Colloquium on beneficiation: Sasol and Mainstream Renewable Power briefings; Trade and Industry Budgetary Review and Recommendation Report

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Trade and Industry

24 October 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The meeting began with a presentation from Sasol covering its stance on beneficiation and the pricing dynamics of its polymer business. In sum, Sasol supports the concept of beneficiation as part of its main business of converting coal or gas into semi-finished products. Further, it contributes heavily to socio-economic development through efforts such as its bursary plan.

Replying to specific questions from the Chairperson on its polymer business, Sasol described the factors influencing polymer pricing and its potential effect on the competitiveness of South African industries in the polymer converting market. The basic point of this part of the presentation was that following South Africa becoming a signatory to the World Trade Organisation, it had had to remove tariff barriers on the polymer industry, and this had led to the South African industry being linked to the lowest regional price for polymers in the world. The polymer business had been generating a loss for several years, and therefore there was no room to drop the prices of polymers further.

Sasol was asked to justify its focus on the polymer market, rather than on the potential to convert coal into fuel. The response was that this was due to the large investment that had been made by the entity into the polymer production market. Sasol said it produced 25% of all the fuel used in South Africa, and was asked why the fuel price it charged at the pumps was linked to the imported price when the feedstock -- coal -- had a fairly stable price. This was answered by pointing to the need to reward the capital it takes to invest in this avenue of propylene production.

The Committee then moved on to the introduction of the Budgetary Recommendation and Review Report. Here it was explained that the report captured the fact that the Department of Small Business Development had been established, but its budget for the present financial year continued to fall under budget vote 36 of the Department of Trade and Industry. The conclusions to the report, which were subject to debate, included concern over the real decrease in the budget of Trade and Investment South Africa (TISA). This had been captured as a welcome increase in the budget allocation of the entity, because the previous year’s budget had been augmented by a transfer of savings from other Department of Trade and Industry programmes. Another issue was the leadership vacuum, given the suspension of the National Gambling Board and the consequent forensic investigation, which all the Members agreed was an appropriate measure.

The Committee initially had three recommendations -- that the House request that the Minister of Trade and Industry should consider:

·         Increasing resources with the requisite skills to promote South Africa as an investment destination and the provision of increased resources for proudly South Africa to encourage South Africans to buy locally manufacture products;

·         Increasing the financial resources to the National Credit Regulator, over the MTEF period, given its additional functions and the critical role it plays in our socio-economic environment; and

·         Consulting the Minister of Finance to verify and enforce the public procurement of designated products, so that the 75% public procurement decision was implemented to underpin the Industrial Policy Action Plan.

A Member proposed that the Committee should also recommend that the functions given to the Department of Small Business Development should be followed by the requisite funds, and other support mechanisms. The Chairperson said that this would be captured as a conclusion.

Mainstream Renewable Power then presented a proposal to the Committee for long term procurement of alternatively generated power. MRP wind projects produced power 25% more cheaply than new coal plants like Mudipe and Kusile, with solar projects 5% cheaper. The direct benefits for South Africa were the jobs created by the current projects and increased electrical capacity on the grid, where there were minimal reserve margins. There would also be the creation of direct and indirect employment through the creation of local manufacturing supply chains. However, what was crucial for South Africa to reap the full benefit was a major sustained project in the pipeline, with a 2GW per annum capacity yielding 360 000 jobs in the industry. In the medium term, opportunities further into Africa would also be a potential benefit. This would be further facilitated by the relatively simple technology which was required for renewable power and the ability to re-route existing industry into manufacturing for the industry. A major obstacle to investment in the industry was the uncertainty after the end of the Renewable Energy Independent Power Producer Procurement Programme’s (REIPPPP) fifth round, which the Department of Energy was conducting. MRP therefore recommended “consistency in policy”, with stability being provided through a long-term fixed term procurement contract.

Discussion focused on the benefits which stimulation of this area could have for South Africa, particularly with regard to the potential for job creation and manufacturing enterprise expansion. Questions were asked about South Africa’s capability to manufacture wind farm towers and turbines, whether local skills were available, and the potential for skills transfer. 

Meeting report

The Chairperson said that the Committee would have to be mindful of the agenda, because the Budgetary Recommendation and Review Report (BRRR or the Report) was an important aspect of oversight. The meeting was to begin with the presentation by Sasol, as more Members were expected. When the Committee dealt with the BRRR, it would consider only the introduction and conclusion, so that it could be passed. She asked if any Member had a serious objection to the conclusions they had seen. If not, she proposed they moved on to the Agenda.

Mr Andre Hermans, Committee Secretary, said that official apologies had been received from Prof C Msimang (IFP), Adv A Alberts (FF+), Mr D Macpherson (DA), Mr F Shivambu (EFF), and Ms P Mantashe (ANC). All were related to party and political business.

The Chairperson said that she understood Mr Shivambu having a parliamentary apology, as he was representing Parliament in the Pan-African Parliament. She then signed a letter to Adv Alberts, enquiring whether the minority parties which he represents were aware that he had  not attended the Committee in two months. She then proposed adoption of the agenda, based on the prioritisation of the BRRR.

Dr Z Luyenge (ANC) proposed adoption, and Mr N Koornhof (ANC) seconded.

Follow up briefing to the Portfolio Committee on trade and beneficiation

The Chairperson said that Sasol had been invited back as the Committee had felt that it had not been completely frank about the issues. More importantly, Sasol was a strategic industry and had become a significant player on the international scene. However, Sasol had replied in its letter and she asked the representatives to address the issues briefly.

Mr Johan Thyse, Vice President: Group Regulatory and Stakeholder Affairs, Sasol, said that a written submission had been forwarded to the Chairperson addressing the concerns raised, and the presentation would expand on this. There were three things which the presentation dealt with: Sasol’s understanding of beneficiation, the polymer business briefing, and conclusions. He said he would briefly deal with the first aspect, leaving time to the polymer business briefing, which was where most of the Committee’s concerns lay.

Sasol’s understanding of beneficiation

The Mineral Beneficiation Strategy was central to South Africa’s policy instruments on development, particularly the Mineral Beneficiation Strategy and National Development Plan. The Mineral Beneficiation Strategy identified South Africa’s comparative advantage in particular minerals and set out a strategy to benefit from this advantage. There were challenges that were blatant, such as skills and infrastructure constraints. Common to all policy instruments was the idea of adding value to the minerals.

He moved on to the Industrial Policy Action Plan 6 highlighting that the labour absorbing manufacturing which Sasol was engaged in had created direct employment for more than 29 000 people. Further, Sasol was excited about shale gas prospects and looked to share Sasol’s international technical experience in shale gas for local benefit.

Facilitating the competitive advantage meant going back to basics, such as access to affordable water and electricity, cost competitive infrastructure, availability of skills, labour stability and an sound regulatory framework. Looking at the World Economic Forum comparative competitiveness scores, specifically innovation, infrastructure and labour market efficiency, the overall the scores were not bad, but these specifics were problem areas. Under the innovation score, where the criterion was the availability of a country’s scientists and engineers, South Africa was placed 108th out of 148 countries. Similarly, under labour market efficiency, looking at relations between employees and employers, South Africa was 148th out of 148.

Sasol’s contributed R1.4 billion to socio-economic development in the 2014 financial year. Of this R901 million was spent on Sasol’s employees and R47 million on a bursary scheme, focusing specifically on science, technology and engineering disciplines. Currently there were 577 undergraduate and postgraduate bursars.

Polymer Business Briefing

Mr Norbert Behrens, Senior Vice President: Strategic Projects, Sasol, said that the information he was to present cut across the questions put to Sasol. It would address aspects of the market which were fundamental to understanding the polymer business and particularly pricing in South Africa. He noted that Members should be aware that polypropylene pricing was a matter which was subject to appeal and not much information could be shared about this aspect.

Innovative technology and an integrated value chain

He began speaking to a diagram on the various manufacturing activities of Sasol, saying that from two feed stocks, Sasol produces liquid fuels, chemicals and intermediates. The value added from coal was obviously a significant beneficiation step. To continue this would require a lot of investment and commitment, which Sasol had done. The 2050 project sees the running of the Secunda facility beyond 2050, which would require a large capital investment in itself, but speaks specifically to the beneficiation in producing the various chemicals.

On a specific question from the Committee, he said that as Sasol produces approximately 100 products from only two feed stocks, it was difficult to pinpoint the profitability of any one specific product. In some cases, such as polypropylene, where propylene can be used for multiple products, the profitability of different applications can be compared. This was how refineries generally operate, looking at global margins, rather than whether diesel or petrol was more profitable from a barrel of oil. The complex at Secunda was no different.

Specific characteristics of the polymer market

Mr Behrens said that polymers were versatile products that were used in many industries, making the pricing dynamics complex. The dynamics in each particular sector which uses polymers drives demand for polymer in its own way. Growth in demand was driven by the consumption of different end products. However, the polymers produced make up varying portions of these end products, reaching as low as less than one per cent of the retail price, as in the case of a water bottle with an opaque plastic cap, which was made of polypropylene which was produced by Sasol. Therefore, the price of polypropylene had very little effect on the demand for the end some products. Even where products were near 100% polypropylene, Sasol had determined that its component of that price was less than 20%. This was not to say that polymer prices were insignificant, but it must be understood as a proportionate impact upstream. With an inelastic demand, the effect of dropping polymer prices by 5% would be minimal in upstream applications. What was known was that the converters of polypropylene were able to compete against importers of end products, because of the prices at which it was available.

While it was true that polymers were a “post-World War 2 product,” improvements in polymers’ physical properties since the 1980s had led to less material being used in applications, in some instances by up to 50%. Therefore, growth in the polymer market would have to make up this reduction in use before being visible.

Mr Behrens said that the industry was growing, despite factors such as the push to decrease the use of polymers for environmental purposes. Lastly, polymers could be transported at a low cost, with the it costing $40 to $50 to transport a ton from the refinery to Durban, and $15 from Durban to Hong Kong -- this for a product which retails between $1 500 and $2 000 per ton.

On South Africa’s polymer market pricing history, he said that prior to 1996, prices were regulated by the government, including regulation of permission to import polymers. Post 1996, South Africa became a signatory to the World Trade Organisation (WTO) Uruguay Round and tariffs were harmonised, dropping them to 10% and giving free access to South African markets. This was compared to the 30%-40% effective tariff he recalled from his time of working in polymers. The result was that part of the polymer industry had to be restructured, leading to a joint venture between Sasol and AECI. This was because certain coal assets were not competitive and fuel value ethylene was preferred to some coal based technology. This connected the South African price to the international price, specifically the Hong Kong polymer price, which was the lowest regional price in the world. Therefore, South Africa had a connection to the most competitive price in the polymer market.

Mr Behrens said that several industries had to restructure when South Africa became a signatory to the WTO, and the polymer industry was no different, requiring significant investment to survive. Polymers can be used to make either fuels, such as petrol and diesel, or polypropylene. The decision between these two products would determine the profitability of the investment. It had been asked how was it that the polypropylene business makes a loss, but the sim-fuels business makes a profit. The reason for this was that the sim-fuels make the fuel stocks, but also make the chemical feed stocks for polymers, like propylene. Propylene can go into either petrol or diesel and therefore when the oil price goes up, the value of propylene goes up. The decision was whether more money would be made converting propylene into polypropylene, or putting it into the fuel stocks.

The Chairperson interrupted, asking for the benefit of Members whether the fuel comes from coal which was locally sourced, and not imported into the country, and therefore what was the reason for the change in the price which Sasol makes, after turning locally sourced coal into fuel, to match the international fuel price? Further, what informs the decision if the price of coal has not changed and the process costs have not changed, aside from Sasol’s policy to sell at the imported price?

Mr Behrens replied that although the coal was locally sourced, the value of the propylene was not solely dependant on the coal price. This was because the propylene price tracks the movement of the petrol and diesel price. From an investment standpoint, the decision was whether Sasol focused on fuel, which was good for the country’s fuel balance, or was an investment made into a chemicals plant, such as a polypropylene plant, and produced the chemical. As the fuel price rises, the polymer businesses typically come under pressure, because the polymer price does not necessarily rise to the same extent. Therefore, a polypropylene business can make a loss in times of high fuel prices. This had been the case in Sasol’s polymer business, based on the value of the material it was using.

Mr G Hill-Lewis (DA) asked if the propylene business had made an accounting loss, or an economic loss.

Mr Behrens replied that it had made both in 2013. In other years it was economic with, a positive accounting figure.

The Chairperson said that this was the nub of the issue and why Sasol had been invited back. She appreciated the background on polymers, but the issue was efficiently separated by Mr Hill-Lewis into accounting terms and economic value. Mr Behrens had spoken of value, and she asked for further explanation on this. As she understood it, Sasol receives coal, which it converts into polymer from its fuel stocks.

Mr Behrens replied that coal comes in as mined rocks. This was then gassified through a burning process under very specific conditions, including introducing steam. This breaks the coal down to the molecular level, and the gas which was produced was converted in the SAS reactor, which was the heart of Sasol and which was how it was effective in producing the coal-based products which it does. These range from light gases, similar to natural methane gas, to pyrolysis tar used for tarred roads. Some products come out of this process ready for sale, such as ammonia, while others need further steps before sale. Propylene comes out of the reactor process, and to make polymers 99.9% pure, propylene was required, and to achieve this was an exercise. To convert this into polypropylene a polymerisation reactor was required, from which polymers emerge. At the point where it was pure propylene, petrol and diesel can also be made and at this juncture propylene had a certain value. In the future, the decision between investing this propylene into fuels or chemicals would need to be made, and Sasol would argue that this would depend on the price at the propylene stage. If profitable polymer can not be made with the fuel value of propylene, then fuels would be the choice, to avoid a loss making investment. Therefore, when it was said that the polymer business, and particularly polypropylene, had not been making a loss in those years, it was because taking the fuel value against the revenue generated by polymers, in light of the capital investment, an economic loss was made. This was the reason that there was no room to bring polymer prices down further, especially with the investment of approximately R400 billion in the past. The best had to be made of this investment, as part of the risk of business. Sasol would like to set the market price, which must be understood in light of the World Trade Organisation (WTO) signing and the free import of polymers into South Africa. The other pricing concepts being put forward would, to his knowledge, make South Africa the only country to price like this and it would certainly lead to a loss and greater pressure on Sasol’s investment in the polymer business.

Competition in the polymer business

Mr Behrens said that competition comes mainly from East Asia and the Middle East, based on large fuel reserves, and the only region which can compete on a cost basis was the United States as a consequence of shale gas reserves. The East Asia and Indian Ocean market had the lowest prices in the world. However, the converter sets the price. Polymer producers compete at the converter’s gate and therefore Sasol’s price gets pushed down by competition from importers. Sasol had an interest in getting the business and this dynamic plays out at every converter, and this had led to offers which were broader than just price. As converters were entrepreneurs and run small businesses, sometimes different terms of payment and Sasol’s rebate system work to provide converters support.

Specifics of pricing policy

Mr Behrens said that Sasol had several rebates which it provided to its customers. An important one in the polypropylene business was the Customer Export Incentive Programme (CEIP), which provides a rebate to customers who export converted products. This takes the form of a reduced price to help make the export profitable. The import replacement support was a rebate provided to customers in sectors where imports pose a particular threat. An example of this was in the houseware market, which the Chinese have been aggressively pursuing for the past few years. The reason for the stiff competition was the volume in which the Chinese were able to produce, producing for its home market and attacking exports on a marginal basis. Market development support was to help support customers get a foothold in a new market. The above strategy runs closely with product development support, which was a price rebate and technical support to encourage the development of new applications for polymers.

Mr Behrens said that the South African polypropylene consumption per annum was 0.27 million tons, which compared to China’s 19.14 million tons. Further, Sasol’s two polypropylene plants produce 230 000 and 300 000 tons per annum, while there were plants which produce more than 450 000 tons. With the largest plant at Secunda having been built in 2004, in 10 years the worldscale polypropylene plant capacities had increased by 50%.

Factors influencing the overall competitiveness of the value chain of polymer to end customer

Mr Behrens said that factors other than just the price influence competitiveness. Transport costs were a factor, particularly as domestic freight and port costs were high. This made it cheaper for a Cape Town producer to send stock to Hong Kong than inwards. This affected beneficiation, because it was a barrier to inward sales and the imported product which was necessarily more expensive. He understood South African port prices to be the highest in the world, which had a far greater impact on beneficiation than moving the propylene price by a certain number of percentage points.

Infrastructure, particularly electricity supply, was a barrier, because while converters must invest in machinery they must also invest in ensuring a constant electricity supply, which obviously negatively affected our global competitiveness. Skilled and stable labour was a general problem in South Africa, preventing growth, and this applied in this sector. Administered prices, such as the electricity price also negatively affect competitiveness. The profitability of the upstream was now jeopardising the polymer producers, because upstream producers enjoyed a 20% tariff, while downstream producers enjoy none. Sasol was arguing that both ends should be looked at to ensure viability, and a sure supply of polymers was a more important consideration than the price in an attempt to encourage converters to open businesses. He emphasised that Sasol understood the importance of the downstream, and actively encourages the growth of the market for polymers. However the profitability of the business was faltering. This was affecting decisions on capital renewal projects, such as the revamping of Sasol’s PVC plant, which was 40 years old and would require a major capital investment. It was unclear whether this investment would be directed into polymers or in another direction.

Discussion

The Chairperson said that Sasol had given what it had agreed to give to the Committee, although the representatives may not share this view.

Mr Hill-Lewis first asked where Sasol’s main listing was, and whether Sasol produces almost entirely in Rands. If so, with the devaluation of the Rand and collapse of the oil price, was polypropylene a more profitable business now than 12 months ago. Further, what portion of the final price was made up of transport and freight costs, on average? What effect had the end of the import tariffs had on the price overall since 2009? Lastly, who do converters actually buy from -- was it from Sasol directly or was it from bulk suppliers?

Mr Behrens replied that Sasol’s main listing was in Johannesburg, with a secondary listing in New York. Its costs were in Rands generally, as only a small part of its costs go into imported catalysts. The profitability of the polymers was increasing with the drops in the oil price, because the price of the feedstock had decreased and this was opening up the margin for polymer businesses. On the freight costs, he said that the effect of local transport costs was 3%, so the freight cost contribution was fairly small. Lastly, he said that polymer converters who buy more than 20 tons of polymer per month were delivered to directly, and delivered at 48 hours notice. Smaller converters were supplied through a wing of the polymer business, and these converters were free to collect their orders from Sasol. This service was also provided by distributors. Importers come as traders who source their product abroad and warehouse stock for delivery.

Mr B Mkongi (ANC) was interested in the statement that the demand for polymer was inelastic, and it was said that when the oil price rises, this influences the price of polymers. If it was agreed that Sasol had the capability to process coal into polymer, which had a fairly stable price, then why rely on fluctuation in the oil prices? Why not stick to the capabilities which the country had to create jobs and do further research and development in the field. In light of a tenet of South Africa’s developmental programme being regional development, and it being said that China was flooding the market, why not shift the focus to Africa, rather than world markets? What were the challenges which made South Africa unable to capture this market? Lastly, he asked if Sasol was trying to argue that the flourishing of the downstream beneficiation threatened the profitability of the upstream.

Mr Behrens replied to the question on the reliance on the oil price, saying that the economic policy of South Africa was to have open trade, and this affected competitiveness of all products. This produced a better result overall. If the route suggested was followed and the coal price was used as a static base to work a price off, in order to reward the capital which takes the risk and invests in the technology, a higher price than was currently being charged would be the most likely outcome. He said that the global competitiveness had led to products dropping in real cost by 1% a year since 1910.

On regional development, he said that Sasol would like Africa to be a major market, but the African market was small. Sasol was already struggling with economies of scale and a demonstrative example was that while South Africa’s market was 230 000 tons, Malawi was approximately 20 000 tons. If all of sub-Saharan Africa was counted, the demand was still small, and it must be borne in mind that the product must still be transported into the continent. Sasol does supply these markets

Dr Luyenge said that in anything that Sasol does, there would always be advantages and disadvantages, but were any threats envisaged to the plans towards increased beneficiation and if so, were contingency plans in place? The long term sustainability of the polymer value-chain was very important, and he would like to see the benefit going to rural communities through, among other things, job creation. Were there plans to ensure that the benefit reaches the poorest of the poor? Lastly, what was the general view on the economic profitability around this area in Africa, in relation to Sasol achieving its set goals?

Mr Koornhof asked what the percentage of the total fuel consumption in South Africa was produced by Sasol. He had the impression that fuel or energy prices in the United States were fairly low, compared to South Africa, and he wanted to know if they were also linked to the global fuel prices. If not, why not? Would the operations at Lake Charles be priced in a similar way, or would they have to be adapted to the American pricing structure?

Mr Behrens replied that Sasol produces 25% of the total fuel consumed in South Africa.

The Chairperson said that the time had run out for this presentation and as many of the questions had not been answered, Sasol was to reply in writing by the following Monday. She said that she was not convinced that Sasol was obliged to charge a market price on the fuels it produces, particularly as South Africa produces this itself and the production costs on conversion from fuel to coal were not the same as imported fuel prices. She asked for this question to be addressed.

Mr Tapiwa Samanga, Chief Director: Mineral Processing, Department of Trade and Industry (DTI), said that the DTI would certainly be engaging Sasol in the future on its expectations for its contribution to industrialisation and the general economy. He shared the Chairperson’s dissatisfaction, and said that Sasol was aware that the Department was unhappy with certain things.

The Chairperson said that one of the issues being looked at was parity pricing, including the pricing of iron and steel. Sasol was a South African company which needed to be congratulated for how far it had come, but also needed to become part of South Africa in everything it did. It needed to benefit the manufacturing processes in the country.

Mr X Mabasa (ANC) noted that the leadership was completely white, and he hoped there was a strategy to address this.

Mr Thyse said he noted the comment, but said that contrary to appearances, he and Ms Wrenelle Stanger, Vice-President: Public and Regulatory Affairs, Sasol, qualified for employment equity.

The Chairperson said that she appreciated that the gender concern had been addressed to an extent. However, she was more concerned about the absence of black industrialists 20 years into democracy. This was an issue for all companies, and not just Sasol.

Budgetary Recommendation and Review Report: Budget Vote 36

Introduction

The Chairperson noted that Mr Mabasa had joined the meeting, because the budget for Small Business Development still fell within the DTI’s budget vote. She would like the Committee to study the introduction and then move to the conclusion, because this was where the substance was of what had not been engaged with. She noted that it was 20 years into the BRRR process and this was a milestone.

She then read the first bullet of the introduction: “In 20 years, the DTI had evolved from the mandates, included under general services and of finance and trade and industry, to a department now with an architect more focused on its primary mandate… Although President Zuma had proclaimed a Ministry of Small Business, the Small Business Development Department coexists with the DTI on vote 36 and a separate vote would be established with the Department in 2015/16”.

The Chairperson explained to Mr Mabasa, who sits in the Portfolio Committee on Small Business Development, that the Committee was saying that although the Small Business Ministry had been proclaimed, the Department of Small Business Development coexists in the DTI budget. The funds were still captured there and a separate vote would be determined by National Treasury.

Mr Mabasa agreed that this was an accurate representation.

The Chairperson moved on to the next bullet: “The recognition of the structural economic challenges called for a decisive break from jobless economic growth to an employment generating economy and from an economy characterised by exclusion to an inclusive and equitable economy which was directed at eliminating poverty.”

Mr Mkongi proposed the wording “decisive break from the past of jobless….”.

The Chairperson asked if there was agreement and indicated that Ms Hurling would capture the Member’s changes.

Conclusions

The Chairperson, reading from page 59 of the BRRR, said that: “Based on its deliberations the Committee drew the following conclusions:

·         Energy supply constraints were still a major barrier to industrialisation and economic growth”

The Chairperson indicated that it should read “remain a major barrier”.

She continued on the same bullet: “Government should create the necessary environment to mitigate the negative implications of industrial policy”

Mr Mkongi asked whether the Committee was sticking with “necessary environment”, rather than “an enabling environment”.

·         “The Committee welcomes the government’s plans to improve its energy mix, in order to provide a more reliable supply of energy. The current energy price, particularly electricity within certain municipalities, was excessive for industry and the success of industrialisation in South Africa. Ideally the price of energy, including municipal electricity charges and the prospective price of nuclear energy, should not at any stage compromise the success of industry. Therefore, government should ensure that the financing model does not inadvertently burden end-users, particularly industry. However, the Committee was of the opinion that all stakeholders should consider the full range of alternative energy solutions”.

The Chairperson indicated that “future” or “potential” would be a better word than “prospective.” Further, that when industry was spoken of, it should indicate that the full IPAP 6 was captured, because this includes agriculture, which people do not generally consider industry.

·         “The Committee welcomed the adjustments to the port tariff structure, in favour of value-added exports. However, port charges remain excessive for manufactured and processed goods and the delays experienced in the movement of goods at the port compromises efficiency”.

·         “The Committee acknowledged the increasing global pressure from developed countries for products with lower carbon footprints. However, the possible imposition of a carbon tax poses a significant threat to industrialisation. The Committee encourages government and business to invest in carbon emission reducing technologies.”

·         “Labour unrest arising from poor working conditions and the rising wage gap has resulted in protracted and sometimes violent strikes in recent years. This has become an impediment to inclusive economic growth and industrialisation. South Africa needs to remain attractive to foreign direct investment. Therefore, the Committee believes that South Africa needs a stable labour environment with decent wages and working conditions to improve productivity, as an integral part of the social compact.”

·         “The Committee welcomes the additional allocations to the export promotion and marketing sub-programme, with Trade and Investment South Africa (TISA), which has received a nominal increase of 36% in the 2014/2015 budget. Investment promotion was essential for technology transfer, job creation and economic growth. TISA currently has 45 foreign missions in traditional and strategic markets. However, the DTI should ensure the presence of an adequate number of officials, with the requisite expertise, at these foreign missions.”

The Chairperson indicated to Mr Hill-Lewis, that Mr Macpherson had requested further funds in this area, and this had indeed been allocated. All Members had felt strongly about the need for TISA missions to be adequately staffed.

Mr Hill-Lewis asked to what extent the budget released the previous Wednesday had impacted on the Report.

The Chairperson said that she would comment on that when she reached the end of the conclusions.

Mr Hill-Lewis said that in the Adjusted Estimates of National Expenditure, Trade and Investment South Africa had received a budget decrease. This was why he was concerned that despite having received the 36% nominal increase in the Mid-Term budget, it had now been decreased.

The Chairperson later indicated that the TISA budget had not been cut from previous year. At the previous year end, the DTI had transferred savings across the Department to TISA, to cover their foreign expenditure. However, if one examined the initial budget compared to this year’s budget, it was not cut. This was why it appeared from the expenditure that the budget had been reduced, but this was due to the reallocation of savings in other programmes.

Mr Hill-Lewis said that it remained a fact that presently these funds had been shifted away from TISA.

The Chairperson replied it was never TISA’s to begin with -- it was a saving. Departments were entitled up to a certain amount to decide what to do with their savings, and in this case they had been transferred to TISA.

·         “The service delivery performance of Companies and Intellectual Property Commission (CIPC) was not yet optimal, particularly the accessibility of the call centre and availability of CIPC’s new website. This matter needs to receive greater attention and focus from CIPC, and continued oversight by the DTI. The Committee supports the roll-out of additional walk-in centres to assist the move towards a paperless electronic system and to improve turnaround times. Given that CIPC was self-funding and does not receive transfers from DTI, the Committee supports its request for permission from National Treasury to use some of its surplus for special projects, such as IT improvements”.

·         “A critical part of a successful industrialisation drive was domestic demand for locally manufactured products. There was a need to raise awareness and promote the purchasing of local products among South African consumers. In addition, National Treasury should promote and enforce local public procurement for designated products, to achieve the 75% target set by the President.”

The Chairperson said that an addition had been made to the above point, which the Committee had not seen: “The Committee was also of the view that to comply with local procurement requirements, the audit opinion should reflect the purchase of locally produced goods, by departments and entities”. She added that this would aid small business development, which was very important. She continued reading the same point:

·         “Capacity to verify local content there, underpins the ability of National Treasury to monitor this, and the Auditor General to audit this, and because of that the Committee supports the review of the resource allocation to entities responsible for providing local content verification”.

The Chairperson added that it was a review, because Members were aware that the allocation may not be as expansive in the budget for entities providing local content verification.

·         “The Committee emphasised the need for broadening economic participation, particularly the development of black industrialists and rural areas. The Committee further acknowledged the development of an incentive for black industrialists, which should promote the emergence of more black owned manufacturing businesses. It also welcomed the creation of the Small Business Development Department which would more intensely support small enterprise and cooperative development, which was internationally acknowledged as significant employment generators”

The Chairperson asked if Mr Mabasa had anything which he wished to add.

Mr Mabasa indicated that he was satisfied.

Mr Mkongi asked if it would not be better to say “welcomed the creation of the Department of Small Business Development”, rather than “of the Small Business Development Department”. As acronyms were important, this may cause confusion.

The Chairperson left it to the Committee support staff to confirm the title.

·         “Several pieces of new or amended legislation have been assented to recently, including the BBBEE, Intellectual Properties Laws Amendment, the National Credit Amendment and the Special Economic Zones Acts. The Committee awaits the finalisation of the related regulations and implementation of these pieces of legislation. Furthermore, the Committee awaits the tabling of the Promotion and Protection of Investment Bill and the Gambling Amendment Bill, which were critical to closing legislative gaps and creating an optimum and robust regulatory environment for business and consumers”.

The Chairperson noted that several conclusions were highlighted and asked Mr Andre Hermans, Committee Secretary, to explain why.

Mr Hermans replied that these were additions inserted by the ANC, and had not been discussed by the Committee.

Mr Mkongi wanted to know if the Committee was sure that under the new legislation, certain entities would have expanded mandates, because if this was not the case then he would prefer the use of the word “might.”

The Chairperson asked which bullet he was referring to, and lamented that she would have preferred there to be numbered points, rather than bullets.

Mr Mkongi replied that he was referring to the first highlighted bullet.

The Chairperson replied that she had not got to the highlighted points, which were from the ANC or the Chairperson. However, there had been indications from entities and the Minister. The legislation also indicated this and perhaps “mandate” was not the correct word, and “function” should be used instead.

Dr Luyenge said that the debate in the Committee had raised concerns about the functioning and sustainability of the entities. Further, there had been no indication of a push towards such expansion by the Department, rather it was a reconsideration of the functions and sustainability of the entities.

The Chairperson said that there were two issues. The first related to the legislation calling for further functions to be undertaken. The other more general issue lent itself more to Dr Luyenge’s comment. However, where legislation stipulated something, this had to be done, lest the legislation be undermined.

Mr Mkongi wanted the Committee to be careful about the separation of powers, because if the executive indicated that it would do something, this did not necessarily mean the legislature would accept it. This was why he said using the word “might”, rather than “will,” would give space to the debate.

The Chairperson replied that the problem was that it was not a debate, it was law. The law would take effect on a particular date and from then on the particular entity would have an additional function. This was a reality, not a debate. This was why she wanted to separate the two points, and this was why “function” should be used, rather than “mandate”.

The Chairperson moved on to the next highlighted bullet:

·         “The Committee was concerned that the leadership vacuum, due to vacancies in three of the top four executive positions at the National Gambling Board, compromises its ability to exercise its mandate effectively. However, the Committee welcomes the intervention by the Minister to suspend the Gambling Board and effectively address any underlying governance and other issues, as well as the appointment of the two co-administrators to address daily operational matters.”

Mr Mkongi wanted the point on the executive vacancies to be qualified, to raise issues of governance and administration.

The Chairperson replied that this was already captured and reminded Mr Mkongi that the Auditor General had also referred to the governance problems.

Mr Mkongi said that the forensic investigation during the period under review should also be welcomed.

The Chairperson agreed, and said that there had been a suspension, but the Minister had indicated that a forensic audit would also be commissioned. She said that using the word “investigation” would cover the audit.

Mr Mkongi said that Members were supposed to contribute, and he had sent these to the transcribers, but they had not been included.

The Chairperson asked him to raise his concerns now.

Mr Mkongi put forward his suggestion, saying that “the Committee was of the firm view that the current appointed administrators, by the Minister, should speedily resolve the current pressing matters relating to the leases and reduce the burden imposed on the operations of the board. Secondly, the Committee was of the considered belief that matters of this nature should also form part of the terms of reference for the forensic investigation”.

The Chairperson said that these would be inserted and continued.

·         “Previously the Committee called for the rationalisation of the boards of the technical institutions, more effective use of human resources and increased allocative efficiency. More recently there have been several concerns raised about the effectiveness and management of boards of entities. The DTI indicated that it was engaging on the agency rationalisation project. The Committee welcomes this development and agreed with the Auditor General that the DTI should exercise closer oversight over its agencies”.

The Chairperson said that this project was not solely regarding DTI agencies, because most Committees had called for this rationalisation.

Recommendations

The Chairperson went through the recommendations of the Committee. “Informed by its deliberations the Committee recommends that the House request that the Minister of Trade and Industry should consider:

·         Increasing resources with the requisite skills to promote South Africa as an investment destination and the provision of increased resources for proudly South Africa to encourage South Africans to buy locally manufacture products;

·         Increasing the financial resources to the National Credit Regulator, over the MTEF period, given its additional functions and the critical role it plays in our socio-economic environment; and

·         Consulting the Minister of Finance to verify and enforce the public procurement of designated products, so that the 75% public procurement decision was implemented to underpin the Industrial Policy Action Plan.

Mr Mabasa proposed considering two further recommendations. This first along the lines of: the Committee recommends that the functions given to the Department of Small Business Development should be followed by the requisite funds and other support mechanisms.

The Chairperson said that this would be captured as a conclusion, because it was already referred to in the introduction. She also noted that the decision had already been captured.

Mr Mabasa would like it to be emphasised that it must be made clear that the functions can not be shifted without being followed by the necessary resources. It should not be taken for granted that functions may be shifted without concomitant funds following.

The Chairperson said that this should be used as a lesson to learn and was similar to the problem of dumping funds in the past, which was not illegal but spoke to poor governance and therefore something along these lines needed to be placed in the conclusion. It should be posited as a general comment for any instances where new departments were created or functions transferred, to have a system in the future.

Mr Mkongi disagreed about the generalisation of the need for funds to follow function, particularly as the conclusion only speaks of funds being allocated to the Department of Small Business Development in 2015/16. With Mr Mabasa speaking to the current financial year and mandate which was to be carried out, he therefore proposed the following: “concretely the Committee encourages the executive authority to expedite the migration of functions to the Department of Small Business Development. A dedicated support system should follow these functions, with immediate effect.”

The Chairperson said she wanted to make the general statement, because this was a general problem being experienced. She recalled the same challenges with “Economic Development”, therefore she wanted to use this experience to broaden the effect of the injunction.

Dr Luyenge agreed that the Chairperson’s approach was correct, because the Committee was not referring to the Minister of Trade and Industry. Rather, the Committee was broadly trying to ensure that there was robust engagement and a flow of resources immediately. This would cover the aspects raised by Mr Mkongi, and the Committee should not be seen to be singling out the Minister, as though he had not done something, particularly as the Minister was not the decision maker in this regard.

Mr Mkongi said he felt that the drafted sentence was confrontational.

The Chairperson replied that if parts of both suggestions were taken, this could solve the problem. The nub of the issue was that resources ought to follow function when they were migrated. She said that the Committee was opposed to this issue across the board, as was the case with dumping. The executive would be required to deal with this across the board.

Mr Mabasa then gave his second recommendation, which sought to encourage a collaborative spirit among departments, particularly the economic cluster departments including the DTI, Economic Development Department and Small Business Development.

The Chairperson said that the only problem she had was that the issue of a lack of collaboration had not come up, unlike the issue of resourcing migrated functions. This was similar to the how the ANC removed the recommendation relating to the automotive industry, which the DA had proposed. In fact the Committee was under the impression that the collaboration had been fine up until now.

The Chairperson asked for all the technical details to be double checked by the support staff, including dates, figures and titles of departments. Further, as was done in a previous report when the Economic Development Department was established, she said that the presence of Mr Mabasa in the processing of the report ought to be recognised. She asked for the support staff also to ensure that all correspondence concerning the BRRR to be sent to the Portfolio Committee on Small Business Development. She then asked for a proposer for adoption, and a seconder.

Mr Mkongi proposed adoption and Mr Hill-Lewis seconded.

Briefing by Mainstream Renewable Power

The Chairperson said that the presentation had been requested, because she was aware of wind generated electricity being effective in the Western Cape and solar power being effective in the Northern Cape. She said the usefulness lay in the potential electricity generation for industrial purposes, rather than household use.

Mr Hein Reyneke, Regional Manager: Mainstream Renewable Power South Africa, said that Mainstream Renewable Power (MRP) was a global company with its headquarters in Dublin, Ireland. MRP operates in both developing and developed countries, Chile and Germany being examples. MRP had projects across Africa and on the day of the meeting, it was opening a 200MW wind farm in Ghana. MRP’s South African footprint was quite wide and it was the largest developer in this sector to date.

Mr Reyneke said South Africa had vast renewable energy potential and could provide 40GW by 2035 and 100% of South Africa’s energy consumption requirements by 2050. Thus, far Eskom had  connected 1600MW to the national grid, with MRP producing 3300MW in total. This had been produced more efficiently than electricity from new coal plants like Medupi or Kusile, gas plants or prospective nuclear plants.

Mr Hill-Lewis asked whether he included existing baseline coal plants as well.

Mr Reyneke replied than in round three, MRP wind projects produced power 25% more cheaply than new coal plants like Mudipe and Kusile, with solar projects 5% cheaper. He noted that South Africa had spent R11 billion on peaking diesel plants in the past financial year, while round four, which was planned to begin in November 2014, would be even more competitive than round three.

The direct benefits for South Africa were the jobs created by the current projects and increased electrical capacity on the grid, where there were minimal reserve margins. There would also be the creation of direct and indirect employment through the creation of local manufacturing supply chains. However, what was crucial for South Africa to reap the full benefit was a major sustained project in the pipeline, with a 2GW per annum capacity yielding 360 000 jobs in the industry. In the medium term, opportunities further into Africa would also be a potential benefit. This would be further facilitated by the relatively simple technology which was required for renewable power and the ability to re-route existing industry into manufacturing for the industry.

Mr Reyneke said a major obstacle to investment in the industry was the uncertainty after the end of the Renewable Energy Independent Power Producer Procurement Programme’s (REIPPPP) fifth round, which the Department of Energy was conducting. MRP therefore recommends “consistency in policy”, with stability being provided through a long-term fixed term procurement contract. Apart from demonstrating a long term commitment in the industry, this would set a floor price and avoid a race to the bottom, with projects being priced unsustainably. It would allow South Africa to focus on added value to the investment, such as compliance with local content goals, socio-economic and enterprise requirements.

Mr Reyneke then spoke to maps depicting the renewable energy resources of South Africa, which for both solar and wind power were generally concentrated in the north western part of the country. He said that there was even potential around the major urban centres. It would always have to be remembered that the installations ought to be located mindful of the environment.

He used the Jeffreys Bay wind farm as an example of MRP’s work, saying that it took 18 months from the start of construction to being operational, on time and on budget. At the peak of construction, the Jeffreys Bay project employed 700 individuals. This formed part of the significant pipeline of projects across South Africa, which was not an abstract prospect with the industry having proven its viability. He also noted that a major benefit was that the plants were decentralised, which would allow for easier disaster management, with only part of the grid potentially going off at a point, unlike with a central plant. Furthermore, it would allow opportunities for rural communities to participate in the economy.

From MRP’s perspective, the best balance between private and public interests was that government provides the framework and policies within which the industry operates. Government also procures the energy on behalf of the customer through the REIPPPP. With renewable energy, electricity was paid for only when a particular plant was producing. The private companies take the risk of developing and operating a plant, of which only one in three reach the construction phase, rather than the government, which was protected as a consumer. As a customer, the government would be able to enforce whatever policy directives it wanted to in term of skills development or employment equity.

He moved on to municipalities as a case study of how renewable power was capable of being distributed into local grids. This idea was being developed because of the shortage of electricity generation capacity under Eskom, which was incapable of investing because of its debts. A long term contract would stabilise a portion of electricity costs over the long term, isolating the consumer from tariff increases because of Eskom. The Nelson Mandela Bay metro had a projected saving of close to R20 billion over a 20 year period, with some assumptions on the pricing of Eskom. This plant was also one of the plants which produces electricity when it was required, in the evening peak.

In conclusion he noted that renewable energy was becoming a global trend, with wind energy being installed more than any other form of energy generation. With the solar price dropping and carbon fines and tariffs looming, would South Africa take the opportunity and be ready with a complex sector ready to supply regionally? In order to do this, a long term target with fixed conditions needs to be determined, along with a revision of the REIPPPP to include a floor price. The infrastructure barrier of access to the grid also needs to be removed.

Discussion

The Chairperson said that it was exciting that MRP had a project at Nelson Mandela Bay.

Mr Reyneke said that REIPPPP round one was at Jeffreys Bay, which was just outside the Nelson Mandela Municipality.

The Chairperson asked for Mr Reyneke to speak to the MRP projects. Were they feeding into the metro grid, or were they being used to power specific plants, with the balance being fed into the metro system?

Mr Reyneke replied that the projects were connected to Eskom’s national grid and the energy went to where it was needed on the grid. An initiative was proposed to feed directly into municipal grids as well, to run in concurrence with the Department of Energy’s REIPPPP.

Mr Hill-Lewis interrupted, asking if this would require legislative intervention.

Mr Reyneke replied that this would not require legislation, only a willing client and political will. MRP understood that municipalities had financial constraints and therefore the backing of National Treasury was required. This would be the same for the revision of the REIPPPP. The reality was that there was a buffer between the REIPPPP and the consumer, which was Eskom. MRP would prefer to take Eskom out of the equation because it was facing its own challenges, and would rather deal with municipalities directly. This was especially because the industries and sectors which paid the most for electricity were those being supplied by municipalities, rather than those supplied directly by Eskom.

Mr Hill-Lewis said that this would not solve the issue, because the problem that needed to be addressed was the price to the end-user. Whether the electricity came from Eskom via the municipality, or from MRP via the municipality, was not going to change the price paid by the end user. The problem in South Africa was that the municipalities inflate the prices, rather than where the power comes from. Municipalities rely on revenue from electricity to make the books balance. Therefore, it may make supply simpler if power does not have to traverse the Eskom grid, but it would not make the price better for the end user. Aside from the above, the presentation’s contents were still very exciting particularly the amount which MRP had done in South Africa in such a short time. He supported the call for more policy certainty and clarification of what would happen at the end of the following year, because there was vast potential for job creation and development in this sector. Lastly, he asked where the wind towers and solar panels used in the projects were made.

Mr Mangaliso Morgan, Finance Manager: Mainstream Renewable Energy, replied that the turbines were not made in South Africa , because the entire turbine unit had to be certified. Currently there was not an internationally certified South African turbine. However, the transformer was made in South Africa, which was a significant part of the value of a turbine, at 11%. Further, turbines were not the extent of a wind farm, and the wiring which goes from the farm to the sub-station was all locally produced. For round three, the plans were to have all towers manufactured locally.

Mr Reyneke added that Jeffreys Bay project was a round one project, being the first large utility-scale project in sub-Saharan Africa, and therefore a large portion of the wind turbines were imported. For round three the towers would be produced locally, with two plants, one of which was at Atlantis. The unwillingness to invest in manufacturing was because of the uncertainty and therefore, with a long term commitment from government, manufacturing would be able to gain a foothold. He agreed with Mr Hill-Lewis’ view on the municipality mark ups on electricity sourced from anywhere. However, the savings generated for municipalities would leave the option for municipalities to pass on this saving to the consumer or spend it on other municipal activities.

Mr Mkongi asked if Mr Reyneke was saying that the price of electricity would be constant once the installation was set up -- that there would be no fluctuation in the price which would lead to municipalities charging a lower price for electricity.

Mr Reyneke replied that if a procurement deal for renewable energy was signed, the price in 20 years was known, because the fuel was free. However, there would be increases which could be agreed to up front, including increases tracking the CPI. This was currently how the REIPPPP system worked. Under this system, government knows exactly what it is paying for electricity for the term of the contract.

Mr Koornhof said that the wind towers could not be spoken of without addressing the environment and their impact on tourism. Had the negative impact on tourism been researched? He felt that the Jeffreys Bay project was perfect, but he was concerned about projects being set up in more remote regions of South Africa and their effect on tourism. If these projects were set up in areas which were tourist attractions, simply because there was wind, then this would have to be justified. Secondly, solar power was the way to go, because solar panels could be set up on the roofs of urban buildings without disturbing the environment. Adding to Mr Hill-Lewis’ point, he asked if it was true that European countries were dumping their old wind towers and the like in South Africa.

Mr Reyneke replied that an environmental impact study had been done in the process of determining the feasibility of a project. This included the impact on tourism and nature conservation. There would always be people against a new development, but the task was to manage the fall out. The Department of Environmental Affairs had conducted a strategic environmental assessment of potential wind and solar farm sites, addressing the Member’s concerns. He wanted to correct the perception that vast parts of the Northern Cape and Karoo would be covered with turbines, as these needed to be close to the grid, although there would necessarily be parts of the country with concentrations of installations. MRP had closed down certain projects because of environmental, tourism and heritage concerns. He said no second hand equipment had been dumped in South Africa, and he did not believe MRP would have been able to achieve the efficiencies it had with old equipment. The risk would in any event lie with the wind farmer, not the consumers, who pay only for what they receive.

Mr Mkongi said if policy certainty was spoken of, what areas were problematic? Mr Hill-Lewis had asked if legislative intervention was required and the response had been “no” -- only political would was necessary. Some of these issues should be decided politically, through regulations or legislation. He therefore asked in what areas the certainty was required and what the way forward was. He also wanted to know the implications of the amount charged to municipalities, specifically whether it would help get electricity to the end users more cheaply. Lastly, he wanted to know about the benefit to South Africa regarding manufacturing, whether the skills would have to be imported and how long it would take for a skills transfer to locals.

Mr Reyneke said that the REIPPPP was in place and a policy concern was about fair access for producers to the national grid, allowing them to control timelines for connection and, to an extent, the cost. At the moment it was very difficult to understand the requirements for getting on to the grid, because not all the information was provided. Therefore clear rules and pricing structures for access to the national grid would be an important step. On the benefits to South Africa and the balance between public and private dynamics, he said a long term procurement deal would boost jobs and increased industrialisation would follow, with government being able to control access to the market. A large proportion of the skills required for manufacture were already present locally -- for example, the fibre glass work done in the boating industry which could be applied to make wind tower blades.

Mr Morgan said that a benefit for the country was that projects which MRP had undertaken had indigenised power production, which saved having to channel power down from a centralised plant. On how long it would take to have the skills capacity, he said that two years ago MRP had visited a plant which at that point was producing turbines. This plant had since shut down, because it became too costly to run, pending long-awaited certification. He said that there were standard turbines which any country could manufacture, with basic mechanical skill.

Dr Luyenge said he wanted to focus on the proposal’s potential benefits to the poor, particularly as at present South Africa had decided to reinvigorate manufacturing. Would it be possible to manufacture the components of the equipment locally, particularly as the ability to perform maintenance was important to the sustainability of the projects? He noted that sustainability was essential, because low quality solar technology had been introduced into low cost housing, with an absence of maintenance.

Mr Reyneke said benefiting the poor would come through the municipalities passing on savings to the consumer, and the direct jobs created by the decentralised plant. He assumed that the poor quality and maintained solar technology spoken of referred to solar water heaters. This was not his field of expertise and he could not comment in depth. However, the proposal being made was for the private sector to take this kind of risk, as the operators get paid only for what they produce.

The Chairperson said the question had been asked whether the Jeffreys Bay wind farm towers had been imported. She wanted to know if so, where from and why South Africa could not have manufactured them locally.

Mr Reyneke said that the towers had been imported from Denmark. For round three of REIPPPP, the towers were being produced locally. There would be two plants set up, one in Atlantis and the other at Coega. Government had set the local content requirements at 40%, and the only way the industry could respond was by taking the risk of producing towers or blades itself. What MRP was arguing was that more of this would be seen in the future if long term procurement were to be agreed to.

The Chairperson said she was pleased to hear about the localisation, but wanted to know how many workers were employed at the two plants. She said that turbines were mentioned at a point and wanted to know if these could be produced locally and if not, why not.

Mr Reyneke said that he did not have the numbers of people employed, but he would be happy to provide the numbers. The two companies operating the plants were DCD Dorbyl, a local company, and Gestamp Wind South Africa, a Spanish company involved in a local joint venture. On the turbines, he noted that the Department of Energy had made it a requirement that everything installed at the wind and solar plants be International Electrotechnical Commission certified. This was why the industry was not able to respond well to round one of RIEPPPP, but had progressively been able to provide more local content for round two. There had been one turbine producer based in Cape Town, but the turbine was not able to be certified in its entirety and therefore could not be used by anyone in the REIPPPP. This had led to the company’s financial backing falling away, but this was no reason to believe that South Africa would not be able to produce fully certified components. Government needed to facilitate this by setting the standards high enough and giving long term backing through procurement.

The Chairperson asked for any other information which had been requested to be forwarded in writing, by the following Wednesday. He thanked Mr Samanga for his presence at the meeting as the DTI would be aware of such projects, and the Committee wanted to send the message that localisation was happening, with resultant job creation. Further, this was productive foreign investment, with plants being set up through joint ventures, and this was the direction of the Committee. She wanted to know about the glass on solar panels and whether it was true that although South Africa produces glass, it could not produce the tubes used in these panels. Would she be right in thinking that it would not take long to develop such a plant if South Africa were to decide to go down the renewable energy path?

Mr Reyneke said that he was not fully familiar with the glass issue, but he had visited a research plant for thin film panels. There was a question of the quality of the glass used in these panels, because the industry required a certain quality for certain functions. He again said that there was uncertainty in the industry, because of the lack of a long term vision.

The Chairperson said that essentially what business would require from government was some commitment that this was the route which it was going to take for energy. This would therefore create a market for the parts needed for renewable energy generation, leading to the creation of manufacturing capacity.

Mr Reyneke said that there was a cost to localisation, with local manufacturers having to compete on the global market. However, how cheap was it necessary for renewable energy to be, if it was already cheaper than other public sector alternatives? The average price for round three wind was 74c, which was 25% cheaper than Medupi or Kusile would be. This allowed room for a floor price of around 84c to pay for the more expensive local content.

Mr Morgan said that recently a solar panel manufacturing plant opened in the Western Cape, which had its opening attended by Helen Zille, Premier of the Western Cape, and Rob Davies, Minister of Trade and Industry. This was for Rooftop Solar, which was a joint venture with a Chinese company, and would be employing 250 people.

The Chairperson said that while there may be a cost to localisation, there was equally a cost to unemployment and this was what a government had to balance.

Mr Mkongi said that as a youth activist, he appreciated the presentation being delivered by two capable young South Africans and such skills should be transferred to the majority of young people in South Africa.

The Chairperson agreed and said it was very exciting that the plants which exist had already been constructed, because these could give an indication of the challenges and successes of such developments.

Committee Programme

The Chairperson said that a document had been distributed indicating that a briefing on the National Credit Act regulations had been scheduled for the following Tuesday. This was an important meeting, which was given two hours. There was also the status report by the DTI on the Committee’s recommendations with respect to the Gambling Commission Review Report and the Horse Racing Industry. She was aware that some of the horse racing submissions had been withdrawn and the Gambling Review Commission Report was a relatively old report on which the Committee had expected more progress. There were also other challenges which needed to be clarified on the horse racing aspect. The important matter was the consideration of the draft colloquium report, which she had indicated since the beginning of the fifth term was the result of a colloquium held pursuant to a report by the previous Committee. This report had covered much of what were called the administered prices, including energy and port prices. It had been published on the ATC list and was adopted by the previous Committee. She felt it necessary to have the report adopted by the present Committee, and therefore asked the Members to signify their agreement to have this briefing moved to Tuesday.

The Committee Secretary said that the Gambling Review Commission report had been published by the DTI and in the fourth term, public hearings were held on the matter, leading to a report being adopted by the Committee. Part of the recommendations of this report was to have the DTI return to the Committee on the recommendations made by the Committee. The Committee had been unable to find time to do this in the fourth Parliament and this had been on the programme several times in the fifth Parliament, with the latest on the following Tuesday.

The Chairperson said that essentially this was a status report about the three things happening around gambling at present. Firstly, there was the Electronic Bingo Terminals (EBT), which had not been dealt with by the Department. At the time of the initial report, the DTI had agreed that revised norms and standards needed to be produced, but this had not happened. There may be major developments like new legislation, despite the new Members to the Committee not knowing about the area. Horse racing was another huge issue and this was identified as the most untransformed area of gambling. The DTI agreed, and asked Parliament for help in this area to create a single association. She said that this would require half an hour, along with the need for an hour to deal with the Colloquium report. Her proposal was either to deal with the National Gambling Commission report, with a special status report by the Deputy Director General, or to deal with the Colloquium report. She noted that the latter would be better, because the Committee had a deadline, with the report needing to be listed on the ATC by 4 November. She also requested a debate on the Colloquium report.

With the Committee having indicated its general agreement with the proposal she moved onto 6 November, when the Minister would be coming to the Committee to deal with important issues and deserved the time which was being dedicated. She asked for Members to indicate any other issues which the Minister ought to be made aware of. She continued, noting that the times were wrong on the draft programme and that she was not happy with the meeting being contingent on the House rising at the appointed time, because she did not want the engagement with the Minister to be postponed.

Mr Mkongi proposed that it be agreed in principle that the meeting be for Thursday, but if there were pressing matters which lead to the programme changing then Members should be alerted.

The Chairperson said that the programme ought to be left as it stands, but she insisted on a commitment to engage with the Minister on 6 November.

Mr Hill-Lewis suggested that it had been indicated to the Members that Fridays would be long days, and perhaps the meeting on 7 November could be made a 4pm meeting, depending on the Minister’s availability.

The Chairperson said that the Minister would not be available on the Friday, because he would not be in the country. Therefore, 6 November was the only date on which he would be available and the Committee may find itself meeting from 8 to 10am or 12:30 until 2pm. This would be communicated to the Members. She said that the matters dealing with South African Breweries was being finalised and that there were no more changes from 19 to 26 November.

The meeting was adjourned.

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