Department of Energy 2012/13 Annual Report briefing

Meeting report

Presentation: Department of Energy (DoE) Annual Report 2012/13
Mr George Mnguni, Deputy Director-General: Corporate Services, Department of Energy, thanked the Committee for the invitation and explained that Ms Nelisiwe Magubane, Director-General, had been delayed at the airport. She would join the meeting at a later stage.

Mr Mnguni introduced the team from the Department of Energy (DoE or the Department). He noted that in this year, the global energy agenda had been dominated by: energy security, energy access, and the deployment of sustainable (renewable) energy. The DoE’s focus within the global energy agenda had been on energy security through the diversification of energy mix, access to diversified energy markets, deployment of sustainable energy through the renewable energy programme and energy access through engagements in the local (African continent) and international platforms. He added that the global petroleum environment had been characterised by the fluctuation in the crude oil prices. The discontinuation of the supply of crude oil from Iran meant that South African oil companies had to find alternative sources of supply.

The DoE’s focus within the global energy agenda has continued to be on energy security through:

•diversification of the energy mix – continued implementation of the IRP2010;
•access to diversified energy markets
•deployment of sustainable energy – through the renewable energy programme
•engagements in local (continent) and international platforms –  with a focus on areas of capacity, skills development and funding

He explained that through the DoE’s planning process, the DoE identified the Strategic Outcome Oriented Goals that spoke to the National Development Plan (NDP) and various government outcomes. The DoE also participated in the following Strategic Integrated Projects (SIPs) programme SIP 6 and 8 (where it was the lead Ministry), SIP 10 (where it had co-chaired) and also participated in SIP 2-5, 7, 9, 14, 17 and 18. Other programmes that the Department engaged in included:

-Integrated National Energy Programme (INEP)
-Renewable Energy Independent Power Producer (IPP) Programme
-Solar Water Heater (SWH) Programme
-Nuclear Review Programme

Mr Justin Daniel, Acting Chief Financial Officer, DoE, spoke to the DoE’s financial performance, and said from the 2012/13 total budget allocation of R6.73 billion, the DoE had spent 98.9%. 93.6% was allocated to transfers, which were to the institutes, and in the amounts as follows:

•INEP – R3.1 billion
•Transnet’s New Multi-Product Pipeline final instalment –R1.5 billion
 •NECSA – R568 million
•Energy Efficiency Demand Side Management (SWH) – R1 billion

The balance of transfers went to State Owned Entities and other smaller programmes. R429 million (6.4%) of the total budget was allocated for the DoE’s operational needs.

Mr Lucas Mulaudzi, Chief Director: Strategic Risk Management, DoE, outlined how the DoE’s financial and non-financial performance were linked. He noted that Programme 1: Administration had 95 targets, of which 82 were achieved. In the programme for Energy Policy and Planning the DoE had 68 planned targets, and 26 were achieved, 32 were partially achieved and 10 were not achieved. Energy Regulation had 16 planned targets, and 6 were achieved. In relation to the National Electrification Programme, the DoE had 9 planned targets, of which 2 were achieved, and 6 were not achieved. In relation to Nuclear Energy and Regulation, the DoE had 10 planned targets and 2 were achieved, 7 were partially achieved and 1 was not achieved.

Dr Wolsey Barnard, Deputy Director-General: Energy Programmes and Projects, DoE, said the deteriorating state of the electricity distribution infrastructure continued to be of great concern to the DoE. This affected the pace of INEP. During the 2012/13 financial year, the DoE was allocated R320 million to address the distribution infrastructure backlog. Two metros and seven municipalities had been identified as part of the first pilot. On Electrification (INEP), he explained that the DoE exceeded the 180 000 annual target for electricity connection and achieved 202 835. Of this, 9 343 were non-grid connections. A total of 275 km of new electrical lines were installed and another 85km upgraded.

Mr Ompi Aphane, Deputy Director-General: Energy Policy and Planning, DoE, said the DoE continued with the implementation of the Integrated Resource Plan (IRP) for electricity. The draft Integrated Energy Planning (IEP) Report was completed. Recommendations on the final Independent System and Market Operator (ISMO) Bill were submitted to the National Assembly.  The NEDLAC consultation process for the Electricity Regulation Act and National Energy Regulator Acts were completed. In respect of the Clean Energy programme,  the DoE reached financial closure in respect of 28 bidders contracted to supply 1415 MW under the Renewable Energy: Independent Power Producer (REIPPP) programme and construction commenced. By the end of the year, 353 188 solar water heaters were installed. The DoE also participated in the Conference of Parties 18 United Nations Framework on Climate Change negotiations. The Energy Efficiency and Demand Side Management tool was also developed and implemented.

Mr Tseliso Maqubela, Deputy Director-General, Petroleum Pricing and Regulation, DoE, said the discontinuation of the supply of crude oil from Iran meant that South African oil companies had to find alternative sources of supply. As a result, South Africa’s imports of crude oil from the African continent reached 41%, which signified the Continent’s growing role in the supply of crude oil. No fuel shortages were experienced. Biofuels Mandatory Blending Regulations were promulgated and the draft Biofuels pricing framework was developed.

He explained that the growing interest in nuclear power use created the need for the DoE to intensify public awareness initiatives to present a balanced view in order to demystify nuclear energy and ensure public acceptance. A number of public engagements were hosted by the DoE to address nuclear issues. The work of the Nuclear Energy Executive Coordinating Committee (NNEECC), together with the DoE, continued in preparation for the nuclear build programme. The draft International Atomic Energy Agency  external review of nuclear infrastructure report was completed. An African Nuclear Conference took place on 18 March 2013.

Dr Barnard explained that the DoE successfully established two Integrated Energy Centres (IeCs) in Mbizana (Eastern Cape) and in Ulundi (KwaZulu Natal). Various energy awareness campaigns were held. The Mangaung Learners Focus Week informed 250 learners on career opportunities in energy. An Eastern Cape Road-show informed 100 women on business opportunities in energy. The “Take-a-girl-child-to-work” initiative informed young girls on the DoE and the importance of taking “STEM” subjects of science, technology, engineering and maths.

Audit report
Mr Daniel said for the third year running, the DoE received an unqualified audit. The Auditor-General raised some concerns on the performance information. and plans to improve the DoE’s performance were under way. The DoE’s action plans to address the Auditor-General’s  findings had been completed. Most of the audit findings were addressed by July 2013.

Ms Nelisiwe Magubane, Director-General, DoE,  apologised for arriving late to the meeting. She concluded the presentation and said the DoE appreciated all interaction with the Committee. She highlighted that at the inception of the DoE, this Department only had three Deputy Director-Generals and had a budget allocation of R320 million. One of the biggest issues which the DoE had to address was the shortage of energy; and this meant the DoE not only had to implement, but also plan strategy. The DoE’s renewable energy programme had earned a number of awards and this had put the DoE among major international players. Over R150 billion in investment had been received by the DoE over the years. On the IPP programme, the DoE had recently announced the Window 4 programme. The first renewable energy IPP programme was officially connected to the grid, and it was completed three months ahead of schedule. In 1994, 36% of the population had access to electricity, and by 2012, despite the population increase; around 85% of the population had access to electricity.

Discussion
The Chairperson thanked the Director-General, together with the team from the DoE, for the presentation. He said that indeed the DoE was a department to be proud of, despite the fact that it was still a relatively new department. He commended the DoE for the tremendous work it had been doing since the split from the Department of Minerals and Energy, to become a free-standing  Department of Energy.

Mr D Gamede (ANC; KwaZulu Natal) also thanked the DoE for the presentation. He referred to the fact that one windmill supplied a community of over 2 000 with electricity at a cost of R1.5 million, and made the point that it was a challenge to reconcile the figures. He informed the DoE that the INEP programme was doing very well in KwaZulu Natal.

Mr Gamede asked whether the DoE’s deliverables were talking to the priorities of the department. He wanted to know what plans did the DoE have in place to improve audit outcomes, and asked when the DoE was likely to receive a clean audit.

Mr A Nyambi (ANC; Mpumalanga) thanked the DoE for the presentation and for making it possible for the DoE to embark on study tours for the Committee’s oversight work. He thanked the DoE for the team work which its employees showed, especially throughout the presentation. The Committee was looking forward to the DoE’s clean audit report, and he asked for more detail on exactly how the DoE was intending to address the matters of emphasis raised by the Auditor-General. He asked that the DoE explain some of the reasons why 42% of the targets were not met.

Mr Gamede asked what outcomes there had been from the DoE’s investigations conducted on employees doing external remunerative work without approval. He wanted to know also how the DoE was planning to address the vacancy rate. He asked what happened to the interns from the DoE’s in-service electrical engineering training and wondered if municipalities were employing them. He asked if the DoE was satisfied with its current programmes. Finally, he commended the DoE for the teamwork it portrayed.

Ms B Abrahams (DA; Gauteng) asked what the meaning was of the term “partially achieved” targets? She wanted more detail on which were the two metros and seven municipalities identified for the Approach to Distribution Asset Management (ADAM) programme.  She asked where the 235 km of electricity power lines were  installed.

Ms Abrahams also asked what role did the DoE play in the Petroleum Resource Development Bill, and how far this process had gone. She asked what were the DoE’s plans in addressing the vacancy rate by bringing in more disabled people.

Mr B Mnguni (ANC; Free State) said the DoE had some targets which were not met and asked what were some of the major challenges faced in the 2012/13 financial year?

Mr K Sinclair (COPE; Northern Cape) said it was an eye opening experience and privilege for the Committee to undertake a study tour to Spain. South Africa was highlighted as one of the top destinations for investment in alternative energy. With regard to the Report which was currently on the table; a concern was raised around the nuclear build programme. Government was not moving fast enough in the commissioning of the next nuclear plant. He asked therefore what progress the DoE had made in the rollout of nuclear programmes.

Mr Sinclair also asked that more clarity be given to the Committee on the DoE’s alternative energy programmes and their progress. He said solar parks should not be looked at in isolation and pointed out that they seemed to be quite instrumental in Special Economic Zones. These SEZs should have a broader focus than energy. The bidding process had clear plans for job creation and localisation; he argued that most bidders were from outside South Africa, and therefore, after the bidding process, very little localisation was prioritised. The DoE therefore needed to look into this. He said there was very little social impact in all the investment which was taking place in the Northern Cape.

Mr Sinclair asked what was the DoE’s intention with the Inga Project and what could the Committee expect from it. He wanted more explanation on the 10 year lease with the Department of Public Works. Finally, he wanted to know how the DoE was dealing with the funds transferred to municipalities that were not spent, and how this was being monitored.

Ms Magubane said Dr Barnard would respond to the specific question on the windmill and provide the Committee with the DoE’s strategy for looking at other cheaper ways for supplying power. She pointed out that there were some households that could not be reached through the grid. She said the priorities of the DoE were centred around job creation, safety, health and education. The DoE was also contributing enormously towards rural development, especially in the Northern Cape and the Eastern Cape, which, in this year, had been the provinces with high DoE activity. To date, the DoE had created about 25 000 jobs in rural areas and these jobs would also be sustained through various projects. The DoE was working together with the Department of Cooperative Governance and Traditional Affairs in this regard. Schools were also a high priority for the electrification programme. She noted that the energy sector was very key to the country’s economy and the only limitations were around finance and skills.

The DoE was also looking to partner up with the various education institutions so that young people were drawn to the energy sector at early stages of schooling. Women were also another priority for the DoE and there was still quite a lot of work to be done in their empowerment. She said the challenge with the National Institute had been the change in Ministry; the new Minister was still getting to grips with the DoE, and as a result, there had been delays. In relation to the targets not met, she said the Auditor General classified 42% of the DoE’s targets as not being met, and the main reason was that the DoE’s targets did not fulfil the “SMART” requirements of National Treasury, with the result that the DoE was now busy cleaning up its Annual Performance Plan.

Ms Magubane agreed that there needed to be an energy supply debate. The view of the DoE was that there was a challenge of suppressed demand.

Ms Magubane said it was unfortunate if the perception was created that there had been little work on the nuclear build programme; in fact, there had been a lot of work. Nuclear procurement was going to be the biggest procurement which the country had ever done. It was estimated that the programmes were worth R500 billion over 20 years. Funding was therefore a huge priority.

Dr Barnard replied to the question on the windmill and the high cost, and said a lot of research had been done around providing electricity at the cheapest rate possible.

Dr Barnard also spoke to the questions on staffing and said interns were not absorbed by the industry immediately; most were placed at municipalities. He said the two metros under the ADAM programme were Nelson Mandela Bay and Mangaung; the rest included Mthatha and Kroonstad. The DoE did not have the full information on the 352 km of power lines with it at the moment but this information would be forwarded to the Committee. He said bidders were mandated to use local skills such as engineers in their projects, and by so doing the local content needs were indeed met.

Mr Mulaudzi said the DoE was working to get a clean audit. The DoE realised that the planning around targets was not good and there was a mixture between operational targets and the rest. The DoE was therefore busy cleaning up the Annual Performance Plan, as the Director-General had already indicated. Operational targets were supposed to be part of the operational plan. Targets that did not have financial implications would be moved to the operational plan. The DoE had also developed a broader implementation plan. He explained that “partially achieved” targets were those targets which were not met fully in line with the plans.

Mr Daniel added that according to classifications, any target which was between 75% to 99% achieved was “partially achieved”.

Mr Mnguni replied to the question on remunerative work and what the outcomes of investigations were. Those employees who were found to have been taking place in remunerative work outside of DoE had been brought to book; some were given final warnings. The framework for remunerative work did not prohibit employees from doing remunerative work outside of government, but there was a procedure – namely that permission needed to be first granted as stated in the Public Service Act, Section 30. The applicant also needed to make certain declarations to the relevant department before taking up other remunerative work outside his/her department. The remunerative work should not be in conflict with the departmental work. However, any insider trading was considered as serious corruption. Also the work should not hamper the work of the government employees in any way. On a quarterly basis, the DoE received reports from the Auditor-General about which employees were found to be taking part in remunerative work outside the DoE. In the event that there was non-compliance with the set criteria and procure, these employees were brought to book. He added that the DoE had developed specific programmes to deal with the employment of disabled people within the DoE; the DoE was now employing 1.2% of disabled employees.

Mr Daniel said the issue of having a clean audit had come up many times. Reaching a clean audit in the next financial year was one of the main priorities of the DoE.

On the overstatement, he said in the previous year, the DoE had a commitment to pay R425 million. The figure for the Department of Public Works was therefore overstated.

The Chairperson asked how the Minerals and Petroleum Resources Development Act affected the energy sector.

Mr Aphane replied that investment in new coal mining had declined. The DoE was currently in the process of developing an integrated Energy Plan and the Resource Plan. On the Inga project, all conditions were being met by Congo, in the context of improving the country’s energy security, and from a pricing perspective, the project was very desirable.

Mr Sinclair said it did not make sense that the DoE had to pay FIFA R280 million for generators five years after the World Cup.

Ms Magubane said that whilst the construction of the stadiums was one matter, over and above that, FIFA had wanted separate generators for electronic and audio equipment. Because South Africa had agreed to host, government had to agree. This amount was a reconciliation amount for accounting purposes. The National Treasury had to give DoE some money to level all disputes.

The Chairperson thanked the DoE for the presentation and wished everyone a joyous and safe festive season.

The meeting was adjourned.