard to electrification and energy programme management, a total of 92 085 connections had already been completed, which was 21 000 more than the DoE had achieved in the 2012/13 2^nd quarter.  The branch had been established in July 2012. The approved structure at that stage had not been fully funded and therefore it did not have enough staff to perform all the functions necessary to complete the responsibilities of the branch.  However, with the new financial year a “matching and placing’ process had been implemented, and this situation was in the process of improving.  A list of all the approved DoE projects for 2013/14 was given (see document)

Discussion
The Chairperson thanked the DoE team for the presentation. A concern had been raised around the repeated non-performance in the DoE’s performance for the 2^nd quarter. What was internal audit doing to address this situation?  He commended the DoE on its improvements on Black Economic Empowerment and its spending on Small Micro Medium Enterprises (SMMEs).

Mr J Smalle (DA) referred Members to the Vote 29 document, which reflected the value of expenditure for BEE as zero. No targets had been achieved. Because of time constraints, he suggested that Members should submit other questions in writing to the DoE. A lot of mention had been made on the slow roll-out of contracts, and there were a lot of delays in the implementation of various programmes due to contractual issues. He asked whether planning within the DoE was not completed in the previous financial quarter, in order to prevent such administrative delays. Upon the approval of the budget, the only concerns of the DoE should be about supply chain procurement.
On the low content in window periods 1 and 2, and the threshold targets set, he asked what the actual targets were.  What were the actual rollouts?  On the Basic Fuel Price (BFP), was the DoE looking at double taxation on certain BFP components?  He congratulated DoE for securing the R100 million given by BP for skills development. What were the plans for the DoE to move away from heavy reliance on consultants and professional services?  Under whose management would the transmission pipeline fall -- would it be under Transnet or the DoE?  How would the R95 million reduction in the budget affect the overall performance of the DoE?  What plans did the DoE have in place to reduce travel and subsistence spending?

Mr L Greyling (ID) asked about the INEP programme -- how would the infrastructure backlogs be addressed at municipal level?   In most cases, Eskom had not delivered on the targets for building new sub stations. How would the DoE address such issues?  What plans did the DoE have for conducting an externality study?  The ADAM programme was too small to address the issue of distribution and infrastructure backlog.   The price path needed to be published at the same time as the Integrated Resource Plan (IRP). The public needed to know about the kind of implications the IRP would have on relevant issues, such as pricing.  What process would be followed in the updating of the IRP, and what were the timelines?  He asked that a proper briefing be made to the Committee on the IRP process.   Had the SWH programme been looked at at a municipal level -- was this something that the DoE would be looking at?  Had municipalities been consulted?  On the Nuclear Energy Act and the Waste Act, which stakeholders had been consulted -- had there been broad public consultations or were they simply aimed at specific stakeholders?  On the paraffin price, he said the matter had not been dealt with from a household energy strategy point of view. A price reduction in paraffin came with a lot of other costs. The value chain of paraffin needed to be cleaned up, and safe use needed to be priority.

Ms N Mathibela (ANC) asked whether the DoE would meet its target for the SWH roll-out. Had local manufacturers for solar water geysers been secured? She congratulated DoE for their work and investment in skills development within the Department.

The Chairperson said his questions would be submitted in writing. However, the DoE needed to rely less on consultants and professional services. He asked why there was no funding for data collection within the DoE. Energy planning was an important component within the DoE.  He applauded the Department for rejecting applicants with inadequate information for licence applications. The price of petrol was a very emotional issue and public hearings were a huge priority. He asked whether the DoE had an overall strategy for the management of energy statistics.  There was a need for statistics and data management within the DoE.

Mr Mnguni thanked Members for the engagement, and asked whether the DoE should prepare a briefing document in response to the questions posed by Members.

The Chairperson said most of the responses could be forwarded to the Committee in writing.   A few could be addressed in the remaining minutes.

Dr Barnard replied to the question on planning, and said the DoE has started with a process of assisting municipalities.   However, a challenge was the disparity in the municipal and DoE financial years. The 1^st quarter was a difficult one for the DoE. On the threshold projects, he said the information on the window 1 and 2 document would be forwarded to the Committee. On INEP, and non-grid, he said the electrification household strategy was built on three pillars; the plan needed to be implemented according to a master plan. Allocations were done according to agreements between municipalities and Eskom. On the paraffin price, he said the consumption of paraffin had decreased dramatically because of access to electricity and the use of gas. This was the reason why the DoE had decreased the price of paraffin.

Ms Ramuedzisi agreed that some of the questions would be addressed in the follow up presentation to the Committee. On the externalities, she said the matter had come up a number of times and the DoE would incorporate it into their objectives and plans for the next financial year. On the electricity price path, she said the DoE would provide further details on IRP timeframes. On funding of energy data collection, the DoE had a challenge of funding for compensation of employees. The DoE did not have a consolidated strategy, but a service provider to develop a centralised energy database would be brought in for the management of energy data. Data collection for other DoE entities would also be integrated. A data management framework for the energy sector was under way.

Mr Mpofu said that the Department of Environmental Affairs had done some work on externalities. However, because the DoE did not have expertise on externalities, the DoE would be coordinating with the Department of Health and the Department of Environmental Affairs, and the results would be coordinated into the Integrated Energy Plan.

The Chairperson thanked the DoE for the presentation. He asked that on the next visit, the DoE should provide an update on the CEO forum.

The meeting was adjourned.