Department of Energy on its 2013/14 Annual Report

NCOP Economic and Business Development

04 November 2014
Chairperson: Mr L Suka (ANC; Eastern Cape)
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Meeting Summary

The Department of Energy briefed the Committee on its Annual Report for the 2013/14 financial year.
Some of the Department’s achievements pertained to the Integrated National Electrification Programme (INEP) that had gained momentum over the financial year, with support from the Presidential Infrastructure Co-coordinating Commission (PICC), Eskom and municipalities, the Renewable Energy Independent Power Producers (IPPs) were that Windows 1 and 2 of the Renewable Energy Independent Power Producer Programme (REIPPP) were successfully concluded with 47 projects contracted.

Financial statements were prepared on the modified cash basis as required in terms of the Departmental Financial Reporting Framework Guide issued by National Treasury. Financial skills, however, still remained a challenge within the Financial Branch. The final appropriation of the DoE moved from R6.73 billion in the 2012/13 financial year to R 6.50 billion in the 2013/14 financial year. The top three allocations were: the National Electrification Programme received R3.89 billion, the Demand Side and Efficiency Programme received R1.33 billion and the Necsa received an allocation of R 592 182 million. The R14.86 million in unauthorised expenditure was due to an infrastructure grants transfer payment to the Mthonjeni Municipality in May 2010. The transfer was appropriated in the 2009/10 financial year; however the payment to the municipality was processed in March 2010, but only transferred in May 2010 due to the system rejection of the banking details. In addition, irregular expenditure amounting to R379 000 was discovered during the 2012/13 financial year, during an audit at the time. This was due to the additional expenditure incurred for the installation of 65 non-grid home systems prior to seeking the approval of the expansion scope.

The DoE received an unqualified audit opinion with emphasis matters: determination of the provision for the contingent liability relating to the Necsa operational past strategic facilities, and reclassification of corresponding figures (which was as a result of the amended standard chart of accounts by National Treasury).

Some questions raised by Members were around the Northern Cape solar plant, and it came to the Committee’s attention that an accident had taken place on Tuesday, 4 November 2014. What kind of impact would that have on the solar project and how far would the project have to be pushed back? What extra costs which should be expected as a result? Was Eskom aware of the problems at the silo; could the DoE confirm that? Why were these issues not addressed? What were the DoE’s expectations from power generated from renewable energy for the coming year? How could the Committee be of more assistance in bringing in more technical skills into municipalities? What other entities was the DoE partnering with in this regard?

Meeting report

The Chairperson welcomed Members to the meeting, together with representatives from the Department of Energy (DoE).

Department of Energy (DoE), Annual Report 2013/14
Dr Wolsey Barnard, Acting Director General, DoE thanked the Committee for the invitation. The presentation was about the activities of the Department of Energy until the period of March 2014. The DoE was established in 2009 with a staff complement of 426 permanent and 97 additional employees being interns and contract employees. The approved organisational structure was implemented in a phased approach due to financial constraints. As at the end of the 2013/14 financial year, the DoE’s permanent staff had increased to 550 employees. The development and implementation of the Human Resource Development Strategy addressed critical skills shortages within the energy sector, which led to the placement of about 54 interns in various municipalities across the country.

The DoE was made up of the following programmes:

•Programme 1: Administration
•Programme 2: Energy Policy and Planning
•Programme 3: Petroleum and Petroleum Products Regulation
•Programme 4: Electrification and Energy Programme and Projects Management
•Programme 5: Nuclear Energy
•Programme 6: Clean Energy

The Department’s key achievements in the last financial year were under these programmes: the Integrated National Electrification Programme (INEP); the Renewable Energy Independent Power Producers Programme (IPP); Petroleum Licensing; Solar water heaters (SWHs) Programme; and electricity distribution infrastructure.

INEP gained momentum over the financial year, with support from the Presidential Infrastructure Co-Coordinating Commission, Eskom and municipalities.  Challenges were around funding applications, which were six times higher than the funding available per year; new connections which could not be made due to lack of network capacity, bad state of infrastructure, limited oversight capacity within the DoE and lack of or limited technical and managerial capacity within municipalities. The main achievement with the renewable IPP programme was that Windows 1 and 2 of the programme were successfully concluded with 47 projects contracted. Challenges were around interventions by different stakeholders in the delivery of the construction process and delays in connection to the national grid due to grid access constraints. With regard to petroleum licensing he said some of the challenges faced were that of a lack of economic transformation, structural issues such as land and property ownership, which perpetuated imbalances with retail ownership and non-compliance with license conditions. The SWH rollout programme experienced installation delays, which resulted in problems around installation of poor quality products and poor workmanship. At the end of the financial year 46 654 solar water heaters had been installed against a target of 80 000. The DoE revised the SWH contracting model to prescribe a minimum local content of 70% for subsidised systems and a rebate could only be secured if the South African Bureau of Standards had verified the local content.

On electricity distribution infrastructure he said the performance and operational state of the electricity distribution infrastructure in the country required an urgent investment and rehabilitation to prevent long-term catastrophic power failures among all major distributors. The distribution networks of municipalities and Eskom were not maintained and were not being upgraded on an ad hoc basis. It was estimated that the maintenance and rehabilitation backlog figure was around R38 billion. As part of the 2013/14 appropriations, the DoE was allocated R320 million to initiate and conduct pilot projects in municipalities and metros to test a policy option to rectify the challenge. Nine municipalities/metros across the country were identified as recipients of the allocation funding. At the end of the financial year 50% of these projects had been completed.

Dr Barnard indicated that the DoE was involved in the following Strategic Integrated Projects (SIPs): the Integrated Municipal Infrastructure Project (SIP 6), the Green Energy in Support of the South African Economy (SIP 8) and the Electricity Transmission and Distribution for All project (SIP 10).

The Minister of Energy was responsible for overseeing the following five state owned entities (SOEs):

•National Energy Regulator of South Africa (Nersa)
•National Nuclear Regulator (NNR)
•Central Energy Fund (CEF)
•Nuclear Energy Corporation of South Africa (Necsa)
•South African National Energy Research and Development Institute (Sanedi)

The renewable energy IPP programme formed part of the Integrated Resource Plan (IRP) 2010 energy diversification generation technologies plan, and 17 800 giga watts was earmarked to be produced by renewable energy sources by 2030. The first renewable energy IPP determination allocated 3725 mega watts and the second determination 3200 mega watts. To date, the DoE had entered into 28 agreements under Bid Window 1 for 1450 mega watts and 19 agreements under Bid Window 2 for 1045 mega watts. 17 IPPs had started with construction. With regard to the DoE’s capital projects per province he indicated that five top provinces with the highest number of projects were; the Northern Cape with 32 projects, the Eastern Cape with 13 projects, the Western Cape with 9 projects, the Free State with 4 projects, and Limpopo with 3 projects.

DoE’s 2013/14 Non-Financial Performance and Annual Financial Statements
Ms Yvonne Chetty, Chief Financial Officer, DoE, presented the financial statements as at 31 March 2014. She explained that much of the information in the presentation would be repetition from the presentation made in the fourth quarter. The financial statements were prepared on the modified cash basis as required in terms of the Departmental Financial Reporting Framework Guide issued by National Treasury. However, financial skills still remained a challenge in the Financial Branch, and training was currently underway. Some achievements were that the Department of Performance Monitoring and Evaluation (DPME) chose the DoE as one of the best performing departments in the 2013 MPAT process for 100% compliance on the payment of invoices within 30 days. As a result, the DoE was also selected as a case study for this achievement.

The final appropriation of the DoE moved from R6.73 billion in the 2012/13 financial year to R6.50 billion in the 2013/14 financial year. The top three allocations were the National Electrification Programme received R3.89 billion, the Demand Side and Efficiency Programme received R1.33 billion and the Necsa received an allocation of R592 182 million. On financial performance, the DoE had a total budget of R6.61 billion; the DoE had spent R6.47 billion of its allocation by 31 March 2014 and had a surplus of R142 463. The Department’s major spending areas were: Transfers and subsidies received R6.06 billion and 99.89% of the budget was spent; Compensation of employees received R230 312 and spend 99.23% of its allocation; Goods and Services received R199 932 and spent 93.15% of its budget; and Payment of capital assets received R12 173. In total the DoE spent 99.60% of its budget for the 2013/14 financial year.

With regard to the budget allocation per programme, the allocations were: Administration received R233 142 and spent 99.75% of its allocation; Energy Policy and Planning received an allocation of R47 989 and spent 99.51% of its budget; Energy Regulation received R39 865 and spent 64.81% of its budget; the National Electrification Programme received R3.96 billion and spent 99.77% of its allocation; Nuclear Energy and Regulation received R723 998 and spent 99.79% of its allocation; while Clean Energy received R1.49 billion and spent 99.96% of its budget allocation. R233 142 was allocated for the DoE’s Administration and 99.75% of the budget was spent. With regard to the Department’s overall performance, of the seven planned targets for the Administration Branch, the DoE managed to achieve five and two were partially achieved. Energy Policy and Planning planned 12 targets and three were achieved and eight were partially achieved.  Nuclear Energy and Regulation had nine planned targets; four were achieved, two were partially achieved and three were not achieved, to name a few. As at 31 March 2014, the DoE had an unspent allocation of R26.18 million, 0.4% of the adjusted allocation. A rollover motivation totalling R21.13 million was submitted to National Treasury for consideration. (Subsequently, R18.9 million was approved).

Transfer payments in terms of the Division of Revenue Act (DORA) were managed by line function (Integrated National Electrification Plan (INEP) / Clean Energy) based on funding requests received from individual municipalities and subsequent project plans which were included in the DORA implementation agreements. With regard to the Municipal Energy Efficiency and Demand Side Management (EEDSM) Programme Ms Chetty explained that in 2009/10 there were some improvements to the management and the administration of the programme.  Some of the challenges remaining were:

•Poor EEDSM proposals submitted by municipalities due to inadequate technical skills and/or capacity to manage and implement the project

•Monthly, quarterly and annual progress reports not being submitted on time as requested by the DORA

•Lack of accountability on reports provided, an authorised person within the municipality did not officially sign off most reports

•Poor expenditure by most municipalities

Ms Chetty explained that technical support had been provided to municipalities for the EEDSM Programme. In 2011/12 the Department decided to develop implementation and monitoring guidelines for the EEDSM programme. The guidelines served as a practical tool for the development, implementation and monitoring of the EEDSM measures within municipalities, and also list options on various technologies and methodologies that could be adopted. In 2013/14, the Municipal Infrastructure Support Agency (MISA) also came on board to provide support, specifically on improving municipal capacity and project management on implementation of the programme. In addition, the DoE had also conducted structural workshops and site visits to various municipalities to address any shortfalls on the implementation agreements. The INEP Programme had also experienced some challenges, some of which included; the slow delivery of electrification projects by municipalities and in certain Eskom regions, lack of skills and the high vacancy rates within municipalities, slow roll-out of non-grid connections due to negative perceptions about non-grid technologies, current non-grid systems were not addressing the basic electricity needs of customers and more funding was needed for the programme.

With regard to the DoE’s financial position, the R14.86 million in unauthorised expenditure was due to an infrastructure grants transfer payments paid to the Mthonjeni Municipality in May 2010. The transfer was appropriated in the 2009/10 financial year; however the payment to the municipality was processed in March 2010, but only transferred in May 2010 due to system rejection of the banking details. In addition, irregular expenditure amounting to R379 000 was discovered during the 2012/13 financial year, during an audit at the time. This was due to the additional expenditure incurred for the installation of 65 non-grid home systems prior to seeking the approval of the expansion scope.

The DoE received an unqualified audit opinion with emphasis matters, being determination of provision for the contingent liability relating to the Necsa operational past strategic facilities and reclassification of corresponding figures (which was as a result of the amended standard chart of accounts by National Treasury). The Department had completed an action plan to address all outstanding AGSA findings.

The Chairperson thanked the DoE for the two presentations.

Discussion
Mr J Londt (DA; Western Cape) thanked the DoE for the presentation. The Committee had visited the Northern Cape solar plant where an accident took place on Tuesday, 4 November 2014. What kind of impact would that have on the solar project and how far would the project have to be pushed back? What extra costs should be expected as a result? There were reports that Eskom was aware of the problems at the silo; could the DoE confirm this? Why were these issues not addressed? What were the DoE’s expectations from power generated from renewable energy for the coming year?

Mr E Makue (ANC; Gauteng) said the Committee noted the report with appreciation, however Members were deeply concerned about the pace at which the energy sector was being developed in the country. People were either complaining that they did not have access to electricity, and if they did the price was too high. He commended the DoE for exploring alternative sources of energy, however more needed to be done. He had recently paid a visit to Necsa in Phelindaba, where Necsa was doing excellent work, especially around skills development. The DoE could look at how it could partner with various SETAs to get more young people into the sector, and provinces needed to be involved in such a process. As indicated by the DoE, there were serious skills shortages, especially around technical skills in municipalities. Members of the Committee were also committed to assist the DoE in its engagements with municipalities.

The Chairperson said some Members would have to leave the meeting early due to other commitments within Parliament. Committee minutes would have to be adopted at the next meeting.

Dr Barnard responded to the question on the accident at the Northern Cape solar plant. He said one of the cranes at the solar plant collapsed and two people were killed, with several people critically injured. The plan generated 100 megawatts; therefore it was a generally small plant. He said it was a crane that collapsed and not the actual structure, the plant had currently been shut down, but as soon as all the investigations were completed, work would resume. Eskom did not report to the DoE, it reported to the Department of Public Enterprises, therefore Eskom would be in a better position to respond to the question around whether or not they were aware of the problems at the plant. With regard to alternative sources of renewable energy, roughly 2000 megawatts would be generated in 2015 and 3000 megawatts in the following year. The DoE was busy with a capital investment programme; therefore tariffs from the previous years could not be compared to the current tariffs. The main challenge was around getting the electricity to the people. He thanked the Member for the comment on Necsa, the DoE was partnering with municipalities to create more opportunities for learnerships.

The Chairperson thanked Members for the interactions with the DoE, however he said the Committee was pressed for time. Members would forward any remaining questions to the DoE in writing.

The meeting was adjourned. 

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